UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-Q





/X/QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended September 30, 2009


/  /
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT


For the
transition period from _____ to _____





OSAGE EXPLORATION AND
DEVELOPMENT, INC.


(Exact
name of small business issuer as specified in its charger)




Delaware
              0-52718
              26-0421736(State
      or other jurisdiction
              (Commission
      File No.)
              (I.R.S.
      Employerof
      incorporation or
              
              Identification
      No.)organization)
  2445
      5th
      AvenueSuite
      310
              
              (619)
      677-3956San
      Diego, CA  92101
              
              (Issuer’s
      telephone number)(Address
      of principal executive offices)







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/  /


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   /  /     Accelerated
Filer   /  /


Non-Accelerated
Filer  /  /     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   /  /                             No
/X /





The
number of outstanding shares of the registrant’s Common Stock, $0.0001 par
value, as of November 5, 2009 was 46,359,775.









OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARY





TABLE
OF CONTENTS








PagePART
      I – FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements (unaudited)Consolidated
      Balance Sheets; September 30, 2009 and December 31, 2008
              
              1Consolidated
      Statement of Operations; Three and Nine Months ended September 30, 2009
      and September 30, 2008
              
              2Consolidated
      Statement of Cash Flows; Nine Months ended September 30, 2009 and
      September 30, 2008
              
              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
              
              20Item
      4.
              Controls
      and Procedures
              
              20PART
      II – OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              
              21Item
      1.A.
              Risk
      Factors
              
              21Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              21Item
      3
              Default
      upon Senior Securities
              
              21Item
      4
              Submission
      of Matters to a Vote of Security Holders
              
              21Item
      5
              Other
      Information
              
              21Item
      6
              Exhibits
              
              21Signatures
              
              
              22











PART
I. FINANCIAL INFORMATION





Item 1.
Financial Statements


OSAGE
EXPLORATION AND DEVELOPMENT, INC.
 CONSOLIDATED
BALANCE SHEETS
 September
30, 2009 and December 31, 2008




2009
              
              
              2008ASSETS
              
              (unaudited)Current
      Assets:Cash
      and cash equivalents
              
              $
              1,210,959
              
              
              $
              988,508Colombian
      Trust Accounts (Note 4)
              
              
              -
              
              
              
              537,665Accounts
      Receivable
              
              
              78,558
              
              
              
              64,658Bank
      CD pledged for Letter of Credit (Note 6)
              
              
              -
              
              
              
              145,632Other
      Current Assets
              
              
              31,777
              
              
              
              110,986Prepaid
      Expenses
              
              
              -
              
              
              
              65,380Total
      Current Assets
              
              
              1,321,294
              
              
              
              1,912,829Property
      and Equipment, at cost (Note 2):Oil
      and gas properties and equipment
              
              
              2,086,095
              
              
              
              4,920,550Capitalized
      asset retirement costs
              
              
              46,146
              
              
              
              13,675Other
      property & equipment
              
              
              48,205
              
              
              
              46,2222,180,446
              
              
              
              4,980,447Less:
      accumulated depletion, depreciation and
      amortization
              
              
              (455,344
              )
              
              
              (183,166
              )1,725,102
              
              
              
              4,797,281Bank
      CD pledged for Bond
              
              
              30,000
              
              
              
              30,000Total
      Assets
              
              $
              3,076,396
              
              
              $
              6,740,110LIABILITIES AND
      STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
              
              $
              114,190
              
              
              $
              2,128,915Accrued
      Expenses
              
              
              -
              
              
              
              87,941Current
      Maturity of Promissory Note (Note 8)
              
              
              4,136
              
              
              
              3,572Total
      Current Liabilities
              
              
              118,326
              
              
              
              2,220,428Promissory
      Note, net of Current Maturity (Note 8)
              
              
              371
              
              
              
              3,283Liability
      for Asset Retirement Obligations (Note 12)
              
              
              54,475
              
              
              
              18,203Commitments
      and Contingencies (Note 9)Stockholders'
      Equity:Common
      stock, $0.0001 par value, 190,000,000 sharesauthorized;
      46,959,775  and 40,959,775 shares issued and
      outstanding
              
              
              4,696
              
              
              
              4,095as
      of September 30, 2009 and December 31, 2008, respectively.Additional-Paid-in-Capital
              
              
              11,804,013
              
              
              
              11,336,613Deferred
      Compensation
              
              
              -
              
              
              
              (7,493
              )Stock
      Purchase Notes Receivable
              
              
              (142,500
              )
              
              
              (142,500
              )Accumulated
      Deficit
              
              
              (8,456,510
              )
              
              
              (6,155,716
              )Accumulated
      Other Comprehensive Loss -Currency
      Translation (Loss)
              
              
              (306,475
              )
              
              
              (536,803
              )2,903,224
              
              
              
              4,498,196Total
      Liabilities and Stockholders' Equity
              
              $
              3,076,396
              
              
              $
              6,740,110The
      accompanying notes are an integral part of these consolidated financial
      statements.





1


OSAGE
EXPLORATION AND DEVELOPMENT, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 For the
Three and Nine Months ended September 30, 2009 and September 30, 2008
(unaudited)


Three
      Months ended September 30,
                  
                  
                  Nine
      Months ended September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Operating
      RevenuesOil
      Revenues
                  
                  $
                  397,819
                  
                  
                  $
                  636,199
                  
                  
                  $
                  861,305
                  
                  
                  $
                  1,558,502Pipeline
      Revenues
                  
                  
                  350,066
                  
                  
                  
                  298,824
                  
                  
                  
                  1,262,575
                  
                  
                  
                  494,007Total
      Operating Revenues
                  
                  
                  747,885
                  
                  
                  
                  935,023
                  
                  
                  
                  2,123,880
                  
                  
                  
                  2,052,509Operating
      Costs and ExpensesOperating
      Expenses
                  
                  
                  265,133
                  
                  
                  
                  157,716
                  
                  
                  
                  696,241
                  
                  
                  
                  516,181Asset
      Impairment
                  
                  
                  183,205
                  
                  
                  
                  -
                  
                  
                  
                  1,903,686
                  
                  
                  
                  -Depreciation,
      Depletion and Accretion
                  
                  
                  93,308
                  
                  
                  
                  66,252
                  
                  
                  
                  272,178
                  
                  
                  
                  130,514Stock
      Based Compensation Expense
                  
                  
                  -
                  
                  
                  
                  689,424
                  
                  
                  
                  55,493
                  
                  
                  
                  2,221,284General
      and Administrative Expenses
                  
                  
                  449,520
                  
                  
                  
                  522,618
                  
                  
                  
                  1,521,308
                  
                  
                  
                  1,313,122Total
      Operating Costs and Expenses
                  
                  
                  991,166
                  
                  
                  
                  1,436,010
                  
                  
                  
                  4,448,906
                  
                  
                  
                  4,181,101Operating
      (Loss)
                  
                  
                  (243,281
                  )
                  
                  
                  (500,987
                  )
                  
                  
                  (2,325,026
                  )
                  
                  
                  (2,128,592
                  )Other
      Income (Expenses):Interest
      Income
                  
                  
                  4,014
                  
                  
                  
                  30,829
                  
                  
                  
                  28,241
                  
                  
                  
                  109,190Interest
      Expense
                  
                  
                  (1,333
                  )
                  
                  
                  (253,312
                  )
                  
                  
                  (4,009
                  )
                  
                  
                  (754,446
                  )Other
                  
                  
                  -
                  
                  
                  
                  866
                  
                  
                  
                  
                  
                  
                  
                  3,802Loss
      before Income Taxes
                  
                  
                  (240,600
                  )
                  
                  
                  (722,604
                  )
                  
                  
                  (2,300,794
                  )
                  
                  
                  (2,770,046
                  )Provision
      for Income Taxes
                  
                  
                  -
                  
                  
                  
                  232,617
                  
                  
                  
                  -
                  
                  
                  
                  316,287Net
      Loss
                  
                  
                  (240,600
                  )
                  
                  
                  (955,221
                  )
                  
                  
                  (2,300,794
                  )
                  
                  
                  (3,086,333
                  )Other
      Comprehensive Income/(Loss), net of tax:Foreign
      Currency Translation Adjustment
                  
                  
                  29,840
                  
                  
                  
                  (426,488
                  )
                  
                  
                  230,328
                  
                  
                  
                  (435,079
                  )Other
      Comprehensive Income/(Loss)
                  
                  
                  29,840
                  
                  
                  
                  (426,488
                  )
                  
                  
                  230,328
                  
                  
                  
                  (435,079
                  )Comprehensive
      Loss
                  
                  $
                  (210,760
                  )
                  
                  $
                  (1,381,709
                  )
                  
                  $
                  (2,070,466
                  )
                  
                  $
                  (3,521,412
                  )Earnings
      per Share Date:Basic
      and Diluted Net Loss
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.08
                  )Other
      Comprehensive Income/(Loss)
                  
                  $
                  0.00
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.01
                  )Comprehensive
      Loss
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.09
                  )Weighted
      average number of common shareand
      common share equivalents used tocompute
      basic and dilluted Loss per Share
                  
                  
                  46,959,775
                  
                  
                  
                  40,438,036
                  
                  
                  
                  45,395,489
                  
                  
                  
                  38,398,826




The
accompanying notes are an integral part of these consolidated financial
statements.






2


OSAGE
EXPLORATION AND DEVELOPMENT, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For
the Nine Months Ended September 30, 2009 and September 30, 2008
(unaudited)




2009
              
              
              2008Cash
      flows from Operating Activities:Net
      (Loss)
              
              $
              (2,300,794
              )
              
              $
              (3,086,333
              )Adjustments
      to reconcile net (loss) to net cash provided/(used)
      by operating activites:Asset
      Impairment
              
              
              1,903,686
              
              
              
              -Beneficial
      Conversion of Convertible Debenture
              
              
              -
              
              
              
              652,753Amortization
      of deferred compensation
              
              
              7,493
              
              
              
              2,053,284Shares
      issued for services
              
              
              48,000
              
              
              
              168,000Accretion
      of Asset Retirment Obligation
              
              
              36,272
              
              
              
              1,242Amortization
      of Deferred Financing Costs
              
              
              -
              
              
              
              33,638Provision
      for depletion, depreciation amortization and valuation
      allowance
              
              
              272,178
              
              
              
              130,514Changes
      in operating assets and liabitlies:(Increase)
      in accounts receivable
              
              
              (13,900
              )
              
              
              (197,188
              )(Increase)
      in other current assets
              
              
              109,578
              
              
              
              (63,697
              )(Increase)
      in prepaid expenses
              
              
              11,947
              
              
              
              (22,823
              )Increase/(decrease)
      in accounts payable and accrued expenses
              
              
              447,347
              
              
              
              240,099Net
      cash provided/(used) by operating activities
              
              
              521,807
              
              
              
              (90,511
              )Cash
      flows from Investing Activities:Cash
      acquired with Cimarrona Acquisition
              
              
              -
              
              
              
              480,793Increase
      in Asset Retirement Obligation
              
              
              (32,471
              )
              
              
              -Pipeline
      Reimbursement by Operator
              
              
              797,483
              
              
              
              -Investment
      in Bank CD pledged for Letter of Credit
              
              
              (49,453
              )
              
              
              -Maturity
      of Bank CD pledged for Letter of Credit
              
              
              145,632
              
              
              
              -Proceeds
      from assignment of 50% of Rosablanca
              
              
              912,164
              
              
              
              -Investments
      in Oil & Gas Properties
              
              
              (1,711,966
              )
              
              
              (256,089
              )Return
      of deposit made on Oil & Gas Property
              
              
              -
              
              
              
              140,000Purchase
      of Non Oil & Gas property
              
              
              (1,983
              )
              
              
              (35,024
              )Interest
      earned on Bank CD pledged for Letter of Credit
              
              
              (1,535
              )
              
              
              2,225Interest
      earned on Colombian Bonds
              
              
              -
              
              
              
              4,970Maturity
      of Colombian Bonds
              
              
              -
              
              
              
              77,602Investment
      in Colombian Trust Account
              
              
              (400,408
              )
              
              
              229,024Net
      cash provided/(used) by investing activities
              
              
              (342,537
              )
              
              
              643,501Cash
      flows from Financing Activities:Proceeds
      from payment on Stock Purchase Notes Receivable
              
              
              -
              
              
              
              167,375Payments
      on Promissory Notes
              
              
              (2,348
              )
              
              
              (2,594
              )Net
      cash provided/(used) by financing activities
              
              
              (2,348
              )
              
              
              164,781Effect
      of exchange rate on cash and cash equivalents
              
              
              45,529
              
              
              
              (435,079
              )Net
      increase in cash and cash equivalents
              
              
              222,451
              
              
              
              282,692Cash
      and Cash equivalents beginning of period
              
              
              988,508
              
              
              
              689,545Cash
      and Cash equivalents end of period
              
              $
              1,210,959
              
              
              $
              972,237SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      Payment for Interest
              
              $
              208
              
              
              $
              66,813Cash
      Payment for Income Taxes
              
              
              -
              
              
              
              -Non-Cash
      Transactions:Forgiveness
      of accounts payable by Lewis Energy Corporation
              
              
              1,985,043Forgiveness
      of Joint Operating Account Liabilities by Pacific Rubiales Energy
      Corp.
              
              
              799,007Issuance
      of Shares to Lewis Energy Corporation
              
              
              420,000Forgiveness
      of accounts payable by various vendors relating to
    Rosablanca
              
              
              124,306Shares
      and Warrants issued in connection with Cimarrona
    acquisition
              
              
              
              2,128,845Shares
      issued upon conversion of Unsecured Convertible Promissory
      Note
              
              
              
              1,100,000Issuance
      of Shares for Services
              
              
              48,000
              
              
              
              168,000







3


OSAGE
EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009 (unaudited)





1. BASIS
OF PRESENTATION





Osage
Exploration and Development, Inc. (“Osage” 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 2008 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 financial statements reflect all adjustments and disclosures,
which, in the Company’s opinion, are necessary for fair presentation. 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.





The
Company incurred significant losses and negative cash flow in the last three
years as well as the nine months ended September 30, 2009 and has an accumulated
deficit of $8,456,510 at September 30, 2009 and $6,155,716 (audited) at December
31, 2008.  Substantial portions of the losses are attributable to
asset impairment charges, stock based compensation expense, professional fees
and interest expense.  The Company's operating plans require
additional funds that may take the form of debt or equity financings. There can
be 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 can
be 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 can be 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” (FAS 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 FAS 168 and ASU 2009-1 recognize the FASB Accounting Standards
Codificationas
the source of authoritative U.S. GAAP to be utilized by nongovernmental
entities. FAS 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





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements", which is an amendment of Accounting Research
Bulletin ("ARB") No. 51, as codified in FASB ASC topic 810 (“ASC 810”). ASC 810
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements.  ASC 810 changes the way the
consolidated income statement is presented, thus requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
parent and the noncontrolling interest. ASC 810 is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  The adoption of ASC 810 did not have a material
impact on the Company’s financial statements.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities,” as codified by FASB ASC topic 815 (“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 (“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
May 2009, the FASB issued FASB No. 165, “Subsequent Events” (“SFAS
165”), as codified by FASB ASC topic 855(“ASC 855”).  ASC 855
establishes general standards of accounting for disclosing events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for selecting that date,
that is, whether that date represents the date the financial statements were
issued or were available to be issued. ASC 855 is effective for interim or
annual financial periods ending after September 15, 2009. The adoption of
ASC 855 did not have a material impact on the Company.





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 (“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 will 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. Earlier application is prohibited.
Based on current conditions, the Company does not expect the adoption of ASC 810
to have a material impact on its results of operations or financial
position.





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.








5


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 (“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.




We did
not have a provision for income taxes for 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.  We recorded tax provisions of
$232,617 and $316,827 for the three and nine months ended September 30, 2008,
respectively, relating entirely to our Cimarrona operations in Colombia which we
acquired on April 1, 2008.  However, we eliminated these amounts when
we computed our full year 2008 provision due to the history of operating losses
that existed in Cimarrona prior to us acquiring it.




2. OIL AND GAS PROPERTIES





Oil and
gas properties consisted of the following as of September 30, 2009 and December
31, 2008 (audited):




2009
              
              
              2008Properties
      subject to amortization
              
              $
              2,086,095
              
              
              $
              2,239,193Properties
      not subject to amortization
              
              
              -
              
              
              
              2,681,357Capitalized
      asset retirement costs
              
              
              46,146
              
              
              
              13,6752,132,241
              
              
              
              4,934,225Accumulated
      depreciation and depletion
              
              
              (427,817
              )
              
              
              (166,138
              )Oil
      and as Properties, Net
              
              $
              1,704,424
              
              
              $
              4,768,087
  The
decrease in oil and gas properties in 2009, as compared to 2008, is primarily
due to (i) to the assignment of 50% of Rosablanca to Lewis Energy Colombia, Inc.
(“LEC”) as more fully described in footnote 10, (ii) the asset impairment
charges to write down the value of all capitalized costs relating to Rosablanca
and (iii) a transaction with Pacific Rubiales Energy Corp. (“Pacific”), the
operator of the pipeline and 90.4% owner of the Guaduas field in Colombia,
whereby Pacific reimbursed us for certain costs relating to the pipeline as well
as adjusted the amount owed to them under our joint operating agreement, which
were originally included as capitalized costs of the pipeline.  No
gain or loss was recognized from this transaction.






6





3.
GEOGRAPHICAL INFORMATION





The
following table sets forth revenues and assets for the periods reported by
geographic location:




Revenues
      for the Quarter
              
              
              Revenues
      for the Quarterended
      September 30, 2009
              
              
              ended
      September 30, 2008Amount
              
              
              %
      of Total
              
              
              Amount
              
              
              %
      of TotalColombia
              
              $
              716,571
              
              
              
              95.8%
              
              
              $
              848,654
              
              
              
              90.8%United
      States
              
              
              31,314
              
              
              
              4.2%
              
              
              
              86,369
              
              
              
              9.2%Total
              
              $
              747,885
              
              
              
              100.0%
              
              
              $
              935,023
              
              
              
              100.0%




Revenues
      for the Nine Months
              
              
              Revenues
      for the Nine Monthsended
      September 30, 2009
              
              
              ended
      September 30, 2008Amount
              
              
              %
      of Total
              
              
              Amount
              
              
              %
      of TotalColombia
              
              $
              2,049,626
              
              
              
              96.5%
              
              
              $
              1,840,760
              
              
              
              89.7%United
      States
              
              
              74,254
              
              
              
              3.5%
              
              
              
              211,749
              
              
              
              10.3%Total
              
              $
              2,123,880
              
              
              
              100.0%
              
              
              $
              2,052,509
              
              
              
              100.0%
  Long
      Lived Assets at
              
              
              Long
      Lived Assets atSeptember
      30, 2009
              
              
              September
      30, 2008Colombia
              
              $
              1,551,468
              
              
              
              89.9%
              
              
              $
              2,156,724
              
              
              
              93.9%United
      States
              
              
              173,634
              
              
              
              10.1%
              
              
              
              141,189
              
              
              
              6.1%Total
              
              $
              1,725,102
              
              
              
              100.0%
              
              
              $
              2,297,913
              
              
              
              100.0%






4.
COLOMBIAN TRUST ACCOUNTS




In
September 2007, we made 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 mile Rosablanca concession in
Colombia awarded by the Agencia Nacional de Hidrocarburos (“ANH”) to Gold in
September 2007.  We paid $1,200,000 to Gold representing the funds
Gold previously issued to a trust established by the ANH to use for drilling the
first well for the Rosablanaca concession and 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 did.  As of September 30,
2009, we had no balance in this trust account.






Under the
terms of the ANH concession agreement, we were required to perform six
twelve-month phases.  The ANH concession was to remain in effect as
long as we meet our timely obligations to complete each phase that we present to
the ANH.  We performed the first phase which was to drill the first
well.  Each phase requires we fund a new trust account and issue a
letter of credit as well as perform certain tasks.  Phase 2 required
establishment of a new trust account for $790,000, of which our share was
initially $395,000, later reduced to $197,500 upon the signing of the LEC
transaction as further described in Footnote 10.  Phase 2 also
required the issuance of a letter of credit for $110,000, of which our share was
initially $55,000, later reduced to $27,500 upon signing of the LEC transaction
and obligated us to perform certain seismic work.  In September 2009,
we entered into a termination agreement (the “Termination Agreement”) with Gold,
Empesa and LEC, whereby we and LEC withdrew from the Rosablanca concession and
transferred the remaining balance in the trust account and the letter of credit
to Gold.  According to the Termination Agreement, Gold and Empesa are
now the only parties to the concession and are responsible for all costs related
to phase 2 and beyond.  The trust account had no balance at September
30, 2009.




5.
DEPOSITS




In
November 2007, we entered into an agreement to purchase out of bankruptcy a
working interest in an oil and gas leasehold and producing wellbore in Louisiana
for $1,400,000.  Upon signing the agreement, we deposited 10% of the
total purchase price, or $140,000.  The bankruptcy court did not
pursue the sale and we received our deposit of $140,000 back on March 1,
2008.  We have no further obligations for this property.




7


6. BANK
CD PLEDGED FOR LETTER OF CREDIT





In August
2007, we placed $144,000 in a certificate of deposit (“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 at September 30, 2009 was zero.





In March
2009, we placed the equivalent of $55,000 in a CD with a bank in Colombia as
collateral for the $110,000 letter of credit required by the ANH for Phase
2.  LEC reimbursed us $27,500 for this CD as more fully described in
footnote 4 above.  Pursuant to the Termination Agreement described in
footnote 4 above, we transferred the balance in this CD to Gold in the quarter
ended September 30, 2009.  In the quarter ended September 30, 2009, we
therefore recorded an asset impairment charge of $31,419 for the value of the CD
and thus the value of this CD was zero at September 30, 2009.





7.
UNSECURED CONVERTIBLE PROMISSORY NOTE





In July
2007, we issued a $1,100,000 unsecured convertible promissory note (“Unsecured
Convertible Promissory Note”) to one institutional investor for gross proceeds
of $1,100,000. The Unsecured Convertible Promissory Note matured September 30,
2008, had an 8% interest rate, payable in cash quarterly, and was convertible,
in whole or in part, into units, with each unit (“Unit”) priced at $1.00 and
consisting of one share of Common Stock and one warrant, exercisable at $1.25
per share maturing three years from issuance.  We had the option to
prepay the Unsecured Convertible Promissory Note at any time prior to maturity
with no penalty.   We had the option, but only at maturity, to
repay the Unsecured Convertible Promissory Note in Units.  At
September 30, 2008, we repaid in full the Unsecured Convertible Promissory note
by issuing 1,100,000 Units.  As such, the balance of the Unsecured
Convertible Promissory Note at September 30, 2009 and December 31, 2008
(audited) was zero.  Pursuant to EITF 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" and EITF 00-27, “Application of Issue No. 98-5 in
Certain Convertible Instruments,” we recorded $1,067,274 upon the issuance of
the Unsecured Convertible Promissory Note attributable to the beneficial
conversion feature as additional paid in capital.  The discount was
amortized using the effective interest rate method over the term of the
indebtedness.





8.
PROMISSORY NOTE





On April
27, 2007, we purchased a truck 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%, and has
monthly principal and interest payments of $366.  As of September 30,
2009, the interest rate on the Promissory Note was 4.25%.





The
following table summarizes the balance of the Promissory Note at September 30,
2009:





Promissory
      Note Outstanding at September 30, 2009
            
            $
            4,507Less
      Current Portion
            
            
            4,136$
            371






8


9.
COMMITMENTS AND CONTINGENCIES





ENVIRONMENT





Osage, as
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 September 30,
2009, 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 as of September 30, 2009 under operating leases
are as follows by year:




Year
                        
                        
                        Amount2010
                        
                        
                        $
                        38,3702011
                        
                        
                        
                        27,459Totals
                        
                        
                        $
                        65,829
  Rental
expense charged to operations totaled $13,332 and $39,760 for the quarter and
nine months ended September 30, 2009, respectively.  Rental expense
charged to operations totaled $12,977 and $32,631 for the quarter and nine
months ended September 30, 2008, respectively.





LEGAL
PROCEEDINGS





The
Company is not a party to any litigation that has arisen in the normal course of
its business and that of its subsidiaries.





10.
EQUITY TRANSACTIONS





Cimarrona
Acquisition


In
February 2008, we entered into an letter of intent and issued a $100,000 deposit
to acquire a minority position in certain producing oil and gas assets in
Colombia.  On April 8, 2008, we entered into a membership
interest purchase agreement (the “Purchase Agreement”) with Sunstone Corporation
(“Sunstone”) pursuant to which the Company 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 cover 30,665 acres in the Middle Magdalena
Valley in Colombia.  The Purchase Agreement was effective as of April
1, 2008.  The purchase price consisted of 2,750,000 shares of the
Company’s Common Stock and a warrant to purchase 1,125,000 shares of the
Company’s Common Stock exercisable at $1.25 per share and expiring April 8,
2013.  The $100,000 deposit was returned to the Company in conjunction
with closing of the transaction.  In addition, the Company issued
50,000 shares of Common Stock to Energy Capital Solutions, LP for their role as
financial advisor in the transaction and $22,500 to an unaffiliated individual
as a finder’s fee.




9





Lewis Energy Colombia,
Inc.


In March
2009, we entered into an agreement (the “LEC Agreement”) with LEC, 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 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 agreed to withdraw from the Rosablanca concession





11. MAJOR
CUSTOMERS





The
following table sets forth revenues by customer for the periods
reported:




Quarter
      ended September 30, 2009
              
              
              Quarter
      ended September 30, 2009Amount
              
              
              %
      of Total
              
              
              Amount
              
              
              %
      of TotalPacific
              
              $
              350,066
              
              
              
              46.8%
              
              
              $
              298,824
              
              
              
              32.0%HOCOL
              
              
              366,505
              
              
              
              49.0%
              
              
              
              549,830
              
              
              
              58.8%Sunoco
              
              
              31,314
              
              
              
              4.2%
              
              
              
              86,369
              
              
              
              9.2%Total
              
              $
              747,885
              
              
              
              100.0%
              
              
              $
              935,023
              
              
              
              100.0%




Nine
      Months ended September 30, 2009
              
              
              Nine
      Months ended September 30, 2008Amount
              
              
              %
      of Total
              
              
              Amount
              
              
              %
      of TotalPacific
              
              $
              1,262,575
              
              
              
              59.4%
              
              
              $
              494,007
              
              
              
              24.1%HOCOL
              
              
              787,051
              
              
              
              37.1%
              
              
              
              1,346,753
              
              
              
              65.6%Sunoco
              
              
              74,254
              
              
              
              3.5%
              
              
              
              211,749
              
              
              
              10.3%Total
              
              $
              2,123,880
              
              
              
              100.0%
              
              
              $
              2,052,509
              
              
              
              100.0%
  Oil
Revenues are derived from HOCOL, S.A. (“HOCOL”) and Sunoco, Inc. (“Sunoco”),
while pipeline revenues are derived from Pacific.





12. 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.




10


There are
no legally restricted assets for the settlement of asset retirement
obligations.  A reconciliation of the Company's asset retirement
obligations for the nine months periods presented is as follows:




September
      30, 2009
              
              
              September
      30, 2008Colombia
              
              
              United
      States
              
              
              Combined
              
              
              Colombia
              
              
              United
      States
              
              
              CombinedBeginning
      Balance
              
              $
              -
              
              
              $
              18,203
              
              
              $
              18,203
              
              
              $
              -
              
              
              $
              16,547
              
              
              $
              16,547Incurred
      during the period
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Additions
      for new wells
              
              
              32,471
              
              
              
              -
              
              
              
              32,471
              
              
              
              -
              
              
              
              -
              
              
              
              -Accretion
      expense
              
              
              2,436
              
              
              
              1,365
              
              
              
              3,801
              
              
              
              -
              
              
              
              1,342
              
              
              
              1,342Ending
      Balance
              
              $
              34,907
              
              
              $
              19,568
              
              
              $
              54,475
              
              
              $
              -
              
              
              $
              17,889
              
              
              $
              17,889




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, international and political uncertainty, fluctuations
in exchange rates, 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 statement to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.





In
September 2007, we entered into the Agreement with Gold and Empesa, whereby we
farmed-in to the approximately 165 square mile Rosablanca concession in Colombia
awarded by the ANH to Gold in September, 2007.  Our decision to pursue
the Rosablanca project was based on the seismic data generated by the ANH that
revealed multiple target opportunities. Under the Agreement, we were considered
the operators of the concession and were obligated to pay all costs associated
with drilling and testing of the first well on the Rosablanca
project.  Revenues generated from the first well were to be allocated
50% to us, 40% to Gold and 10% to Empesa.  In March 2009, we entered
into 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 the Rosablanca.  This Agreement also
provided that LEC was entitled to receive an amount equal to 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.  On March 23, 2009, we
announced 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.






11





In August
2007, we (i) paid $1,200,000 to Gold representing the funds Gold previously
issued to a trust account established by the ANH to use for drilling the first
well for the Rosablanaca concession and (ii) issued a letter of credit in the
amount 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 did.  Under the terms
of the concession agreement with the ANH, we had the right to explore for up to
six twelve-months phases.  Under the agreement, the exploitation phase
of the concession with the ANH remained in effect for up to 24 years as long as
we able to meet our timely obligations to drill each well that we presented to
the ANH. We already 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 $27,500 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.  On March 23, 2009, we announced that we
have 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 LEC, whereby we and
LEC withdrew from the Rosablanca concession.





On
April 8, 2008, we entered into the Purchase Agreement with Sunstone
pursuant to which we acquired from Sunstone 100% of the membership interests in
Cimarrona LLC, 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 in excess of 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 2009 which would effectively reduce the
cash flows generated by the property 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.





In April
2009, Pacific reimbursed us $797,483 as well as reduced the amount owed to them
under our joint operating agreement by $799,007 relating to certain disputes we
had with Pacific regarding a blending facility that they built in conjunction
with the pipeline.  These amounts were originally included as
capitalized costs of the pipeline.  No gain or loss was recognized
from this transaction.





We
anticipate we will need to raise at least $1,000,000 over the next twelve
months.  At present, the revenues generated from the Cimarrona and
Oklahoma properties are only sufficient to cover field operating expenses and a
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 revenues from the Oklahoma and Cimarrona properties and
(c) controlling overhead and expenses.





There can
be 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.




12





Results
of Operations





Three
Months ended September 30, 2009 compared to Three Months ended September 30,
2008


Revenues
and Production




2009
              
              
              2008
              
              
              ChangeAmount
              
              
              Percentage
              
              
              Amount
              
              
              Percentage
              
              
              Amount
              
              
              PercentageOil
      Revenues
              
              $
              397,819
              
              
              
              53.2%
              
              
              $
              636,199
              
              
              
              68.0%
              
              
              $
              (238,380
              )
              
              
              -37.5%Pipeline
      Revenues
              
              
              350,066
              
              
              
              46.8%
              
              
              
              298,824
              
              
              
              32.0%
              
              
              
              51,242
              
              
              
              17.1%Total
      Revenues
              
              $
              747,885
              
              
              
              100.0%
              
              
              $
              935,023
              
              
              
              100.0%
              
              
              $
              (187,138
              )
              
              
              -20.0%
  Oil
Revenues





Oil
Revenues were $397,819, a decrease of $238,380, or 37.5%, in 2009 compared to
$636,199 in 2008.   The decrease is due primarily to a decrease
in oil prices as well as a decrease in barrels sold in United
States.  In Colombia, we sold 6,000 barrels (“BBLs”) at an average
gross price of $64.30 in 2009 compared to 6,000 BBLs at $104.43 in
2008.  In the United States, we sold 652 BBLs at an average gross
price of $63.71 in 2009 compared to 940 BBLs at an average price of $118.61 in
2008.





Pipeline
Revenues





Pipeline
revenues were $350,066, an increase of $51,242, or 17.1%, in 2009 compared to
$298,824 in 2008 due primarily to an increase in the number of barrels
transported to approximately 2.23 million BBLs (our share was approximately
210,000 BBLs) in 2009 from approximately 1.97 million BBLs (our share was
approximately 185,000) BBLs in 2008.





Total
Revenues





Total
revenues were $747,885, a decrease of $187,138, or 20.0%, in 2009 compared to
$935,023 in 2008.  Pipeline revenues accounted for 46.8% and 32.0% of
total revenues in 2009 and 2008, respectively.





Production




2009
              
              
              2008
              
              
              Increase/(Decrease)Net
      Barrels
              
              
              %
      of Total
              
              
              Net
      Barrels
              
              
              %
      of Total
              
              
              Barrels
              
              
              %Colombia
              
              
              5,190
              
              
              
              88.8%
              
              
              
              6,815
              
              
              
              87.9%
              
              
              
              (1,625
              )
              
              
              -23.8%United
      States
              
              
              652
              
              
              
              11.2%
              
              
              
              940
              
              
              
              12.1%
              
              
              
              (288
              )
              
              
              -30.6%Total
              
              
              5,842
              
              
              
              100.0%
              
              
              
              7,755
              
              
              
              100.0%
              
              
              
              (1,913
              )
              
              
              -24.7%







Production,
net of royalties, was 5,842, a decrease of 1,913 BBLs, or 24.7% in 2009 compared
to 7,755 in 2008 as production decreased in both Colombia and the United
States.  Colombia production accounted for 88.8% and 87.9% of total
production in 2009 and 2008, respectively.






13


Operating
Costs and Expenses




2009
              
              
              2008%
      of
              
              
              
              
              
              %
      of
              
              
              ChangeAmount
              
              
              Revenues
              
              
              Amount
              
              
              Revenues
              
              
              Amount
              
              
              PercentageOperating
      Expenses
              
              $
              265,133
              
              
              
              35.5%
              
              
              $
              157,716
              
              
              
              16.9%
              
              
              $
              107,417
              
              
              
              68.1%Asset
      Impairment
              
              
              183,205
              
              
              
              24.5%
              
              
              
              -
              
              
              
              0.0%
              
              
              
              183,205
              
              
              
              N/AStock
      Based Compensation Expense
              
              
              -
              
              
              
              0.0%
              
              
              
              689,424
              
              
              
              73.7%
              
              
              
              (689,424
              )
              
              
              -100.0%Depreciation,
      Depletion and Accretion
              
              
              93,308
              
              
              
              12.5%
              
              
              
              66,252
              
              
              
              7.1%
              
              
              
              27,056
              
              
              
              40.8%General
      & Administrative Expenses
              
              
              449,520
              
              
              
              60.15
              
              
              
              522,618
              
              
              
              55.9%
              
              
              
              (73,098
              )
              
              
              -14.0%Total
      Operating Costs and Expenses
              
              $
              991,166
              
              
              
              132.5%
              
              
              $
              1,436,010
              
              
              
              153.6%
              
              
              $
              (444,844
              )
              
              
              -31.0%




Operating
Expenses





Our
operating expenses were $265,133 and $157,716 in 2009 and 2008,
respectively.  The increase in operating expenses of $107,417 relate
primarily to increased operating expenses in the Cimarrona property, which is
operated by Pacific.  Operating expenses as a percentage of total
revenues increased to 35.5% in 2009 from 16.9% in 2008 due to the combination of
increased operating expenses and the decline in revenues.





Asset
Impairment





We
recorded an asset impairment charge of $183,205 in 2009 relating to our
Rosablanca concession as we exited the concession in the quarter ended September
30, 2009.  No comparable impairment charge was recorded in
2008.





Stock
Based Compensation Expense





Stock
based compensation expense was $0 and $689,424 in 2009 and 2008.  2008
stock based compensation consisted primarily of the amortization of the value of
shares issued to two employees in November 2007.  All shares issued
were valued based on the stock price at the date of issuance.





General
and Administrative Expenses





General
and administrative expenses were $449,520 in 2009, a $73,089 decrease, or 14.0%,
compared to $522,618 in 2008.  The decrease is primarily attributable
to lower general and administrative costs incurred in Colombia and lower travel
expenses.  General and administrative expenses as a percentage of
total revenues increased to 60.1% in 2009 from 55.9% in 2008, as the decrease in
revenues exceeded the decrease in general and administrative
expenses.





Depreciation,
depletion and accretion





Depreciation,
depletion and accretion were $93,308 in 2009 compared to $66,252 in
2008.  Most of the depreciation and depletion expenses in 2009 and
2008 relate to capitalized costs in our Cimarrona property.





Total
Operating Costs and Expenses





Total
operating costs and expenses were $991,166 in 2009, a $444,844 decrease, or
31.0%, compared to $1,436,010 in 2008 due primarily to a decrease in stock based
compensation and general and administrative expenses, offset by in increases in
asset impairment and operating expenses.  As a percentage of total
revenues, total operating costs and expenses were 132.5% and 153.6% in 2009 and
2008, respectively.





Operating
Loss





Operating
loss was $243,281 in 2009, an improvement of $257,706 compared to an operating
loss of $500,987 in 2008.  As a percentage of total revenues,
operating loss was 32.5% and 53.6% in 2009 and 2008, respectively.




14





Other
Income/(Expenses)





Total
other income/(expenses) consist primarily of interest expense and interest
income.  Interest income was $4,014 and $30,829 in 2009 and 2008,
respectively.  The decrease in interest income is due primarily to
lower cash and trust balances as well as a decrease in interest rates in 2009
compared to 2008.  Interest expense was $1,333 and $253,312 in 2009
and 2008, respectively.  Interest expense in 2008 consisted primarily
of the amortization of the beneficial conversion feature of the $1,100,000
Unsecured Convertible Promissory Note, which converted into shares of Common
Stock in September 2008.





Net
Loss





Net loss
was $240,600 and $955,221 in 2009 and 2008, respectively.  The
decrease in net loss of $714,621 consists primarily of a $257,706 decrease in
operating loss and a decrease in interest expense of $251,979 in 2009 compared
to 2008.


Foreign
Currency Translation Adjustment





Foreign
currency translation gain was $29,840 in 2009 compared to a foreign currently
translation loss of $426,488 in 2008.  The Colombian Peso to Dollar
Exchange Rate averaged 2,016 and 2,195 in 2009 and 2008,
respectively.  The exchange rate was 1,937 and 1,904 at September 30,
2009 and September 30, 2008, respectively.





Comprehensive
Loss





Comprehensive
loss was $210,760 in 2009 compared to a comprehensive loss of $1,381,709 in
2008.  The decrease in comprehensive loss of $1,170,949 consists of
the $714,621 decrease in net loss and an improvement in foreign currency
translation adjustment of $456,328.





Nine
Months ended September 30, 2009 compared to Nine Months ended September 30,
2008


Revenues
and Production




2009
              
              
              2008
              
              
              ChangeAmount
              
              
              Percentage
              
              
              Amount
              
              
              Percentage
              
              
              Amount
              
              
              PercentageOil
      Revenues
              
              $
              861,305
              
              
              
              40.6%
              
              
              $
              1,558,502
              
              
              
              75.9%
              
              
              $
              (697,197
              )
              
              
              -44.7%Pipeline
      Revenues
              
              
              1,262,575
              
              
              
              59.4%
              
              
              
              494,007
              
              
              
              24.1%
              
              
              
              768,568
              
              
              
              155.6%Total
      Revenues
              
              $
              2,123,880
              
              
              
              100.0%
              
              
              $
              2,052,509
              
              
              
              100.0%
              
              
              $
              71,371
              
              
              
              3.5%
  Oil
Revenues





Oil
revenues were $861,305, a decrease of $697,197, or 44.7%, in 2009 compared to
$1,558,502 in 2008.   The decrease is due primarily to a decrease
in oil prices and a decline in barrels sold in United States, offset by an
increase in barrels sold in Colombia as we acquired the Cimarrona property on
April 1, 2008.  In Colombia, we sold 17,000 BBLs at an average gross
price of $48.75 in 2009 compared to 13,000 BBLs at $110.37 in
2008.  In the United States, we sold 1,934 BBLs at an average price of
$50.92 in 2009 compared to 2,414 BBLs at an average price of $115.17 in
2008.





Pipeline
Revenues





Pipeline
revenues were $1,262,575, an increase of $768,568, or 155.6%, in 2009 compared
to $494,007 in 2008 due primarily to the inclusion of the Cimarrona property for
all of 2009 compared to only the second and third quarter in
2008.  The number of barrels transported was approximately 7.54
million BBLs (our share was approximately 709,000 BBLs) in 2009 compared to
approximately 3.54 million BBLs (our share was approximately 333,000 BBLs) in
2008.






15


Total
Revenues





Total
revenues were $2,123,880, an increase of $71,371, or 3.5%, in 2009 compared to
$2,052,209 in 2008.  Pipeline revenues accounted for 59.4% and 24.1%
of total revenues in 2009 and 2008, respectively.





Production


2009
              
              
              2008
              
              
              Increase/(Decrease)Net
      Barrels
              
              
              %
      of Total
              
              
              Net
      Barrels
              
              
              %
      of Total
              
              
              Barrels
              
              
              %Colombia
              
              
              17,188
              
              
              
              89.9%
              
              
              
              12,763
              
              
              
              84.1%
              
              
              
              4,425
              
              
              
              34.7%United
      States
              
              
              1,934
              
              
              
              10.1%
              
              
              
              2,414
              
              
              
              15.9%
              
              
              
              (480
              )
              
              
              -19.9%Total
              
              
              19,122
              
              
              
              100.0%
              
              
              
              15,177
              
              
              
              100.0%
              
              
              
              3,945
              
              
              
              26.0%
  Production,
net of royalties, was 19,122, an increase of 3,945 BBLs, or 26.0% in 2009
compared to 15,177 in 2008 primarily due to the inclusion of the Cimarrona
property for all of 2009 compared to only the second and third quarter in
2008.   Colombia accounted for 89.9% and 84.1% of 2009 and 2008
production, respectively.





Operating
Costs and Expenses




2009
              
              
              2008%
      of
              
              
              
              
              
              %
      of
              
              
              ChangeAmount
              
              
              Revenues
              
              
              Amount
              
              
              Revenues
              
              
              Amount
              
              
              PercentageOperating
      Expenses
              
              $
              696,241
              
              
              
              32.8%
              
              
              $
              516,181
              
              
              
              25.1%
              
              
              $
              180,060
              
              
              
              34.9%Asset
      Impairment
              
              
              1,903,686
              
              
              
              89.6%
              
              
              
              -
              
              
              
              0.0%
              
              
              
              1,903,686
              
              
              
              N/AStock
      Based Compensation Expense
              
              
              55,493
              
              
              
              2.6%
              
              
              
              2,221,284
              
              
              
              108.2%
              
              
              
              (2,165,791
              )
              
              
              -97.5%Depreciation,
      Depletion and Accretion
              
              
              272,178
              
              
              
              12.8%
              
              
              
              130,514
              
              
              
              6.4%
              
              
              
              141,664
              
              
              
              108.5%General
      & Administrative Expenses
              
              
              1,521,308
              
              
              
              71.6%
              
              
              
              1,313,122
              
              
              
              64.0%
              
              
              
              208,186
              
              
              
              15.9%Total
      Operating Costs and Expenses
              
              $
              4,448,906
              
              
              
              209.5%
              
              
              $
              4,181,101
              
              
              
              203.7%
              
              
              $
              267,805
              
              
              
              6.4%
  Operating
Expenses




Our
operating expenses were $696,241 and $516,181 in 2008.  The increase
in operating expenses primarily resulted from the inclusion of the Cimarrona
property for all of 2009 compared to only the second and third quarters in
2008.  Operating expenses as a percentage of total revenues increased
to 32.8%% in 2009 from 25.1% in 2008 as the increase in operating expenses
exceeded the increase in revenues.





Asset
Impairment





We
recorded an asset impairment charge of $1,903,686 in 2009 relating to our
Rosablanca concession as we exited the concession in 2009.  No
comparable impairment charge was recorded in 2008.





Stock
Based Compensation Expense





Stock
based compensation expense was $55,493 and $2,221,284 in 2009 and
2008.  2009 Stock based compensation expense consisted primarily of
the value of shares issued to consultants while 2008 stock based compensation
consisted primarily of the amortization of the value of shares issued in
November 2007 to employees.  All shares issued were valued based on
the stock price at the date of issuance.




16


General
and Administrative Expenses





General
and administrative expenses were $1,521,308 in 2009, a $208,186 increase, or
15.9% increase, compared to $1,313,122 in 2008.  The increase is
primarily attributable to increased compensation costs as well as increased
costs relating to Rosablanca and the inclusion of the Cimarrona property for all
of 2009 compared to just the first quarter of 2008.  General and
administrative expenses as a percentage of total revenues increased to 71.6% in
2009 from 64.0% in 2008 as the increase in general and administrative expenses
were greater than the increase in total revenues.





Depreciation,
depletion and accretion





Depreciation,
depletion and accretion were $272,178 in 2009 compared to $130,514 in
2008.  Most of the depreciation and depletion relates to the Cimarrona
property which was only depreciated in the second and third quarters of 2008
compared to the nine months in 2009.





Total
Operating Costs and Expenses





Total
operating costs and expenses were $4,448,906 in 2009, a $267,805 increase, or
6.4% increase, compared to $4,181,101 in 2008 due primarily to a decrease in
stock based compensation expense, offset by asset impairment charges and an
increase in general and administrative and operating expenses.  As a
percentage of total revenues, total operating costs and expenses were 209.5% and
203.7% in 2009 and 2008, respectively.





Operating
Loss





Operating
loss was $2,325,026 in 2009 compared to $2,128,592 in 2008.  As a
percentage of total revenues, operating loss was 109.5% and 103.7% in 2009 and
2008, respectively.  Operating loss increased by $196,434 due to the
increase in operating expenses exceeding the increase in revenues.





Other
Income/(Expenses)





Interest
income was $28,241 and $109,190 in 2009 and 2008, respectively.  The
decrease in interest income is due primarily to lower cash and trust balances
and a decrease in interest rates in 2009 compared to 2008.  Interest
expense was $4,009 and $754,446 in 2009 and 2008,
respectively.  Interest expense in 2008 consisted primarily of the
amortization of the beneficial conversion feature of the $1,100,000 Unsecured
Convertible Promissory Note, which converted into shares of Common Stock in
September 2008.





Net
Loss





Net loss
was $2,300,794 and $3,086,333 in 2009 and 2008, respectively.  Net
loss decreased by $785,539 due primarily to a decrease of $2,165,791 in stock
based compensation expense and a $750,437 decrease in interest expense, offset
by $1,903,686 of asset impairment charges recorded in 2009 relating to
Rosablanca compared to none in 2008.


Foreign
Currency Translation





Foreign
currency translation gain was $230,328 in 2009 compared to a foreign currently
translation loss of $435,079 in 2008.  The Colombian Peso to Dollar
Exchange Rate averaged 2,060 and 1,860 in 2009 and 2008.





Comprehensive
Loss





Comprehensive
loss was $2,070,466 in 2009 compared to a comprehensive loss of $3,521,412 in
2008.  The decrease in comprehensive loss of $1,450,946 consists of
the $785,539 decrease in net loss and an improvement in foreign currency
translation adjustment of $665,407.





Liquidity
and Capital Resources





We had
working capital of $1,202,968 at September 30, 2009, compared to a working
capital deficit of $307,599 at December 31, 2008.  Working capital at
September 30, 2009 consisted primarily of $1,210,959 of cash and cash
equivalents, offset by $114,190 of accounts payable.




17


At both
September 30, 2009 and December 31, 2008, 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 used the majority of the proceeds for
costs related to our Rosablanca project in Colombia, as well as for working
capital purposes.





Net cash
provided by operating activities totaled $521,807 in 2009 compared to net cash
used by operating activities of $90,511 in 2008.  The major components
of the net cash provided by operating activities in 2009 were the $1,903,686
asset impairment charges relating to our Rosablanca concession and $272,178 of
depreciation and depletion, offset by the net loss of $2,300,794.  The
major components of the net cash used in operating activities in 2008 were the
net loss of $3,086,333, offset by the amortization of deferred compensation of
$2,053,284 and $652,753 amortization of beneficial conversion feature of the
Unsecured Convertible Promissory Note.





Net cash
used by investing activities totaled $342,537 in 2009 compared to net cash
provided by investing activities of $643,501.  Net cash used in
investing activities in 2009 consisted primarily of $1,711,966 investments in
oil and gas properties and the $400,408 investment in Colombian trust accounts,
offset by $912,164 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 investing
activities in 2008, consisted primarily of the $480,793 of cash acquired with
the Cimarrona acquisition and the return of $140,000 of a deposit made on an oil
property, offset by $256,089 investment in oil and gas properties.





Net cash
used by financing activities totaled $2,348 in 2009 while net cash provided by
financing activities totaled $164,781 in 2008 and consisted primarily of the
$167,375 proceeds from payment on the stock purchase notes
receivable.


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 Oklahoma property through independent contractors that operate
producing wells for several small oil companies.  Pacific Rubiales
owns 90.6% of the Guaduas field and is its 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. The price that we receive for our oil and
gas is set by market forces beyond our control as well as governmental
intervention.  In the third quarter of 2009, we sold oil in Colombia
at prices ranging from $57.33 to $68.39 per barrel compared to $94.01 to $114.46
in 2008.  In the United States, we sold oil at prices ranging from
$59.41 to $65.84 in the third quarter of 2009, compared to $101.60 to $142.75 in
2008.  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.  The Colombian Peso to Dollar Exchange Rate
averaged 2,016 and 2,195 in the third quarters of 2009 and 2008, respectively
and was 1,937 and 1,904 at September 30, 2009 and September 30, 2008,
respectively.




18





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 SFAS No. 19, as codified in FASB
ASC 932 (“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.





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 $1,903,686
relating to our Rosablanca concession as we found no producible hydrocarbons
after drilling our first well and entered into the Termination Agreement with
Gold, EMPESA and Lewis, whereby we withdrew from the Rosablanca
concession.





Our
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 September 30, 2009 and December 31,
2008, all of our oil operations were 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 in FASB 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.




19





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.


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 officer,
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 September 30, 2009, 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 September 30, 2009 is
not effective.  Based on this assessment, management has determined
that, as of September 30, 2009, 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 affect 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.




20





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.





Except as
indicated herein, there were no changes in the Company’s internal control over
financial reporting during the three and nine months ended September 30, 2009
that have materially affected, or are reasonable likely to materially affect,
the Company’s internal control over financial reporting.








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) The following securities were
issued during the fiscal quarter and not previously reported in a Quarterly
Report on Form 10-Q of Current Report on Form 8-K:  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.







21





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:
      November 5, 2009
              By:
              /s/ Kim
      BradfordKim
      BradfordPresident
      and Chief Executive Officer


Date:
      November 5, 2009
              By:
              /s/ Kim
      BradfordKim
      BradfordPrincipal
      Financial Officer






22









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













23