##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-KSB/A  (Amendment No. 1)
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 1-31900
 AMERICAN OIL & GAS, INC.
  Nevada
    
    
    
    88-0451554(State or jurisdiction of incorporation or organization)
    
    
    
    (I.R.S. EmployerIdentification No.)1050
17th
Street, Suite 2400, Denver, CO
    
    
    
    80265(Address of principal executive offices)
    
    
    
    (Zip Code)
 (303) 991-0173   None    $.001 Par Value Common Stock
 o
 þ o
 þ
   o o þ
 o þ
   
 *
    
    Without assuming that any of the issuers directors or executive
officers or the entity that owns 3,094,600 shares of common stock
are affiliates, the shares of which they are beneficial owners have
been deemed to be owned by affiliates solely for this calculation.




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##### 



TABLE OF CONTENTS
 Page No.EXPLANATORY NOTE
    
    
    2PART I
    
    
    
    
    3ITEM 1.
    
    DESCRIPTION OF BUSINESS
    
    
    3ITEM 2.
    
    DESCRIPTION OF PROPERTY
    
    
    13ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    20ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART II
    
    
    
    
    20ITEM 5.
    
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    20ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    21ITEM 7.
    
    FINANCIAL STATEMENTS
    
    
    26ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    26ITEM 8A.
    
    CONTROLS AND PROCEDURES
    
    
    27ITEM 8B.
    
    OTHER INFORMATION
    
    
    27PART III
    
    
    
    
    27ITEM 9.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    27ITEM 10.
    
    EXECUTIVE COMPENSATION ITEM 10. EXECUTIVE COMPENSATION
    
    
    30ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    33ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    35ITEM 13.
    
    EXHIBITS
    
    
    36ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    36Signatures
    
    
    37Consent from Ryder Scott Petroleum ConsultantsConsent of Hein & Associates, LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  1




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EXPLANATORY NOTE
  
    
    Our recording of the Tower Colombia merger as a purchase at fair values (rather than a
merger of entities under common control recorded at carry-over bases)
whereby our 2005 Financial Statements were restated. The recording is further disclosed in Note 7 to
the financial statements. Of note:
 o
    
    Additional Paid in Capital at 12/31/2005 increased by
$14.5 million,o
    
    $11.7 million in Goodwill was added to Assets at 12/31/2005,o
    
    The capitalized costs of oil and gas properties at 12/31/2005 increased
by $3.8 million for the estimated fair value of Tower Colombias oil & gas
properties in excess of Tower Colombias book value, ando
    
    Net income was reduced by $49,245.
 
    
    Our use of the current Commission File Number 1-31900 on the reports cover,
    
    Our expansion of Item 6 to discuss (i) the assets acquired in the Tower Colombia
Corporation merger, (ii) our expectation of the mergers impact on results of operation
in 2006, and (iii) the January 2006 Participation Agreement with North Finn LLC, which
accounts for further increases in our assets in the Krejci and Douglas projects,
    
    Our changes to the Liquidity and Capital Resources portion of Item 6 to explain how
the significant capital expenditures incurred in 2005 and 2004 relate to each of the
properties discussed in Item 2,
    
    Our changes to the 2005 Statement of Cash Flows to remove
$479,342 of preferred dividends incurred in 2005 (paid in common stock in January 2006)
as cash provided from financing activities and to begin the 2005 statement with
$1,032,971 net income, rather than with the $553,629 net income to common shareholders,
    
    Clarification of our accounting policy for revenue recognition in Note 1 of our
audited financial statements,
    
    In Note 3 to our financial statements, clarification that a certain
registration statement filed in October 2005 was effective by April 6, 2006, but we were
allowed to issue unregistered shares upon a preferred shareholder exercising its warrant
if we were unable to issue registered shares,
    
    In the Note 11 regarding proved oil and gas reserves, our correction of the
changes in reserves and changes in standardized measure for 2005 and 2004 for
overstatement of reserve revisions due to misclassifications of changes arising from
extensions and discoveries, There was no change in the proved reserves or standardized
measure at December 31, 2005 or at December 31, 2004.
    
    In that Note 11, our disclosures of development cost changes for development costs
incurred during the year, and
    
    In that Note 11, our disclosure for clarity of certain
disclosures found in Note 10 and
in MD&A Plan of Operations (Item 6) that we had sold in March 2006 oil and gas interests
that accounted for 95% of 2005 revenues and approximately 88% of the standardized measure
at December 31, 2005.
  2




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PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
 General Overview
  Developments Since December 31, 2004
 
    
    In April 2005, Tower Colombia Corporation (TCC) merged into American. The stockholders of TCC received 5.8
million shares of our restricted common stock. In conjunction with the merger, Pat OBrien continues in his
role as Chief Executive Officer and as Chairman of American. Mr. OBrien was the President of TCC. Bob
Solomon, formerly Vice President of TCC, became Vice President of American and is responsible for oil and gas
economic and financial evaluations and the acquisition and disposition of oil and gas assets. Kendell
Tholstrom, formerly Vice President of TCC, continues his role as a Director of American, and is
Vice-President of American. Mr. Tholstrom is responsible for oil and gas operations.
    
    In April 2005, we participated with an 87.5% working interest in the drilling of one unsuccessful well at our
approximate 10,000 gross acre South Glenburn oil prospect, located in McHenry County, North Dakota.
    
    On May 17, 2005, our common shares began trading on the American Stock Exchange under the ticker symbol AEZ.
    
    During mid-2005, we initiated drilling at our Fetter project, located in the Powder River Basin of Wyoming,
with the Sims 16-26 well. This well temporarily produced natural gas and liquid hydrocarbons at rates up to
12 million cubic feet of natural gas and 500 barrels of liquid hydrocarbons, from approximately 255 feet of
lateral wellbore (out of a planned 2,000 feet) that was drilled into the Frontier formation. Wellbore and
mechanical problems resulted in the loss of the lateral section of the well and subsequent side tracking
resulted in the well being drilled vertically to total depth. This well is currently producing nominal
amounts of natural gas and liquid hydrocarbons. We commenced drilling a second well at the Fetter project
during the third quarter 2005. The Hageman 16-34 well was drilled and cased to 8,625 feet before drilling rig
issues required temporarily suspending drilling operations and releasing the rig. Although plans are not to
immediately re-enter the Hageman well, future plans include coming back to the Hageman well to complete
drilling operations.
    
    Throughout 2005, we participated in an active oil and gas development project that we refer to as the Big Sky
project. This project is a horizontal drilling program in the Elm Coulee field in Richland County, Montana,
that targets the Mississippian Bakken Formation. Our interest in the Big Sky project accounted for 94% of our
oil and gas production and 95% of our oil and gas revenues in 2005. Total production from these wells for
2005, net to our ownership interests, totaled 77,973 barrels of oil and 34,922 mcf of natural gas. Subsequent
to December 31, 2005, we sold our ownership interest in our Big Sky project for cash of $11,500,000. As a
result of this sale, we will not have any significant production revenue unless and until we are able to
establish commercial production in connection with our new drilling activities planned for 2006 as described
in this Form 10-KSB.
 3




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
    
    In October 2005, we acquired a 75% working interest in
approximately 45,000 gross (33,000 net) acres in the
Williston Basin of North Dakota. This project, called the
Goliath Project, targets the middle member of the Bakken
Formation, similar to our Big Sky project, in an emerging
horizontal drilling play in the North Dakota Williston
Basin. Since closing, we have increased the acreage
position at the Goliath project and currently own a 75%
working interest in approximately 65,000 gross (45,000 net)
acres.
    
    In October 2005, we sold our ownership interests in our
West Rozel project, in Box Elder County, Utah. We owned a
75% interest in the leases and ultimately received net
proceeds of approximately $695,000 after deducting costs
related to the sale. We retained an overriding royalty
interest of approximately 3.13%, and will receive 57.6
cents for each barrel of hydrocarbon produced and sold from
the West Rozel project.
   
    
    On July 22, 2005, we sold to accredited investors, a total of 250,000
Units for $13,500,000, with each Unit consisting of one share of
Series AA Convertible Preferred Stock (Preferred Stock) and one
warrant to purchase 2.7 shares of our $.001 par value common stock. We
will pay an 8% annual dividend on the Preferred Stock in cash or in
equivalent shares of common stock, at our discretion. Each share of
Preferred Stock is convertible into nine shares of common stock for a
total of 2,250,000 shares, which is a conversion rate of $6.00 per
share.
  Competition
  Proved Reserves
  4




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At December 31,2005
    
    
    2004Standardized measure of discounted future net cash flows
    
    $
    13,709,930
    
    
    $
    5,432,119Add present value of future income tax discounted at 10%
    
    
    89,000
    
    
    
    224,000Pre-tax PV10%
    
    $
    13,798,930
    
    
    $
    5,656,119
 Customers
  5




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Certain Definitions
  AMI
 Bbl
 Bbl/d
 Bc/d
 Bcf
 Bcfe
 Boe
 Btu or British thermal unit
 Capital Expenditures
 Carried Working interest.
 Completion
 Condensate.
 Developed Acreage
 Development Well
 Exploitation.
 Exploration
 6




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Exploratory Well
 Field.
 Finding and Development Costs
 Gross Acres or Gross Wells
 Lease.
 Mcf.
 Mcf/d
 Mcfe
 MMcf
 Net Acres or Net Wells.
 Operator.
 Participant Group
 PV-10 value
 Productive well
 7




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Prospect
 Proved developed reserves
 Proved reserves
 Proved undeveloped reserves (PUD
 Re-entry
 Reserves
 Reservoir.
 Royalty
 Undeveloped Acreage
 Working Interest
 Title to Properties
  8




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Forward-Looking and Cautionary Statements
  
    
    Failure to obtain, or a decline in, oil or gas production, or a decline in oil or gas prices,
    
    Inaccurate estimates of required capital expenditures,
    
    Increase in the cost of drilling, completion and gas collection or other costs of production and operations,
    
    An inability to meet growth projections, and
    
    Other risk factors set forth under Risk Factors in this annual report. In addition, the words believe,
may, could, when, estimate, continue, anticipate, intend, expect, and similar expressions,
as they relate to the Company, our business or our management, are intended to identify forward-looking
statements.
  RISK FACTORS
  We cannot predict the future prices of oil and natural gas.
  9




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We could be adversely impacted by changes in the oil and gas market.
  We may be unable to find additional reserves.
  We may be unable to replace reserves, production and revenues associated with our Big Sky project,
which we sold subsequent to December 31, 2005.
  Oil and gas operations are inherently risky.
  We are subject to extensive government regulations.
  
    
    the prevention of waste,
    
    the discharge of materials into the environment,
    
    the conservation of oil and natural gas,
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
    
    pollution,
    
    permits for drilling operations,
    
    drilling bonds,
    
    reports concerning operations, the spacing of wells, and the unitization and pooling of properties.
  New government regulation and environmental risks could increase our costs.
  Our prices may be impacted adversely by new taxes.
  We may have substantial funding requirements.
  ENVIRONMENTAL MATTERS
   11




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12




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EMPLOYEES
  Corporate History
  
 ITEM 2. DESCRIPTION OF PROPERTY
 OIL AND GAS ASSETS
   Big Sky Project, Richland County, Montana
  Goliath Project, Williston Basin North Dakota
  13




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Douglas Project and Fetter Prospect (Powder River Basin, Wyoming)
     14




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Krejci Oil Project (Powder River Basin, Wyoming)
    15




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Bear Creek Coal Bed Methane Prospect (Big Horn Basin, Montana)
   Amoco Production
Co. v. Southern Ute Indian Tribe)
  16




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West Rozel, Box Elder County, Utah
     OIL AND GAS DRILLING ACTIVITIES
   17




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OIL AND GAS WELLS
  Productive Wells As of December 31, 2005Gross(a)
    
    Net(b)Location
    
    Oil
    
    Gas
    
    Total
    
    Oil
    
    Gas
    
    TotalWyoming
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    1.87
    
    
    
    1.87Montana
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Total
    
    
    21
    
    
    
    4
    
    
    
    24
    
    
    
    1.0
    
    
    
    1.87
    
    
    
    2.87
 
 (a)
    
    The number of gross wells is the total number of wells in which a working interest is owned.(b)
    
    The number of net wells is the sum of fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof. OIL AND GAS INTERESTS
  Developed
    
    UndevelopedGross
    
    
    
    
    
    GrossState
    
    Acres
    
    Net Acres
    
    Acres
    
    Net AcresMontana
    
    
    
    
    
    
    
    
    
    
    17,555
    
    
    
    14,219North Dakota
    
    
    1,640
    
    
    
    367
    
    
    
    85,500
    
    
    
    35,205Wyoming
    
    
    1,920
    
    
    
    1,153
    
    
    
    198,207
    
    
    
    122,695TOTAL
    
    
    3,560
    
    
    
    1,520
    
    
    
    301,262
    
    
    
    172,119
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Year of
    
    Fee
    
    State
    
    FederalExpiration
    
    Leases
    
    Leases
    
    Leases
    
    TOTALSMONTANA
    
    
    2006
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    862007
    
    
    
    4,085
    
    
    
    2,265
    
    
    
    
    
    
    
    6,3502008
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    1772009
    
    
    
    964
    
    
    
    
    
    
    
    3,432
    
    
    
    4,3962010
    
    
    
    84
    
    
    
    
    
    
    
    2,682
    
    
    
    2,7662011
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    1372015
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    307TOTAL MONTANA
    
    
    
    
    
    
    5,396
    
    
    
    2,709
    
    
    
    6,114
    
    
    
    14,219WYOMING
    
    
    2006
    
    
    
    11,954
    
    
    
    3,030
    
    
    
    120
    
    
    
    15,1042007
    
    
    
    2,938
    
    
    
    1,206
    
    
    
    5,315
    
    
    
    9,4592008
    
    
    
    3,084
    
    
    
    840
    
    
    
    
    
    
    
    3,9242009
    
    
    
    9,900
    
    
    
    784
    
    
    
    
    
    
    
    10,6842010
    
    
    
    14,234
    
    
    
    1,814
    
    
    
    660
    
    
    
    16,7082011
    
    
    
    2,687
    
    
    
    
    
    
    
    50,486
    
    
    
    53,1732012
    
    
    
    
    
    
    
    
    
    
    
    1,817
    
    
    
    1,8172013
    
    
    
    
    
    
    
    
    
    
    
    1,118
    
    
    
    1,1182014
    
    
    
    472
    
    
    
    
    
    
    
    6,279
    
    
    
    6,7512015
    
    
    
    
    
    
    
    30
    
    
    
    3,927
    
    
    
    3,957TOTAL WYOMING
    
    
    
    
    
    
    45,269
    
    
    
    7,704
    
    
    
    69,722
    
    
    
    122,695NORTH DAKOTA
    
    
    2006
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    52007
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    2562008
    
    
    
    11,556
    
    
    
    
    
    
    
    
    
    
    
    11,5562009
    
    
    
    12,828
    
    
    
    25
    
    
    
    
    
    
    
    12,8532010
    
    
    
    6,954
    
    
    
    3,528
    
    
    
    
    
    
    
    10,4822011
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53TOTAL NORTH DAKOTA
    
    
    
    
    
    
    31,652
    
    
    
    3,553
    
    
    
    
    
    
    
    35,205TOTALS
    
    
    
    
    
    
    82,317
    
    
    
    13,966
    
    
    
    75,836
    
    
    
    172,119
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Year
    
    Rental Obligation2006
    
    
    $
    173,8412007
    
    
    
    159,0912008
    
    
    
    143,4492009
    
    
    
    131,719Thereafter
    

    
    
    266,711
 OFFICE FACILITIES
 th th
 Year
    
    Annual Rental Amount2006
    
    
    $
    115,0662007
    
    
    
    149,1422008
    
    
    
    152,5642009
    
    
    
    155,986Thereafter
    
    
    
    558,376
 
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  20




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Quarter
    
    High
    
    Low2004  First
    
    $
    1.12
    
    
    $
    0.61Second
    
    
    1.30
    
    
    
    0.76Third
    
    
    1.80
    
    
    
    1.18Fourth
    
    
    2.90
    
    
    
    1.402005  First
    
    
    3.42
    
    
    
    2.11Second
    
    
    6.40
    
    
    
    2.50Third
    
    
    8.20
    
    
    
    4.70Fourth
    
    
    7.50
    
    
    
    3.90
  Stockholders
  Dividends on the Common Stock
  
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 PLAN OF OPERATION
    
    
    Increasing by 50% Americans share of prospective and key current exploration
opportunities identified by American, TCC or North Finn (See Note 11),
    
    Absorbing an oil and gas exploration and production company with a longer operating
history and a stronger technical team  a team that had already worked well with American
in 2003 and 2004,
    
    Eliminating the potential conflicts of interest that existed when TCC was a separate
company advising American but having the right to take interests that American chose to
decline, and
    
    Capturing for Americans benefit the goodwill and recognition the TCC team had in the
Rocky Mountain oil and gas community from many years of working with oil and gas companies
as a purchaser of deals, as a co-owner in deals and as a drilling service company for
exploration groups.
   21




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RESULTS OF OPERATIONS
   Oil and gas operations.
 Oil and natural gas production
 Depletion,
depreciation and amortization.
 22




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General and administrative expenses.
 Income taxes.
  Preferred Dividends.
 LIQUIDITY AND CAPITAL RESOURCES
     23




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
    
    our ability to discover commercial quantities of hydrocarbons;
    
    the market price for oil and gas;
    
    our ability to continue to source and screen potential projects; and
    
    our ability to fully implement our exploration and development program with respect to these and other matters.
  Critical Accounting Estimates
  Oil and Gas Properties.
   Oil and Gas Reserves.
 24




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Asset Retirement Obligations.
 Recent Accounting Pronouncements
    25




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Off Balance Sheet Arrangements
  
 ITEM 7. FINANCIAL STATEMENTS
  
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
   26




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ITEM 8A. CONTROLS AND PROCEDURES
  
 ITEM 8B. OTHER INFORMATION
  
 PART III
 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Directors and Executive Officers
 Name
    
    Age
    
    Position(s) and Office(s)
    
    Director SincePatrick OBrien
    
    
    56
    
    
    CEO and Chairman
    
    February 2003Andrew P. Calerich
    
    
    41
    
    
    President, CFO and Director
    
    October 2003Alan Gelfand
    
    
    45
    
    
    Director
    
    December 2002Kendell Tholstrom
    
    
    59
    
    
    Secretary and Director
    
    February 2003M.S. (Moni) Minhas
    
    
    50
    
    
    Director
    
    February 2003Nick DeMare
    
    
    51
    
    
    Director
    
    October 2003Jon R. Whitney
    
    
    61
    
    
    Director
    
    February 2005
  27




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28




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Names of Reporting Issuers
    
    Positions Held
    
    MarketAguila American Resources, Ltd.
    
    Director
    
    TSXVAndean American Mining Corp.
    
    Director & Secretary
    
    TSXVAstrel Mining Corp.
    
    Director
    
    TSXVCentrasia Mining Corp.
    
    Director
    
    TSXV & OTCBBGeoPetro Resources Company
    
    Director
    
    TSXGGL Diamond Corp.
    
    Director
    
    TSXVGold Point Exploration Ltd.
    
    Director & CFO
    
    TSXVGolden Peaks Resources Ltd.
    
    Director
    
    TSXVGoldmarca Limited
    
    Director & Secretary
    
    TSXVHalo Resources Ltd.
    
    Director & CEO
    
    TSXV & OTCBBHilton Resources Ltd.
    
    Director, President & CEO
    
    TSXV & OTCBBConsolidated Kookaburra Resources Ltd.
    
    Director
    
    TSXVLariat Energy Ltd.
    
    Director
    
    TSXVMirasol Resources Ltd.
    
    Director
    
    TSXVTinka Resources Limited
    
    Director
    
    TSXVTumi Resources Limited
    
    Director
    
    TSXV & OTCBB
  2005 Meetings and Committees of the Board of Directors
   29




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Audit Committee Financial Expert
  Audit Committee Charter
  Code of Ethics
  Section 16(a) Beneficial Ownership Reporting Compliance
  
 ITEM 10. EXECUTIVE COMPENSATION
  SUMMARY COMPENSATION TABLES
 Annual CompensationOther AnnualName and Principal Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    Compensation ($)Patrick OBrien, CEO(1)
    
    
    2005
    
    
    
    67,292
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    Andrew Calerich, President and CFO
    
    
    2005
    
    
    
    89,243
    
    
    
    100,000
    
    
    
    947,500
    (3)2004
    
    
    
    99,021
    
    
    
    
    
    
    
    322,500
    (2)2003
    
    
    
    48,000
    
    
    
    
    
    
    
    
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Long -Term CompensationRestricted
    
    Securities
    
    LTIP
    
    All OtherStock
    
    Underlying
    
    Payouts
    
    CompensationName and Principal Position
    
    Year
    
    Awards
    
    Options/SARs(#)
    
    ($)
    
    ($)Patrick OBrien, CEO
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    250,000
    (4)
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Andrew Calerich, President and CFO
    
    
    2005
    
    
    
    
    
    
    
    500,000
    (5)
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. OBrien became CEO of the Company in
February 2003 and was not paid a salary or
any other form of compensation during 2003
or 2004. None of the persons who served as
CEO or acted in a similar capacity to that
of a CEO received salary or any other form
of compensation during 2004, or 2003.(2)
    
    This amount represents the market value of
250,000 shares of stock that vested on July
1, 2004 in accordance with an employment
agreement with Andrew Calerich, our
President and CFO.(3)
    
    This amount represents the market value of
125,000 shares of stock that vested on May
1, 2005 and 125,000 shares of stock that
vested on July 1, 2005, in accordance with
an employment agreement with Andrew
Calerich, our President and CFO.(4)
    
    This amount represents stock options granted
on July 15, 2004 with an exercise price of
$1.25 per share. 125,000 of the options
vested on July 15, 2004 and expire on July
15, 2009. 125,000 of the options vested on
July 15, 2005 and expire on July 15, 2010.(5)
    
    This amount represents stock options granted
on April 21, 2005 with an exercise price of
$3.66 per share. One-sixth of the options
vested on April 21, 2005 and one-sixth will
become exercisable on April 21 of each of
2006, 2007, 2008, 2009, and 2010. The
options expire five years after vesting. 31




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##### Table of Contents



Aggregate Option Exercises in the Last Fiscal YearAnd Fiscal Year-End Warrants and Option ValuesNumber of Unexercised
    
    Value of Unexercised In-theWarrants And Options Held
    
    Money Options at Fiscalat Fiscal Year End
    
    Year EndSharesAcquiredon
    
    ValueName
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisablePatrick D. OBrien
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    $
    700,000
    
    
    $
    Andrew P. Calerich
    
    
    
    
    
    
    
    
    
    
    83,333
    
    
    
    416,667
    
    
    $
    32,500
    
    
    $
    162,500
 Employment Agreements
    Equity Compensation and Other Plans
  32




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##### Table of Contents



Director Compensation
  
 ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Amount and NatureName and Address
    
    of Beneficial
    
    Percent ofTitle of Class
    
    of Beneficial Owner
    
    Ownership(1)
    
    Class(2)Common Stock
    
    Patrick OBrien (3)
    
    
    2,791,359
    
    
    
    7.56
    %($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Andrew P. Calerich(4)
    
    
    1,166,616
    
    
    
    3.17
    %($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Alan Gelfand
    
    
    100,238
    
    
    Less than 1%($0.001 par value)
    
    1050 17 th St, Suite 1850Denver, CO 80265Common Stock
    
    Kendell Tholstrom
    
    
    2,541,358
    
    
    
    6.93
    %($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Nick DeMare(5)
    
    
    313,300
    
    
    Less than 1%($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Bobby G. Solomon
    
    
    2,541,358
    
    
    
    6.93
    %($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265
 33




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##### Table of Contents



Amount and NatureName and Address
    
    of Beneficial
    
    Percent ofTitle of Class
    
    of Beneficial Owner
    
    Ownership(1)
    
    Class(2)Common Stock
    
    M.S. (Moni) Minhas
    
    
    100,238
    
    
    Less than 1%($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Jon R. Whitney(6)
    
    
    50,000
    
    
    Less than 1%($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Terry L. Savage (7)
    
    
    60,000
    
    
    Less than 1%($0.001 par value)
    
    1050 17 th St., Suite 1850Denver, CO 80265Common Stock
    
    Directors and Executive
    
    
    9,664,467
    
    
    
    26.00
    %($0.001 par value)
    
    Officers as a Group(9 individuals)Common Stock
    
    Wellington Management(8)
    
    
    3,094,600
    
    
    
    8.44
    %($0.001 par value)
    
    Company LLP75 State StreetBoston, MA 02109
 
 (1)
    
    The number of shares and the percentage of the class
beneficially owned by the entities above are determined under rules promulgated by the SEC and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power or investment power and
also any shares which the individual has the right to acquire within 60 days through the
exercise of any stock option or other right. The inclusion herein of such shares, however, does
not constitute an admission that the named stockholder is a direct or indirect beneficial owner
of such shares. Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his spouse) with respect to all
shares of capital stock listed as beneficially owned by such person or entity.(2)
    
    Percentages are based upon the total 36,653,264 outstanding shares of common stock combined with
the number of shares of Common Stock beneficially owned by the person or entity with respect to
whom the calculation is being made.(3)
    
    Includes options to purchase 250,000 shares at $1.25 per share that are currently exercisable.(4)
    
    Includes options to purchase 166,666 shares at $3.66 per share that are currently exercisable or
will become exercisable within 60 days.(5)
    
    Includes 89,300 shares owned by DNG Capital Corp, which is a company wholly owned by Nick DeMare.(6)
    
    Includes options to purchase 50,000 shares at $2.38 per share that are currently exercisable or
will become exercisable within 60 days.(7)
    
    Includes options to purchase 50,000 shares at $4.65 per share that are currently exercisable.(8)
    
    Based upon a Schedule 13G dated February 14, 2006. According to the Schedule 13G, Wellington
Management Company, LLP has shared voting power with respect to 3,094,600 shares, and shared
power to dispose of the 3,094,600 shares. 34




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##### Table of Contents



Equity Compensation Plan Information
  (a)
    
    (b)
    
    (c)Number of
    
    WeightedSecurities
    
    Averaged
    
    Number of Securitiesto Be Issued
    
    Exercise PriceUpon
    
    of
    
    Remaining AvailableExercise of
    
    Outstanding
    
    for Future IssuanceOutstanding
    
    Options,Options,
    
    Warrants
    
    (Excluding SecuritiesWarrants and
    
    
    
    
    
    Reflected in ColumnPlan Category
    
    Rights
    
    and Rights
    
    (a))Equity compensation plans approved by shareholders
    
    
    1,459,010
    
    
    $
    2.94
    
    
    
    1,040,990Equity compensation plans not approved by shareholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,459,010
    
    
    $
    2.94
    
    
    
    1,040,990
 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     35




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##### Table of Contents



ITEM 13. EXHIBITS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  36




---



##### Table of Contents



Audit Committee Pre-Approval
 de minimus
 
 SIGNATURES
  American Oil & Gas, Inc./s/ Andrew P. CalerichAndrew P. CalerichPresident 37




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##### Table of Contents



AMERICAN OIL & GAS, INC.
INDEX TO FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firms
    
    
    F-2, F-3Balance Sheets December 31, 2005 and 2004
    
    
    F-4Statements of Operations Years Ended December 31, 2005 and 2004
    
    
    F-5Statements of Stockholders Equity Years Ended December 31, 2005 and 2004
    
    
    F-6Statements of Cash Flows Years Ended December 31, 2005 and 2004
    
    
    F-7Notes to Financial Statements
    
    
    F-8 - F-27




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC AUDITING FIRM
 
    Wheeler Wasoff, P.C.   April
2, 2007 Note by Americans management:




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 BALANCE SHEET
 DECEMBER 31, 2005 and 2004
 2005
    
    
    2004(RESTATED
See Note 8)ASSETSCURRENT ASSETSCash
    
    $
    6,022,822
    
    
    $
    5,251,889Receivables
    
    
    1,481,543
    
    
    
    258,848Advances and
prepaid expenses
    
    
    156,475
    
    
    
    54,535Inventory
    
    
    40,904
    
    
    
    Total Current Assets
    
    
    7,701,744
    
    
    
    5,565,272PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated
costs of $17,843,133 at 12/31/05 and $2,022,367 at 12/31/04)
    
    
    26,547,922
    
    
    
    3,700,892Other property and equipment
    
    
    68,023
    
    
    
    7,221Total property and equipment
    
    
    26,615,945
    
    
    
    3,708,113Less-accumulated depreciation, depletion and amortization
    
    
    (1,636,246
    )
    
    
    (221,793
    )Net property and equipment
    
    
    24,979,699
    
    
    
    3,486,320OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    Other intangible assets
    
    
    780,000
    
    
    
    Drilling prepayments
    
    
    643,485
    
    
    
    Total Assets
    
    $
    45,775,396
    
    
    $
    9,051,592LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    954,544
    
    
    $
    108,611Preferred dividends payable
    
    
    479,342
    
    
    
    18,020Total Current Liabilities
    
    
    1,433,886
    
    
    
    126,631LONG-TERM LIABILITIESAsset retirement obligations
    
    
    117,011
    
    
    
    40,702Deferred income taxes
    
    
    1,893,581
    
    
    
    Total Long-term Liabilities
    
    
    2,010,592
    
    
    
    40,702COMMITMENTS AND CONTINGENCIES (Note 9)STOCKHOLDERS EQUITYSeries A preferred stock, $.001 par value, authorized 175,000 sharesShares issued and outstanding, -0- (2005) and 67,000 (2004)
    
    
    
    
    
    
    67Series AA preferred stock, $.001 par value, authorized 400,000 sharesShares issued and outstanding  250,000 (2005) and
-0- (2004); Stated value $13,500,000 (2005) and
-0- (2004), Redemption value $13,979,342 (2005)
and -0- (2004)
    
    
    250
    
    
    
    Common stock, $.001 par value, authorized 100,000,000 sharesShares issued and outstanding  36,476,202 (2005)
and 29,153,702 (2004)
    
    
    36,476
    
    
    
    29,154Additional paid-in capital
    
    
    43,225,408
    
    
    
    10,480,289Deferred compensation
    
    
    
    
    
    
    (141,250
    )Accumulated deficit
    
    
    (931,216
    )
    
    
    (1,484,001
    )42,330,918
    
    
    
    8,884,259$
    45,775,396
    
    
    $
    9,051,592




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 STATEMENTS OF OPERATIONS
 YEARS ENDED DECEMBER 31, 2005 AND 2004
 2005
    
    
    2004(RESTATED
See Note 8)REVENUESOil and gas sales
    
    $
    4,691,381
    
    
    $
    746,242OPERATING EXPENSESLease operating
    
    
    246,134
    
    
    
    80,461General and administrative
    
    
    2,032,256
    
    
    
    945,114Depletion, depreciation and amortization
    
    
    1,532,411
    
    
    
    188,318Accretion of Asset Retirement Obligation
    
    
    5,608
    
    
    
    4,520Total operating expenses
    
    
    3,816,409
    
    
    
    1,218,413Income (loss) from operations
    
    
    874,972
    
    
    
    (472,171
    )OTHER INCOME (EXPENSE)Investment income
    
    
    204,244
    
    
    
    34,160Total other income (expense)
    
    
    204,244
    
    
    
    34,160INCOME (LOSS) BEFORE INCOME TAXES
    
    
    1,079,216
    
    
    
    (438,011
    )Income tax provision
    
    
    46,245
    
    
    
    NET INCOME (LOSS)
    
    
    1,032,971
    
    
    
    (438,011
    )Less: dividends on preferred stock
    
    
    479,342
    
    
    
    61,640NET INCOME (LOSS) ATTRIBUTIBLE TO COMMON STOCKHOLDERS
    
    $
    553,629
    
    
    $
    (499,651
    )NET INCOME (LOSS) PER COMMON SHARE  BASIC
    
    $
    0.02
    
    
    $
    (0.02
    )NET INCOME (LOSS) PER COMMON SHARE  DILUTED
    
    $
    0.02
    
    
    $
    (0.02
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  BASIC
    
    
    34,148,065
    
    
    
    25,211,447WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  DILUTED
    
    
    34,955,624
    
    
    
    25,211,447




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 STATEMENTS OF STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2005 AND 2004
 (RESTATED FOR 2005. See
Note 8)
 Preferred
    
    
    Common
    
    
    AdditionalStock
    
    
    Stock
    
    
    Paid in
    
    
    Deferred
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    EquityBalance December 31, 2003
    
    
    67,000
    
    
    $
    67
    
    
    
    24,388,702
    
    
    $
    24,389
    
    
    $
    4,036,621
    
    
    $
    (423,750
    )
    
    $
    (984,350
    )
    
    $
    2,652,977Sale of stock at $1.00 /share
    
    
    
    
    
    
    
    
    
    
    1,525,000
    
    
    
    1,525
    
    
    
    1,523,475
    
    
    
    
    
    
    
    
    
    
    
    1,525,000Costs of offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,429
    )
    
    
    
    
    
    
    
    
    
    
    (7,429
    )Warrant exercise, $1.00
/share
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    25
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Warrants issued for oil project
consulting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,611
    
    
    
    
    
    
    
    
    
    
    
    31,611Sale of stock at $1.50 /share
    
    
    
    
    
    
    
    
    
    
    3,000,000
    
    
    
    3,000
    
    
    
    4,497,000
    
    
    
    
    
    
    
    
    
    
    
    4,500,000Costs of offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133,957
    )
    
    
    
    
    
    
    
    
    
    
    (133,957
    )Stock issued for private
placement costs
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    30
    
    
    
    56,370
    
    
    
    
    
    
    
    
    
    
    
    56,400Options issued for investor
relations consulting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,632
    
    
    
    
    
    
    
    
    
    
    
    38,632Shares issued for oil
prospect
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    135
    
    
    
    327,915
    
    
    
    
    
    
    
    
    
    
    
    328,050Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,640
    )
    
    
    (61,640
    )Deferred compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,500
    
    
    
    
    
    
    
    282,500Shares issued to Director
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50
    
    
    
    85,076
    
    
    
    
    
    
    
    
    
    
    
    85,126Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (438,011
    )
    
    
    (438,011
    )Balance December 31, 2004
    
    
    67,000
    
    
    $
    67
    
    
    
    29,153,702
    
    
    $
    29,154
    
    
    $
    10,480,289
    
    
    $
    (141,250
    )
    
    $
    (1,484,001
    )
    
    $
    8,884,259Payment of dividends on
Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
 
    (844
    )

    
    
    (844
    )Conversion of Series A Preferred
Stock
    
    
    (67,000
    )
    
    
    (67
    )
    
    
    670,000
    
    
    
    670
    
    
    
    (603
    )
    
    
    
    
    
    
    
    
    
    
    Warrant exercise, $1.09 share
    
    
    
    
    
    
    
    
    
    
    140,000
    
    
    
    140
    
    
    
    152,460
    
    
    
    
    
    
    
    
    
    
    
    152,600Options issued for investor
relations consulting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,264
    
    
    
    
    
    
    
    
    
    
    
    77,264Warrants issued for oil project
consulting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,564
    
    
    
    
    
    
    
    
    
    
    
    31,564Deferred Compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,250
    
    
    
    
    
    
    
    141,250Stock issued for Tower merger
    
    
    
    
    
    
    
    
    
    
    5,800,000
    
    
    
    5,800
    
    
    
    15,190,200
    
    
    
    
    
    
    
    
    
    
    
    15,196,000Sale of Series AA Preferred Stock
    
    
    250,000
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    13,499,677
    
    
    
    
    
    
    
    
    
    
    
    13,499,927Costs of Preferred Stock offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,160,524
    )
    
    
    
    
    
    
    
    
    
    
    (1,160,524
    )Accrued dividends, Series AA
Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479,342
    )
    
    
    (479,342
    )Warrants issued for placement
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575,544
    
    
    
    
    
    
    
    
    
    
    
    575,544Shares issued for oil
prospect, valued at $6.20 per
share
    
    
    
    
    
    
    
    
    
    
    675,000
    
    
    
    675
    
    
    
    4,184,325
    
    
    
    
    
    
    
    
    
    
    
    4,185,000Shares issued to Director
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    37
    
    
    
    195,212
    
    
    
    
    
    
    
    
    
    
    
    195,249Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,032,971
    
    
    
    1,032,971Balance December 31, 2005
    
    
    250,000
    
    
    $
    250
    
    
    
    36,476,202
    
    
    $
    36,476
    
    
    $
    43,225,408
    
    
    $
    
    
    
    $
    (931,216
    )
    
    $
    42,330,918




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2005 AND 2004
 2005
    
    

2004CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    1,032,971
    
    
    $
    (438,011
    )Adjustments
to reconcile net (loss) to net cash provided (used) by operating activities:Stock issued for services
    
    
    195,251
    
    
    
    85,126Options issued for services
    
    
    77,263
    
    
    
    38,632Deferred compensation
    
    
    141,250
    
    
    
    282,500Deferred income taxes
    
    
    46,245
    
    
    
    Accretion of asset retirement obligation
    
    
    5,608
    
    
    
    4,520Depletion, depreciation and amortization
    
    
    1,532,411
    
    
    
    188,318Changes in assets and liabilities:(Increase) in receivables
    
    
    (1,222,695
    )
    
    
    (213,106
    )(Increase in yard inventory
    
    
    (40,904
    )
    
    
    (Increase) decrease in advances and prepaid expenses
    
    
    (745,425
    )
    
    
    12,252(Decrease) increase in accounts payable and accrued liabilities
    
    
    845,933
    
    
    
    (365,785
    )Net cash provided (used) by operating activities
    
    
    1,867,908
    
    
    
    (405,554
    )CASH FLOWS FROM INVESTING ACTIVITIESCash paid for office equipment
    
    
    (55,913
    )
    
    
    Cash paid for oil and gas properties
    
    
    (14,091,540
    )
    
    
    (2,894,560
    )Proceeds from sale of oil and gas properties
    
    
    
    
    
    
    1,582,171Net cash (used) in investing activities
    
    
    (14,147,453
    )
    
    
    (1,312,389
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of preferred stock
    
    
    13,499,927
    
    
    
    Proceeds from sale of common stock
    
    
    
    
    
    
    6,025,000Cash paid for offering costs
    
    
    (584,980
    )
    
    
    (84,986
    )Proceeds from warrant exercise
    
    
    152,600
    
    
    
    25,000Preferred dividends paid in cash
    
    
    (18,864
    )
    
    
    (61,640
    )Cash received from acquired company
    
    
    1,795
    
    
    
    Net cash provided by financing activities
    
    
    13,050,478
    
    
    
    5,903,374NET INCREASE IN CASH
    
    
    770,933
    
    
    
    4,185,431CASH, BEGINNING OF YEAR
    
    
    5,251,889
    
    
    
    1,066,458CASH, END OF YEAR
    
    $
    6,022,822
    
    
    $
    5,251,889SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest expense
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCINGStock issued for services
    
    $
    195,251
    
    
    $
    85,126Stock based deferred compensation
    
    $
    141,250
    
    
    $
    282,500Stock issued for oil and gas properties
    
    $
    4,211,911
    
    
    $
    328,050Stock issued for acquisition of Tower Colombia Corporation
    
    $
    15,196,000
    
    
    $
    Warrants issued for oil and gas property consulting
    
    $
    31,564
    
    
    $
    31,611Stock issued for financing costs
    
    $
    
    
    
    $
    56,400Warrants issued for financing costs
    
    $
    575,544
    
    
    $
    60,192
  F-7




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AMERICAN OIL & GAS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 2005 AND 2004
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




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AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
       12-31-05
    
    
    12-31-04Asset retirement obligation beginning of year
    
    $
    40,702
    
    
    $
    30,688Liabilities incurred
    
    
    81,065
    
    
    
    33,102Sale of oil and gas assets
    
    
    (10,364
    )
    
    
    (27,608
    )Accretion
    
    
    5,608
    
    
    
    4,520Asset retirement obligation end of year
    
    $
    117,011
    
    
    $
    40,702




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
    2005
    
    
    2004Net income (loss)  as reported
    
    $
    553,629
    
    
    $
    (438,011
    )Add stock based compensation included in reported net loss
    
    
    413,765
    
    
    
    38,632Deduct stock based compensation expense determined under the fair value method
    
    
    (841,567
    )
    
    
    (133,321
    )Pro forma net income (loss)
    
    $
    125,827
    
    
    $
    (532,700
    )Net income (loss) per common share  Basic:As reported
    
    $
    0.02
    
    
    $
    (0.02
    )Pro forma
    
    $
    
    
    
    $
    (0.02
    )Net income (loss) per common share  Diluted:As reported
    
    $
    0.02
    
    
    $
    (0.02
    )Pro forma
    
    $
    
    
    
    $
    (0.02
    )
  2005
    
    2004Expected option life-years
    
    
    5.0
    
    
    
    5.0Risk-free interest rate
    
    2.6% to 4.5%
    
    
    3.36
    %Dividend yield
    
    
    N/A
    
    
    
    N/AVolatility
    
    47% to 78%
    
    
    71
    %




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
   PerNet
    
    
    
    
    
    
    ShareDECEMBER 31, 2005
    
    Income
    
    
    Shares
    
    
    AmountBasic earnings per share:Net income and share amounts
    
    $
    553,629
    
    
    
    34,148,065
    
    
    $
    0.02Dilutive Securities:Stock options
    
    
    
    
    
    
    782,543Warrants
    
    
    
    
    
    
    25,016Diluted earnings per share:Net income and assumed share conversion
    
    $
    553,629
    
    
    
    34,955,624
    
    
    $
    0.02
    BUSINESS COMBINATIONS
 Business
Combinations
 GOODWILL
 Goodwill and Other Intangible Assets
  OTHER INTANGIBLE ASSETS




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
          NOTE 2  PROPERTY AND EQUIPMENT




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
       2005
    
    
    2004Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization or ceiling test
    
    $
    17,843,133
    
    
    $
    2,022,367Evaluated costs
    
    
    8,600,696
    
    
    
    1,645,133Asset retirement costs
    
    
    104,093
    
    
    
    33,39226,547,922
    
    
    
    3,700,892Furniture and equipment
    
    
    68,023
    
    
    
    7,22126,615,945
    
    
    
    3,708,113Less accumulated depreciation, depletion and amortization
    
    
    (1,636,246
    )
    
    
    (221,793
    )Property and equipment
    
    $
    24,979,699
    
    
    $
    3,486,320
 Unevaluated Oil and Gas Properties




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
  Periods ended:
    
    Net costs incurredDecember 31, 2005
    
    $
    15,820,766December 31, 2004
    
    
    1,232,348Prior
    
    
    790,019$
    17,843,133
   2005
    
    
    2004Property acquisition costs, unproved properties
    
    $
    13,906,210
    
    
    $
    1,279,364Property acquisition costs, proved properties
    
    
    210,000Exploration costs
    
    
    7,011,666
    
    
    
    194,413Asset retirement costs
    
    
    70,701
    
    
    
    5,494Development costs
    
    
    2,932,459
    
    
    
    1,846,494$
    24,131,036
    
    
    $
    3,325,765
    NOTE 3  STOCKHOLDERS EQUITY
 PREFERRED STOCK




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
 Series AA Convertible Preferred Stock
    Series A Convertible Preferred Stock




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
  th
 COMMON STOCK




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
 WARRANTS
    Issue
    
    Shares
    
    Exercise
    
    ExpirationDate
    
    Exercisable
    
    Price
    
    DateJuly 22, 2005
    
    675,000
    
    $6.00
    
    January 21, 2007July 22, 2005
    
    281,250
    
    $6.00
    
    July 21, 2010September 15, 2003
    
    30,000
    
    $1.15
    
    September 15, 2008September 24, 2003
    
    66,450
    
    $0.75
    
    September 24, 2008May 26, 2004
    
    23,200
    
    $1.09
    
    April 2005 through December 2005
   Issue
    
    Shares
    
    Exercise
    
    ExpirationDate
    
    Exercisable
    
    Price
    
    DateSeptember 15, 2003
    
    30,000
    
    $1.15
    
    September 15, 2008September 24, 2003
    
    66,450
    
    $0.75
    
    September 24, 2008May 26, 2004
    
    122,400
    
    $1.09
    
    April 2005 through December 2005




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
 NOTE 4  STOCK OPTION PLAN
   Weighted
    
    Weighted Avg.Number
    
    Avg.
    
    Fairof shares
    
    Exercise Price
    
    ValueOptions outstanding  January 1, 2004
    
    
    
    
    
    $
    
    
    
    $
    Options granted during 2004
    
    
    403,000
    
    
    $
    1.25
    
    
    $
    0.76Options outstanding  December 31, 2004 (176,000 exercisable)
    
    
    403,000
    
    
    $
    1.25
    
    
    $
    0.76Options granted during 2005
    
    
    1,056,010
    
    
    $
    3.58
    
    
    $
    1.83Options outstanding  December 31, 2005 (640,009 exercisable)
    
    
    1,459,010
    
    
    $
    2.94
    
    
    $
    1.53
   Weighted averageExercise price
    
    Number of shares
    
    Number of shares
    
    remaining contractualper share
    
    outstanding
    
    Exercisable
    
    Life (Years)$1.25
    
    
    403,000
    
    
    
    403,000
    
    
    
    4.502.38
    
    
    100,000
    
    
    
    50,000
    
    
    
    4.822.48
    
    
    90,000
    
    
    
    30,000
    
    
    
    4.673.27
    
    
    32,010
    
    
    
    32,010
    
    
    
    .383.66
    
    
    750,000
    
    
    
    124,999
    
    
    
    4.214.30
    
    
    9,000
    
    
    
    
    
    
    
    5.005.80
    
    
    75,000
    
    
    
    
    
    
    
    5.001,459,010
    
    
    
    640,009




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
 NOTE 5  INCOME TAXES
  2005
    
    
    2004Current taxes
    
    $
    
    
    
    $
    Deferred taxes
    
    
    46,245
    
    
    
    37,000Less: valuation allowance
    
    
    
    
    
    
    (37,000
    )Net income tax expense (benefit)
    
    $
    46,245
    
    
    $
    
  2005
    
    2004Federal statutory income tax rate
    
    
    35.0
    %
    
    
    34.0
    %State income taxes
    
    
    3.5
    %
    
    
    3.3
    %Permanent differences
    
    
    2.9
    %
    
    
    .5
    %Increase (decrease) in valuation allowance
    
    
    (37.1
    %)
    
    
    (37.8
    %)4.3
    %
    
    
    
  2005
    
    
    2004Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    1,462,000
    
    
    $
    746,000Oil and gas property
    
    
    443,000
    
    
    
    (453,000
    )Timing differences  charitable contributions
and non qualified options issued for investor
relations
    
    
    29,000
    
    
    
    Deferred compensation
    
    
    
    
    
    
    (3,000
    )Total deferred tax assets
    
    
    1,934,000
    
    
    
    290,000Less: valuation adjustment
    
    
    
    
    
    
    Deferred tax asset
    
    $
    1,934,000
    
    
    $
    290,000Deferred tax liabilities:Intangible drilling costs and other
exploration costs capitalized for
financial reporting purposes
    
    $
    (3,530,323
    )
    
    $
    Other
intangible asset
    
    
    (297,258
    )
    
    
    Total deferred liabilities
    
    
    (3,827,581
    )
    
    
    Net deferred tax asset
    
    
    1,934,000
    
    
    
    290,000Less valuation adjustment
    
    
    
    
    
    
    (290,000
    )Net deferred tax liability
    
    $
    (1,893,581
    )
    
    $
    




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
  NOTE 6  RELATED PARTY TRANSACTIONS
     F-22




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
 NOTE 7  ACQUISITION OF TOWER COLOMBIA CORPORATION
 Related Party
Transactions
  
    
    Increasing by 50% Americans share of prospective and key current exploration
opportunities identified by American, TCC or North Finn (See Note 11),
    
    Absorbing an oil and gas exploration and production company with a longer operating
history and a stronger technical team  a team that had already worked well with American
in 2003 and 2004,
    
    Eliminating the potential conflicts of interest that existed when TCC was a separate
company advising American but having the right to take interests that American chose to
decline, and
    
    Capturing for Americans benefit the goodwill and recognition the TCC team had in the
Rocky Mountain oil and gas community from many years of working with oil and gas companies
as a purchaser of deals, as a co-owner in deals and as a drilling service company for
exploration groups.
  
    
    The Douglas project, which includes the Fetter Field natural gas prospect,
    
    The Krejci oil project,
    
    The Bear Creek coalbed methane project, and
    
    The West Rozel oil field project.
 Business Combinations
 Current assets
    
    $
    10,700Oil and gas property:Proved and evaluated
    
    
    210,000Unproved
    
    
    4,279,700Office equipment
    
    
    2,800Goodwill
    
    
    11,670,500Other intangible asset
    
    
    900,000Current liabilities
    
    
    (30,400
    )Deferred income tax liability
    
    
    (1,847,300
    )Total
    
    $
    15,196,000
   NOTE 8  RESTATEMENT (Dated as of April 2, 2007)
   Table 1: Balance Sheet Amounts at December 31, 2005, as restated and as previously reported
 AS
    
    
    As PreviouslyRestated
    
    
    ReportedASSETSCurrent Assets
    
    
    7,701,744
    
    
    
    7,701,744Property and Equipment:Oil and gas properties, evaluated (including asset retirement
costs)
    
    
    8,704,789
    
    
    
    8,378,273Oil and gas properties, unevaluated
    
    
    17,843,133
    
    
    
    14,353,614Oil and gas properties, total cost
    
    
    26,547,922
    
    
    
    22,731,887Other property and equipment
    
    
    68,023
    
    
    
    68,023Total property and equipment
    
    
    26,615,945
    
    
    
    22,799,910Less-accumulated depreciation, depletion and amortization
    
    
    (1,636,246
    )
    
    
    (1,596,246
    )Net property and equipment
    
    
    24,979,699
    
    
    
    21,203,664Goodwill
    
    
    11,670,468
    
    
    
    Other intangible assets
    
    
    780,000
    
    
    
    Drilling prepayments
    
    
    643,485
    
    
    
    643,485Total Assets
    
    $
    45,775,396
    
    
    $
    29,548,893LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    
    1,433,886
    
    
    
    1,433,886Asset retirement obligations
    
    
    117,011
    
    
    
    117,011Deferred income taxes
    
    
    1,893,581
    
    
    
    157,000Stockholders Equity:Preferred stock
    
    
    250
    
    
    
    250Common stock
    
    
    36,476
    
    
    
    36,476Additional paid-in capital
    
    
    43,225,408
    
    
    
    28,605,737Accumulated deficit
    
    
    (931,216
    )
    
    
    (801,467
    )42,330,918
    
    
    
    27,840,996$
    45,775,396
    
    
    $
    29,548,893
 Table 2: Summary of Statement of Operations at December 31, 2005, as restated and as previously reported
 AS
    
    
    As PreviouslyRestated
    
    
    ReportedRevenue
    
    $
    4,691,381
    
    
    $
    4,691,381Lease operating expenses
    
    
    246,134
    
    
    
    246,134General and administrative expenses
    
    
    2,032,256
    
    
    
    2,032,256Depletion, depreciation and amortization
    
    
    1,532,411
    
    
    
    1,372,411Accretion of asset retirement obligation
    
    
    5,608
    
    
    
    5,608Total operating expenses
    
    
    3,816,409
    
    
    
    3,656,409Income from operations
    
    
    874,972
    
    
    
    1,034,972Investment income
    
    
    204,244
    
    
    
    204,244Income before income taxes
    
    
    1,079,216
    
    
    
    1,239,216Income tax provision
    
    
    46,245
    
    
    
    157,000Net income
    
    
    1,032,971
    
    
    
    1,082,216Dividends on preferred stock
    
    
    479,342
    
    
    
    479,342Net income attributable to common stockholders
    
    $
    553,629
    
    
    
    602,874Net income per common share, basic and diluted
    
    
    0.02
    
    
    
    0.02
 NOTE 9  COMMITMENTS AND CONTINGENCIES
    Office Lease Obligations
    
    Year
    
    Amount2006
    
    
    $
    115,0652007
    
    
    
    149,1422008
    
    
    
    152,5642009
    
    
    
    155,986Thereafter
    
    
    266,711
   NOTE 10  SUBSEQUENT EVENTS
  F-23




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
     NOTE 11  INFORMATION REGARDING PROVED OIL AND GAS RESERVES (UNAUDITED)
   F-24




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
    December 31, 2005
    
    Oil (BBLS)
    
    Gas (MCF)Beginning of year
    
    
    321,710
    
    
    
    346,270Revisions of Previous quantity estimates
    
    
    4,208
    
    
    
    18,958Extensions, discoveries and improved recoveries
    
    
    307,773
    
    
    
    116,067Sales of reserves in place
    
    
    
    
    
    
    (43,585
    )Production
    
    
    (78,989
    )
    
    
    (59,497
    )End of year
    
    
    554,702
    
    
    
    378,213Proved developed reserves-end of year
    
    
    320,698
    
    
    
    307,000
 December 31, 2004
    
    Oil (BBLS)
    
    Gas (MCF)Beginning of year
    
    
    70,900
    
    
    
    1,526,800Revisions of Previous quantity estimates
    
    
    (8,880
    )
    
    
    98,027Extensions, discoveries and improved recoveries
    
    
    295,944
    
    
    
    242,074Sales of reserves in place
    
    
    (23,405
    )
    
    
    (1,471,666
    )Production
    
    
    (12,849
    )
    
    
    (48,965
    )End of year
    
    
    321,710
    
    
    
    346,270Proved developed reserves-end of year
    
    
    147,205
    
    
    
    216,867
 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
  December 31, 2005
    
    
    December 31, 2004Future cash inflows
    
    $
    35,159,955
    
    
    $
    15,565,592Future costs:Production
    
    
    (5,768,802
    )
    
    
    (2,842,441
    )Development
    
    
    (2,825,307
    )
    
    
    (1,972,604
    )Future income tax expense
    
    
    (706,000
    )
    
    
    (696,000
    )Future net cash flows
    
    
    25,859,846
    
    
    
    10,054,54710% discount factor
    
    
    (12,149,916
    )
    
    
    (4,622,428
    )Standardized measure of discounted future net cash flows
    
    $
    13,709,930
    
    
    $
    5,432,119
 F-25




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
  December 31, 2005
    
    
    December 31, 2004Beginning balance
    
    $
    5,432,119
    
    
    $
    2,839,143Sales and transfers of oil and gas produced
    
    
    (4,466,663
    )
    
    
    (665,781
    )Net changes in prices and production costs
    
    
    3,640,869
    
    
    
    (148,083
    )Sales of minerals in place
    
    
    (135,472
    )
    
    
    (1,742,409
    )Extensions and discoveries
    
    
    6,611,421
    
    
    
    5,132,883Development costs incurred during the year
    
    
    1,649,396
    
    
    
    Changes in estimated future development costs
    
    
    (16,255
    )
    
    
    19,992Revisions in previous quantity estimates
    
    
    178,586
    
    
    
    (65,844
    )Accretion of discount
    
    
    565,612
    
    
    
    283,914Change in income taxes
    
    
    135,000
    
    
    
    (224,000
    )Change in rates of production and other
    
    
    115,317
    
    
    
    2,304Ending balance
    
    $
    13,709,930
    
    
    $
    5,432,119
   F-26




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description2(1)*
    
    Agreement and Plan of Merger with Tower Colombia
Corporation dated effective April 21, 2005. (Incorporated
by reference from the Companys Post-Effective Amendment
No. 1 to Form SB-2, filed on April 27, 2005.)3(i)*
    
    Articles of Incorporation of the Company. (Incorporated by
reference from the Companys Form 10-SB, file number
000-31547, filed on September 18, 2000.)3(ii)*
    
    Amendment to Articles of Incorporation of the Company.
(Incorporated by reference from the Companys Current
Report on Form 8-K filed on February 3, 2003.)3(iii)*
    
    Certificate of Designation of Series A Preferred Stock.
(Incorporated by reference from the Companys Amendment
No. 2 to Form SB-2, filed on January 31, 2005.)3(iv)*
    
    Bylaws of the Company (as revised on December 12, 2002).
(Incorporated by reference from the Companys Form
10-KSB/A, filed on November 18, 2003.)3(v)*
    
    Certificate of Designation of Series AA 8% Preferred
Stock. (Incorporated by reference from the Companys
Amendment No. 1 to Form S-3, filed on March 6, 2006.)4(i)*
    
    2004 Stock Option Plan. (Incorporated by reference from
the Companys Definitive Proxy Statement, filed on June
16, 2004)4(ii)*
    
    Form of Warrant Certificate issued as part of the private
placement completed on July 22, 2005. (Incorporated by
reference from the Companys Registration Statement on
Form S-3, filed on October 4, 2005.)4(iii)*
    
    Form of Placement Agent Warrant Certificate issued in
connection with the private placement completed on July
22, 2005. (Incorporated by reference from the Companys
Registration Statement on Form S-3, filed on October 4,
2005.)10(i)*
    
    January 17, 2003 Purchase and Sale Agreement by and
between the Company, Tower Colombia Corporation and North
Finn, LLC. (Incorporated by reference from the Companys
Form 8-K, filed on February 3, 2003.)10(ii)*
    
    January 17, 2003 Participation Agreement by and between
the Company, Tower, North Finn, and the principals of
Tower and North Finn. (Incorporated by reference from the
Companys Form 10-KSB for the calendar ending December 31,
2002, filed on March 31, 2003.)10(iii)*
    
    Model Form Operating Agreement dated February 18, 2003.
(Incorporated by reference from the Companys Form
10-KSB/A, filed on November 18, 2003.)10(iv)*
    
    Employment Agreement between the Company and Andrew P.
Calerich dated effective April 21, 2005. (Incorporated by
reference from the Companys Post-Effective Amendment No.
1 to Form SB-2, filed on April 27, 2005.)
 38




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##### Table of Contents



Exhibit No.
    
    Description10(v)*
    
    Employment Agreement between the Company and Patrick D. OBrien dated effective April 21, 2005.
(Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form SB-2, filed
on April 27, 2005.)10(vi)*
    
    Employment Agreement between the Company and Bobby G. Solomon dated effective April 21, 2005.
(Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form SB-2, filed
on April 27, 2005.)10(vii)*
    
    Employment Agreement between the Company and Kendell V. Tholstrom dated effective April 21, 2005.
(Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form SB-2, filed
on April 27, 2005.)10(viii)
    
    Participation Agreement between the
Company and North Finn LLC dated January 5, 2006. (Incorporated
by reference from the Companys Form 10-KSB for the fiscal year
ended December 31, 2005, filed on April 5, 2006)14(i)*
    
    Code of Ethics. (Incorporated by reference from Exhibit 14(i) to the Companys Form 10-KSB for
the fiscal year ending December 31, 2003, filed on April 14, 2004).23(i)
    
    Consent from Ryder Scott Petroleum Consultants23(ii)
    
    Consent of Hein & Associates,
LLP31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Previously filed as indicated and incorporated herein by reference
from the referenced filings previously made by the Company. 39