Osage Exploration & Development (OSGE) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

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

For the transition period from _____ to _____

OSAGE EXPLORTION AND DEVELOPMENT, INC.

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

Delaware	0-52718	26-0421736
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(I.R.S. Employer Identification No.)

2445 5th Avenue Suite 310 San Diego, CA  92101 (Address of principal executive offices) (619) 677-3956 (Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 month (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   x                             No¨

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   ¨                             Nox

The number of outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of May 12, 2009 was 46,359,775.

OSAGE EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARY

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets; March 31, 2009 and December 31, 2008	1
	Consolidated Statement of Operations; Three Months ended March 31, 2009 and
	March 31, 2008	2
	Consolidated Statement of Cash Flows; Three Months ended March 31, 2009 and
	March 31, 2008	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4.	Controls and Procedures	17
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1.A.      Risk Factors		18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3	Default upon Senior Securities	18
Item 4	Submission of Matters to a Vote of Security Holders	18
Item 5	Other Information	18
Item 6	Exhibits	18
Signatures		19

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OSAGE EXPLORATION AND DEVELOPMENT, INC.

CONSOLIDATED BALANCE SHEETS

As of March 31, 2009 and December 31, 2008

	2009			2008
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,032,580		$	988,508
Colombian Trust Accounts (Note 4)		359,800			537,665
Accounts Receivable		52,033			64,658
Bank CD pledged for Letter of Credit (Note 6)		24,166			145,632
Other Current Assets		579,301			110,986
Prepaid Expenses		47,384			65,380
Total Current Assets		2,095,264			1,912,829
Property and Equipment, at cost (Note 2):
Oil and gas properties and equipment		1,976,744			4,920,550
Capitalized asset retirement costs		46,146			13,675
Other property & equipment		68,192			46,222
		2,091,082			4,980,447
Less: accumulated depletion, depreciation
and amortization		(269,801	)		(183,166	)
		1,821,281			4,797,281
Bank CD pledged for Bond		30,000			30,000
Total Assets	$	3,946,545		$	6,740,110
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	952,079		$	2,128,915
Accrued Expenses		14,697			87,941
Current Maturity of Promissory Note (Note 8)		3,913			3,572
Total Current Liabilities		970,689			2,220,428
Promissory Note, net of Current Maturity (Note 8)		2,489			3,283
Liability for Asset Retirement Obligations (Note 12)		51,941			18,203
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock, $0.0001 par value, 190,000,000 shares
authorized; 46,359,775 and 40,959,775 shares issued and outstanding as of March 31, 2009 and December 31, 2008, respectively.		4,636			4,095
Additional-Paid-in-Capital		11,786,073			11,336,613
Deferred Compensation		—			(7,493	)
Stock Purchase Notes Receivable		(142,500	)		(142,500	)
Accumulated Deficit		(7,883,049	)		(6,155,716	)
Accumulated Other Comprehensive Loss -
Currency Translation (Loss)/Gain		(843,734	)		(536,803	)
		2,921,426			4,498,196
Total Liabilities and Stockholders' Equity	$	3,946,545		$	6,740,110

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

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OSAGE EXPLORATION AND DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months March 31, 2009 and March 31, 2008 (unaudited)

	2009			2008
Operating Revenues
Oil Revenues	$	262,813		$	34,565
Pipeline Revenues		481,257			—
Total Operating Revenues		744,070			34,565
Operating Costs and Expenses
Operating Expenses		203,348			18,423
Asset Impairment		1,612,894			—
Depreciation, Depletion and Accretion		86,634			2,733
Stock Based Compensation Expense		37,493			681,930
General and Administrative Expenses		546,227			398,832
Total Operating Costs and Expenses		2,486,596			1,101,918
Operating (Loss)		(1,742,526	)		(1,067,353	)
Other Income (Expenses):
Interest Income		16,526			27,689
Interest Expense		(1,333	)		(250,568	)
(Loss) before Income Taxes		(1,727,333	)		(1,290,232	)
Provision for Income Taxes		—			—
Net (Loss)		(1,727,333	)		(1,290,232	)
Other Comprehensive (Loss)/Income, net of tax:
Foreign Currency Translation Adjustment		(306,931	)		124,971
Other Comprehensive Income		(306,931	)		124,971
Comprehensive (Loss)	$	(2,034,264	)	$	(1,165,261	)
Basic and Diluted Loss per Share	$	(0.04	)	$	(0.04	)
Weighted average number of common share
and common share equivalents used to
compute basic and dilluted Loss per Share		43,274,775			35,959,775

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

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OSAGE EXPLORATION AND DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2009 and March 31, 2008 (unaudited)

	2009			2008
Cash flows from Operating Activities:
Net (Loss)	$	(1,727,333	)	$	(1,290,232	)
Adjustments to reconcile net (loss) to net cash
provided/(used) by operating activites:
Asset Impairment		1,612,894
Beneficial Conversion of Convertible Debenture					216,790
Stock Based Compensation		7,493			681,930
Shares issued for services		30,000
Accretion of Asset Retirment Obligation		33,738			414
Amortization of Deferred Financing Costs					11,172
Provision for depletion, depreciation
amortization and valuation allowance		86,634			2,733
Changes in operating assets and liabitlies:
(Increase) in accounts receivable		12,625			(1,375	)
(Increase) in other current assets		(360,992	)
(Increase) in prepaid expenses		17,996			16,791
Increase/(decrease) in accounts payable and accrued expenses		1,615,988			67,175
Net cash provided/(used) by operating activities		1,329,043			(294,602	)
Cash flows from Investing Activities:
Increase in Asset Retirement Obligation		(32,471	)		—
Investment in Bank CD pledged for Letter of Credit		(50,934	)		—
Maturity of Bank CD pledged for Letter of Credit		145,632			—
Reimbursement by LEC for expenditures on Phases 1 and 2 of Rosablanca		881,523
Investments in Oil & Gas Properties		(1,530,986	)		(109,487	)
Deposit made on Oil & Gas Property		—			(100,000	)
Return of deposit made on Oil & Gas Property		—			140,000
Purchase of Non Oil & Gas property		—			(15,685	)
Interest earned on Bank CD pledged for Letter of Credit		(732	)		(1,837	)
Payments (from) Colombian Trust Account		(389,619	)		—
Net cash (used) by investing activities		(977,587	)		(87,009	)
Cash flows from Financing Activities:
Proceeds from payment on Stock Purchase Notes Receivable		—			14,100
Payments on Promissory Notes		(453	)		(864	)
Net cash provided/(used) by financing activities		(453	)		13,236
Effect of exchange rate on cash and cash equivalents		(306,931	)		124,971
Net increase (decrease) in cash and cash equivalents		44,072			(243,404	)
Cash and Cash equivalents beginning of period		988,508			689,545
Cash and Cash equivalents at end of period	$	1,032,580		$	446,141
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Payment for Interest		67			33,364
Cash Payment for Income Taxes		—			—
Non-Cash Transactions:
Issuance of Shares to Lewis Energy Corporation		420,000
Forgiveness of accounts payable to Lewis Energy Corporation		1,985,043
Issuance of Shares for Services		30,000

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

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OSAGE EXPLORATION AND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 had negative cash flow from operations in the last three years and the three months ended March 31, 2009 and has an accumulated deficit of $7,883,049 at March 31, 2009 and $6,155,716 (audited) at December 31, 2008.  Substantial portions of the losses are attributable primarily 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 any 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) increasing 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 successfully 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 any 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 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. SFAS 160 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. SFAS 160 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. SFAS 160 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Based on current conditions, the Company does not expect the adoption of SFAS 160 to have a significant impact on its results of operations or financial position.

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In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133." SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Based on current conditions, the Company does not expect the adoption of SFAS 161 to have a significant impact on its results of operations or financial position.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 did not have an 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." The scope of SFAS 163 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, SFAS 163 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), SFAS 163 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." SFAS 163 will not have an impact on the Company's financial statements.

Income Tax

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2008.  As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48.  As a result of the implementation of Interpretation 48, 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 and 2008.  Due to a history of operating losses, the Company records a full valuation allowance against its net deferred tax assets and therefore has recorded no tax provision related to its US operations for the current period.

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2. OIL AND GAS PROPERTIES

Oil and gas properties consisted of the following as of March 31, 2009 and December 31, 2008:

	2009			2008
				(audited)
Properties subject to amortization	$	1,970,376		$	2,239,193
Properties not subject to amortization		6,368			2,681,357
Capitalized asset retirement costs		46,146			13,675
Accumulated depreciation and depletion		(49,302	)		(143,290	)
Oil & Gas Properties, Net	$	1,973,588		$	4,790,935

3. GEOGRAPHICAL INFORMATION

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

	Colombia			United States			Consolidated
March 31, 2009
Total Revenues	$	726,255		$	17,815		$	744,070
% of Total		97.6	%		2.4	%		100.0	%
Long Lived Assets	$	1,646,965		$	174,316		$	1,821,281
% of Total		90.4	%		9.6	%		100.0	%
March 31, 2008
Total Revenues	$	-		$	34,565		$	34,565
% of Total		0.0	%		100.0	%		100.0	%
Long Lived Assets		142,563			165,995			308,558
% of Total		46.2	%		53.8	%		100.0	%

4. COLOMBIAN TRUST ACCOUNTS

In June 2007, we entered into an agreement (the “Agreement”) with Gold Oil, Plc (“Gold”) and Empesa Petrolera de Servicios y Asesorias, S.A. (“Empesa), whereby we farmed-in to the approximately 165 square mile Rosablanca concession in Colombia awarded by the Agencia Nacional de Hidrocarburos (“ANH”) to Gold in June 2007.  In August 2007, we (i) paid $1,200,000 to Gold representing funds Gold previously issued to a trust established by the ANH to use for drilling the first well for the Rosablanaca concession and (ii) issued a letter of credit of $144,000 for the benefit of Gold’s bank in Colombia representing the guarantee required by the ANH.  We were obligated to commence drilling on the first well by December 26, 2008, which we have done.  As of March 31, 2009, we had a balance of $427,756 in this trust account.

Under the terms of the concession agreement with the ANH, we are required to perform six phases, with each phase lasting 12 months.  We already performed the first phase which was to drill the first well.  Each phase will require 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 new trust account for $790,000, of which our share was initially $395,000 but was then reduced to $197,500 upon the signing of the Lewis Energy Colombia, Inc., (“LEC”) transaction as further described in Footnote 10.  Phase 2 also required the issuance of a letter of credit in the amount of $110,000, of which our share was initially $55,000, but was later reduced to $27,500 upon signing of the LEC transaction and obligated us to perform certain seismic work.  As of March 31, 2009, we had a balance of $192,119 in the trust account to be used for Phase 2.  Phases 3,4,5 and 6 each require the funding of a trust account in the amount of $1,200,000, of which our share will be $300,000 and an issuance of a letter of credit in the amount of $144,0000, of which our share will be $36,000 and the drilling of an additional well in each phase.  The concession with the ANH shall remain in effect as long as we meet our timely obligations to drill each well that we present to the ANH.

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5. DEPOSITS

In January 2007, we placed a deposit totaling $82,000 on approximately 85% of the working interest of a natural gas property consisting of 640 acres with proved undeveloped reserves located in Hansford County, Texas, owned by Pearl Resources Corp.  The agreement was amended in March 2007 stipulating that unless the Company acquires a contiguous lease by June 1, 2007 for $48,000, a second contiguous lease by August 1, 2007 for $80,000 and place $445,180 in escrow for drilling and completing the first well with actual commencement of drilling prior to September 15, 2007, the seller has the right to refund 90% of all payments received and void the agreement.  In September 2007, the seller provided us with an extension until June 30, 2008 to fulfill all of our obligations under the agreement.  We have not received an extension from the seller and believe the seller will void the agreement.  We do not believe we will receive any of the $82,000 we have invested and accordingly, as of December 31, 2008, we wrote down the value of the deposit to zero.

In November 2007, we entered into an agreement to purchase out of bankruptcy a working interest in an oil & gas leasehold and producing wellbore in Louisiana for a purchase price of $1,400,000.  Upon the signing of the agreement, we placed a deposit totaling 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.

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 covers 30,665 acres in the Middle Magdalena Valley in Colombia.  The Purchase Agreement is 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.

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 June 2008, we received an extension from the ANH until December 26, 2008 to drill our first well.  Accordingly, in December 2008, the CD was extended until March 25, 2009.  We were obligated to drill the first well in the Rosablanca concession by December 26, 2008 in order to not lose our interest in the concession and this CD.  As we completed our obligation on the first well by December 26, 2008, the letter of credit expired on March 25, 2009 and we redeemed the CD at that time.  Accordingly, the balance of this CD at March 31, 2009 was zero.

In March 2009, we placed the equivalent of $55,000 in a CD, and LEC then reimbursed us $27,500 for this CD, with a bank in Colombia as collateral for the $110,000 letter of credit required by the ANH for Phase 2 as more fully described in footnote 4 above.  The balance of this CD at March 31, 2009 was $24,166.

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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 elected to repay in full the Unsecured Convertible Promissory note by issuing 1,100,000 Units.  As such, the balance of the Unsecured Convertible Promissory Note at March 31, 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 to be used by our pumper in our Oklahoma property by issuing a promissory note (the “Promissory Note”) to a bank secured by the truck.  The Promissory Note matures October 27, 2010, has a variable interest rate of Prime plus 1.0%, and has monthly principal and interest payments totaling $366.  As of March 31, 2009, the interest rate on the Promissory Note was 4.25%.

The following table summarizes the balance of the note at March 31, 2009:

Promissory Note Outstanding at March 31, 2009	$	6,402
Less Current Portion		3,913
	$	2,489

9. COMMITMENTS AND CONTINGENCIES

Under the terms of the Rosablanca concession agreement with the ANH, we are required to perform six phases, with each phase lasting 12 months.  We performed the first phase which was to drill the first well.  Each phase will require us to fund a new trust account and issue a letter of credit as well as perform certain tasks.  Phases 3,4,5 and 6 each require the funding of a trust account in the amount of $1,200,000, of which our share will be $300,000, an issuance of a letter of credit in the amount of $144,0000, of which our share will be $36,000 and the drilling of an additional well in each phase.  The concession with the ANH shall remain in effect for up to 24 years as long as we meet our timely obligations to drill each well that we present to the ANH.

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 March 31, 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.

8

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 is 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 March 31, 2009 under operating leases are as follows by year:

Year	Amount
2009	$	34,201
2010		46,950
2011		3,922
Totals	$	85,073

Rental expense charged to operations totaled $13,633 and $10,865 in 2009 and 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

On April 8, 2008, pursuant to the Purchase Agreement with Sunstone Corporation whereby the Company acquired from Sunstone 100% of the membership interests in Cimarrona, the Company issued to Sunstone 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.  In addition, the Company issued 50,000 shares of common stock to Energy Capital Solutions, LP for their role as financial advisor and $22,500 to Larry Ray, an individual, as a finder’s fee.

Lewis Energy Colombia, Inc.

In March 2009, we entered into an agreement (the “LEC Agreement”) with Lewis Energy Colombia, Inc. (“LEC”), whereby LEC has 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.  In addition, LEC is 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.”  Furthermore, as part of the LEC Agreement, we issued 5,250,000 shares of our common stock to an affiliate of LEC.  As a result of the LEC transaction, revenues and investments on all future wells in Rosablanca will be allocated 40% to Gold, 25% to LEC, 25% to us and 10% to Empesa.    If any party doesn’t contribute its share of the costs, its revenue interest will automatically be transferred to the party that provides the capital.  On March 23, 2009, we announced we completed testing on the first well without finding producible hydrocarbons in any of the zones evaluated.  As a result of the transaction, we recognized no gain or loss on the assignment of our interest.

11. MAJOR CUSTOMERS

In 2009, three customers accounted for all of our sales.  Pacific, Hocol and Sunoco, each accounted for approximately 65%, 33% and 2%, respectively, of total revenues.  In 2008, Sunoco accounted for 100% of our total revenues.

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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.

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

	March 31, 2009						March 31, 2008
	Colombia		United States		Combined		Colombia		United States		Combined
Beginning Balance	$	—	$	18,203	$	18,203	$	—	$	16,547	$	16,547
Incurred during the period				—		—		—		—		—
Additions for new wells		32,471		—		32,471		—		—		—
Accretion expense		812		455		1,267		—		414		414
Ending Balance	$	33,283	$	18,658	$	51,941	$	—	$	16,961	$	16,961

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that include, among others, statements of: expectations, anticipations, beliefs, estimations, projections, and other similar matters that are not historical facts, including such matters as: future capital requirements, development and exploration expenditures (including the amount and nature thereof), drilling of wells, reserve estimates (including estimates of future net revenues associated with such reserves and the present value of such future net revenues), future production of oil and gas, repayment of debt, business strategies, and expansion and growth of business operations. These statements are based on certain assumptions and analyses made by our management in light of past experience and perception of: historical trends, current conditions, expected future developments, and other factors that our management believes are appropriate under the circumstances. We caution the reader that these forward-looking statements are subject to risks and uncertainties, including those associated with the financial environment, the regulatory environment, and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. Such risks and uncertainties include those risks and uncertainties identified below.

Significant factors that could prevent us from achieving our stated goals include: declines in the market prices for oil and gas, adverse changes in the regulatory environment affecting us, the inherent risks involved in the evaluation of properties targeted for acquisition, our dependence on key personnel, the availability of capital resources at terms acceptable to us, the uncertainty of estimates of proved reserves and future net cash flows, the risk and related cost of replacing produced reserves, the high risk in exploratory drilling and competition. You should consider the cautionary statements contained or referred to in this report in connection with any subsequent written or oral forward-looking statements that may be issued. We undertake no obligation to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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In June 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 June, 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 are considered the operators of the concession and are 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 an agreement (the “LEC Agreement”) with Lewis Energy Colombia, Inc. (“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 the Rosablanca.  In addition, LEC is 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.”  Furthermore, as part of the LEC Agreement, we issued 5,250,000 shares of our common stock to an affiliate of LEC.  As a result of the LEC transaction, revenues and investments on all future wells in Rosablanca will be allocated 40% to Gold, 25% to LEC, 25% to us and 10% to Empesa.    If any party doesn’t contribute its share of the costs, its revenue interest will automatically be transferred to the party that provides the capital.  On March 23, 2009, we announced we completed testing on the first well without finding producible hydrocarbons in any of the zones evaluated.  As a result of the transaction, we recognized no gain or loss on the assignment of our interest.

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 have done.  As of December 31, 2008, we had a balance of $537,665 in the trust account.  Under the terms of the concession agreement with the ANH, we have the right to explore for up to six phases, with each phase lasting 12 months.  We already performed the first phase which was to drill the first well.  Each phase will require 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.  Phases 3, 4, 5 and 6, assuming that we are still in exploration, each require the funding of a trust account in the amount of $1,200,000, of which our share will be $300,000, an issuance of a letter of credit in the amount of $144,000, of which our share will be $36,000 and the drilling of an additional well in each phase.  The exploitation phase of the concession with the ANH shall remain in effect for up to 24 years as long as we meet our timely obligations to drill each well that we present to the ANH. The royalty rate under this ANH contract is 8% for up to 5,000 barrels per day, increasing on a sliding scale to 25% if production exceeds 600,000 barrels per day.  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 February 2008, we entered into a 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 (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 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, we issued 50,000 shares of common stock to Energy Capital Solutions, LP for their role as financial advisor and $22,500 to Larry Ray, an individual, as a finder’s fee.

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 Rubiales Energy Corp. (“Pacific Rubiales”), 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 Rubiales.

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We anticipate we will need to raise at least $1,000,000 to provide for requirements for the next twelve months including costs to complete phase 2 and fund the trust account and letter of credit for phase 3 of Rosablanca.  If we are unable to raise the entire sum and cannot fulfill our obligations under the Rosablanca concession, we may lose the concession and our ability to participate in other Colombian projects.  At present, the revenues generated from Cimarrona and Oklahoma properties are only sufficient to cover field operating expenses and a small portion of our overhead.

We have undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) increasing our current production in the Osage 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.

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Results of Operations

Three Months ended March 31, 2009 compared to Three Months ended March 31, 2008

	2009						2008						Change
	Amount			Percentage			Amount			Percentage			Amount			Percentage
Oil Sales	$	262,813			35.3	%	$	34,565			100.0	%	$	228,248			660.3	%
Pipeline Sales		481,257			64.7	%		—			0.0	%		481,257			N/A
Total Revenues		744,070			100.0	%		34,565			100.0	%		709,505			2052.7	%
Operating Expenses
Operating Expenses		203,348			27.3	%		18,423			53.3	%		184,925			1003.8	%
Asset Impairment		1,612,894			216.8	%		—			0.0	%		1,612,894			N/A
Stock Based Compensation Expense		37,493			5.0	%		681,930			1972.9	%		(644,437	)		-94.5	%
Depreciation , Depletion and Accretion		86,634			11.6	%		2,733			7.9	%		83,901			3069.9	%
General & Administrative Expenses		546,227			73.4	%		398,832			1153.9	%		147,395			37.0	%
Total Operating Costs and Expenses		2,486,596			334.2	%		1,101,918			3188.0	%		1,384,678			125.7	%
Operating Loss		(1,742,526	)		-234.2	%		(1,067,353	)		-3088.0	%		(675,173	)		63.3	%
Other Income/(Expenses)		15,193			2.0	%		(222,969	)		-645.1	%		238,162			-106.8	%
Net Loss		(1,727,333	)		-232.1	%		(1,290,322	)		-3733.0	%		(437,011	)		33.9	%
Comprehensive Loss	$	(2,034,264	)		-273.4	%	$	(1,165,261	)		-3371.2	%	$	(869,003	)		74.6	%

Oil Sales

Revenues from oil sales were $262,813, an increase of $228,248, or 660.3%, in 2009 compared to $34,565 in 2008.  Approximately 93% of the oil revenues in 2009 were derived from the Cimarrona property which we acquired on April 1, 2008.  In 2009, we sold 7,647 barrels (“BBLs”) at an average gross price of $35.43 compared to 489 BBBls at an average gross price of $93.83 in 2008.

Pipeline Sales

Pipeline sales from our Cimarrona property accounted for 64.7% and 0% of total revenues in 2009 and 2008, respectively.  In 2009, we recognized pipeline sales of $481,257 from the transportation of approximately 2.71 million barrels (of which our share was approximately 255,000 barrels).  No pipeline sales were recognized in 2008 as Cimarrona was acquired on April 1, 2008.

Total Revenues

Total revenues were $744,070, an increase of $709,505, or 2,052.7%, in 2009 compared to $34,565 in 2008.  Approximately 98% of our 2009 revenues were derived from our Cimarrona property which we acquired on April 1, 2008.  Oil and gas sales comprised 35.3% of total revenues in 2009 compared to 100% in 2008, due to the inclusion of the Cimarrona pipeline sales in 2009.

Operating Expenses

Our operating expenses were $203,348 in 2009 with $149,835 attributable to our Cimarrona property, compared to operating expenses of $18,423 in 2008, which were entirely attributable to our Osage property.  Operating expenses as a percentage of total revenues decreased to 27.3% in 2009 from 53.3% in 2008.

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Asset Impairment

We recorded an asset impairment charge of $1,612,894 in 2009 relating to our first well at Rosablanca as we found no producible hydrocarbons.  No impairment charge was recorded in 2008.

Stock Based Compensation Expense

Stock based compensation expense was $37,493 and $681,930 in 2009 and 2008.  2009 Stock based compensation expense was comprised of $30,000 of the value of shares issued to two consultants and $7,493 for the amortization of the value of shares issued in November 2007 to two employees which vested on January 2009.  2008 Stock based compensation expense relates amortization in 2008 of the value of shares issued in November 2007.  All shares were valued based on the stock price at the date of issuance.

General and Administrative Expenses

General and administrative expenses were $536,227 in 2009, a $137,395 increase, or 34.4% increase, compared to $398,832 in 2008.  The increase is primarily attributable to increased expenses in Colombia relating to the Rosablanca and the Cimarrona property, as well as increased compensation expense.  General and administrative expenses as a percentage of total revenues decreased to 72.1% in 2009 from 1,153.9% in 2008, primarily due to the increase in revenues exceeding the increase in general and administrative expenses.

Depreciation, depletion and accretion

Depreciation, depletion and accretion were $86,634 in 2009 compared to $2,733 in 2007, primarily due to depreciation and depletion relating to the Cimarrona property which we acquired in April 1, 2008 and the amortization of asset retirement obligation relating to the Rosablanca property.

Loss from Operations

Loss from operations was $1,742,526 and $1,067,353 in 2009 and 2008, respectively.

Interest Expense, Net

Net interest income was $15,193 in 2009 compared to a net interest expense of $222,969 in 2008.  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 $1,727,333 and $1,290,232 in 2009 and 2008, respectively.

Foreign Currency Translation

Foreign currency translation loss was $306,931 in 2009 compared to a foreign currently translation gain of $124,971 in 2008.  The Colombian Peso to Dollar Exchange Rate averaged 2,418 and 1,910 in 2009 and 2008, respectively and was 2,551 and 1,831 at March 31, 2009 and March 31, 2008, respectively.

Comprehensive Loss

Comprehensive loss was $2,034,264 and $1,165,261 in 2009 and 2008, respectively.

Liquidity and Capital Resources

We had working capital of $1,124,575 at March 31, 2009, compared to a working capital deficit of $307,599 at December 31, 2008.  Working capital at March 31, 2009 consisted primarily of $1,032,580 of cash, $579,301 of other current assets consisting primarily of the net amount due from Pacific Rubiales under our joint operating agreement and $359,800 in trust accounts in Colombia, offset by $952,079 of accounts payable.

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At both March 31, 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 have used the majority of the net proceeds for costs related to our Rosablanca project in Colombia, as well as for working capital purposes.

Net cash provided by operating activities totaled $1,329,043 in 2009 compared to net cash used by operating activities of $294,602 in 2008.  The major components of the net cash used by operating activities in 2009 were the $1,727,333 net loss, offset by $1,612,894 asset impairment charge relating to our first well in Rosablanca and $1,615,988 increase in accounts payable and accrued expenses.  The major components of the net cash used in operating activities in 2008 were the net loss of $1,290,232, offset by $681,930 stock based compensation and $216,790 amortization of beneficial conversion feature.

Net cash used by investing activities totaled $977,587 in 2009 compared to net cash used by investing activities of $87,009 in 2008.  Net cash used in investing activities in 2009 consisted primarily of $1,530,986 investments in oil and gas properties and $389,619 payments made out of our Colombian trust accounts, offset by $881,523 received from LEC for the assignment of 50% of our Rosablanca concession.  Net cash used in investing activities in 2008, consisted primarily of $$109,487 investments in oil properties and $100,000 deposit made on an oil property, offset by the return of $140,000 of a deposit made on an oil property.

Net cash used by financing activities totaled $453, while net cash provided by financing activities totaled $13,236 in 2008 and consisted primarily of the $14,100 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 Osage Property through independent contractors that operate producing wells for several small oil companies.  Pacific Rubiales, which owns 90.6% of the Guaduas field, is the operator, while LEC, which owns 25% of the Rosablanca concession, is the operator of Rosablanca.

We are responsible for any contamination of land we own or lease. However, we carry pollution liability insurance policies, which may limit some potential contamination liabilities as well as claims for reimbursement from third parties.

Effect of Changes in Prices

Changes in prices during the past few years have been a significant factor in the oil and gas industry. The price received for the oil produced by us fluctuated significantly during the last year. Changes in the price that we receive for our oil and gas is set by market forces beyond our control as well as governmental intervention.  Average price received by us for a barrel of oil equivalent (“BOE”) were $35.43 and $93.83 in 2009 and 2008, respectively.  The volatility and uncertainty in oil and gas prices have made it more difficult for a company like us to increase our oil and gas asset base and become a significant participant in the oil and gas industry.  We currently sell all of our oil and gas production to Hocol in Colombia and Sunoco in the United States.  However, in the event these customers discontinued oil and gas purchases, we believe we can replace these customers with other customers who would purchase the oil at terms standard in the industry.

We have no material exposure to interest rate changes.  We are subject to changes in the price of oil and exchange rates of the Colombian Peso, which are out of our control.  In our Osage property, we sold oil at prices ranging from $32.35 to $41.09 per barrel in 2009 compared to a range of $88.25 to $103.5 per barrel in 2008.  In our Cimarrona property in Colombia, we sold oil at prices ranging from $28.06 to $42.88 per barrel in 2009.  The Colombian Peso to Dollar Exchange Rate averaged approximately 2,418 and 1,910 in 2009 and 2008, respectively.  The Colombian Peso to Dollar Exchange Rate was 2,551 and 1,831 at March 31, 2009 and March 31, 2008, respectively.

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Oil and Gas Properties

We follow the "successful efforts" method of accounting for our oil and gas exploration and development activities, as set forth in the Statement of Financial Accounting Standards (SFAS) No. 19, as amended, issued by the Financial Accounting Standards Board.  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 $1,612,894 relating to our first well in the Rosablanca concession as we found no producible hydrocarbons.

The provision for depreciation and depletion of oil and gas properties is computed on the unit-of-production method. Under this method, we compute the provision by multiplying the total unamortized costs of oil and gas properties including future development, site restoration, and dismantlement abandonment costs, but excluding costs of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. This calculation is done on a country-by-country basis.  As of March 31, 2009, our oil production operations were conducted in Colombia and in the United States of America.  The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. The cost of any impaired property is transferred to the balance of oil and gas properties being depleted. The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities or in which we intend to commence such activities in the future. We will begin to amortize these costs when proved reserves are established or impairment is determined.

In accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations," 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.

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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 offers, as appropriate to allow timely decisions regarding required disclosure.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 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 March 31, 2009 is not effective.  Based on this assessment, management has determined that, as of March 31, 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.

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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 months ended  March 31, 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

In January 2009, we issued a total of 150,000 shares of our Common Stock to two consultants.  The shares were valued at $30,000, or $0.20 per share, representing the closing stock price of the Common Stock at the date of grant.  The shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder and a restrictive legend was placed thereon.

(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.

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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:  May 13, 2009	By:	/s/ Kim Bradford
		Kim Bradford
		President and Chief Executive Officer

Date:  May 13, 2009	By:	/s/ Kim Bradford
		Kim Bradford Principal Financial Officer

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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.	Description
3.1	Articles of Incorporation of Osage Exploration and Development, Inc. (1)
3.2	Bylaws of Osage Exploration and Development, Inc. (1)
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

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