UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file no. 0-30502

JOHN D. OIL AND GAS COMPANY

(Exact name of Registrant as specified in its charter)


MARYLAND		94-6542723

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8500 STATION STREET, SUITE 345, MENTOR, OHIO 44060
(Address of principal executive office)

Registrant’s telephone number, including area code: (440) 255-6325

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock as of May 1, 2011 was 9,067,090 shares.

Except as otherwise indicated, the information contained in this Report is as of March 31, 2011.

JOHN D. OIL AND GAS COMPANY
INDEX TO QUARTERLY REPORT
ON FORM 10-Q


	Page

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 4. Controls and Procedures		27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		27

Item 6. Exhibits		27

Signatures		28

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I. FINANCIAL INFORMATION


Item 1.		Consolidated Financial Statements

John D. Oil and Gas Company and Subsidiary
Consolidated Balance Sheets


	March 31, 2011			December 31, 2010
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash	$	60,776		$	20,016
Accounts Receivable		44,536			47,312
Accounts Receivable from Related Parties		507,221			848,395
Other Current Assets		2,697			4,610

Total Current Assets		615,230			920,333

Property and Equipment, Net		7,200,689			7,465,911
Investment in Unconsolidated Affiliate		714,530			736,953


TOTAL ASSETS	$	8,530,449		$	9,123,197


LIABILITIES AND EQUITY
Current Liabilities:

Line of Credit	$	9,480,187		$	9,480,187
Current Maturities of Long Term Debt		136,812			136,812
Accounts Payable		199,488			276,452
Accounts Payable to Related Parties		732,463			627,425
Accrued Expenses		177,777			190,038

Total Current Liabilities		10,726,727			10,710,914

Long Term Debt, Net of Current Maturities		893,330			927,593
Asset Retirement Obligation		660,638			654,493
Commitments and Contingencies		—			—

Equity:
Serial Preferred Stock — $.001 par value: 2,000,000 shares authorized, 1,350 shares issued and outstanding		1			1
Common Stock — $.001 par value: 50,000,000 shares authorized; 9,067,090 shares issued and outstanding		9,067			9,067
Paid-in Capital		30,278,924			30,277,787
Accumulated Deficit		(33,321,306	)		(32,746,986	)

Total John D. Oil and Gas Company Shareholder’s Equity		(3,033,314	)		(2,460,131	)
Non-Controlling Interest		(716,932	)		(709,672	)

Total Equity		(3,750,246	)		(3,169,803	)


TOTAL LIABILITIES AND EQUITY	$	8,530,449		$	9,123,197

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

John D. Oil and Gas Company and Subsidiary
Consolidated Statements of Operations
(Unaudited)


	Three Months Ended
	March 31,
	2011			2010
Revenues
Oil and Natural Gas Sales	$	407,574		$	582,448
Self-Storage Operation Revenues		84,862			79,115
Interest and Other		—			158,008

Total Revenues		492,436			819,571

Operating Expenses
Interest		157,152			62,209
Accretion		6,145			5,000
Oil and Natural Gas Production Costs		262,873			113,934
Self-Storage Property Operating Expense		34,698			35,528
Legal and Professional Fees		63,290			54,739
Property Taxes and Insurance		20,325			16,490
General and Administrative		167,171			149,733
Loss from Unconsolidated Affiliate		59,623			18,970
Depreciation, Depletion and Amortization		276,109			455,327

Total Operating Expenses		1,047,386			911,930

Net Loss		(554,950	)		(92,359	)
Net Income (Loss) attributable to Non-controlling Interest		(7,260	)		95,705


Net Loss attributable to John D. Oil and Gas Company	$	(547,690	)	$	(188,064	)


Weighted Average Shares Outstanding — Basic		9,067,090			9,067,090

Weighted Average Shares Outstanding — Diluted		9,067,090			9,067,090

Loss per Common Share — Basic and Diluted	$	(0.06	)	$	(0.02	)

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

John D. Oil and Gas Company and Subsidiary
Consolidated Statements of Shareholders’ Equity
For The Three Months Ended March 31, 2011 and 2010


										Non-
	Preferred		Common		Paid-in		Accumulated			Controlling
	Stock		Stock		Capital		Deficit			Interest			Total

Balance at December 31, 2009 (audited)	$	1	$	9,067	$	30,273,239	$	(31,151,171	)	$	(813,644	)	$	(1,682,508	)

Restricted Common Stock Award						1,137								1,137
Dividends Declared								(26,630	)					(26,630	)
Net Income (Loss)								(188,064	)		95,705			(92,359	)


Balance at March 31, 2010 (unaudited)	$	1	$	9,067	$	30,274,376	$	(31,365,865	)	$	(717,939	)	$	(1,800,360	)


Balance at December 31, 2010 (audited)	$	1	$	9,067	$	30,277,787	$	(32,746,986	)	$	(709,672	)	$	(3,169,803	)

Restricted Common Stock Award						1,137								1,137
Dividends Declared								(26,630	)					(26,630	)
Net Loss								(547,690	)		(7,260	)		(554,950	)


Balance at March 31, 2011 (unaudited)	$	1	$	9,067	$	30,278,924	$	(33,321,306	)	$	(716,932	)	$	(3,750,246	)

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

John D. Oil and Gas Company and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
	2011			2010
Cash Flows from Operating Activities:
Net Loss	$	(554,950	)	$	(92,359	)
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities
Accretion		6,145			5,000
Loss from Unconsolidated Affiliate		59,623			18,970
Depreciation, Depletion and Amortization		276,109			455,327
Restricted Common Stock Award		1,137			1,137
Changes in Operating Assets and Liabilities:
Accounts Receivable		343,950			(234,254	)
Other Current Assets		1,913			7,379
Other Assets		—			5,495
Accounts Payable		28,074			9,421
Accrued Expenses		(12,261	)		(62,637	)

Net Cash Provided By Operating Activities		149,740			113,479

Cash Flows from Investing Activities:
Purchases of Property and Equipment		(10,887	)		(101,135	)
Expenditures for Unconsolidated Affiliate		(37,200	)		(60,440	)

Net Cash Used In Investing Activities		(48,087	)		(161,575	)

Cash Flows from Financing Activities:
Dividends Paid to Preferred Stockholders		(26,630	)		(26,630	)
Bank Overdraft		—			31,170
Proceeds from Long Term Debt		—			63,956
Principal Payments on Long Term Debt		(34,263	)		(42,472	)

Net Cash Provided by (Used In) Financing Activities		(60,893	)		26,024


Net (Decrease) Increase in Cash		40,760			(22,072	)
Cash, Beginning of Period		20,016			22,072

Cash, End of Period	$	60,776		$	—


Supplemental Disclosure of Cash flow Information:
Interest Paid on Borrowings	$	157,223		$	39,803

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

John D. Oil and Gas Company and Subsidiary
Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

General

John D. Oil and Gas Company, formerly Liberty Self-Stor, Inc. (the “Company”), is a corporation organized under the laws of the State of Maryland.

The Company was originally a self-storage company from 1999 to 2005 when it sold all but two of its facilities. By May 2007, one self-storage facility in Painesville remained which generates revenue through self-storage rentals and retail leases. The self-storage facility is operated through a partnership agreement between Liberty Self-Stor Ltd. (“Ltd”) and the Company. Ltd has a 70.1% equity interest and the Company has a 29.9% equity interest in the operating partnership of LSS I Limited Partnership (“LSS I”). The members of Ltd consist of Richard M. Osborne, Chairman and Chief Executive Officer of the Company, Thomas J. Smith, a director and the former President and Chief Operating Officer of the Company, and Retirement Management Company, an Ohio corporation owned by Mr. Osborne. These members have Class A limited partnership interests that are redeemable for cash or, at the election of the Company, convertible into shares of the Company’s stock based on an exchange factor. The current exchange factor is .1377148 of a share for each unit.

In 2006, the Company entered into the business of extracting and producing oil and natural gas products, drilling oil and natural gas wells in Northeast Ohio. The Company currently has fifty-eight producing wells. The Company cannot guarantee success under the new business plan as drilling wells for oil and natural gas is a high-risk enterprise and there is no guarantee the Company will become profitable.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and with the instructions to Form 10-Q and, accordingly, do not include all information and footnotes required under accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, these interim consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of March 31, 2011 and the results of its operations and cash flows for the three months ended March 31, 2011 and 2010. Interim results of operations are not necessarily indicative of the results to be expected for the year ended December 31, 2011. Certain prior year amounts have been reclassified to conform to the March 31, 2011 presentation. These reclassifications had no effect on net loss or shareholders’ equity as previously reported.

Accounting estimates were revised as necessary during the quarter based on new information and changes in facts and circumstances. These unaudited consolidated financial statements should be read in conjunction with the comprehensive discussion of the Company’s management estimates and significant accounting policies in the Company’s Form 10-K for the year ended December 31, 2010.

The accompanying unaudited interim consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. See Note 2 to these consolidated financial statements.

Principles of Consolidation

Pursuant to the terms of the partnership agreement of LSS I, the Company, as sole general partner, controls LSS I. Accordingly, the Company accounts for its investment in LSS I utilizing the consolidation method. The investment in an unconsolidated affiliate, Kykuit Resources LLC (Kykuit), is accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, costs and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates all of these estimates, including those related to the provision for possible losses, deferred tax assets and liabilities, depreciation and depletion, and certain accrued liabilities. The Company bases estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s financial statements are based on a number of significant estimates, including collectability of receivables, selection of useful lives for property and equipment and timing and costs associated with its retirement obligations. Estimates of economically recoverable oil and natural gas reserve quantities and future net cash flows depend on a number of variable factors and assumptions that are hard to predict and may vary considerably from actual results. Estimated oil and natural gas reserve quantities are the basis for the calculation of depreciation, depletion and impairment of oil and natural gas properties.

The Company’s oil and natural gas business makes it vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to continue to be volatile. Proved reserves are based on current oil and natural gas prices and estimated reserves, which is considered a significant estimate by the Company, and is subject to change.

Accounts Receivable

The Company has certain trade receivables consisting of oil and natural gas sale obligations due under normal trade terms. The Company currently sells its production to a related party through an oil and natural gas agreement, extending credit on an unsecured basis to them. In evaluating its allowance for possible losses, the Company performs a review of outstanding receivables. The trade receivables outstanding are typically three months of natural gas production due to the timing and accounting treatment by the main distribution pipeline company in Northeast Ohio and related party accounting treatment. At March 31, 2011 and December 31, 2010, the Company’s credit evaluation indicated that it has no need for an allowance for possible losses.

The Company’s accounts receivable arising from the self-storage business are due from individuals as well as business entities. Tenants are required to pay their rent on the first of each month. Past due amounts are those that are outstanding longer than the contractual payment terms. If an account is more than 75 days past due, the Company generally writes off the balance directly to expense. For such past due accounts, the Company has the right to auction the contents of the rented space, which allows for recovery of written-off balances. Any such recoveries are credited to other income when received. Approximately $1,200 and $1,100 of bad debt expense was incurred in the three months ended March 31, 2011 and 2010, respectively.

Property and Equipment

All property and equipment is depreciated using the straight-line method over the estimated useful lives of twenty five years for buildings and improvements and five to seven years for furniture and equipment.

The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and related accumulated depreciation, depletion and amortization are eliminated from the property accounts and the resultant gain or loss is recognized.

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. The Company is involved in exploratory drilling only to the extent that it is a partner of Kykuit, which is doing exploratory drilling in Montana. The Company is an owner and managing member of Kykuit, an unconsolidated affiliate.

Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves. The costs of oil and natural gas properties are periodically assessed for impairment.

Asset Impairment

The Company reviews its self-storage property and capitalized well costs for impairment annually and when events or changes in circumstances indicate the carrying amounts of the properties may not be recoverable. When such conditions exist, management estimates future cash flows from operations and ultimate disposition of the individual properties. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related property’s estimated fair market value would be recorded and an impairment loss would be recognized.

Asset Retirement Obligation

The Company accounts for its asset retirement obligations in accordance with GAAP which requires the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, asset retirement obligations primarily relate to the abandonment, dismantling and plugging of oil and natural gas wells. The present value of the estimated asset retirement cost is capitalized as part of the long-lived asset. The capitalized asset retirement cost is depreciated and the asset retirement obligation is accreted over the estimated life of the well.

The following table presents the Company’s asset retirement obligation activity.


	For the Three Months Ended
	March 31,
	2011		2010

Asset retirement obligations, beginning of the period	$	654,493	$	680,056
Liabilities incurred during the period		—		6,095
Revisions in estimated cash flows		—		—
Liabilities settled during the period		—		—
Accretion expense		6,145		5,000

Asset retirement obligations, end of the period		660,638		691,151
Less current liabilities		—		—

Asset retirement obligations, net of current maturities	$	660,638	$	691,151

At March 31, 2011 and December 31, 2010, the Company’s current portion of the asset retirement obligations was $0.

Revenue Recognition

The Company recognizes revenue from its oil and natural gas interests in producing wells as oil and natural gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title and risk of loss have transferred to the purchaser and the collectability of revenue is reasonably assured. The Company has a management agreement with a related party to transport the Company’s natural gas production through the related party’s pipeline and include this natural gas with the related party’s natural gas in order to fulfill production volume contracts they currently have in place. The Company utilizes the sales method to account for gas production volume imbalances. Under this method, revenue is recognized only when gas is produced and sold on the Company’s behalf. The Company had no material gas imbalances at March 31, 2011 and December 31, 2010.

The Company’s revenue from self-storage operations is derived primarily from monthly rentals of self-storage units. Rental revenue is recognized in the period the rent is earned, which is typically on a monthly basis.

The Company also leases certain commercial space in its Painesville property under long-term lease agreements through December 1, 2020. Total lease revenue related to these leases was $54,767 and $49,387 for the three months ended March 31, 2011 and 2010, respectively. Revenue under these long-term lease agreements is recognized on a straight-line basis over the respective lease terms.

Future minimum lease revenue from operations under non-cancelable leases excluding options to renew for each of the five succeeding annual periods ending March 31 and thereafter are as follows:


2012		219,660
2013		203,182
2014		197,085
2015		183,288
2016		104,454
Thereafter		149,750

	$	1,057,419

Stock-Based Compensation

On June 16, 2009 at the Company’s Annual Meeting, of the stockholders who voted, 81.7% voted to approve amendments to the Company’s stock option plan. The plan was extended another ten years.

Of the 300,000 stock options that may be granted, none were outstanding as of March 31, 2011 and 2010. The former President and Chief Operating Officer of the Company was granted 35,000 restricted shares that amortize ratably over a five year vesting period until August of 2011. The compensation expense recorded for the restricted shares for the three months ended March 31, 2011 and 2010 was $1,137.

On June 20, 2008, the Company granted a warrant to purchase 50,000 shares of common stock to Richard M. Osborne in return for Mr. Osborne providing collateral for the Company’s credit facility with RBS Citizens, N.A., d/b/a Charter One (“Charter One”). The fair value of the warrant was expensed in 2008. The warrant has an exercise price of $1.00 per share and a term of five years.

Income Taxes

Effective January 1, 2006, the Company became a “C” Corporation for tax purposes.

In establishing a provision for income taxes, the Company must estimate when in the future certain items will affect taxable income. Deferred taxes are recorded for future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not.

The Company has net operating loss carry forwards (NOLS) and a valuation allowance to offset any tax effects. The Company has no unrecognized tax benefits and therefore, there is no anticipated effect on the Company’s effective tax rate. Any tax penalties or interest expense will be recognized in income tax expense. No interest and penalties were accrued as of March 31, 2011 or December 31, 2010, or paid during the periods then ended. The Company does not anticipate a significant change over the next twelve months to any tax liability.

The Company is open to federal and state tax audits until the applicable statute of limitations expire. There are currently no federal or state income tax examinations underway for the Company. Generally, the three previous tax years remain open to examination by the major taxing jurisdictions in which we operate, although no material changes to unrecognized tax positions are expected within the next twelve months. The Company does, however, have prior year net operating losses which remain open for examination.

Fair Value of Financial Instruments

The fair value of the Company’s financial instruments is determined by using available market information and appropriate valuation methodologies. The Company’s principal financial instruments are cash, accounts receivable, accounts payable and debt. Cash, accounts receivable and accounts payable, due to their short maturities and liquidity, are carried at amounts which reasonably approximate fair value. Based upon rates available for similar borrowings, the Company’s book value approximated the fair value of its debt at March 31, 2011 and March 31, 2010.

Recently Issued Accounting Pronouncements

The Company reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe any such pronouncements will have a material impact on the financial statements.

Reclassifications

Certain reclassifications of prior period comparative amounts have been made to conform to the current period presentation. These reclassifications had no effect on net loss or equity as previously reported.

Note 2. Going Concern

The Company’s independent registered accounting firm indicated, in the Company’s Form10-K for the year ended December 31, 2010, in their audit report in an explanatory paragraph that, due to the Company’s recurring losses and the Company’s outstanding debt of $9.5 million currently due and subject to a forbearance agreement there was substantial doubt about the Company’s ability to continue as a going concern at December 31, 2010. The Company’s unaudited consolidated financial statements as of March 31, 2011 have been prepared on the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. The Company has incurred substantial losses, which have strained its financial resources, and the Company’s liabilities exceed its assets at March 31, 2011. The Company’s $9.5 million line of credit with RBS Citizens, N.A. d/b/a Charter One (“Charter One”) was due August 1, 2009 and was in default. On August 24, 2009, Charter One received a judgment in its favor against the Company and Mr. Osborne related to this debt. On June 18, 2010, the Company, and other parties, and Charter One entered into a forbearance agreement, (“the Forbearance Agreement”) pursuant to which Charter One will forbear from enforcing its rights and remedies under the Company’s line of credit as well as the other parties’ loan agreements until July 1, 2011, subject to no further events of default including the payments due under the Forbearance Agreement. The Company does not have the available cash to repay the line of credit with Charter One. The Company is meeting with Charter One on a regular basis to reach a loan agreement satisfactory to both parties. Additionally, the Company is seeking funds from other financial institutions. There is no guarantee that the Company will be successful with these efforts. See Note 5 “Line of Credit and Long Term Debt” to these consolidated financial statements for more information.

Note 3. Property and Equipment

Property and equipment consists of the following:


	March 31, 2011			December 31, 2010
	(Unaudited)			(Audited)
Oil and Natural Gas Properties:
Proved Properties	$	16,474,301		$	16,473,401
Unproved Properties		79,308			79,308
Well Material Inventory		50,349			50,349
Accumulated Depletion		(10,851,749	)		(10,613,130	)

Total Oil and Natural Gas Properties		5,752,209			5,989,928
Other Property and Equipment:
Land		307,780			307,780
Building and Improvements		2,402,983			2,402,983
Furniture and Equipment		257,270			248,120
Accumulated Depreciation		(1,519,553	)		(1,482,900	)

Total Other Property and Equipment		1,448,480			1,475,983


Property and Equipment, Net	$	7,200,689		$	7,465,911

Note 4. Investment in Unconsolidated Affiliate

The Company is an owner and managing member of an unconsolidated affiliate, Kykuit Resources LLC, (“Kykuit”) which is accounted for using the equity method of accounting. The Company had a 21.93% and a 21.79% ownership in Kykuit at March 31, 2011 and December 31, 2010, respectively. On June 18, 2010, the Company pledged its partnership interest in Kykuit to Charter One in connection with the Forbearance Agreement. During the third quarter of 2010, the Company borrowed funds totaling $39,789 from Kykuit. For the three months ended March 31, 2011, the Company made cash investments totaling $161,200 to Kykuit, including $124,000 previously recorded in accounts payable. During the first quarter of 2010, the Company made cash investments totaling $60,440 to Kykuit, including $10,940 previously recorded in accounts payable. The investment by the Company in this venture is $714,530 which includes cash totaling $1,657,530 and a cumulative net book loss of $943,000 at March 31, 2011. At March 31, 2010 the investment by the Company in this venture was $736,495 which included cash totaling $1,463,330 and a cumulative net book loss of $726,835.

The following table displays the unaudited balance sheets of Kykuit at March 31, 2011 and December 31, 2010 and the unaudited statements of operations for the three months ended March 31, 2011 and 2010, respectively.

Kykuit Resources LLC
Balance Sheet


	March 31, 2011			December 31, 2010
Current Assets	$	19,898		$	429,656
Unproved Leaseholds and Development Costs		3,647,721			3,647,721
Furniture and Fixtures, Net of Depreciation		17,529			20,373
Other Assets		12,969			15,726

	$	3,698,117		$	4,113,476


Current Liabilities	$	415,597		$	677,331
Paid in Capital		7,556,675			7,436,674
Accumulated Deficit		(4,274,155	)		(4,000,529	)

	$	3,698,117		$	4,113,476

Kykuit Resources LLC.
Statement of Operations
For The Three Months Ended March 31, 2011 and 2010


	2011			2010

Total Revenues	$	—		$	—
Total Expenses		273,626			89,910

Net Loss	$	(273,626	)	$	(89,910	)

Note 5. Line of Credit and Long-Term Debt

On September 28, 2006, the Company along with Mr. Richard M. Osborne, the Company’s Chairman and CEO entered into an unsecured loan agreement for a line of credit with a one year term with Charter One Bank for up to $5.0 million dollars in total borrowings with interest at a rate of 1.75% over LIBOR adjusted monthly. The Charter One liability was jointly loaned, so the Company and Mr. Osborne were each liable for the debt of the other.

The loan was subsequently revised several times until on March 28, 2008, the Company entered into the First Amended and Restated Loan and Security Agreement (the “Loan Agreement”) between the Company, Richard M. Osborne (the Company and Mr. Osborne together, the “Borrowers”), and Charter One. The Loan Agreement extended the maturity date to August 1, 2009, continuing with the original interest rate calculation of 1.75% over LIBOR adjusted monthly. Under the agreement, only the Company could borrow on the line of credit when any amounts are paid down against the $9.5 million outstanding on the loan. The Company and Great Plains Exploration LLC, a company owned by Mr. Osborne (“Great Plains”), agreed that the related party loan of $3.8 million from Great Plains was satisfied in full and terminated upon the Company’s entry into the new Charter One loan and assumption of the $3.8 million portion of the line of credit drawn by Mr. Osborne. Therefore, the Company had $9.5 million in outstanding debt to Charter One and $0 in outstanding debt to Great Plains at March 31, 2008. As part of this loan agreement, Mr. Osborne has pledged several real estate properties that he personally owns, to provide sufficient collateral allowing the Company to enter into the loan agreement. The Company did not meet the reserve collateral requirements for a $9.5 million loan without additional collateral.

The Company’s $9.5 million line of credit matured on August 1, 2009. On August 20, 2009, Charter One received a judgment in its favor against the Company and Mr. Osborne related to the $9.5 million line of credit. The average balance during 2010 was $9.5 million and the weighted average interest rate was 3.55%. The average balance during 2009 was $9.5 million and the weighted average interest rate was 2.12%.

The Company’s line of credit with Charter One was almost fully drawn for $9.5 million at December 31, 2010 at a rate of 4.75%. Charter One contends that the interest rate at December 31, 2010 is LIBOR plus 1.75% with a LIBOR floor of 3.00%. The Company believes that there is an interest rate cap of 3.00%. The parties are in discussions regarding the applicable interest rate. Also, Charter One has applied a default rate to the loan from January 4, 2010 thru June 18, 2010. The Company does not agree with the default rate and therefore has not booked approximately $171,000 of additional interest expense. It is the Company’s position that the interest for the period from judgment date to forbearance date should remain at the original contract rate at the date of judgment, based upon the per diem interest amount expressly stated in that judgment. Attorneys for the Company also strongly support that position and have so stated in letters to Charter One and for purposes of the annual audit.

On June 18, 2010, the Company, Mr. Osborne, the Richard M. Osborne Trust (the “Trust”), Great Plains, and Oz Gas, Ltd. (companies owned by Mr. Osborne) entered into a Forbearance Agreement with Charter One regarding the Company’s $9.5 million line of credit under the Loan Agreement and regarding the $25.0 million loan agreement between Great Plains, Oz Gas and Mr. Osborne and Charter One, dated August 2, 2007 (together, the “Loan Agreements”). The Company, Mr. Osborne, the Trust, Great Plains and Oz Gas are collectively referred to in the Forbearance Agreement and herein as the “Loan Parties.”

Pursuant to the Forbearance Agreement and during the forbearance period, Charter One agreed to, among other things, forbear from exercising its rights and remedies arising out of the judgments and the Loan Agreements and to stay any action on its motion for the appointment of a receiver.

Under the Forbearance Agreement, Charter One’s agreement to forbear is conditioned upon and subject to the following conditions:

•

Payment by the Loan Parties of a forbearance fee of $40,000 per month during the forbearance period;

•

No material adverse change in the condition of the Loan Parties;

•

An assignment and grant of a security interest by the Company and GPE of each of their ownership interests in the Alpha and Panzica wells;

•

A pledge by the Loan Parties of their ownership interests in Kykuit Resources LLC; and

•

A pledge by Mr. Osborne of not less than 800,000 shares of common stock of Gas Natural Inc. with such stock having a market value of not less than $9.6 million pursuant to a pledge agreement.

In addition, commencing July 1, 2010 and each month thereafter until all amounts under the judgments and loan agreements have been paid in full, the Loan Parties shall pay Charter One $400,000, including the $40,000 forbearance fee. The Company had previously felt they would pay one third of the $400,000, but due to lack of cash, they have decided to accrue interest and one third of the $40,000 monthly fee and legal fees. The monthly $400,000 is being paid by the other Loan Parties. Such payments by the Loan parties shall be applied first to Charter One’s fees and expenses, second to accrued but unpaid interest due under the judgments, and third to principal amounts due under the judgments. Charter One contends that the judgments will bear interest at LIBOR plus 1.75% with a LIBOR floor of 3.00%. The Company believes that there is an interest rate cap of 3.00%. The parties are in discussions regarding the applicable interest rate. If the Loan Parties repay $10 million and if after application of such repayment the outstanding balance of the judgments does not exceed 65% of the current producing reserve value (as that term is defined in the Loan Agreements) of the Company, Great Plains and Oz Gas, then the pledge of Mr. Osborne’s Kykuit interests and his Gas Natural Inc. shares shall be released. In addition, the Company must deposit all proceeds of its operations into accounts maintained by Charter One but during the forbearance period Charter One will not take any action to set off funds in any such account.

Because the Company does not have the available cash to repay the line of credit, if the required payments are not made by the Company or any of other Loan Parties, or other events of default occur, under the Forbearance Agreement or if prior to the end of the forbearance period the Company is unsuccessful in refinancing the line of credit with Charter One or if the Company is unsuccessful in obtaining substitute financing, there is substantial doubt about the Company’s ability to continue as a going concern.

Discussions with Charter One are ongoing but there is no certainty that these discussions will result in satisfactory terms of a revised loan agreement or a revised loan agreement at all. If Charter One demands repayment of the outstanding amounts payable at the end of the forbearance period, the Company does not have the available cash to repay the line of credit and will need financing from other sources to repay Charter One.

The Painesville facility was encumbered by a mortgage with First Merit Bank, N.A. by agreement dated June 9, 2009. The loan was deemed to be in default by First Merit Bank, N.A in August 2009 when Charter One sought judgments against the Company regarding its line of credit.

On May 11, 2010, Liberty Self Stor, LTD and First Merit Bank, N.A signed a loan modification agreement which waived the prior defaults. The terms of the mortgage include a five year term, maturing on June 1, 2014, with a ten year amortization period at a variable rate of the 30 day LIBOR plus 250 basis points. Monthly payments include principal of $10,370 plus interest. The current rate on March 31, 2011 was 2.74%. The principal amount of the loan as of March 31, 2011 and December 31, 2010 were $979,254 and $1,010,364, respectively.

The repayment terms for the Painesville loan includes the following principal payments over the next four years ending March 31 are as follows:


2012	$	124,440
2013		124,440
2014		730,374

		979,254
Less current portion		(124,440	)

	$	854,814

In February 2010, the Company entered into a loan for the purchase of a vehicle which matures in February 2015. The interest rate is fixed at 2.9%. The outstanding principal amount of the loan at March 31, 2011 was $50,888.

The future minimum loan payments over the remaining term of the loan for the years ended March 31 are as follows:


2012	$	12,372
2013		12,929
2014		13,188
2015		12,399

		50,888
Less current portion		(12,372	)

	$	38,516

Interest expense on debt instruments was $157,152 and $62,209 for the three months ended March 31, 2011 and 2010, respectively.

Note 6. Notes Payable to Related Party

The Company entered into an agreement with Mr. Osborne for an unsecured revolving demand note dated January 1, 2006. Interest is payable annually at the prime rate with principal being due on demand. The revolving demand note does not include an expiration date or a limit on the amount that the Company may borrow. The prime rate at March 31, 2011 and December 31, 2010 was 3.25%. There were no outstanding balances under the note at March 31, 2011 and December 31, 2010, respectively.

Interest expense on the related party note was $0 for each of the three months ended March 31, 2011 and 2010.

Note 7. Stockholder’s Equity

Effective February 12, 2008, the Company filed Articles Supplementary to its Articles of Incorporation, as amended, restated and supplemented with the State Department of Assessment and Taxation of Maryland designating 5,000 Series A Preferred Shares, par value $0.001 per share. Dividends accumulate on the Series A Preferred Shares at the rate of 8% per annum and must be paid on a quarterly basis. Failure to pay dividends on a timely basis results in the imposition of a default rate of 10% per annum that continues until the default is cured by the Company by payment of all accrued dividends. Further, the initial default by the Company entitles the holders of the Series A Preferred Shares to elect, as a class, one director to the Company’s Board of Directors who shall serve until the Series A Preferred Shares are liquidated or converted.

The Series A Preferred Shares have voting rights only with respect to certain extraordinary actions that would impair the rights of holders of the Series A Preferred Shares, such as a merger, reorganization or issuance of a class or series of stock on parity with or senior to the Series A Preferred Shares. Each of the Series A Preferred Shares is convertible into common shares by dividing the sum of $1,000 and any accrued but unpaid dividends on the Series A Preferred Shares by the conversion price of $1.00 (the “Conversion Price”). The Conversion Price is proportionately increased (or decreased, as the case may be) for combinations, stock splits and similar events that would affect the number of shares of the Company’s common stock outstanding. The Series A Preferred Shares have a liquidation preference of $1,000 per share, plus any accrued but unpaid dividends.

The Company sold an aggregate of 1,350 shares of its Series A Convertible Preferred Shares in a private placement to a total of nine accredited investors during the first six months of 2008. All Series A Preferred Shares were sold at a price of $1,000 per share for a total of $1,350,000 with no underwriting discounts or commissions, as no underwriters were used to facilitate the transactions.

The Company did not issue stock in 2011 or 2010.

Note 8. Interest and Other Revenue

Interest and other revenue for the three months ended March 31, 2010 includes a refund for real estate property tax of $156,918 for tax years 2006 through 2009 on the Painesville self storage facility.

Note 9. Earnings/Loss Per Share

Basic income (loss) per share of common stock is determined by dividing net income (loss) less declared preferred stock dividends by the weighted average number of shares of common stock outstanding during the period.

The restricted stock awards, Class A Limited Partnership conversion and warrants for the three months ended March 31, 2011 and March 31, 2010 were anti-dilutive and had no effect on diluted earnings per share. The Company’s Class A Limited Partnership exchange factor is .1377148 per share.

The Company paid no cash distributions to its common stockholders for the three months ended March 31, 2011 and 2010. However, the Company declared and paid $26,630 in preferred stock dividends for the three months ended March 31, 2011 and for the three months ended March 31, 2010.

Note 10. Income Taxes

At December 31, 2010, the Company had net operating loss carry forwards (NOLS) for future years of approximately $16.6 million. These NOLS will expire at various dates through 2028. Utilization of the NOLs could be limited if there is a substantial change in ownership of the Company and is contingent on future earnings. In addition, the Company paid $41,187 for alternative minimum tax (AMT) in 2006, creating a tax credit that carries forward indefinitely.

The Company has provided a valuation allowance equal to 100% of the total net deferred asset in recognition of the uncertainty regarding the ultimate amount of the net deferred tax asset that will be realized. In 2006, the Company began operating in the oil and natural gas business, which is subject to many risks. The Company also expects to continue generating tax losses in the next few years due to timing differences.

Note 11. Other Related Party Transactions

Mr. Osborne is the sole manager of Liberty Self-Stor II, Ltd., an Ohio limited liability company, which is the owner of a truck rental business, which makes trucks available for short-term rental to the general public, including tenants of the Company’s self-storage facility, and provides for the retail sale of locks, boxes, packing materials and related merchandise at the self-storage facility. The Company has entered into a cost sharing agreement with Liberty Self-Stor II, Ltd. with respect to the sharing of employees and space at the office of the self-storage facility for the benefit of both companies. Liberty Self-Stor II, Ltd. owed the Company funds associated with these transactions, as well as for cash advances between the companies, which are included in accounts receivable from related parties in the accompanying consolidated balance sheets and listed in the table below.

The Company leases its executive offices from OsAir, Inc., a company owned by Mr. Osborne. The current lease has a three year term maturing on April 1, 2012 for $2,000 per month. Rent expense totaled $6,000 for each of the three months ending March 31, 2011 and 2010, respectively, and is included in general and administrative expenses.

Effective January 1, 2006, the Company entered into a contract with Great Plains for well operations and sale of natural gas and oil production, net of pipeline costs. The term of the agreement was one year from the effective date. It was extended as of January 1, 2007 and shall be extended for consecutive one year periods unless terminated earlier.

The Company is a fifty percent partner and the operating manager of Lucky Brothers LLC, a company whose other partners are almost all related to Mr. Osborne. The partnership owns one well at March 31, 2011. The purpose of Lucky Brothers LLC is to engage in a joint venture for drilling wells. The Company has invested $174,392 in well tangibles and intangibles at March 31, 2011 and December 31, 2010.

The Company purchases well supplies from Big Oats Oilfield Supply Company, a company owned by Mr. Osborne.

At March 31, 2011, the Company had a $12,000 invoice outstanding to Oz Gas Ltd., a company owned by Mr. Osborne, for payments made on the Company’s behalf to Charter One. See Note 5 “Line of Credit and Long Term Debt” to these consolidated financial statements for more information.

The Company paid Orwell Trumbull Pipeline, LLC, a company owned by Mr. Osborne, for telemeter charges $1,875 and $0 for the three months ended March 31, 2011 and March 31, 2010, respectively.

The Company is an owner and managing member of an unconsolidated affiliate, Kykuit Resources LLC, which is accounted for using the equity method of accounting. The Company had a 21.93% interest in Kykuit at March 31, 2011 and a 21.79% interest at December 31, 2010. On June 18, 2010, the Company pledged its interest in Kykuit to Charter One in connection with the Forbearance Agreement. For the three months ended March 31, 2011, the Company paid $161,200, including $124,000 previously recorded in accounts payable. Additionally, the Company had $30,000 in accounts payable for borrowed funds owed to Kykuit at March 31, 2011. The investment by the Company in this venture is $714,530 which includes cash totaling $1,657,530 and a cumulative net book loss of $943,000 at March 31, 2011. Additional information is disclosed in Note 4 to these financial statements.

Mr. Osborne, the Company’s Chairman and Chief Executive Officer, and Gas Natural Inc., a publicly-held public utility company of which Mr. Osborne is the Chairman, Chief Executive Officer and a significant stockholder, own interests in Kykuit. Mr. Osborne’s personal interests in Kykuit were pledged to Charter One in connection with the Forbearance Agreement.

The following tables summarize the related party transactions for accounts receivable of oil and natural gas production, capitalized costs for wells, outstanding accounts payable, revenues received and payments paid for expenses to related parties for the periods indicated. The accounts receivable from various companies owned by Mr. Osborne in the accompanying consolidated balance sheets represent amounts owed to the Company for minor cost sharing transactions and are listed in the following table.


	March 31,		December 31,
	2011		2010
Accounts Receivable Oil and Gas Sales:
Great Plains Exploration, LLC.	$	497,137	$	839,961
Liberty Self Stor II		4,648		3,806

Various Related Companies		5,436		4,628

	$	507,221	$	848,395


Accounts Payable:
Great Plains Exploration, LLC.	$	608,862	$	418,705
Big Oats Oilfield Supply Company		81,551		23,111
Kykuit Resources LLC		30,000		160,391
Orwell Natural Gas		50		1,296
Osair, Inc.		—		11,922
OzGas Ltd.		12,000		12,000

	$	732,463	$	627,425


	For the Three Months Ended March 31,
Great Plains Exploration, LLC:	2011		2010

Revenues
Revenue From the Sale of Oil and Natural Gas Production, net of pipeline transportation costs	$	305,546	$	361,400

Operating expenses
Well Management, Water Hauling and Service Rig	$	126,682	$	71,928

Note 12. Financial Information Relating to Industry Segments

The Company reports operating segments and reportable segments by business activity according to GAAP, “Disclosure about Segments of an Enterprise and Related Information.” The Company includes revenues from external customers, interest revenue and expense, depreciation, depletion and amortization and other operating expenses in its measure of segment profit or loss.

The Company’s operations are classified into two principal industry segments. The following tables present the three months ended March 31, 2011 and 2010.


	Oil and Gas			Self-Storage
Three Months ended March 31, 2011	Production			Facilities			Total
Revenues from external customers	$	407,574		$	84,862		$	492,436

Interest Expense		150,244			6,908			157,152
Accretion Expense		6,145			—			6,145
Property Operating Costs		262,873			34,698			297,571
Other Operating expenses		227,897			22,889			250,786
Loss from Unconsolidated Affiliate		59,623			—			59,623
Depreciation, depletion and amortization		245,386			30,723			276,109

Total Operating Expenses		952,168			95,218			1,047,386

Net Loss	$	(544,594	)	$	(10,356	)	$	(554,950	)


Property and Equipment additions	$	3,398		$	7,489		$	10,887


Total Assets	$	7,204,504		$	1,325,945		$	8,530,449


	Oil and Gas			Self-Storage
Three Months ended March 31, 2010	Production			Facilities		Total
Revenues from external customers	$	582,448		$	79,115	$	661,563
Interest and other revenue		1,090			156,918		158,008

Total Revenue		583,538			236,033		819,571

Interest expense		49,034			13,175		62,209
Accretion expense		5,000			—		5,000
Property Operating Costs		113,934			35,528		149,462
Other Operating expenses		200,083			20,879		220,962
Loss from Unconsolidated Affiliate		18,970			—		18,970
Depreciation, depletion and amortization		425,403			29,924		455,327

Total Operating Expenses		812,424			99,506		911,930

Net Income (Loss)	$	(228,886	)	$	136,527	$	(92,359	)


Property and Equipment additions	$	64,013		$	37,122	$	101,135


Total Assets	$	8,686,775		$	1,454,490	$	10,141,265

13. Commitments and Contingencies

Environmental Matters

The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial costs from environmental accidents or events for which it may be currently liable.

Oil and Gas Contracts

Effective January 1, 2006, the Company entered into a contract with Great Plains Exploration, LLC for well operations and sale of natural gas and oil production to third parties. The term of the agreement was one year from the effective date. It was extended as of January 1, 2007 and shall be extended for consecutive one year periods unless terminated earlier. The original contract was amended November 14, 2006 and filed as exhibit 10.4 to our Form 10-QSB for the quarter ended September 30, 2006. The Amendment No. 1 to the Oil and Gas Operations and Sale Agreement modified the original terms to create less cumbersome paperwork in tracking cost sharing between the companies.


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

John D. Oil and Gas Company, formerly Liberty Self-Stor, Inc. is a corporation organized under the laws of the State of Maryland.

The Company entered into the business of extracting and producing oil and natural gas products during 2006. The Company currently has two segments: one that is drilling and operating natural gas wells with oil as a by-product in Northeast Ohio and one composed of a self-storage facility located in Painesville, Ohio. The Company cannot guarantee success under its business plan as drilling wells for oil and natural gas is a high-risk enterprise and there is no guarantee the Company will become profitable. To date, the Company’s oil and gas operations have not been profitable. The decline in the current market price of natural gas severely affects the viability of any future drilling because our lower cash flow makes it economically difficult to incur the high costs of drilling a well. Additionally, our production will continue to decline if the Company is not drilling any new wells. Although the oil production is profitable with the higher oil market pricing, this revenue is not enough to offset the lower natural gas production and operating expenses.

Without additional wells being drilled and the Company’s substantial debt financing, the Company will continue to show losses and be unprofitable. Therefore, the Company is concerned about its future viability as a going concern.

As previously disclosed in the Company’s Form 8-K filed on June 25, 2010 with the Securities and Exchange Commission, on June 18, 2010, the Company, along with Mr. Richard M.Osborne, the Richard M. Osborne Trust, Great Plains and Oz Gas Ltd. (companies owned by Mr. Osborne), have entered into a Forbearance Agreement with Charter One pursuant to which Charter One agreed to forbear from enforcing its rights and remedies under the Company’s fully-drawn $9.5 million line of credit as well as the other parties’ loan agreements until July 1, 2011, subject to no further events of default including the payments due under the Forbearance Agreement. Pursuant to the Forbearance Agreement and during the forbearance period, the parties must pay Charter One $400,000 per month, including a $40,000 per month forbearance fee, until all amounts under the loan agreements have been paid in full. At March 31, 2010, the Loan Parties were in compliance with the required payments. See Note 5 “Line of Credit and Long-Term Debt” to the Company’s consolidated financial statements for more information.

Discussions with Charter One are ongoing and there is no certainty that these discussions will result in satisfactory terms of a revised loan agreement or a revised loan agreement at all. If Charter One demands repayment of the outstanding amounts payable at the end of the forbearance period, the Company does not have the available cash to repay the line of credit and will need financing from other sources to repay Charter One. If alternative financing is not available, the Company will default and may be unable to continue operations.

During August 2009, Liberty Self Stor, LTD defaulted on its $1.2 million loan from First Merit Bank, N.A. On May 11, 2010, Liberty Self Stor, LTD and First Merit Bank signed a loan modification agreement which waived the prior defaults. The terms of the mortgage include a five year term, maturing on June 1, 2014, with a ten year amortization period at a variable rate of the 30 day LIBOR plus 250 basis points. Monthly payments consist of principal at $10,370 plus interest.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. These interim financial statements contain certain amounts that were based upon the Company’s best estimates, judgments, and assumptions that were believed to be reasonable under the circumstances. A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1, in the Company’s Form 10-K for the year ended December 31, 2010. There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended December 31, 2010.

Liquidity and Capital Resources

Liquidity represents the Company’s ability to generate sufficient amounts of cash to meet its financial commitments. The Company’s cash flow from operating and financing activities will not be sufficient to meet its anticipated operating requirements in the foreseeable future.

The Company requires substantial capital expenditures to maintain and/or grow production and reserves. We depend on debt or equity financing to pay for exploration and operations. The current economic environment makes it more difficult to obtain debt or equity financing on acceptable terms to address our liquidity issues. Capital may not be available to meet these continuing costs, or if capital is available, it may not be on terms acceptable to us.

The Company’s $9.5 million line of credit with Charter One matured on August 1, 2009. On August 20, 2009, Charter One received a judgment in its favor against the Company, Mr. Osborne and the Richard M. Osborne Trust, jointly and severally for $9.5 million plus interest and late charges.

On June 18, 2010, the Company, along with Richard M. Osborne, the Trust, Great Plains and Oz Gas Ltd. (companies owned by Mr. Osborne), have entered into a Forbearance Agreement with Charter One pursuant to which Charter One will forbear from enforcing its rights and remedies under the Company’s line of credit as well as the other parties’ loan agreements until July 1, 2011, subject to no further events of default including the payments due under the Forbearance Agreement.

The Company, Mr. Osborne, the Trust, Great Plains and Oz Gas are collectively referred to in the Forbearance Agreement and herein as the “Loan Parties.”

Under the Forbearance Agreement, Charter One’s agreement to forbear is conditioned upon and subject to the following conditions:

•

Payment by the Loan Parties of a forbearance fee of $40,000 per month during the forbearance period;

•

No material adverse change in the condition of the Loan Parties;

•

An assignment and grant of a security interest by the Company and Great Plains of each of their ownership interests in the Alpha and Panzica wells;

•

A pledge by the Loan Parties of their ownership interests in Kykuit Resources LLC ; and

•

A pledge by Mr. Osborne of not less than 800,000 shares of common stock of Gas Natural Inc. with such stock having a market value of not less than $9.6 million pursuant to a pledge agreement.

In addition, commencing July 1, 2010 and each month thereafter until all amounts under the judgments and loan agreements have been paid in full, the Loan Parties shall pay Charter One $400,000, including the $40,000 forbearance fee. The Company had previously felt they would pay one third of the $400,000, but due to lack of cash, they have decided to accrue interest and one third of the $40,000 monthly fee and legal fees. The monthly $400,000 is being paid by the other Loan Parties. Such payments by the Loan Parties shall be applied first to Charter One’s fees and expenses, second to accrued but unpaid interest due under the judgments, and third to principal amounts due under the judgments. Charter One has applied a default rate to the loan from January 4, 2010 thru June 18, 2010. The Company does not agree with the default rate and therefore has not booked approximately $171,000 of additional interest expense. It is the Company’s position that the interest for the period from judgment date to forbearance date should remain at the original contract rate at the date of judgment, based upon the per diem interest amount expressly stated in that judgment. Attorneys for the Company also support that position and have so stated in letters to Charter One and for purposes of the Company’s 2010 annual audit. Charter One contends that the judgments will bear interest at LIBOR plus 1.75% with a LIBOR floor of 3.00%. The Company believes that there is an interest rate cap of 3.00%. The parties are in discussions regarding the applicable interest rate. If the Loan Parties repay $10 million and if after application of such repayment the outstanding balance of the judgments does not exceed 65% of the current producing reserve value (as that term is defined in the Loan Agreements) of the Company, Great Plains and Oz Gas, then the pledge of Mr. Osborne’s Kykuit interests and his Gas Natural Inc. shares shall be released. In addition, the Company must deposit all proceeds of its operations into accounts maintained by Charter One but during the forbearance period Charter One will not take any action to set off funds in any such account.

The forbearance period is effective until July 1, 2011, subject to the earlier termination upon the occurrence of any events of default by any of the Loan Parties, including non-payment of any amounts due by any of the Loan Parties under the Forbearance Agreement. See Note 5 “Line of Credit and Long-Term Debt” to the Company’s consolidated financial statements for more information.

Discussions with Charter One are ongoing but there is no certainty that these discussions will result in satisfactory terms for a revised loan agreement.

Because the Company does not have the available cash to repay the line of credit, if the required payments are not made by the Company or any of the other Loan Parties, or other events of default occur, under the Forbearance Agreement or if prior to the end of the forbearance period the Company is unsuccessful in refinancing its line of credit with Charter One or if the Company is unsuccessful in obtaining substitute financing, there is substantial doubt about the Company’s ability to continue as a going concern.

The Company’s current assets decreased $305,103 to $615,230 at March 31, 2011 from $920,333 at December 31, 2010, largely due to an increase in the company’s cash position offset by a decrease in related party accounts receivable.

The Company’s current liabilities increased $15,813, to $10,726,727 at March 31, 2011, from $10,710,914 at December 31, 2010, primarily due to an increase in accounts payable to related parties, offset by a decrease in accounts payable and accrued expenses.

The Company had a positive cash flow from operating activities of $149,740 for the three months ended March 31, 2011 compared to a positive cash flow of $113,479 for the same period in 2010. The positive cash flow is largely the result of improved collections in accounts receivable and an increase in accounts payable, offset by a greater loss for the current period over the prior year’s period.

The Company had a negative cash flow from investing activities of $48,087 for the three months ended March 31, 2011 compared to a negative cash flow of $161,575 for the same period in 2010. The three months ended March 31, 2011 improved from the same period in the prior year largely due to reduced cash investments in Kykuit and purchases of property and equipment.

The Company had a negative cash flow from financing activities of $60,893 for the three months ended March 31, 2011 compared to a positive cash flow of $26,024 for the same period in 2010. The reduction is largely due to no loan proceeds in the current period.

The items affecting operating cash flow and cash are discussed more fully in the “Material Changes in Results of Operations” section.

Material Changes in Results of Operations

Revenues from Operations

Total revenues from operations and interest income decreased $327,135, or 39.9%, to $492,436 for the three months ended March 31, 2011, compared to $819,571 for the same period in 2010. The decrease is due to lower natural gas production in 2011 through depletion and by the real estate property tax refund received and the reduction in accrued real estate taxes related to the Painesville self-storage facility in 2010.

Operating Expenses

Total operating expenses increased $135,456, or 14.9%, to $1,047,386 for the three months ended March 31, 2011 from $911,930 for the same period in 2010. This is largely due to an increase in interest expense that was due to the change in interest rate brought about by the forbearance agreement with Charter One, expenses associated with attempting to improve well production, an increase in Kykuit losses, and an increase in payroll costs; only partially offset by a decrease in depreciation, depletion, and amortization expense.

Interest expense increased $94,943, or 152.6%, to $157,152 for the three months ended March 31, 2011 compared to $62,209 for the same period in 2010. Interest expense was higher for the three months ended March 31, 2011 largely due to the change in interest rate on the Charter One line of credit brought about by the forbearance agreement.

Accretion expense increased $1,145, or 22.9%, to $6,145 for the three months ended March 31, 2011 compared to $5,000 for the same period in 2010.

Oil and natural gas production costs increased $148,939, or 130.7%, to $262,873 for the three months ended March 31, 2011 compared to $113,934 for the same period in 2010. The increase in 2011 is due mostly to expenses associated with attempting to improve well production.

Self-storage property operating expenses decreased $830, or 2.3%, to $34,698 for the three months ended March 31, 2011 compared to $35,528 for the same period in 2010. The decrease is mostly due to less snowfall for the three months ended March 31, 2011 which decreased snowplowing and snow removal expenses.

Legal and professional fees increased $8,551, or 15.6%, to $63,290 for the three months ended March 31, 2011 compared to $54,739 for the same period in 2010 due to the engagement of a consulting firm to assist us in our discussions with Charter One.

Property taxes and insurance expenses increased $3,835, or 23.3%, to $20,325 for the three months ended March 31, 2011 compared to $16,490 for the same period in 2010. This increase is largely due to an increase in liability insurance premiums and increased property taxes on the Painesville self-storage facility.

General and administrative expenses increased $17,438, or 11.6%, to $167,171 for the three months ended March 31, 2011 compared to $149,733 for the same period in 2010. The increase in general and administrative expenses is largely due to an increase in employees for the three months ended March 31, 2011.

Loss from unconsolidated affiliate expense increased $40,653 to $59,623 for the three months ended March 31, 2011 compared to $18,970 for the same period in 2010. Kykuit expenses increased in 2011 due to recording delayed rental costs as expense instead of as capitalized costs.

Depreciation, depletion and amortization expenses decreased $179,218, or 39.4%, to $276,109 for the three months ended March 31, 2011 compared to $455,327 for the same period in 2010. The current depletion expense is lower than the same period in 2010 largely due to the reduction in the Company’s depletable base from prior year and lower reserve pricing.

Net Loss

The Company had a net loss from operations of $554,950, for the three months ended March 31, 2011 compared to net loss of $92,359 for same period in 2010. The large reduction in natural gas production revenue was due to decreased production volumes for the three months ended March 31, 2011, as compared to 2010. This revenue decrease was also partially caused by the Company receiving a refund of real estate taxes in 2010 which it did not receive in 2011.

Net Income (Loss) attributable to Non-Controlling Interest

The Company had net loss attributable to its non-controlling interest in LSS I of $7,260 for the three months ended March 31, 2011 and a net income of $95,705 for the same period in 2010. Although LSS I has usually recorded a loss in prior periods, during the three months ended March 31, 2010 it had income due to the decrease in the property values on the Painesville property in which a tax refund payment was received.

Net Income (Loss) attributable to John D. Oil and Gas Company

The Company had a net loss attributable to John D. interests of $547,690 for the three months ended March 31, 2011 compared to a net loss of $188,064 for the same period in 2010. The loss for the three months ended March 31, 2011 is largely due to the large reduction in natural gas production revenue due to depletion.

Interest Rate Risk

Interest rate risk is the risk that interest rates will increase, which will result in an increase in the Company’s interest expense on its variable rate loans.

The loan on the Painesville facility and the Charter One line of credit, totaling approximately $10.5 million, are tied to variable interest rates. If the Company’s interest rates on the loans were to increase by 1% per year, the Company’s interest expense would increase approximately $105,000 on an annual basis. If interest rates increase, the Company’s results of operations may be materially and adversely affected.

Off-Balance Sheet Arrangements

The Company had one off-balance sheet arrangement at March 31, 2011, with respect to its investment in Kykuit. While the Company is not liable for the contribution obligations of other members of Kykuit, the Company is investing additional funds since Kykuit currently does not have production revenue but has incurred expenses. For the three months ended March 31, 2011 and 2010, the Company paid $161,200 (including $124,000 previously recorded in accounts payable) and $60,440 (including $10,940 previously recorded in accounts payable), respectively, into Kykuit as part of their cash calls and to make up the difference for members not investing.

Forward-Looking Statements

Statements that are not historical facts, including statements about the Company’s confidence in its prospects and strategies and its expectations about growth, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties, many of which are beyond our control, may include statements about our:

•

ability to continue as a going concern;

•

liquidity and our ability to meet our debt obligations;

•

business strategy;

•

financial strategy;

•

drilling locations;

•

natural gas and oil reserves;

•

realized natural gas and oil prices;

•

production volumes;

•

lease operating expenses, general and administrative expenses and finding and development costs;

•

future operating results; and

•

plans, objectives, expectations and intentions.

All of these types of statements, other than statements of historical fact, included in this report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of these terms or other comparable terminology.

The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe these estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. We caution all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2010 and elsewhere in our annual report and this report. All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.


Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, 2011, the Company’s management under the supervision of and with participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and chief financial officer each concluded that the Company’s disclosure controls and procedures were not effective in light of the identification of a material weakness in the Company’s internal controls over financial reporting as discussed and reported in the Company’s Form 10-K filed on March 31, 2011 for the year ended December 31, 2010.

Notwithstanding the material weakness described in the 2010 Form 10-K filed on March 31, 2011 for the year ended December 31, 2010, to the best of their knowledge, the Company’s management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The previous year’s reduction in staff continues to hamper the Company’s ability to maintain adequate segregation of duties.

PART II OTHER INFORMATION


Item 1.		Legal Proceedings

There were no material developments in legal proceedings to which the Company is a party during the quarter ended March 31, 2011.


Item 6.		Exhibits


Exhibit No.			Description

	31.1	*	Section 302 Certification of Chairman of the Board and Chief Executive Officer (principal executive officer) pursuant to the Sarbanes-Oxley Act of 2002

	31.2	*	Section 302 Certification of Chief Financial Officer (principal financial officer) pursuant to the Sarbanes-Oxley Act of 2002

	32.1	*	Certification of Chairman of the Board and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


JOHN D. OIL AND GAS COMPANY

/s/ Richard M. Osborne Richard M. Osborne		Dated: May 16, 2011
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)

/s/ Carolyn T. Coatoam Carolyn T. Coatoam		Dated: May 16, 2011
Chief Financial Officer
(Principal Financial and Accounting Officer)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

JOHN D. OIL & GAS CO 10-Q