UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.   20549
 
 FORM
10-Q
 
 x
  For the
quarterly period ended June 30, 2010
  o   
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
  For the
transition period from _____ to _____
 
 OSAGE
EXPLORTION AND DEVELOPMENT, INC.
 (Exact
name of small business issuer as specified in its charger)
 
 Delaware
              
              0-52718
              
              26-0421736(State
      or other jurisdiction
                of
      incorporation or
                organization)
              
              (Commission
      File No.)
              
              (I.R.S.
      Employer
                Identification
      No.)
  2445
      5th
      Avenue
                Suite
      310
                San Diego,
    CA  92101
              
              (619) 677-3956(Address
      of principal executive offices)
              
              (Issuer’s
      telephone number)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 month (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
 Yes   x                             No
o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes   o                             No
o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company in
Rule 12b-2 of the Exchange Act.
 
 Large
Accelerated Filer  o     Accelerated
Filer   o
 Non-Accelerated
Filer  o     Smaller
Reporting Company  x
  Indicate
by check mark whether the registrant is a shell company (as defined in section
12b-2 of the Exchange Act)
 Yes  o                             No
x
  The
number of outstanding shares of the registrant’s Common Stock, $0.0001 par
value, as of August 6, 2010 was 45,149,775.
  
 
 OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARY
  TABLE
OF CONTENTS
 PagePART
      I – FINANCIAL INFORMATIONItem
1.
                
                Financial Statements (unaudited)Consolidated Balance Sheets: As of June 30, 2010 and December
      31, 2009
                1Consolidated Statement of Operations: Three and Six Months
      ended June 30, 2010 and 2009
                2Consolidated Statement of Cash Flows: Six Months ended June
      30, 2010 and 2009
                3Notes to Consolidated Financial Statements
                4Item
    2.
                
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                10Item
    3.
                
                Quantitative and Qualitative Disclosures about Market
      Risk
                19Item
4.
                
                Controls and Procedures
                19PART
      II – OTHER INFORMATIONItem
1.
                
                Legal Proceedings
                20Item
    1.A.
                
                Risk Factors
                20Item
    2.
                
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                20Item 3
                
                Default Upon Senior Securities
                20Item 4
                
                Submission of Matters to a Vote of Security
      Holders
                20Item 5
                
                Other Information
                20Item 6
                
                Exhibits
                20Signatures
                21
  i
  PART
I. FINANCIAL INFORMATION
 
 Item
1.              Financial
Statements (Unaudited)
  OSAGE
EXPLORATION AND DEVELOMENT, INC.
 CONSOLIDATED BALANCE SHEETS
  June
      30,
                  2010
                
                December
      31,
                  2009ASSETS
                
                (unaudited)Current
      assets:Cash
      and cash equivalents
                
                $
                894,020
                
                $
                1,174,989Accounts
      receivable
                
                
                91,797
                
                
                156,211Prepaid
      expenses
                
                
                24,022
                
                
                37,380Total
      current assets
                
                
                1,009,839
                
                
                1,368,580Property
      and equipment, at cost:Oil
      and gas properties and equipment
                
                
                2,353,601
                
                
                2,174,793Capitalized
      asset retirement costs
                
                
                46,146
                
                
                46,146Other
      property & equipment
                
                
                48,205
                
                
                48,2052,447,952
                
                
                2,269,144Less:
      accumulated depletion, depreciationand
      amortization
                
                
                (734,694
                )
                
                (557,287
                )Property
      and equipment, net
                
                
                1,713,258
                
                
                1,711,857Bank
      CD pledged for bond
                
                
                30,000
                
                
                30,000Total
      assets
                
                $
                2,753,097
                
                $
                3,110,437LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                185,939
                
                $
                221,398Accrued
      expenses
                
                
                917,602
                
                
                47,948Promissory
      note
                
                
                1,558
                
                
                3,535Total
      current liabilities
                
                
                1,105,099
                
                
                272,881Asset
      retirement obligations
                
                
                56,744
                
                
                55,742Total
      liabilities
                
                
                1,161,843
                
                
                328,623Commitments
      and contingenciesStockholders'
      equity:Common
      stock, $0.0001 par value, 190,000,000 shares authorized;
                
                
                4,506
                
                
                4,69645,059,775
      and 46,959,775 shares issued and outstandingas
      of June 30, 2010 and December 31, 2009, respectively.Additional
      paid-in capital
                
                
                11,756,703
                
                
                11,804,013Stock
      purchase notes receivable
                
                
                (95,000
                )
                
                (142,500
                )Accumulated
      deficit
                
                
                (9,770,714
                )
                
                (8,472,209
                )Accumulated
      other comprehensive loss -currency
      translation loss
                
                
                (304,241
                )
                
                (412,186
                )Total
      stockholders' equity
                
                
                1,591,254
                
                
                2,781,814Total
      liabilities and stockholders' equity
                
                $
                2,753,097
                
                $
                3,110,437
  The
accompanying notes are an integral part of these consolidated financial
statements.
  1
  OSAGE
EXPLORATION AND DEVELOPMENT, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
  (unaudited)
 Three
      Months Ended June 30,
                
                Six
      Months Ended June 30,2010
                
                2009
                
                2010
                
                2009Operating
      revenues:Oil
      revenues
                
                $
                374,348
                
                $
                210,942
                
                $
                691,818
                
                $
                463,486Pipeline
      revenues
                
                
                —
                
                
                420,983
                
                
                107,293
                
                
                912,510Total
      operating revenues
                
                
                374,348
                
                
                631,925
                
                
                799,111
                
                
                1,375,996Operating
      costs and expenses:Operating
      expenses
                
                
                153,877
                
                
                227,600
                
                
                289,013
                
                
                431,109General
      and administrative expenses
                
                
                430,296
                
                
                529,047
                
                
                1,632,345
                
                
                1,075,111Asset
      impairment
                
                
                —
                
                
                111,579
                
                
                —
                
                
                1,724,473Depreciation
      and depletion
                
                
                86,782
                
                
                92,236
                
                
                177,407
                
                
                178,870Stock
      based compensation expense
                
                
                —
                
                
                18,000
                
                
                —
                
                
                55,493Total
      operating costs and expenses
                
                
                670,955
                
                
                978,462
                
                
                2,098,765
                
                
                3,465,056Loss
      from operations
                
                
                (296,607
                )
                
                (346,537
                )
                
                (1,299,654
                )
                
                (2,089,060
                )Other
      income/(expenses):Interest
      income
                
                
                819
                
                
                7,916
                
                
                2,210
                
                
                24,442Interest
      expense
                
                
                (525
                )
                
                (1,342
                )
                
                (1,061
                )
                
                (2,676
                )Loss
      before income taxes
                
                
                (296,313
                )
                
                (339,963
                )
                
                (1,298,505
                )
                
                (2,067,294
                )Provision
      for income taxes
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
      Loss
                
                
                (296,313
                )
                
                (339,963
                )
                
                (1,298,505
                )
                
                (2,067,294
                )Other
      comprehensive (loss)/income, net of  tax:Foreign
      currency translation adjustment
                
                
                (115,620
                )
                
                360,231
                
                
                (130,964
                )
                
                53,300Comprehensive
      (loss)/income
                
                $
                (411,933
                )
                $
                20,268
                
                $
                (1,429,469
                )
                $
                (2,013,994
                )Basic
      and diluted loss per share
                
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.03
                )
                $
                (0.04
                )Weighted
      average number of common shareand
      common share equivalents used tocompute
      basic and dilluted loss per share
                
                
                45,841,094
                
                
                46,504,830
                
                
                46,016,129
                
                
                46,359,775
  The
accompanying notes are an integral part of these consolidated financial
statements.
  2
  OSAGE
EXPLORATION AND DEVELOPMENT, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (unaudited)
 Six
      Months Ended June 30,2010
                
                2009Cash
      flows from operating activities:Net
      loss
                
                $
                (1,298,505
                )
                $
                (2,067,294
                )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activites:Asset
      impairment
                
                
                —
                
                
                1,724,473Stock
      based compensation
                
                
                —
                
                
                7,493Shares
      issued for services
                
                
                —
                
                
                48,000Accretion
      of asset retirment obligations
                
                
                1,002
                
                
                35,005Provision
      for depletion, depreciation and amortization
                
                
                177,407
                
                
                178,870Changes
      in operating assets and liabilities:Decrease/(increase)
      in accounts receivable
                
                
                64,976
                
                
                92,915Decrease in
      prepaid expenses
                
                
                12,795
                
                
                30,859Increase in
      accounts payable and accrued expenses
                
                
                834,196
                
                
                93,034Net
      cash (used in)/provided by operating activities
                
                
                (208,129
                )
                
                143,355Cash
      flows from investing activities:Increase
      in asset retirement obligations
                
                
                —
                
                
                (32,471
                )Pipeline
      reimbrusement by operator
                
                
                —
                
                
                797,483Investment
      in bank CD pledged for letter of credit
                
                
                —
                
                
                (46,868
                )Maturity
      of bank CD pledged for letter of credit
                
                
                —
                
                
                145,632Proceeds
      from assignemnt of 50% of Rosablanca
                
                
                —
                
                
                881,523Investments
      in oil & gas properties
                
                
                (59,177
                )
                
                (1,634,724
                )Interest
      earned on Bank CD pledged for letter of credit
                
                
                —
                
                
                (1,535
                )Payments
      from Colombian trust account
                
                
                —
                
                
                (379,480
                )Net
      cash used in investing activities
                
                
                (59,177
                )
                
                (270,440
                )Cash
      flows from financing activities:Payments
      on promissory note
                
                
                (1,977
                )
                
                (1,396
                )Net
      cash used in financing activities
                
                
                (1,977
                )
                
                (1,396
                )Effect
      of exchange rate on cash and cash equivalents
                
                
                (11,686
                )
                
                76,735Net
      decrease in cash and cash equivalents
                
                
                (280,969
                )
                
                (51,746
                )Cash
      and Cash equivalents, beginning of period
                
                
                1,174,989
                
                
                988,508Cash
      and Cash equivalents, end of period
                
                $
                894,020
                
                $
                936,762SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      payments for interest
                
                $
                24
                
                $
                142Cash
      payments for income taxes
                
                $
                —
                
                $
                —Non-cash
      transactions:Forgiveness
      of accounts payable by LEC
                
                $
                —
                
                $
                1,985,043Forgiveness
      of joint operating account by Pacific
                
                $
                —
                
                $
                799,007Issuance
      of shares to LEC in conjunction with the LEC Agreement
                
                $
                —
                
                $
                420,000Cancellation
      of shares for notes receivable
                
                $
                47,500
                
                $
                —
  The
accompanying notes are an integral part of these consolidated financial
statements.
  3
  OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  1. BASIS
OF PRESENTATION
 
 Osage
Exploration and Development, Inc. (“Osage”, “We”, “Our” or the “Company”)
prepared the accompanying unaudited consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America (“USA”) for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”) instructions to
Form 10-Q and Item 310(b) of regulation S-K. These financial statements should
be read together with the financial statements and notes in the Company’s 2009
Form 10-K filed with the SEC.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles (“GAAP”) in the USA were condensed
or omitted. The accompanying consolidated financial statements reflect all
adjustments and disclosures, which, in the Company’s opinion, are necessary for
fair presentation of the financial position, results of operations and changes
in cash flow. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results of the entire year.
 
 Liquidity and Going
Concern
 
 The
Company incurred significant losses since its inception and has an accumulated
deficit of $9,770,714 at June 30, 2010 and $8,472,209 at December 31,
2009.  Substantial portions of the losses are attributable to asset
impairment charges, stock based compensation, professional fees, Colombian
equity tax associated with our Cimarrona property and interest
expense.  The Company's operating plans require additional funds that
may take the form of debt or equity financings. There is no assurance that
additional funds will be available. The Company's ability to continue as a going
concern is in substantial doubt and is dependent upon achieving a profitable
level of operations and obtaining additional financing.
 
 Management
of our Company has undertaken steps as part of a plan to improve operations with
the goal of sustaining our operations for the next twelve months and beyond.
These steps include (a) attempting to increase our current production, (b)
controlling overhead and expenses and (c) raising additional capital and/or
obtaining financing.
 
 There is
no assurance the Company can accomplish these steps and it is uncertain the
Company will achieve a profitable level of operations and obtain additional
financing. There is no assurance that additional financings will be available to
the Company on satisfactory terms and conditions, if at all. In the event we are
unable to continue as a going concern, we may elect or be required to seek
protection from our creditors by filing a voluntary petition in bankruptcy or
may be subject to an involuntary petition in bankruptcy. To date, management has
not considered this alternative, nor does management view it as a likely
occurrence.
 
 These
consolidated financial statements do not give effect to any adjustments which
would be necessary should the Company be unable to continue as a going concern
and therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying consolidated financial statements.
 
 IMPACT OF
RECENT ACCOUNTING PRONOUNCEMENTS
 
 Recent
Pronouncements
 
 In June
2009, the FASB issued Financial Accounting Standard No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS
168”).  In addition, in September 2009, the FASB issued Accounting
Standards Update No. 2009-01, “Topic 205 – Generally Accepted Accounting
Principles - amendments based on Statement of Financial Accounting Standards
No. 168 – The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles” (“ASU 2009-1”). Both SFAS 168 and ASU
2009-1 recognize the FASB Accounting
Standards Codification as the source of authoritative U.S. GAAP to be utilized
by nongovernmental entities. SFAS 168 and ASU 2009-1 are effective for interim
and annual periods ending after September 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s financial
statements.
 
 4
  On
February 25, 2010, the FASB issued ASU No. 2010-09 Subsequent Events Topic 855
“Amendments to Certain Recognition and Disclosure Requirements,” effective
immediately. The amendments in the ASU remove the requirement for an SEC filer
to disclose a date through which subsequent events have been evaluated in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of US GAAP. The FASB believes these amendments remove
potential conflicts with the SEC’s literature. The adoption of this ASU did not
have a material impact on the Company’s consolidated financial
statements.
 
 On March
5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815
“Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the
guidance within the derivative literature that exempts certain credit related
features from analysis as potential embedded derivatives requiring separate
accounting. The ASU specifies that an embedded credit derivative feature related
to the transfer of credit risk that is only in the form of subordination of one
financial instrument to another is not subject to bifurcation from a host
contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives —
Recognition. All other embedded credit derivative features should be analyzed to
determine whether their economic characteristics and risks are “clearly and
closely related” to the economic characteristics and risks of the host contract
and whether bifurcation is required. The ASU is effective for the Company on
July 1, 2010. Early adoption is permitted. The adoption of this ASU will not
have a material impact on the Company’s consolidated financial
statements.
 
 In April
2010, the FASB codified the consensus reached in Emerging Issues Task Force
Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU
No. 2010-17 provides guidance on defining a milestone and determining when
it may be appropriate to apply the milestone method of revenue recognition for
research and development transactions. FASB ASU No. 2010 – 17 is
effective for fiscal years beginning on or after June 15, 2010, and is
effective on a prospective basis for milestones achieved after the adoption
date. The Company does not expect this ASU will have a material impact on
its financial position or results of operations when it adopts this update on
January 1, 2011.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities,” as codified by FASB ASC topic 815 “Derivatives and
Hedging” (“ASC 815”).  ASC 815 requires enhanced disclosures about an
entity’s derivative and hedging activities.  The adoption of ASC 815
did not have a material impact on the Company’s financial
statements.
 
 In May
2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60," as codified by
FASB ASC topic 944 “Financial Services – Insurance” (“ASC 944”).  The
scope of ASC 944 is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, ASC 944 does not apply to financial
guarantee contracts issued by enterprises excluded from the scope of Statement
60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty
insurance or credit insurance on trade receivables), ASC 944 also does not apply
to financial guarantee insurance contracts that are derivative instruments
included within the scope of FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as codified by FASB ASC topic
815.  The adoption of ASC 944 did not have a material impact on the
Company's financial statements.
 
 In June
2009, the FASB issued FASB No. 166, “Accounting for Transfers of Financial
Assets - an amendment of FASB Statement No. 140” (“SFAS 166”), as codified
by FASB ASC topic 860 “Transfers and Servicing” (“ASC 860”).  ASC 860
requires additional disclosures about the transfer and derecognition of
financial assets and eliminates the concept of qualifying special-purpose
entities under SFAS 140.  ASC 860 is effective for fiscal years
beginning after November 15, 2009. The adoption of ASC 860 did not have a
material impact on the Company.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”). SFAS 167 amends certain requirements of FASB
Interpretation No. 46 (revised December 2003), “Consolidation of Variable
Interest Entities”, as codified by FASC ASC topic 810 (“ASC 810”) to improve
financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements. This Statement is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The adoption of ASC 810 did not have a material impact on its
results of operations or financial position.
 
 5
 
 All new
accounting pronouncements issued but not yet effective have been deemed to not
be applicable, hence the adoption of these new standards is not expected to have
a material impact on the consolidated financial statements.
 
 Significant Accounting
Policies
 
 Income
Tax
 
 On
January 1, 2008, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes,” as codified by FASB ASC topic
740 “Income Taxes” (“ASC 740”).   As a result of the
implementation of ASC 740, the Company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards established
by ASC 740.  As a result of the implementation of ASC 740, the Company
recognized no material adjustments to liabilities or stockholders’
equity.
 
 When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any.  Tax positions taken are
not offset or aggregated with other positions.  Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
 
 Interest
associated with unrecognized tax benefits are classified as interest expense and
penalties are classified in selling, general and administrative expenses in the
statements of income.
 
 The
Company did not have a provision for income taxes for 2010 or
2009.  Due to a history of operating losses, the Company records a
full valuation allowance against its net deferred tax assets and therefore
recorded no tax provision related to its US operations for the current
period.
 
 2


.. OIL AND GAS PROPERTIES AND CAPITALIZED ASSET RETIREMENT
COSTS
 
 Oil and
gas properties consisted of the following:
 June
      30, 2010
                
                
                December
      31, 2009Oil
      and gas properties and equipment
                
                $
                2,353,601
                
                
                $
                2,174,793Capitalized
      asset retirement costs
                
                
                46,146
                
                
                
                46,146Accumulated
      depreciation and depletion
                
                
                (697,520
                )
                
                
                (490,918
                )Oil
      & Gas Properties, Net
                
                $
                1,702,227
                
                
                $
                1,730,021
  6
 
 3.
GEOGRAPHICAL INFORMATION
 
 The
following table sets forth revenues and assets for the periods reported by
geographic location:
 Revenues
      for the
                
                Revenues
      for theThree
      Months ended June 30, 2010
                
                Three
      Months ended June 30, 2009Amount
                
                
                %
      of Total
                
                
                Amount
                
                
                %
      of TotalColombia
                
                $
                356,839
                
                
                95.3%
                
                $
                606,800
                
                
                96.0
                %United
      States
                
                
                17,509
                
                
                4.7%
                
                
                25,125
                
                
                4.0
                %Total
                
                $
                374,348
                
                
                100.0%
                
                $
                631,925
                
                
                100.0
                %
 
 Revenues
      for the
                
                Revenues
      for theSix
      Months ended June 30, 2010
                
                Six
      Months ended June 30, 2009Amount
                %
      of Total
                
                Amount
                
                %
      of TotalColombia
                
                $
                745,367
                
                
                93.3%
                
                $
                1,333,056
                
                
                96.9
                %United
      States
                
                
                53,744
                
                
                6.7%
                
                
                42,940
                
                
                3.1
                %Total
                
                $
                799,111
                
                
                100.0%
                
                $
                1,375,996
                
                
                100.0
                %
  Long
      Lived Assets at
                  June
      30, 2010
                
                Long
      Lived Assets at
                  December
      31, 2009Colombia
                
                $
                1,564,150
                
                
                91.3%
                
                $
                1,555,604
                
                
                90.9
                %United
      States
                
                
                149,108
                
                
                8.7%
                
                
                156,253
                
                
                9.1
                %Total
                
                $
                1,713,258
                
                
                100.0%
                
                $
                1,711,857
                
                
                100.0
                %
 
 4.
COLOMBIAN TRUST ACCOUNTS
 
 In
September 2007, we entered into an agreement (the “Agreement”) with Gold Oil,
Plc (“Gold”) and Empesa Petrolera de Servicios y Asesorias, S.A. (“EMPESA),
whereby we farmed-in to the approximately 165 square miles Rosablanca concession
in Colombia awarded by the Agencia Nacional de Hidrocarburos (“ANH”) to Gold in
September 2007.  In 2007, we (i) paid $1,200,000 to Gold representing
funds that Gold had previously issued to a trust established by the ANH to use
for drilling the first well in the Rosablanaca concession and (ii) issued a
letter of credit of $144,000 for the benefit of Gold’s bank in Colombia
representing the guarantee required by the ANH.  We were obligated to
commence drilling on the first well by December 26, 2008, which we have
done.  Under the terms of the concession agreement with the ANH, we
were required to perform six phases, with each phase lasting 12
months.  We performed the first phase, which was to drill the first
well.  Each phase required us to fund a new trust account and issue a
letter of credit as well as perform certain tasks.  Phase 2 required
an establishment of a trust account for $790,000, of which our share was
$197,500, and an issuance of a letter of credit in the amount of $110,000, of
which our share was $25,000 and obligated us to perform certain seismic
work.  In the first quarter of 2009, we funded both the trust account
and the letter of credit.  We withdrew from the concession in 2009
and therefore wrote off all of the remaining balance in the trust account
in 2009.  Accordingly, the balance of the Colombian trust accounts was
zero at June 30, 2010 and December 31, 2009.
  5. BANK
CD PLEDGED FOR BOND
  We
maintain three certificates of deposits (“CD”), each for $10,000, with a bank in
Oklahoma, which comprise the escrow arrangement with the Osage Indian Agency for
our Osage, Oklahoma property.  The balance in the CDs was $30,000 at
June 30, 2010 and December 31, 2009
 
 BANK CD
PLEDGED FOR LETTER OF CREDIT.
 
 In August
2007, we placed $144,000 in a CD with a bank as collateral for the $144,000
letter of credit required by the ANH as more fully described in footnote 4
above.  In September 2008, we received an extension from ANH until
December 26, 2008 to drill our first well and the CD was extended until March
25, 2009.  The letter of credit expired on March 25, 2009 and we
redeemed the CD at that time.  Accordingly, the balance of this CD was
zero at June 30, 2010 and December 31, 2009.
 
 7
  6.
PROMISSORY NOTE
 
 On April
27, 2007, we purchased a truck to be used by our pumper in our Oklahoma property
by issuing a promissory note (the “Promissory Note”) to a bank secured by the
truck.  The Promissory Note matures October 27, 2010, has a variable
interest rate of Prime plus 1.0% (4.25% as of June 30, 2010) and monthly
principal and interest payments totaling $366.   The Promissory
Note had a balance of $1,558 and $3,535 at June 30, 2010 and December 31, 2009,
respectively.
 
 7.
COMMITMENTS AND CONTINGENCIES
 
 ENVIRONMENT
 
 Osage, as
an owner and operator of oil and gas properties, is subject to various federal,
state, and local laws and regulations relating to discharge of materials into,
and protection of, the environment. These laws and regulations may, among other
things, impose liability on the owner of real property and the lessee under oil
and gas leases for the cost of pollution clean-up resulting from operations,
subject the owner/lessee to liability for pollution damages and impose
restrictions on the injection of liquids into subsurface strata.
 
 Although
Company environmental policies and practices are designed to ensure compliance
with these laws and regulations, future developments and increasing stringent
regulations could require the Company to make additional unforeseen
environmental expenditures
 
 The
Company maintains insurance coverage that it believes is customary in the
industry, although it is not fully insured against all environmental
risks.
 
 The
Company is not aware of any environmental claims existing as of June 30, 2010
that would have a material impact on its consolidated financial position or
results of operations. There can be no assurance, however, that current
regulatory requirements will not change, or past non-compliance with
environmental laws will not be discovered on the Company's
property.
 
 LAND
RENTALS AND OPERATING LEASES
 
 In
February 2008, the Company entered into a 36 month lease for its corporate
offices in San Diego.  The lease was initially for $3,682 per month
for the first year, increasing to $3,800 and $3,923 in the second and third
year, respectively.  The lease is guaranteed by Mr. Kim Bradford, our
President and Chief Executive Officer.  No compensation was given to
Mr. Bradford for his guarantee. In addition, the Company is responsible for all
operating expenses and utilities.  Outside of the San Diego lease, the
Company’s Oklahoma office and all equipment leased are under month-to-month
operating leases.
 
 Future
minimum rental payments required through June 30, 2011 under operating leases
are $31,382.
 
 Rental
expense charged to operations totaled $13,700 and $27,155 for the three and six
months ended June 30, 2010, respectively, and $13,332 and $26,428 for the three
and six months ended June 30, 2009, respectively.
 
 LEGAL
PROCEEDINGS
 
 We are
not a party to, or the subject of, any material pending legal proceedings other
than ordinary, routine litigation incidental to our business.
 
 The
Company recorded an $860,937 charge in general and administrative expenses in
2010, in the first quarter of 2010, as we were notified by Division de Impuestos
y Actuanas Nacionales (“DIAN”), the Colombian tax authorities, that Cimarrona
owes $860,937 for taxes assessed on its equity value relating to its operations
in 2001 and 2003
prior to its ownership by us.  In order to compute the equity value
that the taxes were assessed upon, Cimarrona subtracted the cost of its
non-producing wells in 2001 and 2003 from its taxable income during those
years.  However, DIAN’s position is that as long as the field is
productive, Cimarrona should not have subtracted the cost of the non-producing
wells.  The Company is appealing DIAN’s decision but has recorded this
liability in accrued expenses at June 30, 2010.  In the event the
Company loses its appeal, it believes it may need to begin paying the 2001 taxes
by the end of 2010 and the 2003 taxes by the end of 2011.  The Company
believes that, in the event it loses its appeal, it may be able to make these
tax payments over a three to five year period.
 
 8
  8. EQUITY
TRANSACTIONS
 
 Lewis Energy Colombia,
Inc.
 In March
2009, we entered into an agreement with LEC (the “LEC Agreement”), whereby LEC
agreed to provide $3,500,000, to drill the first well and become operator of
Rosablanca in return for a 50% assignment of our 50% operating interest in
Rosablanca.  In addition, LEC was entitled to recoup two times its
investment in the first well before Osage receives any cash flow from the first
well.  The transaction was recorded in accordance with paragraph 47(c)
SFAS 19, “Financial Accounting and Reporting by Oil and Gas Producing
Companies,” as codified in FASB ASC section 932-360-55.  Furthermore,
as part of the LEC Agreement, we issued 5,250,000 shares of our Common Stock to
an affiliate of LEC.  As a result of the LEC transaction, revenues and
investments on all future wells in Rosablanca were to be allocated 40% to Gold,
25% to LEC, 25% to us and 10% to EMPESA.    We recognized no
gain or loss on the assignment of our interest.  In March 2009, we
announced that we completed testing on the first well without finding producible
hydrocarbons in any of the zones evaluated.  In September 2009, we
entered into a termination agreement (the “Termination Agreement”) with Gold,
EMPESA and LEC, whereby we and LEC agreed to withdraw from the Rosablanca
concession.
 
 Notes
Receivable
 A note
receivable with a face amount of $47,500, initially issued in 2006 and
collateralized by 1,900,000 shares was cancelled during the first half of 2010
as the investor returned to the Company and the Company cancelled, 1,000,000 and
900,000 shares in the first quarter of 2010 and second quarter of 2010,
respectively.
 
 9. MAJOR
CUSTOMERS
 
 The
following table sets forth revenues by customer for the periods
reported:
 Three
      Months ended
                  June
      30, 2010
                
                Three
      Months ended
                  June
      30, 2009Amount
                
                %
      of Total
                
                Amount
                
                %
      of TotalHOCOL
                
                $
                356,839
                
                
                95.3%
                
                $
                185,817
                
                
                29.4%Sunoco
                
                
                17,509
                
                
                4.7%
                
                
                25,125
                
                
                4.0%Pacific
                
                
                —
                
                
                —
                
                
                420,983
                
                
                66.6%Total
                
                $
                374,348
                
                
                100.0%
                
                $
                631,925
                
                
                100.00%
 
 Six
      Months ended
                  June
      30, 2010
                
                Six
      Months ended
                  June
      30, 2009Amount
                
                %
      of Total
                
                Amount
                
                %
      of TotalHOCOL
                
                $
                638,074
                
                
                79.8%
                
                $
                420,746
                
                
                30.6%Pacific
                
                
                107,293
                
                
                13.4%
                
                
                912,350
                
                
                66.3%Sunoco
                
                
                53,744
                
                
                6.7%
                
                
                42,900
                
                
                3.1%Total
                
                $
                799,111
                
                
                100.0%
                
                $
                1,375,996
                
                
                100.0%
 
 9
  10. ASSET
RETIREMENT OBLIGATIONS
 
 The
Company recognizes a liability at discounted fair value for the future
retirement of tangible long-lived assets and associated assets retirement cost
associated with the petroleum and natural gas properties. The fair value of the
liability is capitalized as part of the cost of the related asset and amortized
to expense over its useful life. The liability accretes until the date of
expected settlement of the retirement obligations. The related accretion expense
is recognized in the statement of operations. The provision will be revised for
the effect of any changes to timing related to cash flow or undiscounted
abandonment costs. Actual expenditures incurred for the purpose of site
reclamation are charged to the asset retirement obligations to the extent that
the liability exists on the balance sheet. Differences between the actual costs
incurred and the fair value of the liability recorded are recognized in income
in the period the actual costs are incurred.
 
 There are
no legally restricted assets for the settlement of asset retirement
obligations.  A reconciliation of the Company's asset retirement
obligations for the periods presented is as follows:
 June
      30, 2010
                
                December
      31, 2009Colombia
                
                United
      States
                
                Combined
                
                Colombia
                
                United
      States
                
                CombinedBeginning
      Balance
                
                $
                35,719
                
                $
                20,023
                
                $
                55,742
                
                $
                —
                
                $
                18,203
                
                $
                18,203Additions for new wells
                
                
                —
                
                
                —
                
                
                —
                
                
                32,471
                
                
                —
                
                
                32,471Accretion expense
                
                
                —
                
                
                1,002
                
                
                1,002
                
                
                3,248
                
                
                1,820
                
                
                5,068Ending
      Balance
                
                $
                35,719
                
                $
                21,025
                
                $
                56,744
                
                $
                35,719
                
                $
                20,023
                
                $
                55,742
  Item
2.             Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
 
 This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 that include, among others, statements of: expectations, anticipations,
beliefs, estimations, projections, and other similar matters that are not
historical facts, including such matters as: future capital requirements,
development and exploration expenditures (including the amount and nature
thereof), drilling of wells, reserve estimates (including estimates of future
net revenues associated with such reserves and the present value of such future
net revenues), future production of oil and gas, repayment of debt, business
strategies, and expansion and growth of business operations. These statements
are based on certain assumptions and analyses made by our management in light of
past experience and perception of: historical trends, current conditions,
expected future developments, and other factors that our management believes are
appropriate under the circumstances. We caution the reader that these
forward-looking statements are subject to risks and uncertainties, including
those associated with the financial environment, the regulatory environment, and
trend projections, that could cause actual events or results to differ
materially from those expressed or implied by the statements. Such risks and
uncertainties include those risks and uncertainties identified
below.
 
 Significant
factors that could prevent us from achieving our stated goals include: declines
in the market prices for oil and gas, adverse changes in the regulatory
environment affecting us, the inherent risks involved in the evaluation of
properties targeted for acquisition, our dependence on key personnel, the
availability of capital resources at terms acceptable to us, the uncertainty of
estimates of proved reserves and future net cash flows, the risk and related
cost of replacing produced reserves, the high risk in exploratory drilling and
competition. You should consider the cautionary statements contained or referred
to in this report in connection with any subsequent written or oral
forward-looking statements that may be issued. We undertake no obligation to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
  10
  In
September 2007, we entered into an agreement (the “Agreement”) with Gold Oil,
PLC (“Gold”)and Empesa Petrolera de Servicios y Asesorias, S.A. (“EMPESA),
whereby we farmed-in to the approximately 165 square miles Rosablanca concession
in Colombia awarded by the Agencia Nacional de Hidrocaburos (“ANH”) to Gold in
June, 2007.  Under the Agreement, we were considered the operator of
the concession and, therefore, required to pay all costs associated with
drilling and testing of the first well on the Rosablanca
project.  Revenues generated from the first well were initially to be
allocated 50% to us, 40% to Gold and 10% to Empesa.  In March 2009, we
entered into the LEC Agreement with LEC whereby LEC shall provide all of the
capital required to drill the first well, up to a maximum of
$3,500,000.  As part of the $3,500,000 maximum investment amount by
LEC, LEC also agreed to reimburse us for certain amounts we have already spent
on the first well.  Under the LEC Agreement, we assigned Lewis 50% of
our 50% interest in the Rosablanca concession and have made LEC the
operator.  In addition, LEC was entitled to recoup two times its
investment in the first well before we receive any cash flow derived from the
first well.  Furthermore, as part of the LEC Agreement, we issued
5,250,000 shares of our common stock to an affiliate of LEC.  As a
result of the LEC transaction, revenues and investments on all future wells in
Rosablanca will be allocated 40% to Gold, 25% to LEC, 25% to us and 10% to
Empesa.    If any party doesn’t contribute its share of the
costs, its revenue interest will automatically be transferred to the party that
provides the capital.  On March 23, 2009, we announced that we
completed testing on the first well without finding producible hydrocarbons in
any of the zones evaluated.  In September 2009, we entered into the
Termination Agreement with Gold, EMPESA and Lewis, whereby we and Lewis withdrew
from the Rosablanca concession.  Therefore, we wrote off our entire
investment in the Rosablanca concession as of December 31, 2009.
  On
April 8, 2008, we entered into a membership interest purchase agreement
(the “Purchase Agreement”) with Sunstone Corporation (“Sunstone”) pursuant to
which we acquired from Sunstone 100% of the membership interests in Cimarrona
Limited Liability company, an Oklahoma limited liability company (“Cimarrona
LLC”).  Cimarrona LLC is the owner of a 9.4% interest in certain oil
and gas assets in the Guaduas field, located in the Dindal and Rio Seco Blocks
that consist of twenty one wells, of which seven are currently producing, that
covers 30,665 acres in the Middle Magdalena Valley in Colombia as well as a
pipeline with a current capacity of approximately 30,000 barrels of oil per
day.  The Purchase Agreement was effective as of April 1,
2008.
 
 The
Cimarrona property, but not the pipeline, is subject to an Ecopetrol Association
Contract (the “Association Contract”) whereby we pay Ecopetrol S.A.
(“Ecopetrol”) royalties of 20% of the oil produced.  The royalty
amount is paid in oil.  In addition to the royalty, according to the
Association Contract, Ecopetrol may, for no consideration, become a 50% partner,
once an audit of revenues and expenses indicate that the partners in the
Association Contract have a received a 200% reimbursement of all historical
costs to develop and operate the Guaduas field.  We believe that
Ecopetrol could become a 50% partner in 2010 which would effectively reduce our
cash flows by 50%.  In addition, in 2022, the Association Contract
with Ecopetrol terminates, at which time we will have no economic interest
remaining in this property.  The property and the pipeline are both
operated by Pacific, which owns 90.6% of the Guaduas field.  Pipeline
revenues generated from Cimarrona primarily relate to transportation costs
charged to third party oil producers, including Pacific.
 
 Going
Concern
 
 We
anticipate we will need to raise at least $1,000,000 to provide for requirements
for the next twelve months.  At present, the revenues generated from
our properties are only sufficient to cover field operating expenses and a small
portion of our overhead.
 
 We have
undertaken steps as part of a plan to improve operations with the goal of
sustaining our operations for the next twelve months and beyond. These steps
include (a) raising additional capital and/or obtaining financing; (b)
increasing our current production and (c) controlling overhead and
expenses.
 
 There is
no assurance we will successfully accomplish these steps and it is uncertain we
will achieve a profitable level of operations and/or obtain additional
financing. There can be no assurance that any additional financings will be
available to us on satisfactory terms and conditions, if at all. In the event we
are unable to continue as a going concern, we may elect or be required to seek
protection from our creditors by filing a voluntary petition in bankruptcy or
may be subject to an involuntary petition in bankruptcy. To date, management has
not considered this alternative, nor does management view it as a likely
occurrence.
 
 11
 
 Results
of operations
 
 Three
months ended June 30, 2010 compared to three months ended June 30,
2009
 2010
                
                2009
                
                ChangeAmount
                
                Percentage
                
                Amount
                
                Percentage
                
                Amount
                
                PercentageOil
      sales
                
                $
                374,348
                
                
                100.0%
                
                $
                210,942
                
                
                33.4%
                
                $
                163,406
                
                
                77.5%Pipeline
      Sales
                
                
                —
                
                
                0.0%
                
                
                420,983
                
                
                66.6%
                
                
                (420,983
                )
                
                -100.0%Total
      revenues
                
                $
                374,348
                
                
                100.0%
                
                $
                631,925
                
                
                100.0%
                
                $
                (257,577
                )
                
                -40.8%
 
 Oil
sales
 
 Oil sales
were $374,348, an increase of $163,406, or 77.5%, in 2010 compared to $210,942
in 2009.   The increase is primarily due to an increase in oil
prices and increases in unit sales in Colombia.  In Colombia, we sold
5,000 barrels (“BBLs”) at an average gross price of $73.96 in 2010, compared to
4,000 BBLs at an average gross price of $48.90 in 2009.  In the United
States, we sold 323 BBLs at an average gross price of $72.24 in 2010 compared to
635 BBLs at an average gross price of $52.44 in 2009.
 
 Pipeline
sales
 
 Pipeline
sales were $0 in 2010 compared to $420,983 in 2009.   The Guaduas
pipeline connects with the ODC pipeline (the “ODC Pipeline”) to transport oil to
the port of Covenas in Colombia.  Beginning in early 2010, the ODC
Pipeline has been operating close to full capacity, and during the second
quarter of 2010, the pipeline operated at full capacity.  This has
severely restricted our ability to transport oil over our
pipeline.  Unless conditions improve with the ODC Pipeline, or
additional pipeline are built, we anticipate that pipeline sales will either
remain at zero or at least be significantly below the 2009
levels.   In 2010, the pipeline did not transport any oil, while
in 2009, the pipeline transported approximately 2.6 million BBLs (our share was
approximately 244,000 BBLs).
 
 Total
revenues
 
 Total
revenues were $374,348, a decrease of $257,577, or 40.8% in 2010 compared to
$631,925 in 2009.  Oil sales accounted for 100.0% and 33.4% of total
revenues in 2010 and 2009, respectively.
 
 Production
  2010
                
                2009
                
                Increase/(Decrease)Net
      Barrels
                
                %
      of Total
                
                Net
      Barrels
                
                %
      of Total
                
                Barrels
                
                %Colombia
                
                
                4,588
                
                
                93.4%
                
                
                5,853
                
                
                90.2%
                
                
                (1,265
                )
                
                -21.6%United
      States
                
                
                323
                
                
                6.6%
                
                
                635
                
                
                9.8%
                
                
                (312
                )
                
                -49.1%Total
                
                
                4,911
                
                
                100.0%
                
                
                6,488
                
                
                100.0%
                
                
                (1,577
                )
                
                -24.3%
 
 Production,
net of royalties, was 4,911 BBLs, a decrease of 1,577 BBLs, or 24.3% in 2010
compared to 6,488 BBLs in 2009 primarily due to production decreases in
Colombia.  Colombia production accounted for 93.4% and 90.2% of total
production in 2010 and 2009, respectively.
  12
 
 Operating costs and
expenses
  2010
                
                2009
                
                ChangeAmount
                
                Percentage
                
                Amount
                
                Percentage
                
                Amount
                
                PercentageOperating
      expensesOperating
      expenses
                
                $
                153,877
                
                
                41.1%
                
                $
                227,600
                
                
                36.0%
                
                $
                (73,723
                )
                
                -32.4%General
      & administrative expenses
                
                
                430,296
                
                
                114.9%
                
                
                529,047
                
                
                83.7%
                
                
                (98,751
                )
                
                -18.7%Asset
      impairment
                
                
                —
                
                
                0.0%
                
                
                111,579
                
                
                17.7%
                
                
                (111,579
                )
                
                N/ADepreciation
      and depletion
                
                
                86,782
                
                
                23.2%
                
                
                92,236
                
                
                14.6%
                
                
                (5,454
                )
                
                -5.9%Stock
      based compensation expense
                
                
                —
                
                
                0.0%
                
                
                18,000
                
                
                2.8%
                
                
                (18,000
                )
                
                -100.0%Total
      operating costs and expenses
                
                $
                670,955
                
                
                179.2%
                
                $
                978,462
                
                
                154.8%
                
                $
                (307,507
                )
                
                -31.4%
 
 Operating
expenses
 
 Operating
expenses were $153,877 in 2010, a $73,723 decrease or 32.4%, compared to
$227,600 in 2009.  The decrease is due primarily to a decrease in
operating costs in Colombia, consistent with production
decreases.  Operating expenses as a percentage of total revenues
increased to 41.1% in 2010 from 36.0% in 2009 as the decrease in revenues
exceeded the decrease in operating expenses.
 
 General
and administrative expenses
 
 General
and administrative expenses were $430,296 in 2010, a $98,751 decrease or 18.7%,
compared to $529,047 in 2009.  The decrease is primarily due to lower
general and administrative expenses in Colombia.  General and
administrative expenses as a percentage of total revenues increased to 114.9% in
2010 from 83.7% in 2009 as the decrease in revenues exceeded the decrease in
general and administrative expenses.
 
 Asset
impairment
 
 No asset
impairment charge was recorded in 2010.  We recorded an asset
impairment charge of $111,579 in 2009 relating to our first well at Rosablanca
as we found no producible hydrocarbons.
 
 Depreciation
and  depletion
 
 Depreciation
and depletion were $86,782 in 2010 and $92,236 in 2009.  The decrease
in 2010 is due primarily to decreased depletion expense resulting from lower
production.
 
 Stock
based compensation expense
 
 No stock
based compensation expense was recorded in 2010.  Stock based
compensation in 2009 of $18,000 comprised of the value of shares issued to two
consultants.  The shares were valued based on the stock price at the
date of issuance.
 
 Loss
from operations
 
 Loss from
operations was $296,609 and $346,537 in 2010 and 2009,
respectively.   Loss from operations improved by $49,930 due
primarily to the $111,759 decrease in asset impairment charge in 2010 compared
to 2009, the $98,751decrease in general and administrative expenses in 2010
compared to 2009, the $73,723 decrease in operating expenses in 2010 compared to
2009, offset by the $257,577 decrease in revenues in 2010 compared to
2009.
 
 Interest
income, net
 
 Net
interest income was $294 in 2010 compared to net interest income of $6,574 in
2009.  The decrease is primarily due to lower cash balances in
2010.
  13
  Provision for income
taxes
 
 Provision
for income taxes was zero in 2010 and 2009, due to losses incurred since
inception.
 
 Net
loss
 
 Net loss
was $296,313 and $339,963 in 2010 and 2009, respectively.   The
$43,650 improvement in net loss is due primarily to the improvement in loss from
operations in 2010 compared to 2009.
  Foreign
currency translation loss
 
 Foreign
currency translation loss was $115,620 in 2010 compared to a foreign currency
translation gain of $360,231 in 2009.  The Colombian Peso to Dollar
Exchange Rate averaged 1,952 and 2,224 in 2010 and 2009, respectively and was
1,928 and 2,145 at June 30, 2010 and June 30, 2009, respectively.
 
 Comprehensive
loss
 
 Comprehensive
loss was $411,933 in 2010 compared to a comprehensive income of $20,268 in
2009.  Comprehensive loss decreased by $432,201 due primarily to the
foreign currency translation loss in 2010 compared to a foreign currency
translation gain in 2009.
 
 Six
months ended June 30, 2010 compared to six months ended June 30,
2009
  2010
                
                2009
                
                ChangeAmount
                
                Percentage
                
                Amount
                
                Percentage
                
                Amount
                
                PercentageOil
      sales
                
                $
                691,818
                
                
                86.6%
                
                $
                463,486
                
                
                33.7%
                
                $
                228,332
                
                
                49.3%Pipeline
      sales
                
                
                107,293
                
                
                13.4%
                
                
                912,510
                
                
                66.3%
                
                
                (805,217
                )
                
                -88.2%Total
      revenues
                
                $
                799,111
                
                
                100.0%
                
                
                1,375,996
                
                
                100.0%
                
                $
                (576,885
                )
                
                -41.9%
 Oil
sales
 
 Oil sales
were $691,818, an increase of $228,332, or 49.3%, in 2010 compared to $463,486
in 2009.   The increase is primarily due to an increase in oil
prices, offset by a decrease in unit sales in Colombia.  In Colombia,
we sold 9,000 barrels (“BBLs”) at an average gross price of $73.47 in 2010,
compared to 11,000 BBLs at an average gross price of $40.26 in
2009.  In the United States, we sold 976 BBLs at an average gross
price of $72.24 in 2010 compared to 1,282 BBLs at an average gross price of
$44.22 in 2009.
 
 Pipeline
sales
 
 Pipeline
sales were $107,293, a decrease of $805,217, or 88.2% in 2010 compared to
$912,510 in 2009 due to a substantial decrease in the number of barrels
transported to approximately 0.67 million BBLs (our share was approximately
63,000 BBLs) in 2010 from 5.31 million BBLs (our share was approximately 499,000
BBLs) in 2009.    Beginning in early 2010, the ODC Pipeline
has been operating close to full capacity, and during the second quarter of
2010, the pipeline operated at full capacity.  This has severely
restricted our ability to transport oil over our pipeline.  Unless
conditions improve with the ODC Pipeline, or additional pipeline are built, we
anticipate that pipeline sales will either remain at zero or at least be
significantly below the 2009 levels.
 
 Total
revenues
 
 Total
revenues were $799,111, a decrease of $576,885, or 41.9% in 2010 compared to
$1,375,996 in 2009.  Oil sales accounted for 86.6% and 33.7% of total
revenues in 2010 and 2009, respectively.
  14
  Production
  2010
                
                2009
                
                Increase/(Decrease)Net
      Barrels
                
                %
      of Total
                
                Net
      Barrels
                
                %
      of Total
                
                Barrels
                
                %Colombia
                
                
                9,528
                
                
                90.7%
                
                
                11,998
                
                
                90.3%
                
                
                (2,470
                )
                
                -20.6%United
      States
                
                
                976
                
                
                9.3%
                
                
                1,282
                
                
                9.7%
                
                
                (306
                )
                
                -23.9%Total
                
                
                10,504
                
                
                100.0%
                
                
                13,280
                
                
                100.0%
                
                
                (2,776
                )
                
                -20.9%
 
 Production,
net of royalties, was 10,504 BBLs, a decrease of 2,776 BBLs, or 20.9% in 2010
compared to 13,280 BBLs in 2009 primarily due to production decreases in
Colombia.  Colombia production accounted for 90.7% and 90.3% of total
production in 2010 and 2009, respectively.
 
 Operating
costs and expenses
 
 2010
                
                2009
                
                ChangeAmount
                
                Percentage
                
                Amount
                
                Percentage
                
                Amount
                
                PercentageOperating
      expensesOperating
      expenses
                
                $
                289,013
                
                
                36.2%
                
                $
                431,109
                
                
                31.3%
                
                $
                (142,096
                )
                
                -33.0%General
      & administrative expenses
                
                
                1,632,345
                
                
                204.3%
                
                
                1,075,111
                
                
                78.1%
                
                
                557,234
                
                
                51.8%Asset
      impairment
                
                
                —
                
                
                0.0%
                
                
                1,724,473
                
                
                125.3%
                
                
                (1,724,473
                )
                
                N/ADepreciation
      and depletion
                
                
                177,407
                
                
                22.2%
                
                
                178,870
                
                
                13.0%
                
                
                (1,463
                )
                
                -0.8%Stock
      based compensation expense
                
                
                —
                
                
                0.0%
                
                
                55,493
                
                
                4.0%
                
                
                (55,493
                )
                
                -100.0%Total
      Operating costs and expenses
                
                $
                2,098,765
                
                
                262.6%
                
                $
                3,465,056
                
                
                251.8%
                
                $
                (1,366,291
                )
                
                -39.4%
 
 Operating
expenses
 
 Operating
expenses were $289,013 in 2010, a $142,096 decrease or 33.0%, compared to
$431,109 in 2009.  The decrease is due primarily to a decrease in
operating costs in Colombia, consistent with production
decreases.  Operating expenses as a percentage of total revenues
increased to 36.2% in 2010 from 31.3% in 2009 as the decrease in revenues
exceeded the decrease in operating expenses.
 
 General
and administrative expenses
 
 General
and administrative expenses were $1,632,345 in 2010, a $557,234 increase or
51.8%, compared to $1,075,111 in 2009.  The increase is primarily due
to $860,937 of Colombian equity taxes which were recorded in 2010, as more fully
described in footnote 7 above.  Excluding the Colombian equity taxes,
general and administrative expenses would have been $771,408 in 2010, a $303,703
decrease or 28.2%, compared to 2009, due primarily to a reduction in payroll
costs in 2010 as compared to 2009 and lower general and administrative expenses
in Colombia.  General and administrative expenses as a percentage of
total revenues increased to 204.3% in 2010 from 78.1% in
2009.  Excluding the Colombian equity tax, general and administrative
expenses as a percentage of total revenues would have been 96.5% due to the
reduction in revenues.
 
 Asset
impairment
 
 No
impairment charge was recorded in 2010.  We recorded an asset
impairment charge of $1,724,473 in 2009 relating to our first well at Rosablanca
as we found no producible hydrocarbons.
 
 Depreciation
and depletion
 
 Depreciation
and depletion were $177,407 in 2010 and $178,870 in 2009.
  15
  Stock
based compensation expense
 
 We
recorded no stock based compensation expense in 2010.  Stock based
compensation in 2009 consisted primarily of the value of shares issued to
consultants.  All shares were valued based on the stock price at the
date of issuance.
 
 Loss
from operations
 
 Loss from
operations was $1,299,654 and $2,089,060 in 2010 and 2009,
respectively.   Loss from operations improved by $789,406 due
primarily to the $1,724,473 asset impairment charge in 2009 compared to zero in
2010, the $142,096 decrease in operating expenses, offset by the $576,885
decrease in revenues in 2010 compared to 2009 and the $557,234 increase in
general and administrative expenses in 2010 compared to 2009.
 
 Interest
income, net
 
 Net
interest income was $1,149 in 2010 compared to net interest income of $21,766 in
2009, due to lower cash balances in 2010.
 
 Provision
for income taxes
 
 Provision
for income taxes was zero in 2010 and 2009 due to losses incurred since
inception.
 
 Net
loss
 
 Net loss
was $1,298,505 and $2,067,294 in 2010 and 2009,
respectively.   The $768,789 improvement in net loss is due
primarily to the improvement in loss from operations in 2010 compared to
2009.
  Foreign
currency translation loss
 
 Foreign
currency translation loss was $130,964 in 2010 compared to a foreign currency
translation gain of $53,300 in 2009.  The Colombian Peso to Dollar
Exchange Rate averaged 1,950 and 2,112 in 2010 and 2009, respectively and was
1,928 and 2,145 at June 30, 2010 and June 30, 2009, respectively.
 
 Comprehensive
loss
 
 Comprehensive
loss was $1,429,469 in 2010 compared to $2,013,994 in
2009.  Comprehensive loss improved by $584,525 due primarily to the
improvement in the net loss in 2010 compared to 2009.
 
 Liquidity
and capital resources
 
 We had a
working capital deficit of $95,260 compared to working capital of $1,095,699 at
December 31, 2009.  The working capital deficit at June 30, 2010
consisted primarily of $894,020 of cash and cash equivalents and $91,797 of
accounts receivable, offset by $917,602 of accrued expenses and $185,939 of
accounts payable.  The working capital at December 31, 2009 consisted
primarily of $1,174,989 of cash and cash equivalents and $156,211 of accounts
receivable, offset by $221,398 of accounts payable and $47,948 of accrued
expenses.  The large increase in accrued expenses in 2010 relates
primarily to the Colombian equity tax as discussed in footnote 7.
 
 At both
June 30, 2010 and December 31, 2009, we had no debt on our balance
sheet.  Since January 1, 2007, we have raised in excess of $6,000,000
in gross proceeds through various debt and equity financings, as well as
partnership agreements.  We have used the majority of the net proceeds
for costs related to our Rosablanca project in Colombia as well as for working
capital purposes.
 
 Net cash
used in operating activities totaled $208,129 in 2010 compared to net cash
provided by operating activities of $143,355 in 2009.  The major
components of the net cash used by operating activities in 2010 were the net
loss of $1,298,505, offset by the $834,196 increase in accounts payable and
accrued expenses and the $177,407 of depreciation and depletion.  The
major components of the net cash provided by operating activities in 2009 were
the $1,724,473 asset impairment charges relating to our first well in Rosablanca
and $178,870 of depreciation and depletion, offset by the net loss of
$2,067,294.
 
 16
 
 Net cash
used in investing activities totaled $59,177 and $270,440 in 2010 and 2009,
respectively.  Net cash used in investing activities in 2010 consisted
entirely of investment in oil and gas properties.  Net cash used in
investing activities in 2009 consisted primarily of $1,634,724 investments in
oil and gas properties and $379,480 investment in Colombian trust accounts,
offset by $881,523 received from LEC for the assignment of 50% of our Rosablanca
concession and $797,483 received from Pacific as reimbursement for previously
capitalized pipeline expenditures.
 
 Net cash
used in financing activities totaled $1,977 and $1,396 in 2010 and 2009,
respectively and consisted of payments made on the promissory note.
  Net
operating revenues from our oil production are very sensitive to changes in the
price of oil making it very difficult for management to predict whether or not
we will be profitable in the future.
 
 We
conduct no product research and development.  Any expected purchase of
significant equipment is directly related to drilling operations and the
completion of successful wells.
 
 We
operate our Osage property in Oklahoma through independent contractors that
operate producing wells for several small oil companies.  Pacific owns
90.6% of the Guaduas field in Colombia and is the operator.
 
 We are
responsible for any contamination of land we own or lease. However, we carry
pollution liability insurance policies, which may limit some potential
contamination liabilities as well as claims for reimbursement from third
parties.
 
 Effect
of changes in prices
 
 Changes
in prices during the past few years have been a significant factor in the oil
and gas industry. The price received for the oil produced by us fluctuated
significantly during the last year.  Changes in the price that we
receive for our oil and gas are set by market forces beyond our control as well
as governmental intervention.  The volatility and uncertainty in oil
and gas prices have made it more difficult for a company like us to increase our
oil and gas asset base and become a significant participant in the oil and gas
industry.  We currently sell all of our oil and gas production to
Hocol in Colombia and Sunoco in the United States.  However, in the
event these customers discontinued oil and gas purchases, we believe we can
replace these customers with other customers who would purchase the oil at terms
standard in the industry.
 
 We have
no material exposure to interest rate changes.  We are subject to
changes in the price of oil and exchange rates of the Colombian Peso, which are
out of our control.  In our Osage property in Oklahoma, we sold oil at
prices ranging from $68.61 to $70.26 and $68.61 to $77.15 per barrel in the
three and six months ended June 30, 2010, respectively, compared to $45.43 to
$64.70 and $32.35 to $64.70 in the three and six months ended June 30, 2009,
respectively.  In our Cimarrona property in Colombia, we sold oil at
prices ranging from $63.32 to $78.70 and $63.32 to $78.70 per barrel in the
three and six months ended June 30, 2010, respectively, compared to $42.71to
$66.03 and $28.06 to $66.03 in the three and six months ended June 30, 2009,
respectively.  The Colombian Peso to Dollar Exchange Rate averaged
1,952 and 2,224 in the three months ended June 30, 2010 and June 30, 2009,
respectively and was 1,928 and 2,145 and at June 30, 2010 and June 30, 2009,
respectively.  The exchange rate averaged 1,950 and 2,112 for the six
months ended June 30, 2010 and June 30, 2009, respectively.
 
 Oil
and gas properties
 
 We follow
the "successful efforts" method of accounting for our oil and gas exploration
and development activities, as set forth in the Statement of Financial
Accounting Standards (SFAS) No. 19as amended,
issued by the Financial Accounting Standards Board as codified by FASC ASC topic
932 “Extractive Activities – Oil and Gas” (“ASC 932”).  Under this
method, we initially capitalize expenditures for oil and gas property
acquisitions until they are either determined to be successful (capable of
commercial production) or unsuccessful.  The carrying value of all
undeveloped oil and gas properties is evaluated periodically and reduced if such
carrying value appears to have been impaired.  Leasehold
costs relating to successful oil and gas properties remain capitalized while
leasehold costs which have been proven unsuccessful are charged to operations in
the period the leasehold costs are proven unsuccessful.  Costs of
carrying and retaining unproved properties are expensed as
incurred.
 
 17
 
 
 The costs
of drilling and equipping development wells are capitalized, whether the wells
are successful or unsuccessful.  The costs of drilling and equipping
exploratory wells are capitalized until they are determined to be either
successful or unsuccessful.  If the wells are successful, the costs of
the wells remain capitalized.  If, however, the wells are
unsuccessful, the capitalized costs of drilling the wells, net of any salvage
value, are charged to operations in the period the wells are determined to be
unsuccessful.  In 2009, we recorded an impairment charge of $1,724,473
relating to our well in the Rosablanca concession as we found no producible
hydrocarbons.
 
 The
provision for depreciation and depletion of oil and gas properties is computed
on the unit-of-production method. Under this method, we compute the provision by
multiplying the total unamortized costs of oil and gas properties including
future development, site restoration, and dismantlement abandonment costs, but
excluding costs of unproved properties by an overall rate determined by dividing
the physical units of oil and gas produced during the period by the total
estimated units of proved oil and gas reserves. This calculation is done on a
country-by-country basis.  As of June 30, 2010, our oil production
operations were conducted in Colombia and in the United States of
America.  The cost of unevaluated properties not being amortized, to
the extent there is such a cost, is assessed quarterly to determine whether the
value has been impaired below the capitalized cost. The cost of any impaired
property is transferred to the balance of oil and gas properties being depleted.
The costs associated with unevaluated properties relate to projects which were
undergoing exploration or development activities or in which we intend to
commence such activities in the future. We will begin to amortize these costs
when proved reserves are established or impairment is determined.
 
 In
accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations," as
codified by FASC ASC topic 410 “Asset Retirement and Environmental Obligations”
(“ASC 410”), we report a liability for any legal retirement obligations on our
oil and gas properties. The asset retirement obligations represent the estimated
present value of the amounts expected to be incurred to plug, abandon, and
remediate the producing properties at the end of their productive lives, in
accordance with state laws, as well as the estimated costs associated with the
reclamation of the property surrounding. The Company determines the asset
retirement obligations by calculating the present value of estimated cash flows
related to the liability. The asset retirement obligations are recorded as a
liability at the estimated present value as of the asset's inception, with an
offsetting increase to producing properties. Periodic accretion of the discount
related to the estimated liability is recorded as an expense in the statement of
operations.
 
 The
estimated liability is determined using significant assumptions, including
current estimates of plugging and abandonment costs, annual inflation of these
costs, the productive lives of wells, and a risk-adjusted interest rate. Changes
in any of these assumptions can result in significant revisions to the estimated
asset retirement obligations. Revisions to the asset retirement obligations are
recorded with an offsetting change to producing properties, resulting in
prospective changes to depletion and depreciation expense and accretion of the
discount. Because of the subjectivity of assumptions and the relatively long
lives of most of the wells, the costs to ultimately retire the Company's wells
may vary significantly from prior estimates.
  Revenue
recognition
 
 We
recognize revenue upon transfer of ownership of the product to the customer
which occurs when (i) the product is physically received by the customer, (ii)
an invoice is generated which evidences an arrangement between the customer and
us, (iii) a fixed sales price has been included in such invoice and (iv)
collection from such customer is probable.
 
 Off-Balance
sheet arrangements
 
 Our
Company has not entered into any transaction, agreement or other contractual
arrangement with an entity unconsolidated with us under which we
have
  ●
              an
      obligation under a guarantee
contract,
 ●
                a
      retained or contingent interest in assets transferred to the
      unconsolidated entity or similar arrangement that serves as credit,
      liquidity or market risk support to such entity for such
      assets,●
                any
      obligation, including a contingent obligation, under a contract that would
      be accounted for as a derivative instrument, or●
                any
      obligation, including a contingent obligation, arising out of a variable
      interest in an unconsolidated entity that is held by us and material to us
      where such entity provides financing, liquidity, market risk or credit
      risk support to, or engages in leasing, hedging or research  and
      development services with us.
 18
     
 Item
3.             Quantitative
and Qualitative Disclosures about Market Risk
 
 Our
company is a Smaller Reporting Company.  A Smaller Reporting Company
is not required to provide the disclosure information required by this
item.
 
 Item
4.             Controls
and Procedures
 
 The
Company’s management, including the Company’s principal executive officer and
principal financial officer, evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”).  Based upon their evaluation, the principal executive
officer and principal financial offer concluded that, as of the end of the
period covered by this report, the Company’s disclosure controls and procedures
were not effective for the purpose of ensuring that the information required to
be disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial offers, as
appropriate to allow timely decisions regarding required
disclosure.
 
 Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of June 30, 2010, utilizing a top-down, risk based
approach described in SEC Release No. 34-55929 as suitable for smaller public
companies.  Based on this assessment, management determined that the
Company’s internal control over financial reporting as of June 30, 2010 is not
effective.  Based on this assessment, management has determined that,
as of June 30, 2010, there were material weaknesses in our internal control over
financial reporting. The material weaknesses identified during management's
assessment was the lack of independent oversight by an audit committee of
independent members of the Board of Directors. As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected.  Given the difficulty of
finding qualified individuals who are willing to serve as independent directors,
there has been no change in the audit committee.
 
 Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that accurately and fairly reflect, in
reasonable detail, transactions and dispositions of assets; and provide
reasonable assurances that: (1) transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States; (2) receipts and expenditures are being
made only in accordance with authorizations of management and the directors of
the Company; and (3) unauthorized acquisitions, use, or disposition of the
Company’s assets that could have a material effect on the Company’s financial
statements are prevented or timely detected.
 
 All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparations and presentations.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
 This
quarterly report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management’s
report in this quarterly report.
  
 19
  PART
II – OTHER INFORMATION
 
 Item
1.             Legal
Proceedings
 
 We are
not a party to, or the subject of, any material pending legal proceedings other
than ordinary, routine litigation incidental to our business.
 
 Item 1A.          Risk
Factors
 
 Our
company is a Smaller Reporting Company.  A Smaller Reporting Company
is not required to provide the risk factor disclosure required by this
item.
 
 Item
2.             Unregistered
Sales of Equity Securities and Use of Proceeds
 
 (a)  None.
 
 (b)  None
 
 (c)  None
 
 Item
3             Default
upon Senior Securities
 
 None
 
 Item
4             Submission
of Matters to a Vote of Security Holders
 
 None
 
 Item
5             Other
Information
 
 (a)  None
 
 (b)  None
 
 Item
6             Exhibits
 
 See
Exhibit Index attached hereto.
 
 20
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf of the undersigned thereunto
duly authorized.
 
 OSAGE
      EXPLORATION AND DEVELOPMENT, INC.
                (Registrant)Date: 
      August 10, 2010
              By:
              /s/ Kim
      BradfordKim
      BradfordPresident
      and Chief Executive Officer
 
 Date: 
      August 10, 2010
              By:
              /s/ Kim
      BradfordKim
      Bradford
                Principal
      Financial Officer
  21
  EXHIBIT
INDEX
 
 The
following is a list of Exhibits required by Item 601 of Regulation
S-K.  Except for these exhibits indicated by an asterisk which are
filed herewith, the remaining exhibits below are incorporated by reference to
the exhibit previously filed by us as indicated.
 
 Exhibit No.
              
              Description3.1
              
              Articles of Incorporation of
      Osage Exploration and Development, Inc.(1)3.2
              
              Bylaws of Osage Exploration and
      Development, Inc.(2)31.1
      (*)
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, signed by Kim Bradford, President and
      Chief Executive Officer (Principal Executive Officer)31.2
      (*)
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, signed by Kim Bradford, Chief Financial
      Officer (Principal Financial Officer).32.1
      (*)
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, signed by Kim Bradford, President and
      Chief Executive Officer (Principal Executive Officer and Principal
      Financial Officer).
 
 (1)
              Incorporated
      herein by reference to Exhibit 3.1 to the Osage Exploration and
      Development, Inc. Form 10-SB Amendment No. 1 filed August 27,
      2007
 (2)
              Incorporated
      herein by reference to Exhibit 3.2 to the Osage Exploration and
      Development, Inc. Form 10-SB Amendment No. 1 filed August 27,
      2007
  22