##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-K/A
(Amendment No. 1)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  AMERICAN OIL & GAS INC.
  Nevada
(State or other jurisdiction of 
incorporation or organization)
    
    88-0451554
(I.R.S. Employer
Identification Number)
 th
   Title of Each Class:
    
    Name of Each Exchange on Which Registered:Common Stock, $.001 par value per share
    
    American Stock Exchange
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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EXPLANATORY NOTE
  
    
    Hein & Associates LLPs recent audit of our 2004 financial statements herein,
 
    
    Changes on page F-29 to Note 15 Unaudited Supplemental Quarterly Financial Datato
conform the data to the financial statements contained in Amendment No. 1 on Forms 10-Q/A
being filed April 11, 2007 for the three-month periods ended March 31, 2006, June 30, 2006
and September 30, 2006, respectively.




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##### 



AMERICAN OIL & GAS INC.
FORM 10-K/A
TABLE OF CONTENTS
  
 PagePART IItem 1:
    
    Business
    
    
    3Item 1A:
    
    Risk Factors
    
    
    9Item 1B:
    
    Unresolved Staff Comments
    
    
    12Item 2:
    
    Properties
    
    
    13Item 3:
    
    Legal Proceedings
    
    
    18Item 4:
    
    Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5:
    
    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6:
    
    Selected Consolidated Financial Data
    
    
    20Item 7:
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A:
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 8:
    
    Financial Statements and Supplementary Data
    
    
    30Item 9:
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    31Item 9A:
    
    Controls and Procedures
    
    
    31Item 9B:
    
    Other Information
    
    
    33PART IIIItem 10:
    
    Directors and Executive Officers of the Registrant
    
    
    33Item 11:
    
    Executive Compensation
    
    
    33Item 12:
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    33Item 13:
    
    Certain Relationships and Related Transactions
    
    
    33Item 14:
    
    Principal Accountant Fees and Services
    
    
    33PART IVItem 15:
    
    Exhibits, Financial Statement Schedules
    
    
    33Subsidiary ListConsent of 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




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PART I
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    our business and growth strategies;
    
    our oil and natural gas reserve estimates;
    
    our ability to successfully and economically explore for and develop oil and gas resources;
    
    our exploration and development drilling prospects, inventories, projects and programs;
    
    availability and costs of drilling rigs and field services;
    
    anticipated trends in our business;
    
    our future results of operations;
    
    our liquidity and ability to finance our exploration and development activities;
    
    market conditions in the oil and gas industry;
    
    our ability to make and integrate acquisitions; and
    
    the impact of environmental and other governmental regulation.
   
    
    the failure to obtain sufficient capital resources to fund our operations;
    
    an inability to replace our reserves through exploration and development activities;
    
    unsuccessful drilling activities;
 2




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
    
    a decline in oil or natural gas production or oil or natural gas prices;
    
    incorrect estimates of required capital expenditures;
    
    increases in the cost of drilling, completion and gas gathering or other costs of production and operations;
    
    impact of environmental and other governmental regulation, including delays in obtaining permits;
    
    hazardous and risky drilling operations; and
    
    an inability to meet growth projections.
   
 Item 1: Business
 General Overview
  
    
    We control approximately 128,000 gross (90,000 net) acres in the Douglas Project
area, located in the southern Powder River Basin, Wyoming which includes approximately
56,000 gross (43,000 net) acres in the Fetter Prospect.
    
    We control approximately 116,000 gross (41,000 net) acres in the Krejci AMI Project,
located in Niobrara County, Wyoming.
    
    We control approximately 87,000 gross (32,000 net) acres in the Goliath Project, located
in the Williston Basin, North Dakota.
   Competition
  Proved Reserves
  3




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Reconciliation of Standardized Measure to Pre-tax PV10%
  At December 31,2006
    
    
    2005
    
    
    2004Standardized measure of
discounted future net cash
flows
    
    $
    4,598,000
    
    
    $
    13,709,930
    
    
    $
    5,432,119Add present value of future
income tax discounted at 10%
    
    
    94,808
    
    
    
    89,000
    
    
    
    224,000Pre-tax PV10%
    
    $
    4,692,808
    
    
    $
    13,798,930
    
    
    $
    5,656,119
 Customers
  4




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Environmental Matters
      5




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Employees
  Corporate History
  Website and Code of Ethics
 http://www.americanog.com th
 Glossary of Abbreviations and Terms
  AMI
 Bbl
 Bbl/d
 Bc/d
 Bcf
 6




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Bcfe
 Boe
 Btu or British thermal unit
 Capital Expenditures
 Carried Working interest.
 Completion
 Condensate.
 Developed Acreage
 Development Well
 Exploitation.
 Exploration
 Exploratory Well
 Field.
 Finding and Development Costs
 Gross Acres or Gross Wells
 Lease.
 Mcf.
 Mcf/d
 7




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Mcfe
 MMcf
 Net Acres or Net Wells.
 Operator.
 Participant Group
 PV-10 value
 Productive well
 Prospect
 Proved developed reserves
 Proved reserves
 Proved undeveloped reserves (PUD
 Re-entry
 Reserves
 Reservoir.
 Royalty
 8




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##### Table of Contents



Undeveloped Acreage
 Working Interest
 Title to Properties
  
 Item 1A: Risk Factors
  Risks related to our industry, business and strategy
 We have a limited operating history in the oil and gas business, and we cannot predict our
future operations with any certainty.
  We may be unable to replace reserves, production and revenues associated with our Big Sky
project, which we sold on March 31, 2006.
  Our
development and exploration operations require substantial capital, and we may be unable to
obtain needed capital or financing on satisfactory terms, which could lead to a loss of properties
and a decline in our natural gas and oil reserves.
  9




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Oil and natural gas prices are volatile and a decline in oil and natural gas prices can
significantly affect our financial results and impede our growth.
  We have incurred losses from operations in the past and may do so in the future.
  We could be adversely impacted by changes in the oil and gas market.
  We may be unable to find additional reserves.
  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,
 10




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
    
    pollution,
    
    permits for drilling operations,
    
    drilling bonds and
    
    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.
  Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect
our cost of operations or our ability to operate according to our business plans.
  Shortages of transportation services and processing facilities may result in our receiving a
discount in the price we receive for oil and natural gas sales or may adversely affect our ability
to sell our oil and natural gas.
  11




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Risks Related to our Common Stock
 Our common stock is illiquid, so investors may not be able to sell any significant number of
shares of our stock at prevailing market prices.
  Our stock price and trading volume may be volatile, which could result in losses for our
stockholders.
  
    
    Actual or anticipated quarterly variations in our operating results;
    
    Changes in expectations as to our future financial performance or changes in financial estimates, if any;
    
    Announcements relating to our business or the business of our competitors;
    
    Conditions generally affecting the oil and natural gas industry;
    
    The success of our operating strategy; and
    
    The operating and stock performance of other comparable companies.
  We may issue preferred stock with rights that are preferential to, and could cause a decrease
in the value of, our common stock.
  
    
    The establishment of dividends which must be paid prior to
declaring or paying dividends or other distributions to our
common stockholders;
    
    Greater or preferential liquidation rights which could
negatively affect the rights of common stockholders; and
    
    The right to convert the preferred stock at a rate or price
which would have a dilutive effect on the outstanding shares of common stock.
 
 Item 1B: Unresolved Staff Comments.
  12




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Item 2: Properties
 Oil and Natural Gas Assets
  Fetter Prospect and the Greater Douglas Project Area  Powder River Basin, Wyoming
      13




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Krejci Oil Project (Powder River Basin, Wyoming)
      th
 14




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Goliath Project, Williston Basin, North Dakota
    Big Sky Project, Williston Basin, Montana
  Bear Creek Coal Bed Methane Prospect (Big Horn Basin, Montana)
  Oil and Gas Drilling Activities
  15




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Oil and Gas Wells
  Productive Wells As of December 31, 2006Gross(a)
    
    Net(b)Location
    
    Oil
    
    Gas
    
    Total
    
    Oil
    
    Gas
    
    TotalMontana
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wyoming
    
    
    1
    
    
    
    4
    
    
    
    5
    
    
    
    .45
    
    
    
    2.9
    
    
    
    3.35North Dakota
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    .82
    
    
    
    
    
    
    
    .82Total
    
    
    6
    
    
    
    4
    
    
    
    10
    
    
    
    1.27
    
    
    
    2.9
    
    
    
    4.17
 
 (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
    
    UndevelopedState
    
    Gross Acres
    
    Net Acres
    
    Gross Acres
    
    Net AcresMontana
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    480Wyoming
    
    
    2,560
    
    
    
    1,612
    
    
    
    316,203
    
    
    
    148,038North Dakota
    
    
    2,400
    
    
    
    735
    
    
    
    104,296
    
    
    
    33,044Total
    
    
    4,960
    
    
    
    2,347
    
    
    
    421,139
    
    
    
    181,562
  16




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##### Table of Contents



Year of
    
    Fee
    
    State
    
    FederalExpiration
    
    Leases
    
    Leases
    
    Leases
    
    TotalsTotal Montana
    
    
    2009
    
    
    
    480
    
    
    
    
    
    
    
    
    
    
    
    480Wyoming
    
    
    2007
    
    
    
    3,885
    
    
    
    1,185
    
    
    
    5,355
    
    
    
    10,4252008
    
    
    
    3,420
    
    
    
    492
    
    
    
    9,067
    
    
    
    12,9792009
    
    
    
    15,225
    
    
    
    588
    
    
    
    1,191
    
    
    
    17,0042010
    
    
    
    15,404
    
    
    
    2,875
    
    
    
    3,477
    
    
    
    21,7562011
    
    
    
    9,920
    
    
    
    3,524
    
    
    
    41,166
    
    
    
    54,6102012
    
    
    
    1,380
    
    
    
    
    
    
    
    3,149
    
    
    
    4,5292013
    
    
    
    
    
    
    
    
    
    
    
    3,707
    
    
    
    3,7072014
    
    
    
    
    
    
    
    
    
    
    
    6,421
    
    
    
    6,4212015
    
    
    
    
    
    
    
    
    
    
    
    4,782
    
    
    
    4,7822016
    
    
    
    
    
    
    
    
    
    
    
    11,187
    
    
    
    11,1872017
    
    
    
    
    
    
    
    
    
    
    
    638
    
    
    
    638Total Wyoming
    
    
    
    
    
    
    49,234
    
    
    
    8,664
    
    
    
    90,140
    
    
    
    148,038North Dakota
    
    
    2007
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    2512008
    
    
    
    9,414
    
    
    
    
    
    
    
    
    
    
    
    9,4142009
    
    
    
    10,134
    
    
    
    469
    
    
    
    
    
    
    
    10,6032010
    
    
    
    8,930
    
    
    
    2,487
    
    
    
    
    
    
    
    11,4172011
    
    
    
    1,239
    
    
    
    
    
    
    
    
    
    
    
    1,2392016
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    120Total North Dakota
    
    
    
    
    
    
    29,968
    
    
    
    2,956
    
    
    
    120
    
    
    
    33,044Totals
    
    
    
    
    
    
    79,682
    
    
    
    11,620
    
    
    
    90,260
    
    
    
    181,562
   17




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Year
    
    Rental Obligation2007
    
    $
    194,2692008
    
    
    179,5692009
    
    
    160,2052010
    
    
    141,7172011
    
    
    38,623Thereafter
    
    
    107,289
 Production Volumes, Sales Prices and Production Costs
  Years Ended December 31,2006
    
    2005
    
    2004Production:Natural gas (MMcf)
    
    
    48.2
    
    
    
    59.7
    
    
    
    49.0Oil (Bbls)
    
    
    34,578
    
    
    
    78,954
    
    
    
    12,849Total equivalents (Bbls)
    
    
    42,603
    
    
    
    88,910
    
    
    
    21,010Average Sales Price Per Unit:Natural gas (per Mcf)
    
    $
    7.53
    
    
    $
    7.31
    
    
    $
    4.33Oil (per Bbl)
    
    $
    54.79
    
    
    $
    53.89
    
    
    $
    41.58Weighted average (per Boe)
    
    $
    52.97
    
    
    $
    52.77
    
    
    $
    35.52Expenses (per Boe):
    
    $
    6.83
    
    
    $
    2.77
    
    
    $
    3.83
 Office Facilities
 th
 Year
    
    Annual Rental Amount2007
    
    $
    149,1422008
    
    
    152,5642009
    
    
    155,9862010
    
    
    159,4082011
    
    
    162,820Thereafter
    
    
    236,118
 
 Item 3: Legal Proceedings
  
 Item 4: Submission of Matters to a Vote of Security Holders
  18




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PART II
 
 Item 5: Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market Information.
  Common Stock PriceHigh
    
    Low2005Quarter ended March 31, 2005
    
    $
    3.42
    
    
    $
    2.11Quarter ended June 30, 2005
    
    
    6.40
    
    
    
    2.50Quarter ended September 30, 2005
    
    
    8.20
    
    
    
    4.40Quarter ended December 31, 2005
    
    
    7.50
    
    
    
    3.902006Quarter ended March 31, 2006
    
    $
    5.29
    
    
    $
    3.20Quarter ended June 30, 2006
    
    
    5.19
    
    
    
    4.10Quarter ended September 30, 2006
    
    
    6.55
    
    
    
    4.57Quarter ended December 31, 2006
    
    
    8.01
    
    
    
    4.70
  Holders
  Dividend Policy
  Issuer Purchases of Equity Securities
  Performance Graph
  19




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##### Table of Contents



1/17/03(1)
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06American Oil & Gas, Inc.
    
    $
    100.00
    
    
    $
    280.00
    
    
    $
    392.86
    
    
    $
    578.57
    
    
    $
    930.00S&P Small Cap 600-Energy
    
    $
    100.00
    
    
    $
    105.44
    
    
    $
    111.18
    
    
    $
    195.87
    
    
    $
    189.48S&P 500
    
    $
    100.00
    
    
    $
    102.00
    
    
    $
    104.03
    
    
    $
    110.03
    
    
    $
    125.35
 
 (1)
    
    January 17, 2003 is the day in which we began trading
under the ticker symbol AOGI. 
 Item 6: Selected Consolidated Financial Data
  Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Statement of Operations Data:Production Revenues
    
    $
    2,257
    
    
    $
    4,691
    
    
    $
    746
    
    
    $
    98
    
    
    $
    Other revenues
    
    
    1,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses:Lease operating expenses
    
    
    291
    
    
    
    246
    
    
    
    80
    
    
    
    38
    
    
    
    Impairment expense
    
    
    4,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation, depletion and
amortization
    
    
    1,153
    
    
    
    1,532
    
    
    
    188
    
    
    
    33
    
    
    
    Accretion of asset retirement
obligation
    
    
    11
    
    
    
    6
    
    
    
    5
    
    
    
    3
    
    
    
    General and administrative
    
    
    2,487
    
    
    
    1,618
    
    
    
    539
    
    
    
    684
    
    
    
    5Non-cash based compensation
expense
    
    
    1,522
    
    
    
    414
    
    
    
    406
    
    
    
    141
    
    
    
    144Total operating expenses
    
    
    9,824
    
    
    
    3,816
    
    
    
    1,218
    
    
    
    899
    
    
    
    149
 20




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##### Table of Contents



Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Operating income (loss)
    
    
    (6,037
    )
    
    
    875
    
    
    
    (472
    )
    
    
    (801
    )
    
    
    (149
    )Other income (expense)Investment income
    
    
    393
    
    
    
    204
    
    
    
    34
    
    
    
    
    
    
    
    Gain on sale of oil and gas
properties
    
    
    7,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total other income
(expense)
    
    
    7,552
    
    
    
    204
    
    
    
    34
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    1,515
    
    
    
    1,079
    
    
    
    (438
    )
    
    
    (801
    )
    
    
    (149
    )Provision for income taxes
    
    
    304
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    Net Income (loss)
    
    
    1,211
    
    
    
    1,033
    
    
    
    (438
    )
    
    
    (801
    )
    
    
    (149
    )Less: dividends on preferred stock
    
    
    1,080
    
    
    
    479
    
    
    
    62
    
    
    
    18
    
    
    
    Net Income (loss) attributable to
common stockholders
    
    $
    131
    
    
    $
    554
    
    
    $
    (500
    )
    
    $
    (819
    )
    
    $
    (149
    )Income (loss) per common share:Basic
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )Diluted
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )Weighted average number of common
shares outstanding:Basic
    
    
    37,429
    
    
    
    34,148
    
    
    
    25,211
    
    
    
    23,781
    
    
    
    33,197Diluted
    
    
    38,142
    
    
    
    34,956
    
    
    
    25,211
    
    
    
    23,781
    
    
    
    33,197Selected Cash Flow and Other
Financial Data:Net income (loss)
    
    $
    1,211
    
    
    $
    1,033
    
    
    $
    (438
    )
    
    $
    (801
    )
    
    $
    (149
    )Less gains on sales of oil and gas properties
    
    
    (7,159
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    1,153
    
    
    
    1,532
    
    
    
    188
    
    
    
    33
    
    
    
    Impairment
    
    
    4,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other non-cash items
    
    
    (128
    )
    
    
    466
    
    
    
    411
    
    
    
    237
    
    
    
    144Changes in assets and liabilities
    
    
    1,496
    
    
    
    (520
    )
    
    
    (567
    )
    
    
    (67
    )
    
    
    Net cash provided (used) by
operating activities
    
    $
    1,369
    
    
    $
    2,511
    
    
    $
    (406
    )
    
    $
    (598
    )
    
    $
    (5
    )Capital expenditures
    
    $
    16,142
    
    
    $
    14,791
    
    
    $
    2,895
    
    
    $
    1,734
    
    
    $
    Cash
proceeds from sales of oil and gas properties
    
    $
    16,067
    
    
    
    
    
    
    $
    1,582
    
    
    
    
    
    
    
    
 As of December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    7,488
    
    
    $
    6,023
    
    
    $
    5,252
    
    
    $
    1,066
    
    
    $
    84Other current assets
    
    
    10,013
    
    
    
    1,679
    
    
    
    313
    
    
    
    113
    
    
    
    Oil and natural gas
properties, net of
accumulated
depreciation, depletion,
amortization and
impairment
    
    
    38,869
    
    
    
    24,921
    
    
    
    3,481
    
    
    
    1,924
    
    
    
    Other property and
equipment, net of
depreciation
    
    
    252
    
    
    
    58
    
    
    
    6
    
    
    
    7
    
    
    
    Other assets
    
    
    12,514
    
    
    
    13,094
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    69,136
    
    
    $
    45,775
    
    
    $
    9,052
    
    
    $
    3,110
    
    
    $
    84Current liabilities
    
    
    4,656
    
    
    
    1,434
    
    
    
    127
    
    
    
    426Long term liabilities
    
    
    2,392
    
    
    
    2,010
    
    
    
    41
    
    
    
    31Stockholders equity
    
    
    62,088
    
    
    
    42,331
    
    
    
    8,884
    
    
    
    2,653
    
    
    
    84Total
liabilities and
stockholders
equity
    
    $
    69,136
    
    
    $
    45,775
    
    
    $
    9,052
    
    
    $
    3,110
    
    
    $
    84
 21




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##### Table of Contents



Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
    22




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##### Table of Contents



Expected
    
    Approximate
    
    Expected netProject
    
    2007 wells
    
    working interest
    
    capital required(in millions)Fetter project  Converse County, WY
    
    
    3 - 4
    
    
    
    24
    %
    
    $
    0
    (a)Krejci project  Niobrara County, WY
    
    
    8
    
    
    
    45
    %
    
    $
    9Goliath project  Williams County, ND
    
    
    2
    
    
    
    50
    %
    
    $
    5Total drilling activity
    
    
    13 - 14
    
    
    
    40
    %
    
    $
    14
 
 (a)
    
    As a result of our participation agreement with Red Technology Alliance, as further
explained in Item 2: Properties, we will have no capital exposure in the drilling or
completion of these wells.   Liquidity and Capital Resources
     Net Cash Provided By Operating Activities
  Net Cash Used In Investing Activities
  23




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##### Table of Contents



Net Cash Provided By Financing Activities
  Results of Operations
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
  Oil and Gas Operations
  Year ended December 31,2006
    
    
    2005Oil sold (barrels)
    
    
    34,578
    
    
    
    78,954Average oil price
    
    $
    54.79
    
    
    $
    53.89Oil revenue
    
    $
    1,894,386
    
    
    $
    4,254,944Gas sold (mcf)
    
    
    48,149
    
    
    
    59,733
 24




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##### Table of Contents



Year ended December 31,2006
    
    
    2005Average gas price
    
    $
    7.53
    
    
    $
    7.31Gas revenue
    
    $
    362,453
    
    
    $
    436,437Total oil and gas revenues
    
    $
    2,256,839
    
    
    $
    4,691,381Less lease operating expenses
    
    
    (290,803
    )
    
    
    (246,134
    )Less oil & gas amortization expense
    
    
    (937,821
    )
    
    
    (1,406,856
    )Less accretion of discount
    
    
    (11,213
    )
    
    
    (5,608
    )Less impairments
    
    
    (4,360,000
    )
    
    
    Producing revenues less direct expenses
    
    
    (3,333,816
    )
    
    
    3,032,783Less
intangible asset amortization
    
    
    (180,000
    )
    
    
    (120,000
    )Less depreciation of office facilities
    
    
    (35,412
    )
    
    
    (5,555
    )Less general and administrative expenses
    
    
    (4,009,119
    )
    
    
    (2,032,256
    )Add service fee revenue
    
    
    1,530,000
    
    
    
    Income (loss) from operations
    
    $
    (6,037,429
    )
    
    $
    874,972Total barrels of oil equivalent (boe) sold
    
    
    42,603
    
    
    
    88,910Lease operating expense per boe sold
    
    $
    6.83
    
    
    $
    2.77Amortization expense per boe sold
    
    $
    21.80
    
    
    $
    17.17
 Service Fee Income
  General and Administrative Expenses
  Impairments
  25




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##### Table of Contents



Gain on Sale of Oil and Gas Properties
  Big Sky
    
    
    Bear Creek
    
    
    Goliath
    
    
    TotalsContract sales price
    
    $
    11,500,000
    
    
    $
    1,080,000
    
    
    $
    6,165,520
    
    
    $
    18,745,520Effective date adjustments
    
    
    (821,496
    )
    
    
    0
    
    
    
    0
    
    
    
    (821,496
    )Adjusted sales price
    
    
    10,678,504
    
    
    
    1,080,000
    
    
    
    6,165,520
    
    
    
    17,924,024Allocated capitalized
costs using the relative
fair market value method
required under full cost
accounting
    
    
    (6,416,650
    )
    
    
    (648,443
    )
    
    
    (3,699,461
    )
    
    
    (10,764,554
    )Recognized gains on sales
of oil and gas properties
    
    $
    4,261,854
    
    
    $
    431,557
    
    
    $
    2,466,059
    
    
    $
    7,159,470
  Investment Income
  Income Taxes
  Preferred Dividends
  Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
  26




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##### Table of Contents



Oil and Gas Operations
  Year ended December 31,2005
    
    
    2004Oil sold (barrels)
    
    
    78,954
    
    
    
    12,849Average oil price
    
    $
    53.89
    
    
    $
    41.58Oil revenue
    
    $
    4,254,944
    
    
    $
    534,288Gas sold (mcf)
    
    
    59,733
    
    
    
    48,965Average gas price
    
    $
    7.31
    
    
    $
    4.33Gas revenue
    
    $
    436,437
    
    
    $
    211,954Total oil and gas revenues
    
    $
    4,691,381
    
    
    $
    746,242Less lease operating expenses
    
    
    (246,134
    )
    
    
    (80,461
    )Less oil & gas amortization expense
    
    
    (1,406,856
    )
    
    
    (188,189
    )Less accretion of discount
    
    
    (5,608
    )
    
    
    (4,520
    )Less impairments
    
    
    
    
    
    
    Producing revenues less direct expenses
    
    
    3,032,783
    
    
    
    473,072Less
intangible asset amortization
    
    
    (120,000
    )
    
    
    Less depreciation of office facilities
    
    
    (5,555
    )
    
    
    (129
    )Less general and administrative expenses
    
    
    (2,032,256
    )
    
    
    (945,114
    )Income (loss) from operations
    
    $
    874,972
    
    
    $
    (472,171
    )Total barrels of oil equivalent (boe) sold
    
    
    88,910
    
    
    
    21,010Lease operating expense per boe sold
    
    $
    2.77
    
    
    $
    3.83Amortization expense per boe sold
    
    $
    17.17
    
    
    $
    8.95
 General and administrative expenses.
  Income taxes.
  27




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##### Table of Contents



Preferred Dividends.
  Critical Accounting Policies and Estimates
 Full Cost Accounting Method
  Revenue Recognition
  Natural Gas Imbalances
  Asset Retirement Obligation
  28




---



##### Table of Contents



Income Taxes
  Stock-based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Recently Issued Accounting Pronouncements
 Accounting for Servicing of Financial Assets
 Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 29




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##### Table of Contents



Fair Value Measurements,
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 
 Item 7A: Quantitative and Qualitative Disclosures About Market Risk
 Commodity Price Risk
  Operating Cost Risk
   
 Item 8: Financial Statements and Supplementary Data
 30




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##### Table of Contents



AMERICAN OIL & GAS, INC.
INDEX TO FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    F-4Consolidated Statements of Operations for years ended December 31, 2006, 2005 and 2004
    
    F-5Consolidated Statements of Cash Flows for years ended December 31, 2006, 2005 and 2004
    
    F-6Consolidated Statements of Stockholders Equity for years ended December 31, 2006, 2005 and 2004
    
    F-7Notes to Consolidated Financial Statements
    
    F-8 to F-28
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal
ControlIntegrated Framework
 Share-Based
Payment
 /s/ HEIN & ASSOCIATES LLP
 
 F-2




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##### Table of Contents



F-3




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##### Table of Contents



AMERICAN OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    7,488,474
    
    
    $
    6,022,822Short-term investment
    
    
    8,456,400
    
    
    
    Trade receivables
    
    
    336,188
    
    
    
    1,481,543Receivable for sale of oil and gas properties
    
    
    777,461
    
    
    
    Prepaid expenses
    
    
    402,287
    
    
    
    156,475Inventory
    
    
    40,904
    
    
    
    40,904Total current assets
    
    
    17,501,714
    
    
    
    7,701,744PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including
unevaluated costs of $33,263,390 at 12/31/06 and
$17,843,133 at 12/31/05)
    
    
    41,424,253
    
    
    
    26,547,922Other property and equipment
    
    
    295,485
    
    
    
    68,023Total property and equipment
    
    
    41,719,738
    
    
    
    26,615,945Less accumulated depreciation, depletion and amortization
    
    
    (2,598,581
    )
    
    
    (1,636,246
    )Net property and equipment
    
    
    39,121,157
    
    
    
    24,979,699INTANGIBLE AND OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset
    
    
    600,000
    
    
    
    780,000Drilling prepayments
    
    
    233,058
    
    
    
    643,485Other assets
    
    
    10,000
    
    
    
    $
    69,136,397
    
    
    $
    45,775,396LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    1,964,000
    
    
    $
    954,544Asset retirement obligations
    
    
    40,321
    
    
    
    Deferred income taxes
    
    
    2,172,785
    
    
    
    Preferred dividends payable
    
    
    479,342
    
    
    
    479,342Total current liabilities
    
    
    4,656,448
    
    
    
    1,433,886LONG-TERM LIABILITIESAsset retirement obligations
    
    
    194,947
    
    
    
    117,011Deferred income taxes
    
    
    2,197,329
    
    
    
    1,893,581Total long-term liabilities
    
    
    2,392,276
    
    
    
    2,010,592COMMITMENTS AND CONTINGENCIES(Note 13)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value, authorized
400,000 shares; issued and outstanding 250,000 shares
at 12/31/06 and at 12/31/05; redemption value of
$13,979,342 at 12/31/2006 and at 12/31/2005
    
    
    250
    
    
    
    250Common stock, $.001 par value, authorized 100,000,000
shares; issued and outstanding 38,927,114 at 12/31/2006
and 36,476,202 at 12/31/2005
    
    
    38,927
    
    
    
    36,476Additional paid-in capital
    
    
    59,210,784
    
    
    
    43,225,408Deferred compensation
    
    
    (35,910
    )
    
    
    Accumulated deficit
    
    
    (799,993
    )
    
    
    (931,216
    )Accumulated other comprehensive income
    
    
    3,673,615
    
    
    
    Total equity
    
    
    62,087,673
    
    
    
    42,330,918$
    69,136,397
    
    
    $
    45,775,396
  F-4




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AMERICAN OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004REVENUESOil and gas sales
    
    $
    2,256,839
    
    
    $
    4,691,381
    
    
    $
    746,242Service fee
    
    
    1,530,000
    
    
    
    
    
    
    
    Total revenues
    
    
    3,786,839
    
    
    
    4,691,381
    
    
    
    746,242OPERATING EXPENSESLease operating
    
    
    290,803
    
    
    
    246,134
    
    
    
    80,461General and administrative
    
    
    4,009,019
    
    
    
    2,032,256
    
    
    
    945,114Depletion, depreciation and amortization
    
    
    1,153,233
    
    
    
    1,532,411
    
    
    
    188,318Accretion of asset retirement obligation
    
    
    11,213
    
    
    
    5,608
    
    
    
    4,520Impairments
    
    
    4,360,000
    
    
    
    
    
    
    
    Total operating expenses
    
    
    9,824,268
    
    
    
    3,816,409
    
    
    
    1,218,413INCOME (LOSS) FROM OPERATIONS
    
    
    (6,037,429
    )
    
    
    874,972
    
    
    
    (472,171
    )OTHER INCOMEGains on sales of oil and gas properties
    
    
    7,159,470
    
    
    
    
    
    
    
    Investment income
    
    
    392,930
    
    
    
    204,244
    
    
    
    34,160Total other income
    
    
    7,552,400
    
    
    
    204,244
    
    
    
    34,160INCOME (LOSS) BEFORE INCOME TAXES
    
    
    1,514,971
    
    
    
    1,079,216
    
    
    
    (438,011
    )Income tax expense current
    
    
    
    
    
    
    
    
    
    
    Income tax expense deferred
    
    
    303,748
    
    
    
    46,245
    
    
    
    NET INCOME (LOSS)
    
    
    1,211,223
    
    
    
    1,032,971
    
    
    
    (438,011
    )Less dividends on preferred stock
    
    
    1,080,000
    
    
    
    479,342
    
    
    
    61,640NET
INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    131,223
    
    
    $
    553,629
    
    
    $
    (499,651
    )NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )Diluted
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )Weighted average common shares outstanding:Basic
    
    
    37,428,506
    
    
    
    34,148,065
    
    
    
    25,211,447Diluted
    
    
    38,142,011
    
    
    
    34,955,624
    
    
    
    25,211,447
  F-5




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##### Table of Contents



AMERICAN OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    1,211,223
    
    
    $
    1,032,971
    
    
    $
    (438,011
    )Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:Gains on sales of oil and gas properties
    
    
    (7,159,470
    )
    
    
    
    
    
    
    Service fee received in the form of a convertible note
    
    
    (1,530,000
    )
    
    
    
    
    
    
    Depletion, depreciation and amortization
    
    
    1,153,233
    
    
    
    1,532,411
    
    
    
    188,318Accretion of asset retirement obligation
    
    
    11,213
    
    
    
    5,608
    
    
    
    4,520Deferred income taxes
    
    
    303,748
    
    
    
    46,245
    
    
    
    Share-based compensation
    
    
    1,522,219
    
    
    
    413,764
    
    
    
    406,258Impairment provision
    
    
    4,360,000
    
    
    
    
    
    
    
    Changes in assets and liabilities:Decrease (increase) in trade receivables
    
    
    1,145,355
    
    
    
    (1,222,695
    )
    
    
    (213,106
    )Decrease (increase) in yard inventory
    
    
    
    
    
    
    (40,904
    )
    
    
    Decrease (increase) in advances and prepaid expenses
    
    
    (245,812
    )
    
    
    (101,940
    )
    
    
    12,252Increase (decrease) in accounts payable and accrued
liabilities
    
    
    596,935
    
    
    
    845,933
    
    
    
    (365,785
    )Net cash provided (used) by operating
activities
    
    
    1,368,644
    
    
    
    2,511,393
    
    
    
    (405,554
    )CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from sales of oil and gas properties
    
    
    16,066,563
    
    
    
    
    
    
    
    1,582,171Cash paid for oil and gas properties
    
    
    (15,913,075
    )
    
    
    (14,091,540
    )
    
    
    (2,894,560
    )Drilling prepayments
    
    
    
    
    
    
    (643,485
    )
    
    
    Cash paid for office equipment and software
    
    
    (229,178
    )
    
    
    (55,913
    )
    
    
    Cash paid for other long-term asset
    
    
    (10,000
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (85,690
    )
    
    
    (14,790,938
    )
    
    
    (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 stock offering and issuance costs
    
    
    (2,283
    )
    
    
    (584,980
    )
    
    
    (84,986
    )Proceeds from warrant exercise
    
    
    55,508
    
    
    
    152,600
    
    
    
    25,000Proceeds from employee stock option exercise
    
    
    24,800Proceeds from stock option exercises by a consultant
    
    
    104,673Preferred dividends paid in cash
    
    
    
    
    
    
    (18,864
    )
    
    
    (61,640
    )Cash received from acquired company
    
    
    
    
    
    
    1,795
    
    
    
    Net cash provided by financing activities
    
    
    182,698
    
    
    
    13,050,478
    
    
    
    5,903,374NET INCREASE IN CASH
    
    
    1,465,652
    
    
    
    770,933
    
    
    
    4,185,431CASH, BEGINNING OF YEAR
    
    
    6,022,822
    
    
    
    5,251,889
    
    
    
    1,066,458CASH, END OF YEAR
    
    $
    7,488,474
    
    
    $
    6,022,822
    
    
    $
    5,251,889Supplemental Schedule of Cash Flow InformationCash paid for interest expense
    
    $
    
    
    
    $
    
    
    
    $
    Cash paid for income taxes incurred
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash ActivitiesCommon stock issued to acquire oil and gas properties
    
    $
    13,079,000
    
    
    $
    4,211,911
    
    
    $
    328,050Common stock issued to acquire Tower Colombia Corp.
    
    $
    
    
    
    $
    15,196,000
    
    
    $
    Preferred stock dividends paid in common stock
    
    $
    1,080,000
    
    
    $
    
    
    
    $
    Share-based compensation expense
    
    $
    1,522,219
    
    
    $
    413,764
    
    
    $
    406,258Service fee received in the form of a convertible note
    
    $
    1,530,000
    
    
    $
    
    
    
    $
    Oil and gas properties sold in exchange for a
convertible note
    
    $
    1,080,000
    
    
    $
    
    
    
    $
    Notes converted into PetroHunter Energy common stock
    
    $
    2,610,000
    
    
    $
    
    
    
    $
    Warrants issued for financing costs
    
    $
    
    
    
    $
    575,544
    
    
    $
    60,192Common stock issued for financing costs
    
    $
    
    
    
    $
    
    
    
    $
    56,400Warrants issued for oil and gas property consulting
    
    $
    
    
    
    $
    31,564
    
    
    $
    31,611Warrant issued to acquire oil and gas properties
    
    $
    88,000
    
    
    $
    
    
    
    $
    Drilling
prepayments applied to drilling costs
    
    $
    410,427
    
    
    $
    
    
    
    $
    
  F-6




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##### Table of Contents



AMERICAN OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 Comprehensive IncomePreferred
    
    
    Stock
    
    
    Common
    
    
    Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Accumulated
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Other Income
    
    
    EquityDecember 31, 2003 balances
    
    
    67,000
    
    
    $
    67
    
    
    
    24,388,702
    
    
    $
    24,389
    
    
    $
    4,036,621
    
    
    $
    (423,750
    )
    
    $
    (984,350
    )
    
    $
    
    
    
    $
    2,652,977Sale of stock at $1.00 per share
    
    
    
    
    
    
    
    
    
    
    1,525,000
    
    
    
    1,525
    
    
    
    1,523,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525,000Costs of offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,429
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,429
    )Sale of stock at $1.50 / share
    
    
    
    
    
    
    
    
    
    
    3,000,000
    
    
    
    3,000
    
    
    
    4,497,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500,000Costs of offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133,957
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133,957
    )Stock for private placement costs
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    30
    
    
    
    56,370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,400Shares issued for oil prospect
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    135
    
    
    
    327,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328,050Warrant exercise at $1.00 / share
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    25
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Warrants for oil project consulting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,611Options for investor relations service
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,632
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,632Dividends 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
    )December 31, 2004 balances
    
    
    67,000
    
    
    $
    67
    
    
    
    29,153,702
    
    
    $
    29,154
    
    
    $
    10,480,289
    
    
    $
    (141,250
    )
    
    $
    (1,484,001
    )
    
    $
    
    
    
    $
    8,884,259Dividends, Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (844
    )
    
    
    
    
    
    
    (844
    )Series A Preferred Stock conversion
    
    
    (67,000
    )
    
    
    (67
    )
    
    
    670,000
    
    
    
    670
    
    
    
    (603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants exercised at $1.09 / share
    
    
    
    
    
    
    
    
    
    
    140,000
    
    
    
    140
    
    
    
    152,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,600Options for investor relations service
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,264Warrants 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 Pref.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479,342
    )
    
    
    
    
    
    
    (479,342
    )Warrants issued for placement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575,544Shares issued for oil prospect
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    $
    
    
    
    $
    42,330,918Series AA preferred stock dividends
paid in common stock
    
    
    
    
    
    
    
    
    
    
    239,493
    
    
    
    240
    
    
    
    1,079,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080,000Accrued dividends, Series AA Pref.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,080,000
    )
    
    
    
    
    
    
    (1,080,000
    )Shares issued for oil and gas
properties
    
    
    
    
    
    
    
    
    
    
    2,050,000
    
    
    
    2,050
    
    
    
    13,076,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,079,000Share issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,283
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,283
    )Warrant issued for properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,000Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,230,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,230,788Shares to new employees
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    20
    
    
    
    96,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,300Stock option exercised by employee
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10
    
    
    
    24,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,800Stock options exercised by consultant
    
    
    
    
    
    
    
    
    
    
    32,010
    
    
    
    32
    
    
    
    104,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,673Warrants exercised
    
    
    
    
    
    
    
    
    
    
    46,004
    
    
    
    46
    
    
    
    55,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,508Shares issued for consulting services
    
    
    
    
    
    
    
    
    
    
    26,405
    
    
    
    26
    
    
    
    123,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,311Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    27
    
    
    
    107,703
    
    
    
    (107,730
    )
    
    
    
    
    
    
    
    
    
    
    Deferred compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,820
    
    
    
    
    
    
    
    
    
    
    
    71,820Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,211,223
    
    
    
    
    
    
    
    1,211,223Unrealized gain on short-term
investment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,673,615
    
    
    
    3,673,615Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,884,838Balance December 31, 2006
    
    
    250,000
    
    
    $
    250
    
    
    
    38,927,114
    
    
    $
    38,927
    
    
    $
    59,210,784
    
    
    $
    (35,910
    )
    
    $
    (799,993
    )
    
    $
    3,673,615
    
    
    $
    62,087,673
  F-7




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##### Table of Contents



AMERICAN OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
 ORGANIZATION
      BASIS OF PRESENTATION
  
    
    Estimates of proven (i.e., reasonably certain) oil and gas reserve quantities,
which affect the calculations of amortization and impairment of capitalized costs of oil
and gas properties,
    
    Estimates of the fair value of oil and gas properties we own, particularly
properties that we have not yet explored, or fully explored, by drilling and completing
wells,
    
    Estimates of the fair value of stock options at date of grant, and
    
    The assumption required by GAAP that proved reserves and generally proved
reserve value for measuring capitalized cost impairment be based on the prices of oil and
gas at the end of the reporting period.
  F-8




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##### Table of Contents



NOTE 2  SIGNIFICANT ACCOUNTING POLICIES
 CASH AND CASH EQUIVALENTS 
  FAIR VALUE 
 SHORT-TERM INVESTMENTS 
 ACCOUNTS RECEIVABLE AND CREDIT POLICIES 
 ASSET RETIREMENT OBLIGATIONS 
  2006
    
    
    2005Asset retirement obligation beginning of year
    
    $
    117,011
    
    
    $
    40,702Liabilities incurred
    
    
    81,831
    
    
    
    81,065Liabilities settled
    
    
    (7,745
    )
    
    
    (10,364
    )Accretion
    
    
    11,213
    
    
    
    5,608Revisions in estimated liabilities
    
    
    32,958
    
    
    
    Asset retirement obligation end of year
    
    $
    235,268
    
    
    $
    117,011Current portion of obligation end of year
    
    $
    40,321
    
    
    $
    
 F-9




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##### Table of Contents



OIL AND GAS PROPERTIES 
     OTHER PROPERTY AND EQUIPMENT 
 IMPAIRMENT  Accounting for the
Impairment and Disposal of Long-Lived Assets,
 BUSINESS COMBINATIONS Business Combinations
 GOODWILL Goodwill and Other Intangible
Assets
 F-10




---



##### Table of Contents



OTHER INTANGIBLE ASSETS
 INCOME TAXES Accounting
for Income Taxes
 REVENUE RECOGNITION AND GAS BALANCING
 NET INCOME (LOSS) PER SHARE
 CONCENTRATION OF CREDIT RISK 
 SHARE-BASED COMPENSATION  Share-Based
Payment
  F-11




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS 
 SEGMENT REPORTING  Disclosure about Segments of an Enterprise and
Related Information
 COMPREHENSIVE INCOME 
 RECLASSIFICATION 
 RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Conditional Asset
Retirement Obligations  An Interpretation of SFAS No. 143 Accounting for Asset Retirement Obligations
 Exchanges of Nonmonetary Assets,
 Accounting Changes and Error Correction,
 Accounting for Certain Hybrid Financial
Instruments
 Accounting for Uncertainty in Income
Taxes
 F-12




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##### Table of Contents



Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans.
  The Fair Value Option for Financial Assets and
Financial Liabilities
 NOTE 3  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 acquisition increased Americans working interest from 50% to 75% in the
following oil and gas projects:
    
    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.
 F-13




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##### Table of Contents



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 4  PROPERTY AND EQUIPMENT
     F-14




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Oil and gas properties, full cost methodUnevaluated
costs, not subject to amortization or ceiling test
    
    $
    33,263,390
    
    
    $
    17,843,133
    
    
    $
    2,022,367Evaluated costs
    
    
    7,958,908
    
    
    
    8,600,696
    
    
    
    1,645,133Asset retirement costs
    
    
    201,955
    
    
    
    104,093
    
    
    
    33,39241,424,253
    
    
    
    26,547,922
    
    
    
    3,700,892Furniture, equipment and software
    
    
    295,485
    
    
    
    68,023
    
    
    
    7,22141,719,738
    
    
    
    26,615,945
    
    
    
    3,708,113Less accumulated depreciation, depletion and amortization
    
    
    (2,598,581
    )
    
    
    (1,636,246
    )
    
    
    (221,793
    )Property and equipment
    
    $
    39,121,157
    
    
    $
    24,979,699
    
    
    $
    3,486,320
 Unevaluated Oil and Gas Properties
  Net CostsIncurredYear ended
December 31, 2006
    
    $
    17,314,778Year ended December 31, 2005
    
    
    15,279,762Prior to 2005
    
    
    668,850$
    33,263,390
   2006
    
    
    2005
    
    
    2004Property acquisition costs, unproved properties
    
    $
    19,887,879
    
    
    $
    13,906,210
    
    
    $
    1,279,364Property acquisition costs, proved properties
    
    
    163,569
    
    
    
    210,000
    
    
    
    Exploration costs
    
    
    9,285,354
    
    
    
    7,011,666
    
    
    
    194,413Asset retirement costs
    
    
    86,649
    
    
    
    70,701
    
    
    
    5,494Development costs
    
    
    691,626
    
    
    
    2,932,459
    
    
    
    1,846,494$
    30,115,077
    
    
    $
    24,131,036
    
    
    $
    3,325,765
 F-15




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##### Table of Contents



Significant Property Sales in 2006
     Big Sky
    
    
    Bear Creek
    
    
    Goliath
    
    
    TotalsContract sales price
    
    $
    11,500,000
    
    
    $
    1,080,000
    
    
    $
    6,165,520
    
    
    $
    18,745,520Effective date adjustments
    
    
    (821,496
    )
    
    
    0
    
    
    
    0
    
    
    
    (821,496
    )Adjusted sales price
    
    
    10,678,504
    
    
    
    1,080,000
    
    
    
    6,165,520
    
    
    
    17,924,024Allocated capitalized
costs using the relative
fair market value method
required under full cost
accounting
    
    
    (6,416,650
    )
    
    
    (648,443
    )
    
    
    (3,699,461
    )
    
    
    (10,764,554
    )Recognized gains on sales
of oil and gas properties
    
    $
    4,261,854
    
    
    $
    431,557
    
    
    $
    2,466,059
    
    
    $
    7,159,470
 Significant Property Acquisitions in 2006
    F-16




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##### Table of Contents



Impairment of Oil and Gas Properties
  Amortization Rate
  NOTE 5  SERVICE FEE REVENUE AND SHORT-TERM INVESTMENTS
    F-17




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##### Table of Contents



NOTE 6  INCOME TAXES
  2006
    
    
    2005
    
    
    2004Current taxes
    
    $
    
    
    
    $
    
    
    
    $
    Deferred taxes
    
    
    303,748
    
    
    
    46,245
    
    
    
    37,000Less: valuation allowance
    
    
    
    
    
    
    
    
    
    
    (37,000
    )Income tax expense
    
    $
    303,748
    
    
    $
    46,245
    
    
    $
    
  2006
    
    
    2005
    
    
    2004Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    34.0
    %State income taxes
    
    
    3.1
    %
    
    
    3.5
    %
    
    
    3.3
    %Permanent differences:Percentage depletion
    
    
    (22.0
    %)
    
    
    
    
    
    
    Other
    
    
    7.7
    %
    
    
    2.9
    %
    
    
    0.5
    %Change in
average state tax rate
    
    
    (3.8
    %)
    
    
    
    
    
    
    Increase (decrease) in valuation allowance
    
    
    
    
    
    
    (37.1
    %)
    
    
    (37.8
    %)Effective income tax rate
    
    
    20.0
    %
    
    
    4.3
    %
    
    
    
  2006
    
    
    2005
    
    
    2004Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    1,219,868
    
    
    $
    1,462,000
    
    
    $
    746,000Federal percentage depletion carryovers
    
    
    324,431Oil and gas property amortization
    
    
    753,000
    
    
    
    443,000
    
    
    
    (453,000
    )Timing differences  charitable contributions
and non qualified options
    
    
    118,369
    
    
    
    29,000
    
    
    
    Deferred compensation
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Total deferred tax assets
    
    
    2,415,668
    
    
    
    1,934,000
    
    
    
    290,000Less: valuation adjustment
    
    
    
    
    
    
    
    
    
    
    (290,000
    )Deferred tax asset
    
    $
    2,415,668
    
    
    $
    1,934,000
    
    
    $
    Deferred tax liabilities:Intangible drilling costs and other
exploration costs capitalized for financial
reporting purposes
    
    $
    (4,376,646
    )
    
    $
    (3,530,323
    )
    
    $
    Unrealized gain on investment
    
    
    (2,172,785
    )
    
    
    
    
    
    
    Other intangible asset, net of amortization
    
    
    (222,987
    )
    
    
    (297,258
    )
    
    
    Other
    
    
    (13,364
    )
    
    
    
    
    
    
    Total deferred liabilities
    
    
    (6,785,782
    )
    
    
    (3,827,581
    )
    
    
    Net deferred tax asset
    
    
    2,415,668
    
    
    
    1,934,000
    
    
    
    Deferred tax asset (liability)
    
    $
    (4,370,114
    )
    
    $
    (1,893,581
    )
    
    $
    
  F-18




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##### Table of Contents



NOTE 7  ADOPTION OF SFAS 123(R) SHARE-BASED PAYMENT
 Share-Based Payment,
    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 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
    )
  2006
    
    2005
    
    2004Expected option life-years
    
    5-8
    
    5.0
    
    5.0Risk-free interest rate
    
    4.5% to 5.2%
    
    2.6% to 4.5%
    
    3.36%Dividend yield
    
    N/A
    
    N/A
    
    N/AVolatility
    
    33% to 63%
    
    47% to 78%
    
    71%Pre-vesting forfeiture rate
    
    0%
    
    0%
    
    0%
 F-19




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##### Table of Contents



NOTE 8  STOCKHOLDERS EQUITY
 PREFERRED STOCK
  Series AA Convertible Preferred Stock
    Series A Convertible Preferred Stock
  COMMON STOCK
  
    
    On September 1, 2006, we issued 2,050,000 shares of our common stock to
SunStone Oil and Gas, LLC in exchange for Sunstones 25% working interests in the Fetter
project, increasing our Fetter ownership interests from 67.5% to 92.5%.
    
    On March 1, 2005, warrants to purchase 50,000 shares of our common stock were
exercised at an exercise price of $1.09 per share. We received proceeds of $54,500 in
conjunction with this exercise.
    
    On January 13, 2005, warrants to purchase 90,000 shares of our common stock
were exercised at an exercise price of $1.09 per share. We received proceeds of $98,100
in conjunction with this exercise.
    
    During 2005 we issued 37,500 shares and during 2004 we issued 50,000 shares of
our common stock to a Director for serving as Director, Designated Financial Expert and as
Chairman of the Audit Committee. The shares were paid to a company wholly owned by the
Director, and the shares were valued at $195,249 and $85,126, respectively, based on the
non-discounted trading price of our common stock as of the date of issuance.
 F-20




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##### Table of Contents




    
    In September 2004, we sold a total of 3,000,000 shares of common stock at a
price of $1.50 per share. We paid a placement fee of $45,000 in cash and issued 30,000
shares (valued at the non-discounted trading price of our common stock of $1.88 per share)
to an individual who assisted in securing the private placement. Total costs of the
offering were $133,957, including cash of $77,557 and common stock valued at $56,400.
    
    In March 2004, we sold 1,525,000 units at a price of $1.00 per unit. Each
unit consisted of one share of common stock and one warrant to purchase one share of
common stock at $1.00 per share until August 31, 2004. We did not pay any fees or
commissions associated with this financing. Holders of 25,000 of the warrants exercised
the warrants prior to August 31, 2004, and 1,500,000 of the warrants expired unexercised.
In conjunction with this sale, we sold one-third of our interests in the Big Sky project
for cash of $326,247 to an entity related to the investor that purchased 1.5 million of
the units.
    
    On June 16, 2003, the Company issued 500,000 shares of common stock to its
President and Chief Financial Officer, as part of his employment agreement. 250,000 shares
vested on June 1, 2004 125,000 shares vested on May 1, 2005 and 125,000 shares vested on
July 1, 2005. The 500,000 shares are reflected as issued and outstanding at December 31,
2005 and 2004. The shares were valued at $565,000 ($1.13 per share), based on the
non-discounted trading price of the Companys common stock as of the date of grant. In
2005 and 2004, $141,250 and $282,500, respectively, were charged to operations for the
value of shares earned.
 WARRANTS
     Common
    
    Exercise
    
    ExpirationIssue Date
    
    Shares
    
    Price
    
    DateJuly 22, 2005
    
    
    671,880
    
    
    $
    6.00
    
    
    December 31, 2007July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2008September 15, 2003
    
    
    20,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to September 24, 2003
    
    
    54,850
    
    
    $
    0.75
    
    
    July 24, 2008 to
September 24, 2008August 10, 2006
    
    
    100,000
    
    
    $
    4.90
    
    
    April 9, 20071,127,980
  F-21




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##### Table of Contents



Shares
    
    Exercise
    
    ExpirationIssue Date
    
    Exercisable
    
    Price
    
    DateJuly 22, 2005
    
    
    675,000
    
    
    $
    6.00
    
    
    January 21, 2007July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2008September 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
  STOCK OPTIONS
   Stock Options as of December 31, 2006
 Commitments and Contingencies
  Number of
    
    
    Weighted Avg.Shares
    
    
    Exercise PriceOptions outstanding  January 1, 2004
    
    
    
    
    
    $
    Options granted during 2004
    
    
    403,000
    
    
    $
    1.25Options outstanding  December 31, 2004
(176,000 exercisable)
    
    
    403,000
    
    
    $
    1.25Options granted during 2005
    
    
    1,056,010
    
    
    $
    3.58Options
outstanding  December 31, 2005 (640,009 exercisable)
    
    
    1,459,010
    
    
    $
    2.94Options granted during 2006
    
    
    769,000
    
    
    $
    4.83Less options exercised during 2006
    
    
    (42,010
    )
    
    $
    3.27Options outstanding  December 31, 2006
(985,498 exercisable)
    
    
    2,186,000
    
    
    $
    3.60
  F-22




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##### Table of Contents



Weighted averageExercise price
    
    
    Number of shares
    
    
    remaining contractualper share
    
    
    Outstanding
    
    
    Exercisable
    
    
    life (years)$
    1.25
    
    
    
    403,000
    
    
    
    403,000
    
    
    
    3.172.38
    
    
    
    100,000
    
    
    
    87,500
    
    
    
    4.02.48
    
    
    
    80,000
    
    
    
    50,000
    
    
    
    4.03.66
    
    
    
    750,000
    
    
    
    249,998
    
    
    
    5.84.30
    
    
    
    9,000
    
    
    
    
    
    
    
    5.94.57
    
    
    
    9,000
    
    
    
    
    
    
    
    6.14.65
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    9.14.66
    
    
    
    60,000
    
    
    
    20,000
    
    
    
    5.34.95
    
    
    
    250,000
    
    
    
    50,000
    
    
    
    9.54.98
    
    
    
    200,000
    
    
    
    50,000
    
    
    
    6.85.80
    
    
    
    75,000
    
    
    
    25,000
    
    
    
    5.72,186,000
    
    
    
    985,498Wgtd. Ave. remaining contractual life
    
    
    
    
    
    6.0 years
    
    4.5 yearsAggregate intrinsic value
    
    
    
    
    
    $
    6,363,180
    
    
    $
    3,696,468
  NOTE 9  EARNINGS PER SHARE
  2006
    
    
    2005
    
    
    2004Net income to common stockholders
    
    $
    131,223
    
    
    $
    553,629
    
    
    $
    (499,651
    )Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    Net income adjusted for effects of dilution
    
    $
    131,223
    
    
    $
    553,629
    
    
    $
    (499,651
    )Basic
Weighted Ave. Common Shares
    
    
    37,428,506
    
    
    
    34,148,065
    
    
    
    25,211,447Add dilutive effects of options and warrants
    
    
    713,505
    
    
    
    807,559
    
    
    
    Add dilutive effects of convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares
Outstanding
    
    
    38,142,011
    
    
    
    34,955,624
    
    
    
    25,211,447Net income per common share  basic
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )Net income per common share  diluted
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )
 F-23




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##### Table of Contents



NOTE 10  EMPLOYEE BENEFIT PLANS
  NOTE 11  RELATED PARTY TRANSACTIONS
     NOTE 12  COMMITMENTS AND CONTINGENCIES
  North Finn Option
  F-24




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##### Table of Contents



Drilling Commitment Arising from Issuance of Series A Preferred Stock
  Office Lease
  Year
    

Office Lease Obligations2007
    
    $
    149,1422008
    
    
    152,5642009
    
    
    155,9862010
    
    
    159,4082011
    
    
    162,820Thereafter
    
    
    236,118
 Delay Rentals
  NOTE 13  SUBSEQUENT EVENTS
 Restatement of Our 2005 Financial Statements, with impact on 2006
  F-25




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##### Table of Contents



RTA Participation Agreement
  NOTE 14  INFORMATION REGARDING PROVED OIL AND GAS RESERVES (UNAUDITED)
      December 31, 2006
    
    Oil (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    554,702
    
    
    
    378,213Revisions of Previous quantity estimates
    
    
    (35,347
    )
    
    
    136,378Extensions, discoveries and improved recoveries
    
    
    76,347
    
    
    
    505,832Sales of reserves in place
    
    
    (469,274
    )
    
    
    (162,387
    )Production
    
    
    (34,578
    )
    
    
    (48,189
    )
 F-26




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##### Table of Contents



December 31, 2006
    
    Oil (BBLS)
    
    
    Gas (MCF)End of year
    
    
    91,850
    
    
    
    809,847Proved developed reserves-end of year
    
    
    86,361
    
    
    
    713,236
   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
  2006
    
    
    2005
    
    
    2004Future cash inflows
    
    $
    10,421,519
    
    
    $
    35,159,955
    
    
    $
    15,565,592Future costs:Production
    
    
    (3,276,852
    )
    
    
    (5,768,802
    )
    
    
    (2,842,441
    )Development
    
    
    (716,000
    )
    
    
    (2,825,307
    )
    
    
    (1,972,604
    )Future income tax expense
    
    
    (230,912
    )
    
    
    (706,000
    )
    
    
    (696,000
    )Future net cash flows
    
    
    6,197,755
    
    
    
    25,859,846
    
    
    
    10,054,54710% discount factor
    
    
    (1,599,755
    )
    
    
    (12,149,916
    )
    
    
    (4,622,428
    )Standardized measure of discounted future
net cash flows
    
    $
    4,598,000
    
    
    $
    13,709,930
    
    
    $
    5,432,119
 F-27




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Beginning balance
    
    $
    13,709,930
    
    
    $
    5,432,119
    
    
    $
    2,839,143Sales and transfers of oil and gas produced
    
    
    (1,966,036
    )
    
    
    (4,466,663
    )
    
    
    (665,781
    )Net changes in prices and production costs
    
    
    (1,637,000
    )
    
    
    3,640,869
    
    
    
    (148,083
    )Sales of minerals in place
    
    
    (10,800,000
    )
    
    
    (135,472
    )
    
    
    (1,742,409
    )Extensions and discoveries
    
    
    3,814,000
    
    
    
    6,611,421
    
    
    
    5,132,883Development costs incurred during the year
    
    
    519,000
    
    
    
    1,649,396
    
    
    
    Changes in estimated future development costs
    
    
    0
    
    
    
    (16,255
    )
    
    
    19,992Revisions in previous quantity estimates
    
    
    821,000
    
    
    
    178,586
    
    
    
    (65,844
    )Accretion of discount
    
    
    161,000
    
    
    
    565,612
    
    
    
    283,914Change in income taxes
    
    
    (6,200
    )
    
    
    135,000
    
    
    
    (224,000
    )Change in rates of production and other
    
    
    (17,694
    )
    
    
    115,317
    
    
    
    2,304Ending balance
    
    $
    4,598,000
    
    
    $
    13,709,930
    
    
    $
    5,432,119
   NOTE 15  UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA
 2006
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    1,570,872
    
    
    $
    1,789,033
    
    
    $
    216,347
    
    
    $
    210,587Income (loss) from operations
    
    $
    (168,752
    )
    
    $
    820,582
    
    
    $
    (1,858,216
    )
    
    $
    (4,831,043
    )Net income (loss)
    
    $
    2,469,655
    
    
    $
    2,231,715
    
    
    $
    (1,261,675
    )
    
    $
    (2,228,472
    )Earnings per common share:Basic
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    (0.05
    )Diluted
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    (0.05
    )
 2005
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    686,727
    
    
    $
    1,239,042
    
    
    $
    1,529,288
    
    
    $
    1,236,324Income (loss) from operations
    
    $
    38,428
    
    
    $
    97,770
    
    
    $
    397,535
    
    
    $
    341,239Net income (loss)
    
    $
    61,662
    
    
    $
    115,412
    
    
    $
    478,528
    
    
    $
    377,369Earnings per common share:Basic
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.01Diluted
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.01
  F-28




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##### Table of Contents



Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A: Controls and Procedures
 Disclosure Controls and Procedures.
   Managements Annual Report on Internal Control over Financial Reporting
  
    
    establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), and
    
    assessing the effectiveness of internal control over financial reporting.
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our assets,
    
    provide reasonable assurance that transactions are recorded as to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with authorization of our
management and board of directors, and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
  31




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##### Table of Contents



Internal
Control  Integrated Framework.
   Changes in Internal Control over Financial Reporting
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Managements Annual Report on
Internal Control Over Financial Reporting Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  /s/ HEIN & ASSOCIATES LLP
 
 32




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##### Table of Contents



Item 9B: Other Information.
  
 PART III
 
 Item 10: Directors, Executive Officers and Corporate Governance
 
  
 Item 11: Executive Compensation
  
 Item 12: Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 Item 13: Certain Relationships and Related Transactions, and Director Independence
  
 Item 14: Principal Accountant Fees and Services
  
 PART IV
 
 Item 15: Exhibits, Financial Statement Schedules
  Form 10-KPagesReports of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated
Balance Sheets, December 31, 2006 and 2005
    
    
    F-4Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-6Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial Statements, December 31, 2006, 2005 and 2004
    
    
    F-8
   33




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##### Table of Contents



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.)10(i)
    
    2004 Stock Option Plan. (Incorporated by reference from the
Companys Definitive Proxy Statement, filed on June 16, 2004)10(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.)10(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(iv)
    
    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(v)
    
    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(vi)
    
    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(vii)
    
    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.)10(viii)
    
    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.)




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##### Table of Contents



Exhibit No.
    
    Description10(ix)
    
    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(x)
    
    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(xi)
    
    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.)10(xii)
    
    Employment Agreement between the Company and Joseph B. Feiten.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on August 31, 2006.)10(xiii)
    
    Stock Option Agreement between the Company and Joseph B.
Feiten. (Incorporated by reference from the Companys Current
Report on Form 8-K filed on August 31, 2006.)10(xiv)
    
    Purchase and Sale Agreement, dated September 1, 2006, between
SunStone Oil & Gas, LLC and the Company. (Incorporated by
reference from the Companys Current Report on Form 8-K filed
on September 6, 2006.)10(xv)
    
    Registration Rights Agreement, dated September 1, 2006, by and
among the Company and the investors listed therein.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on September 6, 2006.)10(xvi)
    
    Purchase and Sale Agreement dated March 31, 2006 by and
between the Company and Enerplus Resources (USA) Corporation.
(Incorporated by reference from the Companys Quarterly Report
on Form 10-QSB for the period ended September 30, 2006.)10(xvii)
    
    Participation Agreement dated January 17, 2007 among the
Company, Red Technology Alliance LLC and North Finn LLC.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on January 23, 2007.)10(xviii)
    
    2006 Stock Incentive Plan
(Incorporated by reference to the Companys Definitive Proxy
Statement, as amended, filed on July 26, 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).21(i)
    
    Subsidiary List.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 2002




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##### Table of Contents



Exhibit No.
    
    Description32.2
    
    Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 SIGNATURES
 th
 American Oil & Gas, Inc./s/ Andrew P. CalerichAndrew P. CalerichPresident  Signature
    
    Title
    
    Date/s/ Patrick D. OBrien
    
    Chief Executive Officer and Chairman
    
    April 10, 2007Patrick D. OBrien
    
    (Principal Executive Officer)/s/ Andrew P. Calerich
    
    President and Director
    
    April 10, 2007Andrew P. Calerich/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    April 10, 2007Joseph B. Feiten
    
    (Principal Financial Officer)/s/ Alan Gelfand
    
    Director
    
    April 10, 2007Alan Gelfand/s/ Kendell Tholstrom
    
    Secretary and Director
    
    April 10, 2007Kendell Tholstrom/s/ M.S. (Moni) Minhas
    
    Director
    
    April 10, 2007M.S. (Moni) Minhas/s/ Nick DeMare
    
    Director
    
    April 10, 2007Nick DeMare/s/ Jon R. Whitney
    
    Director
    
    April 10, 2007Jon R. Whitney




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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.)10(i)
    
    2004 Stock Option Plan. (Incorporated by reference from the
Companys Definitive Proxy Statement, filed on June 16, 2004)10(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.)10(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(iv)
    
    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(v)
    
    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(vi)
    
    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(vii)
    
    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.)10(viii)
    
    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.)




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##### Table of Contents



Exhibit No.
    
    Description10(ix)
    
    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(x)
    
    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(xi)
    
    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.)10(xii)
    
    Employment Agreement between the Company and Joseph B. Feiten.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on August 31, 2006.)10(xiii)
    
    Stock Option Agreement between the Company and Joseph B.
Feiten. (Incorporated by reference from the Companys Current
Report on Form 8-K filed on August 31, 2006.)10(xiv)
    
    Purchase and Sale Agreement, dated September 1, 2006, between
SunStone Oil & Gas, LLC and the Company. (Incorporated by
reference from the Companys Current Report on Form 8-K filed
on September 6, 2006.)10(xv)
    
    Registration Rights Agreement, dated September 1, 2006, by and
among the Company and the investors listed therein.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on September 6, 2006.)10(xvi)
    
    Purchase and Sale Agreement dated March 31, 2006 by and
between the Company and Enerplus Resources (USA) Corporation.
(Incorporated by reference from the Companys Quarterly Report
on Form 10-QSB for the period ended September 30, 2006.)10(xvii)
    
    Participation Agreement dated January 17, 2007 among the
Company, Red Technology Alliance LLC and North Finn LLC.
(Incorporated by reference from the Companys Current Report
on Form 8-K filed on January 23, 2007.)10(xviii)
    
    2006 Stock Incentive Plan (Incorporated by reference to the Companys Definitive Proxy
Statement, as amended, filed on July 26, 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).21(i)
    
    Subsidiary List.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