10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

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 x 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  (Do not check if a smaller reporting company)	Smaller reporting company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the registrant’s common stock as of October 31, 2008 was 9,019,015 shares.

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	25
Item 4: Controls and Procedures	32
PART II Other Information
Item 5: Other Information	32
Item 6: Exhibits	33
Signatures	33
Certifications

2

Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

John D. Oil and Gas Company and Subsidiary

Consolidated Balance Sheets

	September 30,  2008			December 31,  2007
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash	$	100,887		$	30,479
Accounts Receivable		7,595			63,739
Accounts Receivable from Related Parties		927,018			919,542
Assets Held for Sale		-			204,762
Other Current Assets		38,349			34,073
Total Current Assets		1,073,849			1,252,595
Property and Equipment, Net		13,184,890			12,874,148
Investment in Unconsolidated Affiliate		993,654			1,261,930
Other Assets		20,999			13,894
TOTAL ASSETS	$	15,273,392		$	15,402,567
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Line of Credit	$	9,500,000		$	5,700,000
Current Maturities of Long Term Debt		1,293,078			100,725
Note Payable to Related Party		-			3,800,000
Accounts Payable		608,958			2,063,318
Accounts Payable to Related Parties		2,889			16,468
Accrued Expenses		261,530			208,735
Total Current Liabilities		11,666,455			11,889,246
Long Term Debt, Net of Current Maturities		-			1,285,732
Asset Retirement Obligation		389,672			211,777
Commitments and Contingencies		-			-
Shareholders’ Equity:
Serial Preferred Stock - $.001 par value: 2,000,000 shares authorized, 1,350 and 0 shares issued and outstanding, respectively		1			-
Common Stock - $.001 par value: 50,000,000 shares authorized; 9,019,015 issued and outstanding		9,019			9,019
Paid-in Capital		30,255,103			28,871,616
Accumulated Deficit		(27,030,378	)		(26,864,823	)
Accumulated Other Comprehensive Loss		(16,480	)		-
Total Shareholders’ Equity		3,217,265			2,015,812
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,273,392 $			15,402,567

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

3

John D. Oil and Gas Company and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended  September 30,						Nine Months Ended  September 30,
	2008			2007			2008			2007
Revenues
Oil and Natural Gas Sales	$	1,210,158		$	644,211		$	3,147,411		$	1,960,715
Self-Storage Operation Revenues		77,107			87,069			235,407			262,818
Interest and Other		4			1,912			3,313			43,521
Total Revenues		1,287,269			733,192			3,386,131			2,267,054
Operating Expenses
Interest		138,281			151,483			435,545			373,068
Accretion Expense		15,476			14,621			22,952			23,007
Oil and Natural Gas Production Costs		161,906			71,243			449,758			215,315
Self-Storage Property Operating Expense		25,237			26,366			82,775			76,954
Legal and Professional Fees		60,073			56,582			157,180			149,380
Property Taxes and Insurance		39,841			39,239			121,144			107,308
General and Administrative		221,105			204,334			644,325			578,334
Warrant		-			-			47,573			-
Loss from Unconsolidated Affiliate		5,031			23,420			24,231			23,420
Bad Debt		723			-			40,750			-
Impairments		-			676,485			241,600			676,485
Depreciation, Depletion and Amortization		432,727			241,484			1,225,935			821,886
Total Operating Expenses		1,100,400			1,505,257			3,493,768			3,045,157
Income (Loss) from Continuing Operations		186,869			(772,065	)		(107,637	)		(778,103	)
Loss from Discontinued Operations		-			(1,389	)		-			(7,483	)
Gain on Sale of Assets from Discontinued Operations		-			-			-			294,587
Income (Loss) from Discontinued Operations		-			(1,389	)		-			287,104
Net Income (Loss)	$	186,869		$	(773,454	)	$	(107,637	)	$	(490,999	)
Other Comprehensive Income (Loss):
Change in Fair Value of Cash Flow Hedge		(13,062	)		-			(16,480	)		-
Change in Fair Value of Available for Sale Securities		-			-			-			(34	)
Comprehensive Income (Loss)	$	173,807		$	(773,454	)	$	(124,117	)	$	(491,033	)
Weighted Average Basic Shares Outstanding		9,015,015			8,998,180			9,019,015			8,998,180
Weighted Average Diluted Shares Outstanding		10,022,485			8,998,180			9,019,015			8,998,180
Income (Loss) per Common Share from Continuing Operations – Basic and Diluted	$	0.02		$	(0.09	)	$	(0.02	)	$	(0.09	)
Income per Common Share from Discontinued Operations – Basic and Diluted		0.00			0.00			0.00			0.03
Income (Loss) per Common Share - Basic and Diluted	$	0.02		$	(0.09	)	$	(0.02	)	$	(0.06	)

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

4

John D. Oil and Gas Company and Subsidiary

Consolidated Statements of Shareholders’ Equity

Nine Months Ended September 30, 2008 and 2007

	Preferred  Stock		Common  Stock		Paid-in  Capital		Accumulated  Deficit			Accumulated  Other  Comprehensive  Income (Loss)			Total
Balance at December 31, 2006 (Audited)	$	-	$	8,998	$	28,854,588	$	(25,966,929	)	$	34		$	2,896,691
Restricted Common Stock Award						3,411								3,411
Net Loss								(490,999	)					(490,999	)
Change in Fair Market Value of Available for Sale Securities											(34	)		(34	)
Balance at September 30, 2007 (Unaudited)	$	-	$	8,998	$	28,857,999	$	(26,457,928	)	$	-		$	2,409,069
Balance at December 31, 2007 (Audited)	$	-	$	9,019	$	28,871,616	$	(26,864,823	)	$	-		$	2,015,812
Preferred Stock Issued in Private Placement, Net of Offering Costs		1				1,332,503								1,332,504
Restricted Common Stock Award						3,411								3,411
Dividends Declared								(57,918	)					(57,918	)
Director Warrant Issued						47,573								47,573
Net Loss								(107,637	)					(107,637	)
Change in Fair Market Value of Cash flow Hedge											(16,480	)		(16,480	)
Balance at September 30, 2008 (Unaudited)	$	1	$	9,019	$	30,255,103	$	(27,030,378	)	$	(16,480	)	$	3,217,265

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

5

John D. Oil and Gas Company and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2008			2007
Cash Flows from Operating Activities:
Net Loss	$	(107,637	)	$	(490,999	)
Adjustments to Reconcile Net Loss to Net Cash (Used In) Provided By Operating Activities
Bad Debt		40,750			-
Impairments		241,600			676,485
Depreciation, Depletion and Amortization		1,225,935			821,886
Accretion		22,952			23,007
Loss on Well Disposal		41,690			-
Loss from Unconsolidated Affiliate		24,231			23,420
Gain on Sale of Securities		-			(36,260	)
(Gain) Loss on Sale of Equipment		(199	)		3,703
Restricted Common Stock Award		3,411			3,411
Director Warrant Issued		47,573			-
Changes in Operating Assets and Liabilities:
Accounts Receivable		7,918			(10,070	)
Other Current Assets		200,486			(12,547	)
Other Assets		(7,105	)		18,877
Accounts Payable		(1,810,369	)		1,275,641
Accrued Expenses		(22,776	)		(38,491	)
Change in Discontinued Operations, Net		-			(316,936	)
Net Cash (Used In) Provided By Operating Activities		(91,540	)		1,941,127
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(1,437	)		(30,281	)
Proceeds from Sale of Securities		-			474,648
Proceeds from Sale of Equipment		830			1,245,889
Proceeds from Sale of Interest in Unconsolidated Affiliate		731,747			-
Expenditures for Unconsolidated Affiliate		(145,272	)		(1,140,000	)
Expenditures for Oil and Natural Gas Wells		(1,632,349	)		(6,191,810	)
Net Cash Used in Investing Activities		(1,046,481	)		(5,641,554	)
Cash Flows from Financing Activities:
Proceeds from Line of Credit, Net		-			2,615,000
Proceeds from Preferred Stock Private Placement		1,332,504			-
Dividends Paid to Preferred Stockholders		(30,696	)		-
Proceeds from Related Party Loan		500,000			1,880,000
Principal Payments on Related Party Debt		(500,000	)		-
Principal Payments on Long Term Debt		(93,379	)		(63,203	)
Change in Discontinued Operations, Net		-			(716,907	)
Net Cash Provided By Financing Activities		1,208,429			3,714,890
Net Increase in Cash		70,408			14,463
Cash, Beginning of Period		30,479			23,892
Cash, End of Period	$	100,887		$	38,355

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

6

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

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. On June 27, 2005, the Company changed its name to John D. Oil and Gas Company.

The Company is in the business of acquiring, exploring, developing, and producing oil and natural gas in Northeast Ohio. The Company still retains one self storage facility located in Painesville, Ohio from the partnership with Liberty Self-Stor, Ltd., an Ohio limited liability company (the “Ohio LLC”). The members of the Ohio LLC consisted of Richard M. Osborne, Chairman and Chief Executive Officer of the Company, Thomas J. Smith, the former President and Chief Operating Officer of the Company, and Retirement Management Company, an Ohio corporation owned by Mr. Osborne.

Each member of the Ohio LLC exchanged their membership interests for Class A limited partnership interests in LSSI Limited Partnership, a Delaware limited partnership (“LSS”), resulting in LSS being the sole member of the Ohio LLC. The Company contributed its net assets, primarily cash and investments, to LSS in exchange for the sole general partner interest therein and Class B limited partnership interests. The Class A limited partnership interests are redeemable for cash or, at the election of the Company, convertible into shares of the Company’s stock based on the current exchange factor of .1377148 of a share for each unit. The Class A limited partnership interest owned by Richard Osborne are presently convertible into 714,537 shares of the Company’s common stock. The Class A limited partnership interest owned by Retirement Management Company, of which Richard Osborne is the sole stockholder, are presently convertible into 257,429 shares of the Company’s common stock and those owned by Thomas Smith, a director, are convertible into 6,852 shares of the Company’s common stock. The Class B limited partnership interests are not entitled to redemption, conversion or a preferred return. The Company has a 29.9% minority interest in LSS. Due to the losses incurred by the self-storage facilities, current and previously owned, the initial investment by the minority interest was reduced to a receivable and previously written off. The Company may, if business and time warrant, sell the Painesville facility in the future.

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 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 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 September 30, 2008 and the results of its operations and cash flows for the three and nine months ended September 30, 2008 and 2007. Interim results of operations are not necessarily indicative of the results to be expected for the remainder of the year. These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007. Certain prior year amounts have been reclassified to conform to the September 30, 2008 presentation. These reclassifications had no effect on net loss or shareholders’ equity as previously reported.

Principles of Consolidation

Pursuant to the terms of the partnership agreement of LSS, the Company, as sole general partner, controls LSS. Accordingly, the Company accounts for its investment in LSS utilizing the consolidation method. The Company’s 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.

7

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Cash and Cash Equivalents

The Company maintains cash at various financial institutions which, at times, may exceed federally insured amounts and may significantly exceed consolidated balance sheet amounts due to outstanding checks. The Company considers highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

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. At September 30, 2008, 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 income when received.

Property and Equipment

All property and equipment is depreciated using the straight-line method over 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 accumulated depreciation and depletion and amortizations are eliminated from 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 has some limited participation in exploratory drilling which the Kykuit partnership is involved in.

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 unproved oil and natural gas properties are periodically assessed for impairment.

8

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Asset Impairment

The Company reviews its capitalized well costs and self-storage property for impairment 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 the Financial Accounting Standards Board (“FASB”) Statement No. 143, “Accounting for Asset Retirement Obligations.”  This Statement requires that 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 to interest expense over the estimated life of the well.

The following table presents the Company’s asset retirement obligation activity for the following nine month periods:

	September 30,  2008			September 30,  2007
	(Unaudited)			(Unaudited)
Asset retirement obligations, beginning of the period	$	241,777		$	90,324
Liabilities incurred during the period		71,982			52,906
Revisions in estimated cash flows		117,961			-
Liabilities settled during the period		(35,000	)		-
Accretion expense		22,952			13,007
Asset retirement obligations, end of the period		419,672			156,237
Less current liabilities		30,000			-
Asset retirement obligations, net of current maturities	$	389,672		$	156,237

At September 30, 2008 and December 31, 2007, the current portion of the asset retirement obligation is included in accrued expenses and was $30,000 at September 30, 2008 and December 31, 2007. The Company plugged four wells during the third quarter and may plug three more during the next six months.

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 contracts they currently have in place. The actual funds are typically received within three months due to the accounting treatment by the main distribution pipeline company in Northeast Ohio.

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.

9

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

The Company also leases certain commercial space in its Painesville property under long-term lease agreements through November 30, 2011. Total lease revenue related to these leases was $43,924 and $46,425 for the three months ended September 30, 2008 and 2007, respectively. Total lease revenue related to these leases was $129,073 and $143,301 for the nine months ended September 30, 2008 and 2007, respectively. Revenue under these long-term lease agreements is recognized on a straight-line basis over the respective lease terms. In June of 2008, the Company decided to write-off an outstanding receivable of $40,027 for a leased vacant space to bad debt expense. While the Company has received a court judgment against the lease holder, the Company is uncertain as to the collection of the outstanding receivable.

Future minimum lease revenue for continuing operations under non-cancelable leases for each of the two succeeding annual periods ending September 30 are as follows:

2009	$	150,624
2010		106,620
	$	257,244

Additionally, two other leases have been on a month to month basis since August of 2007 and are not included in the above chart.

Comprehensive Income

Statement of Financial Accounting Standard (“SFAS”) No. 130, “Reporting Comprehensive Income,” requires disclosure of comprehensive income and its components in a full set of financial statements. Comprehensive income is defined as changes in shareholders’ equity from non-owner sources and, for the Company, includes gains and losses recognized on derivative instruments accounted for as cash flow hedges and fair market value adjustments to available for sale securities, in compliance with SFAS No. 133, as amended.

Stock-Based Compensation

The 1999 Stock Option Plan (“the Plan”), which was approved by stockholders, permits the grant of non-statutory stock options (“NSSOs”), incentive stock options (“ISOs” and together with NSSOs, “options”) and restricted shares. The Plan was adopted to attract and retain qualified and competent persons who are valuable to the Company, including key employees, officers, and directors. The Plan provides for the grant to employees of ISOs within the meaning of Section 422 of the Code, for grant of NSSOs to eligible employees (including officers and directors) and non-employee directors and for the grant of restricted share awards. The Company may grant up to 300,000 options or restricted shares pursuant to the Plan. As of September 30, 2008 and December 31, 2007, 25,000 and 35,000 stock options were outstanding, respectively. During the second quarter of 2006, the former President and Chief Operating Officer of the Company was awarded 35,000 restricted shares with a fair value of $22,750 with compensation expense to be amortized ratably over a five year vesting period. The compensation expense recorded for the restricted shares for the nine months ended September 30, 2008 and 2007 was $3,411.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment,” using the modified prospective transition method, and thus the results of operations for prior periods will not be restated. Prior to the adoption of SFAS 123R, the Company applied the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

10

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

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. The warrant has an exercise price of $1.00 per share and a term of five years. The fair value of the warrant was approximately $48,000 at the date of grant, estimated using the Black-Scholes-Merton option pricing model. Determining the fair value of the warrant charge requires us to make highly subjective assumptions, including expected contractual life of the warrant and the price volatility of the underlying shares. We estimate stock price volatility based on our historical volatility of stock. The assumptions used in calculating the fair value of the warrant represent our management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.

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 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. The tax years 2004 through 2007 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.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s financial statements are based on a number of significant estimates, including reliability of receivables, selection of useful lives for property and equipment and timing and costs associated with its retirement obligations. 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.

Fair Value of Financial Instruments

The Company measures the fair value of its financial instruments using the procedures set forth below for all assets and liabilities measured at fair value that were previously carried at fair value pursuant to other accounting guidelines.

Under SFAS No. 157, “Fair Value Measurements” fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

11

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

SFAS 157 establishes a three-level hierarchy for disclosure to show the extent and level of judgment used to estimate fair value measurements.

Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. Instruments in this category include non-exchange-traded derivatives, including interest rate swaps.

Level 3 – Uses inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The table below sets forth our financial assets and liabilities that were accounted for at fair value as of September 30, 2008. The table does not include cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.

	Fair Value at September 30, 2008
	Level 1		Level 2			Level 3
Item measured at fair value on a recurring basis:
Interest rate swap	$	0	$	(16,480	)	$	0

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles (GAAP) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on the Company. The Company has deferred the application of SFAS No. 157 related to non-financial assets and liabilities.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on the Company since the Company did not elect to measure any financial assets or liabilities at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (“SFAS 141R”). SFAS 141R provides standards that will improve, simplify, and converge internationally the accounting for business combinations in consolidated financial statements. The effective date of SFAS 141R is for fiscal years beginning after December 15, 2008. The Company is currently evaluating what impact SFAS No. 141R may have on its financial position, results of operations or cash flows.

12

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment to FASB Statement No. 133.” SFAS No. 161 intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. 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 Statement 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. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating what impact SFAS No. 161 may have on its financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with U.S. GAAP. SFAS 162 directs the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. SFAS No. 162 will be effective sixty days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411. The Company is currently evaluating what impact SFAS No. 162 may have on its financial position, results of operations or cash flows.

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

2. 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 $1,000.00 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.

13

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

3. Warrant Issued

Pursuant to a warrant agreement dated June 20, 2008 between the Company and Richard M. Osborne, the Company issued a warrant to Mr. Osborne to purchase up to 50,000 shares of the Company’s common stock at $1.00 per share. The warrant is immediately exercisable. The fair value of the warrant was approximately $48,000 at the grant date, estimated on the basis of the Black-Scholes-Merton option-pricing formula. The following assumptions were used: expected volatility of 153.15%; risk-free interest rate of 3.57%; expected dividend yield of 0.00% and contractual life of the warrant as 4.5 years. The fair value of the warrant has been recorded as an increase to additional paid in capital and expense accounts, which was fully recognized as of June 30, 2008.

4. Property and Equipment

Property and equipment consists of the following:

	September 30, 2008			December 31, 2007
	(Unaudited)			(Audited)
Oil and Natural Gas Properties:
Proved Properties	$	13,320,213		$	12,173,194
Unproved Properties		2,225,763			1,803,800
Accumulated Depletion		(4,240,205	)		(2,885,433	)
Total Oil and Natural Gas Properties		11,305,771			11,091,561
Other Property, Plant and Equipment:
Land		307,780			307,780
Building and Improvements		2,357,822			2,357,822
Well Material Inventory		201,620			-
Furniture and Equipment		199,657			200,212
Accumulated Depreciation		(1,187,760	)		(1,083,227	)
Total Other Property and Equipment		1,879,119			1,782,587
Property and Equipment, Net	$	13,184,890		$	12,874,148

5. Investment in Unconsolidated Affiliates

The Company holds an investment in an unconsolidated affiliate, Kykuit Resources LLC, which is accounted for using the equity method of accounting. The Company began investing in Kykuit during the third quarter of 2007. At that time Kykuit had a 75% interest in certain oil, natural gas and mineral rights located in the Montana Breaks area of Montana. Subsequently, on May 1, 2008 Kykuit entered into an Assignment of Oil, Gas and Mineral Leases pursuant to which Hemus, Ltd. assigned all of the remaining 25% interest in rights, title and interest in certain oil, natural gas and mineral leases located in Montana to Kykuit for $250,000. Drilling began in late May 2008. While several wells have been drilled, all of the processes to determine if the wells are viable have not been completed at this time.

The Company initially owned 43.8% of Kykuit. At December 31, 2007, the Company had invested $1,140,000 in cash, incurred an outstanding payable of $150,748 and carried a loss of $28,818 against its investment. During the first quarter, the Company invested $8,600 and during the second quarter $25,800 in cash. Additionally the Company incurred two cash calls in the second quarter totaling $1,116,017, resulting in a net investment of $2,441,165. The Company is the current managing member of Kykuit and now owns 18.8% of Kykuit after selling 25% of its interest on May 29, 2008. The 25% interest was sold for approximately $1.3 million of which the Company received $731,747 in cash and wrote off an accounts payable of $662,716. No gain was realized on the sale. A full disclosure of these items is included in a Form 8-K dated May 1, 2008 filed with the Securities and Exchange Commission on July 9, 2008. During the third quarter the Company invested $110,872. The current investment by the Company in this venture is $993,654 which includes an account payable for $493,177 and a cumulative net book loss of $53,048 at September 30, 2008. The following table displays the balance sheet of Kykuit at September 30, 2008 and December 31, 2007 and the income statement for the three and nine months ended September 30, 2008.

14

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Kykuit Resources LLC

Balance Sheet

	September 30,  2008			December 31, 2007
Current Assets	$	724,108		$	316,752
Unproved Leaseholds and Development Costs		5,598,225			2,707,773
Furniture and Fixtures, Net of Depreciation		39,883			31,536
Other Assets		35,367			42,135
	$	6,397,583		$	3,098,196
Current Liabilities	$	742,619		$	214,791
Paid in Capital		5,817,097			2,949,248
Accumulated Deficit		(162,133	)		(65,843	)
	$	6,397,583		$	3,098,196

Kykuit Resources LLC

Statement of Operations

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Total Revenues	$	-		$	-		$	-		$	-
Total Expenses		39,911			58,552			96,290			58,552
Net Loss	$	(39,911	)	$	(58,552	)	$	(96,290	)	$	(58,552	)

6. Assets Held for Sale

At December 31, 2007, two parcels of land were categorized as Assets Held for Sale totaling $204,762. This land is adjacent to one of the self-storage facilities sold to U-Store-It in April 2005. At December 31, 2007, the Company had entered into an agreement for a possible sale of the land. Subsequently on February 1, 2008, the land was sold to Richard M. Osborne at its book value.

7.Discontinued Operations

On May 21, 2007, the Company completed the sale of its self-storage facility located in Gahanna, Ohio pursuant to the Purchase and Sale Agreement (the “Agreement”) among Liberty Self-Storage, LTD. (the trade name of the Company), Columbus Tile Yard, LLC and Buckeye Storage of Gahanna LLC, or its nominee, for the purchase price of $1,400,000. The assets of the Gahanna, Ohio self-storage facility consisted primarily of property and equipment with a net book value of approximately $924,000. The liabilities consisted primarily of a mortgage of approximately $708,000. The original purchase price was reduced by $50,000 pursuant to an amendment to the Agreement in December 2006. $150,000 of the purchase price was allocated to Columbus Tile Yard for the vacant land that it owned. Richard M. Osborne, the Company’s Chairman of the Board and Chief Executive Officer, is the owner of Columbus Tile Yard.

15

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

The Company’s results of operations have been restated to reclassify the net earnings of the self-storage facility sold as discontinued operations for all periods presented. The following table summarizes income and loss from discontinued operations for the three and nine months ended September 30:

	Three Months Ended September 30, 2007			Nine Months Ended September 30, 2007
Revenues
Revenues from real estate operations	$	-		$	72,771
Operating expenses
Interest expense		-			22,982
Property taxes and insurance		-			11,654
Property operating expense		1,389			32,535
Depreciation and amortization		-			13,083
Total Expenses		(1,389	)		80,254
Loss from discontinued operations		(1,389	)		(7,483	)
Gain on Sale of Discontinued Operations		-			294,587
Income from Discontinued Operations	$	(1,389	)	$	287,104

8. Line of Credit and Long-Term Debt

On September 28, 2006, the Company entered into an unsecured loan agreement with Mr. Richard Osborne and Charter One Bank. The Company and Mr. Osborne at that time were co-borrowers on a one year line of credit which provided 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.

At December 31, 2006, the Company had drawn $3,085,000 and Mr. Osborne had drawn $1.5 million of the available balance on the line of credit. Subsequently on February 20, 2007, the Company entered into a Modification Agreement between the Company, Mr. Osborne and Charter One Bank. The Modification Agreement increased the available line of credit from $5.0 million to $7.5 million until May 21, 2007, at which time the available amount reverted back to $5.0 million. In order to increase the line of credit, the Company granted Charter One Bank a security interest in and lien on substantially all of the Company’s assets. A second modification agreement dated April 6, 2007 was negotiated and increased the available line of credit from $7.5 million to $9.5 million for an additional 90 days, at which time the available amount would revert back to $5 million. Subsequently, the loan was extended to March 31, 2008 at the $9.5 million level. At December 31, 2007, the Company had drawn $5.7 million and Mr. Osborne had drawn $3.8 million of the available balance on the line of credit.

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 RBS Citizens, N.A., d/b/a Charter One. The Loan Agreement extends the maturity date to August 1, 2009, continuing with the original interest rate calculation of 1.75% over LIBOR adjusted monthly. Under the new agreement, only the Company may 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, so that sufficient collateral would allow the Company to enter into the loan agreement. While the Company is building its reserves with each well that it drills, it has not met the reserve collateral requirements for a loan this large at this time without the pledged assets of Mr. Osborne.

16

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

On April 16, 2008, the Company entered into an interest rate swap agreement for a cash flow hedge with RBS Citizens, N.A. The swap began on May 1, 2008 and ends on August 3, 2009 in connection with the $9.5 million loan to Charter One (DBA) RBS Citizens, N.A. The notational amount of the swap is $9.5 million and the swap changes the variable-rate interest on the loan from the 30 day LIBOR rate plus 1.75% to a fixed-rate interest of 2.95% plus 1.75%. The terms of the interest rate swap consist of calculating the difference between the fixed rate of 2.95% per year and the current 30-day LIBOR rate. In the event that the fixed rate of 2.95% exceeds the 30-day LIBOR rate, the Company pays the bank the difference. In the event that the 30-day LIBOR exceeds the fixed rate of 2.95%, the bank pays the Company the difference. The estimated fair value of the swap at September 30, 2008 was a liability of $16,480, which is included in accrued expenses. The interest rate swap is accounted for as a cash flow hedge pursuant to SFAS No. 133. As there are no differences between the critical terms of the interest rate swap and the hedged debt obligation, the Company assumes no ineffectiveness in the hedging relationship.

The Company has pledged its ownership interest in Kykuit Resources LLC to RBS Citizens, N.A., d/b/a Charter One, to secure the Company’s $9.5 million line of credit with Charter One.  Pursuant to the first amended and restated loan and security agreement among the Company, our chairman Richard M. Osborne and Charter One, the Company may not sell any of its interest in Kykuit or make any additional contributions to Kykuit without obtaining the bank’s consent.  In May 2008, the Company sold a portion of its interest in Kykuit to Geis Coyne Oil & Gas, LLC without obtaining Charter One’s written approval.  On October 27, 2008, the bank waived any violation of the loan agreement that may have resulted from the sale. 

During the third quarter of 2008, the Company invested $110,872 in Kykuit.  Charter One claims that the investment is a default under the loan agreement.  The Company is currently in discussions with the bank relating to the investment  and expects to obtain a waiver.  However, there can be no guarantee that Charter One will provide a waiver and the bank may declare a breach under the loan and exercise its right to require the Company to pay off the loan in full immediately.  If Charter One were to declare a default and accelerate the loan, the Company would not have the funds to pay the loan in full.

The Painesville facility is encumbered by a mortgage in the original amount of $2,062,128, maturing on March 30, 2009. This long-term debt has an interest rate tied to the 30 day LIBOR plus 2.50%. Monthly principal and interest payments are $16,612, with a current interest rate of 5.93%, using a 20-year amortization period. The principal amount of the loan as of September 30, 2008 and December 31, 2007 was $ 1,293,078 and $1,386,457, respectively.

While Mr. Osborne currently personally guarantees substantially all of the Company’s debt, he is under no legal obligation, requirement or agreement to guarantee any refinanced or future debt. If Mr. Osborne determines not to guarantee refinanced or future debt, the Company’s business and results of operations would be materially and adversely affected and the Company may be unable to continue to fund its operations.

17

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

For the three months ended September 30, 2008 and 2007 respectively, the Company expensed $134,972 and $135,961 in interest on its debt instruments. For the nine months ended September 30, 2008 and 2007 respectively, the Company expensed $426,646 and $357,546 in interest on its debt instruments.

9. 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 September 30, 2008 was 5.00%. There were no outstanding balances under the note at September 30, 2008.

At December 31, 2007, the Company had entered into loans with Great Plains (a company owned by Richard M. Osborne) totaling $3.8 million evidenced by six promissory notes. The loans did not include an expiration date or a limit on the amount that the Company could borrow. The notes were payable on demand and bore interest at the rate of LIBOR plus 1.75% per year. The Great Plains notes were satisfied in full and terminated when the Company entered into the Charter One Loan Agreement on March 28, 2008. 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.

During the loan negotiations with Charter One, it was anticipated that the Company would become responsible for the $9.5 million and therefore did not record any related party interest on the Great Plains loan for the three months ended March 31, 2008.

At June 30, 2008, the Company had $9.5 million outstanding on the Line of Credit to Charter One and had entered into loans with Great Plains totaling $500,000 evidenced by two promissory notes. The loans from Great Plains did not include an expiration date or a limit on the amount that the Company could borrow. The notes were payable on demand and bore interest at the rate of 8% per year. The Great Plains notes principal balances were fully paid by September 30, 2008.

Interest expense on related party notes payable, included in total interest on debt instruments was 3,309 and 15,522 for the three months ended September 30, 2008 and 2007, respectively. Interest expense on related party notes payable, was $8,899 and $15,522 for the nine months ended September 30, 2008 and 2007, respectively.

10. Earnings/Loss Per Share

Basic income (loss) per share of common stock for the three and nine months ended September 30, 2008 and 2007 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 stock options, restricted stock awards, Class A Limited Partnership conversion and warrants for the three months ended September 30, 2007 and nine months ended September 30, 2008 and 2007 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.

18

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

The following listed items were dilutive for the three months ended September 30, 2008.

	For the Three  Months Ended  September 30,  2008
Weighted average number of common shares outstanding used in basic earnings per common share calculation		9,019,015
Dilutive effect of stock options and awards		24,652
Dilutive effect of Class A Limited Partnership interests		978,818
Weighted average number of common shares outstanding adjusted for effect of dilutive options, restricted stock awards and Class A convertible stock used in diluted EPS calculation		10,022,485
Net Income	$	186,869
Basic and Diluted:
Loss per common share from continuing operations	$	0.02
Earnings per common share from discontinued operations		0.00
Earnings per common share, net	$	0.02

The Company paid no cash distributions to its common stock shareholders for the nine months ended September 30, 2008 and 2007. However, the Company declared $27,222 in preferred stock dividends for the three months ended September 30, 2008, which was paid in October 2008 and declared $57,918 in preferred stock dividends for the nine months ended September 30, 2008.

11. Income Taxes

The Company had no income tax expense for the three and nine months ended September 30, 2008 and 2007, respectively.

At September 30, 2008 and December 31, 2007, the Company had net operating loss carry forwards (NOLS) for future years of approximately $13.5 million. These NOLS will expire at various dates through 2027. 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.

12. Other Related Party Transactions

Richard M. 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. As of September 30, 2008 and December 31, 2007, the Company owed Liberty Self-Stor II, Ltd. $2,889 and $16,468, respectively, associated with these transactions, as well as for cash advances between the companies, which are included in accounts payable to related parties in the accompanying consolidated balance sheets.

19

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

On December 28, 1999, the stockholders approved the Company’s lease of its executive offices from OsAir, Inc., a company owned by Mr. Osborne. The current lease has a three year term maturing on June 30, 2009 for $1,350 per month. Rent expense totaled $12,150 for the nine months ending September 30, 2008 and 2007 and is included in general and administrative expenses.

The Company had $8,783 at September 30, 2008 and $5,063 at December 31, 2007 included in accounts receivable from related parties in the accompanying consolidated balance sheets. The balances represent amounts owed to the Company by various companies owned by Mr. Osborne. The amounts primarily relate to cost sharing in well joint ventures.

Effective January 1, 2006, the Company entered into a contract with Great Plains for well operations and to sell natural gas and oil production net of pipeline transportation costs. Great Plains is wholly owned by Mr. Osborne.The Company paid Great Plains $35,730 and $1,105,955 for capitalized costs to manage and drill wells per the operating agreement for the three months ended September 30, 2008 and 2007, respectively. The Company paid Great Plains $726,698 and $1,542,995 for capitalized costs to manage and drill wells per the operating agreement for the nine months ended September 30, 2008 and 2007, respectively. The Company also had $887,109 and $907,499 included in accounts receivable from related parties that is due from Great Plains at September 30, 2008 and December 31, 2007 for oil and natural gas sales, respectively.

The following table summarizes the payments received for oil and natural gas production and payments paid for expenses to Great Plains for the periods indicated.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2008		2007		2008		2007
Revenues
Revenue From the Sale of Oil and Natural Gas Production, net of pipeline transportation costs	$	1,166,190	$	776,523	$	2,817,012	$	2,370,555
Operating expenses
Well Management, Water Hauling and Service Rig	$	107,287	$	46,689	$	329,890	$	131,489

The Company has non-operator joint venture operating agreements with J. R. Smail, Inc., a corporation owned by James R. Smail, a director of the Company. The Company had $31,126 and $6,980 included in accounts receivable from related parties that is due from J. R. Smail, Inc. at September 30, 2008 and December 31, 2007 for oil and natural gas sales, respectively. The Company paid J. R. Smail Inc. $7,296 and $504,313 for capitalized costs to manage and drill wells per the operating agreement for the nine months ended September 30, 2008 and 2007, respectively. Net revenue received from J. R. Smail, Inc for the sale of natural gas and oil from the joint venture wells for the three months ended September 30, 2008 and 2007 was $43,968 and $1,307, respectively. For the nine months ended September 30, 2008 and 2007, the net revenue was $147,748 and $1,307, respectively. Additionally, Mr. Smail owns a drilling company, Poulson Drilling Corporation, which was paid $294,299 for drilling wells for the Company for the year ended December 31, 2007. The costs are recorded in proved properties. Operating expenses paid for the well management, water hauling and transportation costs totaled $10,126 and $0 for the three months ended and $32,808 and $0 for the nine months ended September 30, 2008 and 2007, respectively to J. R. Smail, Inc.

20

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

On August 3, 2007, Kykuit Resources, LLC purchased from Hemus, Ltd. (“Hemus”) a 75% interest in certain oil, natural gas and mineral rights located in the Montana Breaks area of Montana. Subsequently, on May 1, 2008 Kykuit entered into an Assignment of Oil, Gas and Mineral Leases pursuant to which Hemus, Ltd. assigned all of its remaining rights, title and interest in certain oil, natural gas and mineral leases located in Montana to Kykuit for $250,000. The Company is the managing member of Kykuit and currently owns 18.8% of Kykuit. A full disclosure of these items is included in a Form 8-K dated May 1, 2008 filed with the Securities and Exchange Commission on July 9, 2008. The current investment by the Company in this venture is $993,654.

Richard M. Osborne, the Company’s Chairman and Chief Executive Officer, and Steven A. Calabrese, a director of the Company, also own interests in Kykuit. Energy West Incorporated, a publicly-held public utility company of which Richard Osborne is the chairman and a significant stockholder, also owns an interest in Kykuit.

Marc C. Krantz, a director and secretary of the Company, is the managing partner of the law firm of Kohrman Jackson & Krantz PLL, which provides legal services to the Company.

21

John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

13. Financial Information Relating to Industry Segments

The Company reports operating segments and reportable segments by business activity according to SFAS No. 131, “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 table presents the three and nine months ended September 30, 2008 and 2007.

Three Months ended September 30, 2008	Oil and Gas Production		Self-Storage Facilities			Total
Revenues from external customers	$	1,210,158	$	77,107		$	1,287,265
Interest and other revenue		4		-			4
		1,210,162		77,107			1,287,269
Interest expense		121,252		17,029			138,281
Accretion expense		15,476		-			15,476
Property Operating Costs		161,906		25,237			187,143
Other Operating expenses		270,701		50,318			321,019
Loss from Unconsolidated Affiliate		5,031		-			5,031
Bad Debt		-		723			723
Impairments		-		-			-
Depreciation, depletion and amortization		402,483		30,244			432,727
		976,849		123,551			1,100,400
Net Income (Loss) from Continuing Operations	$	233,313	$	(46,444	)	$	186,869
Property and Equipment additions	$	194,875	$	-		$	194,875

Three Months Ended September 30, 2007	Oil and Gas Production			Self-Storage Facilities			Total
Revenues from external customers	$	644,211		$	87,069		$	731,280
Interest revenue		1,912			-			1,912
		646,123			87,069			733,192
Interest expense		122,478			29,005			151,483
Accretion expense		14,621			-			14,621
Property Operating Costs		71,243			26,366			97,609
Other Operating expenses		246,875			53,280			300,155
Loss from Unconsolidated Affiliate		23,420			-			23,420
Impairments		676,485			-			676,485
Depreciation, depletion and amortization		210,826			30,658			241,484
		1,365,948			139,309			1,505,257
Net Loss from Continuing Operations		(719,825	)		(52,240	)		(772,065	)
Net Loss from Discontinued Operations		-			(1,389	)		(1,389	)
Net Loss	$	(719,825	)	$	(53,629	)	$	(773,454	)
Property and Equipment additions	$	3,092,581		$	30,281		$	3,122,862

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John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Nine Months ended September 30, 2008	Oil and Gas Production		Self-Storage Facilities			Total
Revenues from external customers	$	3,147,411	$	235,407		$	3,382,818
Interest and other revenue		3,313		-			3,313
		3,150,724		235,407			3,386,131
Interest expense		378,484		57,061			435,545
Accretion expense		22,952		-			22,952
Property Operating Costs		449,758		82,775			532,533
Other Operating expenses		815,884		154,338			970,222
Loss from Unconsolidated Affiliate		24,231		-			24,231
Bad Debt		-		40,750			40,750
Impairments		241,600		-			241,600
Depreciation, depletion and amortization		1,135,014		90,921			1,225,935
		3,067,923		425,845			3,593,768
Net Income (Loss) from Continuing Operations	$	82,801	$	(190,438	)	$	(107,637	)
Property and Equipment additions	$	1,633,786	$	-		$	1,633,786
Total Assets	$	13,553,266	$	1,602,165		$	15,155,431

Nine Months Ended September 30, 2007	Oil and Gas Production			Self-Storage Facilities			Total
Revenues from external customers	$	1,960,715		$	262,818		$	2,223,533
Interest revenue		43,521			-			43,521
		2,004,236			262,818			2,267,054
Interest expense		282,892			90,176			373,068
Accretion expense		23,007			-			23,007
Property Operating Costs		215,315			76,954			292,269
Other Operating expenses		672,221			162,801			835,022
Loss from Unconsolidated Affiliate		23,420			-			23,420
Impairments		676,485			-			676,485
Depreciation, depletion and amortization		729,339			92,547			821,886
		2,622,679			422,478			3,045,157
Net Loss from Continuing Operations		(618,443	)		(159,660	)		(778,103	)
Net Income from Discontinued Operations		-			287,104			287,104
Net Income (Loss)	$	(618,443	)	$	127,444		$	(490,999	)
Property and Equipment additions	$	6,191,810		$	30,281		$	6,222,091
Total Assets	$	12,072,241		$	1,963,132		$	14,035,373

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John D. Oil and Gas Company and Subsidiary

Notes to Unaudited Consolidated Financial Statements

14. 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 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. Thereafter, it 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 the 10-QSB for 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.

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

John D. Oil and Gas Company has been in the business of extracting and producing oil and natural gas products since June 2005 when it sold most of its self-storage facilities and redirected the Company’s focus. The Company currently has two segments: one composed of the one remaining self-storage facility located in Painesville, Ohio and one that is actively drilling oil and natural gas wells in Northeast Ohio. The Company has drilled seven wells in the first nine months of 2008 with one remaining to be put on line.

The Company cannot guarantee success as drilling wells for oil and natural gas is a high-risk enterprise and there is no guarantee the Company will become profitable.

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. The preparation of these consolidated 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. We base our 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.

For a detailed discussion on the application of policies critical to our business operations and other accounting policies, see the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 and Note 1 of the “Notes to Unaudited Consolidated Financial Statements” included in this report.

Liquidity and Capital Resources

Liquidity represents the Company's ability to generate sufficient amounts of cash to meet its financial commitments. The Company believes that cash flow from operating and financing activities will not be sufficient to meet the Company’s anticipated operating and capital expenditure requirements on a short-term basis as it expands its oil and natural gas operations in Ohio and meets its contribution requirements for the Montana partnership. Drilling is very capital intensive and at this point the Company believes that short-term cash flow needs will be met by issuing equity, borrowing from related parties and partnering the working interest of future wells as joint ventures. However, there can be no assurances the Company will be able to meet its cash flow needs from these sources. If the Company is unable to meet its cash flow requirements, it will be forced to discontinue drilling operations.

A private placement offering occurred in 2006 and the Company sold preferred shares in early 2008. As an additional source of liquidity and to manage its interest rate risk, the Company may attempt to refinance some of its maturing long-term debt in order to satisfy its obligations and to generate additional cash to meet its financial commitments in conjunction with its business plan.

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If the Company determines to refinance or retire any of its maturing debt, there can be no assurance that the Company will be able to do so. A significant portion of the Company’s debt is due on demand. If adequate funds are not available or not available on acceptable terms, the Company’s business and results of operations would be materially and adversely affected and the Company may be unable to continue to fund its operations or growth or acquire additional properties or to meet its obligations.

In an effort to reduce interest rate exposure, the Company entered into an interest rate swap in April 2008 as a cash flow hedge with RBS Citizens, N.A.

Long-term liquidity will depend upon the Company’s ability to obtain financing and attain profitable operations. Refinancing of existing debt or issuance of any new debt will likely require a personal guarantee of Mr. Osborne, the Company’s Chairman and CEO. At September 30, 2008, the Company had outstanding debt to Charter One of $9.5 million on a line of credit, due to mature August 1, 2009. While Mr. Osborne currently personally guarantees substantially all of the Company’s debt, he is under no legal obligation, requirement or agreement to guarantee any refinanced or future debt. If Mr. Osborne determines not to guarantee refinanced or future debt, the Company’s business and results of operations would be materially and adversely affected and the Company may be unable to continue to fund its operations.

The Company has pledged its ownership interest in Kykuit Resources LLC to RBS Citizens, N.A., d/b/a Charter One, to secure the Company’s $9.5 million line of credit with Charter One.  Pursuant to the first amended and restated loan and security agreement among the Company, our chairman Richard M. Osborne and Charter One, the Company may not sell any of its interest in Kykuit or make any additional contributions to Kykuit without obtaining the bank’s consent.  In May 2008, the Company sold a portion of its interest in Kykuit to Geis Coyne Oil & Gas, LLC without obtaining Charter One’s written approval.  On October 27, 2008, the bank waived any violation of the loan agreement that may have resulted from the sale. 

During the third quarter of 2008, the Company invested $110,872 in Kykuit.  Charter One claims that the investment is a default under the loan agreement.  The Company is currently in discussions with the bank relating to the investment and expects to obtain a waiver.  However, there can be no guarantee that Charter One will provide a waiver and the bank may declare a breach under the loan and exercise its right to require the Company to pay off the loan in full immediately.  If Charter One were to declare a default and accelerate the loan, the Company would not have the funds to pay the loan in full.

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

The Company’s current assets decreased $178,746 or 14.3%, to $1,073,849 at September 30, 2008 from $1,252,595 at December 31, 2007. Current assets at September 30, 2008 were lower than at December 31, 2007 due to the sale of land (classified as held for sale) next to one of the previously sold self-storage facilities and the decrease in accounts receivable offset by an increase in cash.

The Company’s current liabilities decreased $222,791 to $11,666,455 at September 30, 2008, from $11,889,246 at December 31, 2007. The decrease is largely the result of lower accounts payable, offset by the Painesville self storage facility’s loan becoming a current liability.

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The Company had a negative cash flow from operating activities of $91,540 for the nine months ended September 30, 2008 compared to a positive cash flow of $1,941,127 for the nine months ended September 30, 2007. The decrease in cash flow from operating activities was largely the result of paying accounts payables from drilling wells.

The Company had a negative cash flow from investing activities of $1,046,481 for the nine months ended September 30, 2008 compared to a negative cash flow of $5,641,554 for the nine months ended September 30, 2007. The nine months ended September 30, 2008 was lower largely with fewer expenditures for drilling wells offset by sales proceeds for the 25% partnership interest sold of Kykuit Resources LLC.

The Company had a positive cash flow from financing activities of $1,208,429 for the nine months ended September 30, 2008 compared to a positive cash flow of $3,714,890 for the nine months ended September 30, 2007. The positive change for the nine months ended September 30, 2008 was largely due to the receipt of proceeds from a private stock offering. The positive change for the nine months ended September 30, 2007 was largely the result of borrowing on the line of credit.

Material Changes in Results of Operations

Revenues from Continuing Operations

Total revenues from continuing operations and interest income increased $554,077, or 75.6%, to $1,287,269 for the three months ended September 30, 2008, from $733,192 for the three months ended September 30, 2007.Total revenues from continuing operations and interest income increased $1,119,077 or 49.4%, to $3,386,131for the nine months ended September 30, 2008, from $2,267,054 for the nine months ended September 30, 2007. The increases are largely the result of higher oil and natural gas production occurring from the increase in producing wells and the increase in the market price of oil during the year.

Expenses from Continuing Operations

Interest expense from continuing operations decreased $13,202 or 8.7%, to $138,281 for the three months ended September 30, 2008 compared to $151,483 for the three months ended September 30, 2007. Interest expense from continuing operations increased $62,477 or 16.7%, to $435,545 for the nine months ended September 30, 2008 compared to $373,068 for the nine months ended September 30, 2007. Interest expense decreased for the quarter due to a lower principal balance on the Painesville self-storage facility and the related party loan offset partially by the new interest rate swap in 2008. Interest expense increased for the nine months ended largely due to additional borrowing on the line of credit although the interest rate was lower for the nine months ended September 30, 2008 compared to 2007. Also, the new interest rate swap was not in our favor and increased interest expense.

Accretion expense from continuing operations was $15,476 for the three months ended September 30, 2008 compared to $14,621 for the three months ended September 30, 2007. Accretion expense from continuing operations was $22,952 for the nine months ended September 30, 2008 compared to $23,007 for the nine months ended September 30, 2007.

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Oil and natural gas production costs from continuing operations increased $90,663, or 127.3%, to $161,906 for the three months ended September 30, 2008 compared to $71,243 for the three months ended September 30, 2007. Oil and natural gas production costs from continuing operations increased $234,443, or 108.9%, to $449,758 for the nine months ended September 30, 2008 compared to $215,315 for the nine months ended September 30, 2007. The increase is largely the result of the growth in the number of producing wells requiring normal lease operating maintenance and service. Additionally, four wells were plugged in the third quarter of 2008 resulting in $27,202 of expense incurred over the Asset Retirement Obligation Liability previously estimated and $41,690 of unsalvageable equipment relating to the plugging.

Self-storage property operating expenses from continuing operations decreased $1,129, or 4.3% to $25,237 for the three months ended September 30, 2008 compared to $26,366 for the three months ended September 30, 2007. Self-storage property operating expenses from continuing operations increased $5,821, or 7.6%, to $82,775 for the nine months ended September 30, 2008 compared to $76,954 for the nine months ended September 30, 2007. The increase in property operating expenses for the nine month period was partially due to increased utility charges for heating and small increases in a variety of categories.

Legal and professional fees increased $3,491 or 6.2%, to $60,073 for the three months ended September 30, 2008 compared to $56,582 for the three months ended September 30, 2007. Legal and professional fees increased $7,800, or 5.2%, to $157,180 for the nine months ended September 30, 2008 compared to $149,380 for the nine months ended September 30, 2007. The increase is largely the result of an increase in accounting expense and charges for Sarbanes Oxley compliance consultants.

Property taxes and insurance expenses from continuing operations increased $602, or 1.5%, to $39,841 for the three months ended September 30, 2008 compared to $39,239 for the three months ended September 30, 2007. Property taxes and insurance expenses from continuing operations increased $13,836, or 12.9%, to $121,144 for the nine months ended September 30, 2008 compared to $107,308 for the nine months ended September 30, 2007. Property taxes and property insurance increased largely due to an increase in well liability insurance offset by an adjustment by the Lake County Board of Revision to the appraised property value on the Painesville self-storage property.

General and administrative expenses from continuing operations increased $16,771, or 8.2%, to $221,105 for the three months ended September 30, 2008 compared to $204,334 for the three months ended September 30, 2007. General and administrative expenses from continuing operations increased $65,991, or 11.4%, to $644,325 for the nine months ended September 30, 2008 compared to $578,334 for the nine months ended September 30, 2007. The increase in general and administrative expenses is largely due to an increase in staff, normal annual pay increases, training expense and rising health care insurance costs.

The Company granted a warrant to purchase 50,000 shares of common stock to Richard M. Osborne on June 20, 2008 in return for Mr. Osborne providing collateral for the company’s credit facility with RBS Citizens, N.A., d/b/a Charter One. The warrant has an exercise price of $1.00 per share and a term of five years. The fair value of the warrant was approximately $48,000 at the date of grant, estimated using the Black-Scholes-Merton option pricing model.

The Company’s equity interest in Kykuit Resources LLC shows a loss of $5,031 for the three months ended September 30, 2008 compared to a loss of $23,420 for the three months ended September 30, 2007. The nine months ended September 30, 2008 shows a loss of $24,231 compared to $23,420 for the nine months ended September 30, 2007. The Kykuit joint venture began operations in August 2007. The drilling process began in late May 2008. While several wells have been drilled, all of the processes to determine if the wells are viable have not been completed at this time.

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The Company writes off a minimal amount of receivables in the self-storage business. During the second quarter of 2008, the Company wrote off a large receivable of $40,027 for a retail lease in the Painesville facility that appears unlikely the Company will be able to collect.

The Company classified one well totaling $241,600 as impaired, writing it off as a dry-hole in the second quarter of 2008. Impairments totaled $676,485 for two dry wells for the nine months ended September 30, 2007. One of the wells was from a drilling program and the other well is a deep exploratory well in the Rose Run formation in Painesville, Ohio which has been unproductive despite the Company’s best efforts. Impairments and dry wells could happen in future quarters, particularly in an aggressive drilling program.

Depreciation, depletion and amortization expenses from continuing operations increased $191,243, or 79.2%, to $432,727 for the three months ended September 30, 2008 compared to $241,484 for the three months ended September 30, 2007. Depreciation, depletion and amortization expenses from continuing operations increased $404,049, or 49.2%, to $1,225,935 for the nine months ended September 30, 2008 compared to $821,886 for the nine months ended September 30, 2007. Depreciation, depletion and amortization increased primarily due to higher recorded capitalized well costs from additional wells being drilled and related increased production.

Income (Loss) from Continuing Operations

The Company’s income (loss) from continuing operations increased $958,934, to net income of $186,869 for the three months ended September 30, 2008 from a loss of $772,065 for the three months ended September 30, 2007. The Company’s loss from continuing operations decreased $670,466, to a net loss of $107,637 for the nine months ended September 30, 2008 from a net loss of $778,103 for the nine months ended September 30, 2007. The Company’s net income increased for the three months ended September 30, 2008 compared to 2007 largely due to more production revenues from the increase in wells from year to year partially offset by slightly higher operating expenses related to additional wells. Additionally, the three months ended September 30, 2007 had a large impairment expense of $676,485. The Company’s decrease in loss for the nine months ended September 30, 2008 from September 30, 2007 was primarily due greater oil and natural gas production revenues offset by greater operating expenses with the increase in wells placed on line between the two time periods, bad debt expense from the Painesville self-storage facility and warrant expense.

Income from Discontinued Operations

The Company’s had a loss from discontinued operations of $1,389 for the three months ended September 30, 2007 and net income of $287,104 for the nine months ended September 30, 2007. Net income for the nine months was due to the gain from the sale of the Gahanna self-storage facility during May 2007.

Net Income (Loss)

The Company had net income from operations of $186,869, for the three months ended September 30, 2008 compared to a net loss of $773,454 for the three months ended September 30, 2007. The Company had a net loss from operations of $107,637, for the nine months ended September 30, 2008 compared to a net loss of $490,999 for the nine months ended September 30, 2007. While operating expenses were higher in most categories for 2008 compared to 2007, the reduction in loss was primarily due to greater oil and natural gas production revenues. Additionally in 2007, the Company recorded a gain on sale of the Gahanna self-storage facility of $294,587 which is part of discontinued operations.

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Off-Balance Sheet Arrangements

The Company had off-balance sheet arrangements at September 30, 2008. Regarding the Kykuit partnership, although the Company is not liable for the contribution obligations of other members of Kykuit Resources, LLC, the Company may decide to invest additional funds should any of the other members not meet their future required investments. However, the Company believes that this scenario is highly unlikely.

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:

· 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-KSB for the year ended December 31, 2007 and elsewhere in our annual report and in 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.

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Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles (GAAP) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on the Company. The Company has deferred the application of SFAS No. 157 related to non-financial assets and liabilities.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on the Company since the Company did not elect to measure any financial assets or liabilities at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (“SFAS 141R”). SFAS 141R provides standards that will improve, simplify, and converge internationally the accounting for business combinations in consolidated financial statements. The effective date of SFAS 141R is for fiscal years beginning after December 15, 2008. The Company is currently evaluating what impact SFAS No. 141R may have on its financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment to FASB Statement No. 133.” SFAS No. 161 intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. 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 Statement 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. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating what impact SFAS No. 161 may have on its financial position, results of operations or cash flows.

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In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”). SFAS No. 162 will be effective sixty days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411. The Company is currently evaluating what impact SFAS No. 162 may have on its financial position, results of operations or cash flows.

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

Item 4. Controls and Procedures

As of September 30, 2008, the Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Based upon the Company’s evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2008.

Further, in connection with our evaluation we did not identify any change during the last quarter in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II Other Information

Item 5. Other Information.

On October 7, 2008, John D. Oil and Gas Company (the “Company”) entered into a joint venture with Lucky Brothers, LLC (“Lucky Brothers”) and Great Plains Exploration, LLC (“Great Plains”) pursuant to an Operating Contract (the “Operating Contract”) and Drilling Contract (the “Drilling Contract”). The Company agreed to operate the Alpha Plaza Investments, Ltd. well located in Highland Heights, Ohio on behalf of Lucky Brothers, the owner of the well, and Great Plains agreed to act as contractor for and drill the well. The members of Lucky Brothers include the Company, owner of a 50% interest, M2KLB Holdco, LLC (“M2KLB”), owner of a 35% interest, and Alpha Acquisition, LLC (“Alpha Acquisition”), owner of a 5% interest. Lucky Brothers is co-managed by the Company and Alpha Acquisition. M2KLB and Alpha Acquisition are owned in part by the brother of Richard Osborne, the Company’s chairman and chief executive officer. Great Plains is wholly-owned by Richard Osborne and Gregory J. Osborne, the Company’s president and a director, serves as president of Great Plains. The Operating Agreement of Lucky Brothers is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1.

The foregoing descriptions of the Operating Contract and the Drilling Contract are not complete and are qualified in their entirety by reference to the full and complete terms of the Operating Contract and Drilling Contract, which are attached to this Quarterly Report as Exhibits 10.2, and 10.3, respectively.

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Exhibits

10.1*	Operating Agreement of Lucky Brothers LLC. dated October 7, 2008.
10.2*	Operating Contract dated October 7, 2008.
10.3*	Drilling Contract dated October 7, 2008.
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
Dated: November 14, 2008	By: /s/ Richard M. Osborne
	Richard M. Osborne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Dated: November 14, 2008	By: /s/ C. Jean Mihitsch
	C. Jean Mihitsch
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

LUCKY BROTHERS, LLC

Operating Agreement

This Agreement is entered into and shall be effective as of the later of the date of execution hereof or the date on which Company’s Articles of Organization are filed with the Ohio Secretary of State by and among the persons executing this Agreement as Members, on the following terms and conditions.

SECTION 1

DEFINITIONS

For purposes of this Agreement, unless the context clearly indicates otherwise, (i) all of the capitalized words in this Agreement shall have the meanings set forth in the Appendix attached hereto and (ii) all non-capitalized words defined in the Act shall have the meanings set forth therein.

SECTION 2

FORMATION

2.1Organization. The Members have authorized the formation of the Company as an Ohio Limited Liability Company pursuant to the provisions of the Act and have filed Articles of Organization with the Ohio Secretary of State.

2.2Agent. The Agent for service of process upon the Company is David J. Richards, Jr. whose address in the State of Ohio is 60 South Park Place, Painesville, Ohio 44077. The Members may, from time to time, change the Agent by filing appropriate documents with the Ohio Secretary of State. If the registered agent ceases to act as such for any reason the Members shall promptly designate a replacement Agent. The members shall promptly file with the Ohio Secretary of State the documents required by the Act with respect to any change of the registered Agent or his address. If the Members shall fail to designate a replacement registered agent or if the Members or the Agent fail to file the appropriate notice of a change of agent or his address, any Member may designate a replacement Agent or file a notice of change of agent or his address.

2.3Principal office. The principal office of the Company shall be located at 8500 Station Street, Mentor, Ohio44060.

2.4Purposes. The Company shall be formed to engage in any lawful act or activity.

2.5Title to Property. Title to all property contributed to or otherwise acquired by the Company shall be held in the name of the Company.

2.6Term. The Company shall exist from the date of filing of its Articles of Organization until December 31, 2099, unless earlier terminated pursuant to Section 12.1 hereof.

SECTION 3

ACCOUNTING AND RECORDS

3.1Records to be Maintained. The Company shall maintain the following records at its principal office:

(a)A current list of the full names, in alphabetical order, and last known business or residence address of each Member;

(b)Copies of the Articles, all amendments thereto, and executed copies of any powers of attorney pursuant to which the Articles or the amendments have been executed;

(c)Copies of this Agreement, all amendments hereto, and executed copies of any powers of attorney pursuant to which this Agreement and such amendments have been executed;

(d)Copies of the Company's federal, state, and local income tax returns and reports, for the three (3) most recent years;

(e)Copies of any financial statements of the Company for the three (3) most recent years;

(f)Any other agreements or documents required by the Act or this Agreement.

3.2Accounts. The Company shall maintain at its principal office appropriate books and records, kept in accordance with generally accepted accounting principles. Each Member shall have the right to inspect and copy any books and records of the Company during normal business hours.

3.3Annual Report. An annual report of the Company's operations shall be issued to the Members within ninety (90) days after the end of each Fiscal Year.

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SECTION 4

MANAGEMENT

4.1Management. Control of the Company and all of its affairs shall be vested exclusively in the Managing Members.

4.2Managing Members.

(a)The Members shall from time to time by Unanimous Vote designate one or more Members to act as Managing Members of the Company. Any Member or group of Members serving as Managing Members hereunder at any time shall continue to serve in such capacity until removed by a Unanimous Vote. During any period when one or more Managing Members shall be designated and serving hereunder, such Managing Members acting unanimously shall have power, acting unanimously, to take any actions on behalf of the Company.

(b)The Members hereby designate John D. Oil & Gas Co. by either Gregory Osborne or Richard M. Osborne and Alpha Acquisition, LLC by either Lance F. Osborne or Michael E. Osborne as the Co-Managing Members hereunder.

SECTION 5

MEMBERS

5.1Liability of Members. No Member shall be liable as such for the liabilities of the Company. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company.

5.2Representations and Warranties. Each Member hereby represents and warrants to each other Member that (a) the Member is acquiring the Units for the Member's own account as an investment and without an intent to distribute the Units, and (b) the Member acknowledges that the Units have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements.

5.3Conflicts of Interest.

(a)A Member shall be entitled to enter into transactions that may be considered to be competitive with the business of the Company. Neither the Company nor any Member shall have any right by virtue of this Agreement to share or participate in such other transactions.

5.4Meetings of Members. The Members shall meet annually on the 3rd Wednesday of November or at such other time as shall be determined by resolution of the Members, each year, for the purpose of transacting such business as may come before the meeting; provided, however, the failure to hold an annual meeting shall not be grounds for dissolution of the Company. Special meetings of the Members, for any purpose or purposes, may be called by any Member or Members holding at least thirty percent (30%) of the outstanding Units. The Members may designate any place, either within or outside the State of Ohio, as the place of any meeting of the Members. If no designation is made the place of meeting shall be the principal office of the Company. Members may participate in any annual or special meeting through the use of any means of communication by which all of the Members may simultaneously hear each other during the meeting. A Member participating in a meeting by this means is deemed to be present in person at the meeting.

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5.5Notice and Record Date of Meetings. Except as otherwise provided herein, written notice stating the place, day and hour of a meeting and the purpose or purposes for which the meeting is called shall be delivered at least ten (10) days before the date of the meeting, either personally or by mail, to each Member entitled to Vote at such meeting. If mailed, such notice shall be deemed to be delivered two calendar days after being deposited in the United States mail, addressed to the Member at his address as it appears on the books of the Company, with postage thereon prepaid. Members may waive prior notice by attending the meeting or by executing a written waiver of notice before or after the meeting. The date on which notice of the meeting is mailed shall be the record date for such determination of Members entitled to notice of or to Vote at any meeting of Members.

5.6Quorum. The Members owning at least Majority-in-Interest of the Units in the Company represented in person or by proxy, shall constitute a quorum at any meeting of Members.

5.7Voting. Except as otherwise herein provided, the Members shall have one Vote for each Unit owned by them with respect to all matters relating to the affairs of the Company.

5.8Withdrawal of Member. The Members covenant not to withdraw as a Member without the prior written consent of all of the other Members.

5.9Expulsion of a Member. A Member may be expelled from the Company upon a Majority Vote of the Members if such Member:

(a)Fails to make a Capital Contribution by the due date specified herein and within thirty (30) days of notice of such failure; and

(b)Breach of a material provision of this Agreement which breach is not cured within thirty (30) days of notice thereof.

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SECTION 6

CONTRIBUTIONS AND COMMITMENTS

6.1Capital Contributions . Each Member has made Capital Contributions to the Company and the Company shall keep a record of the Capital Account of each Member. Ownership of the Company shall be in proportion to the Initial Capital Contributions of each Member and is as set forth on Exhibit "A" hereto. The Members shall cause Exhibit "A" to be revised and updated from time to time to reflect any change in the ownership of Company. Additional Capita Contributions shall be made by the Members as determined from time to time by the Managing Members in proportion to their respective percentages of ownership in Company. .

6.2Failure to Make Capital Contribution If any Member or Assignee (a "Delinquent Member") fails to make a Capital Contribution required to be made hereunder, within ten (10) days after the date such Capital Contribution was required to be made, then all other Members of the Company shall thereupon become obligated to make such Capital Contribution in proportion to their respective Units of ownership in the Company within thirty (30) days after written notice of such obligation from the Company. In such event, the Unit ownership of the Delinquent Member, and of all other Members of the Company, shall be adjusted as follows: the percentage interest of the Delinquent Member shall be equal to a fraction, the numerator of which shall be the total amount of all Capital Contributions and loans previously made by such Delinquent Member to the Company which have not been repaid by the Company, and the denominator of which shall be the total of all Capital Contributions and loans made by all Members to the Company which have not previously been repaid. The resulting number shall be the new percentage interest of the Delinquent Member in the Company (which shall be converted to Unit ownership by multiplying such percentage interest by the total number of Units then outstanding), and the Unit ownership of the other Members shall likewise be similarly adjusted. For purposes of this Section, the phrase "loans made by a Member to the Company" or words of similar effect shall include only loans advanced by Members directly to the Company, and shall not include any share of outside borrowings obtained by the Company. Notwithstanding anything to the contrary contained elsewhere in this Agreement, if the other Member or Members are unable or unwilling to contribute to the capital of the Company the amount which the Delinquent Member was to contribute to the Company, and if the Company is unable or unwilling to borrow such funds from any other source, then the Company shall forthwith be terminated and dissolved.

6.3Assignments by John D. Oil and Gas Company John D. Oil and Gas Company shall promptly following the execution hereof assign to Company: (i) all permits and licenses associated with the proposed oil and gas well to be drilled in Highland Heights, Ohio on lands owned by Alpha Plaza Investments, Ltd.; and (ii) its interest in and to all no surface occupancy oil and gas leases for lands which are to be unitized with the lands of Alpha Plaza Investments, Ltd.

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SECTION 7

ALLOCATIONS AND DISTRIBUTIONS

7.1Allocations of Profits. Except as may be required by the Code or Section 1.704-l(b)(2)(iv)(f)(4) of the Regulations, all items of income and gain of the Company shall be allocated among the Members in accordance with their respective ownership of Units.

7.2Allocation of Losses. Except as may be required by the Code or Section 1.704-l(b)(2)(iv)(f)(4) of the Regulations, all items of loss, deduction and credit of the Company shall be allocated among the Members in accordance with their respective ownership of Units.

7.3Distributions. Distributions may be declared from time to time by a Majority Vote of the Members. Distributions in anticipation of a Dissolution Event or subsequent to a Dissolution Event shall be made as provided in Section 12.2. All other Distributions shall be allocated in proportion to Unit Ownership.

7.4Allocations and Distributions to New Members andAssignees. If Units are transferred or if additional Units are issued to a new Member during any Fiscal Year, Profits and Losses, for the Fiscal Year shall be allocated to the Assignee or the new or Substitute Member in accordance with Section 706(d) of the Code, using any conventions permitted by law and selected by the other Members. All Distributions on or before the date of a Transfer shall be made to the transferor, and all Distributions thereafter shall be made to the transferee. If a Transfer does not comply with the provisions of Section 9 of this Agreement, then any Distributions shall be allocated to the Person who attempted to make the Transfer.

SECTION 8

TAXES

8.1Method of Accounting For Tax Purposes. The records of the Company shall be maintained on the accrual method of accounting for federal income tax purposes.

8.2Tax Matters Members. John D. Oil and Gas Companyshall be designated as the "tax matters member" of the Company pursuant to Section 6231(a)(7) of the Code. John D. Oil and Gas Companyshall take such actions as are necessary to cause each other Member and Assignee to become a "notice partner" within the meaning of Section 6223 of the Code. John D. Oil and Gas Company shall not take any action contemplated by Sections 6223 through 6229 of the Code without the approval of a Majority Vote of the Members.

8.3Section 754 Election. Following the death of a Member, the Company agrees to make an election under Section 754 of the Code, upon request by the representative of such deceased Member.

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SECTION 9

TRANSFER OF UNITS

9.1Limitation on Transfers Except as provided in this Agreement, no Member shall transfer all or any portion of his Units without the written consent of a majority of the non-transferring Members. Any purported transfer of a Member's Unit or portion thereof in violation of this Agreement shall be a nullity and shall vest no title or right in the purported transferee.

9.2Permitted Transfers. A Member may voluntarily transfer, at the death, dissolution, liquidation, or during the existence or lifetime of such Member, all or a portion of such Member's Unit without the consent of a majority of the non-transferring Members if such transfer is made to an Affiliate or another Member (a "Permitted Transferee"); provided, however, that such transfer shall not impair, diminish or extinguish any of the duties, obligations or covenants herein of such transferor Member to the Members or the Company, and thereafter, such Permitted Transferee shall be admitted as a Member and shall be bound by all the terms of this Agreement. Any transfer made pursuant to this Section 9.2 shall be made only in such manner as to provide control of any membership interests in any minor or other legally incompetent person.

9.3 Transfer of Units to Other than Permitted Transferees.

(a) If a Member shall desire voluntarily to transfer all or portion of his Units to a person other than a Permitted Transferee, and shall not at that time have received a bona-fide offer for the purchase of his Units or portion thereof, he shall first offer, in writing, to sell such Units or portion thereof, for a period of thirty (30) days, to each of the other Members, and the other Members shall have the right but not the obligation to purchase such Units or portion thereof, in the same proportion as the Units held by all Members, excluding the Member desiring the transfer (or in such other proportion as may be agreed upon by all Members entitled to purchase such Units or portion thereof). Should any Member decline such offer, his prorata portion of the Units or portion thereof being offered shall be available for purchase by the other Members, prorata, on the same basis as though such declining Member or Members was not a Member at the time of such offer. The price and terms for any Units purchased under the provisions of this Section 9.3(a) shall be as agreed upon and negotiated between the Member desiring the transfer and the purchasing Members. If all or any part of the Units or portion thereof so offered for sale is not accepted within the periods of time above prescribed, the Member desiring the transfer may proceed to obtain a written offer from a third party for the sale of his Units or portion thereof, which offer shall be subject to the provisions of Section 9.3(b) below.

(b) If a Member shall desire voluntarily to transfer all or a portion of his Units, and shall at the time have received a bona-fide written offer for the purchase of all or a portion of his Units, then the other Members shall have a right of first refusal to purchase the transferring Member's Units or portion thereof for an equivalent price and on equivalent terms as those negotiated between and the transferring Member and the prospective transferee. Under such circumstances, the transferring Member shall give the other Members written notice of his intention to transfer his Units or portion thereof, the name of the prospective transferee, and a copy of the bona-fide written offer for the Units from the prospective transferee which includes the proposed selling price and terms. Within thirty (30) days following receipt of such notice, the other Members shall have the right to elect in writing to purchase the Units or portion thereof which have been offered for transfer in accordance with the terms set forth in said notice. Should more than one Member desire to accept the selling Member's offer, then the acceptance shall be deemed to be in proportion to the accepting Member's respective Units unless otherwise agreed to by the Members. (For example, if the accepting Member's respective Units are 15% and 5%, then a 75% of the Units to be sold would be sold to the Member with the 15% Units and 25% would be sold to the Member with the 5% Units.) If none of the other Members timely elects to purchase the Units or portion thereof which is offered for transfer, then the selling Member shall have the right to transfer same strictly in accordance with the information set forth in the aforementioned notice (except that the purchase price may exceed the amount set forth in the notice) and, thereafter, the transferee shall be bound by all the terms of this Agreement. If the proposed transaction is not consummated within sixty (60) days following the giving of such notice or the terms and conditions of such proposed transfer are varied or changed, the selling Member must re-submit the offer to the other Members above described.

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9.4 Transfer of Interests in Members. Not more than fifty percent (50% of the equity interests in any entity which is a Member may be transferred to persons or entities who or which are not Permitted Transferees, without first offering such interests to the other Members pursuant to the provisions of Section 9.3 above.

9.5Effective Date of Transfer. A Transfer of Units hereunder shall not be effective until the latest to occur of the following to the extent applicable:

(a)Any proposed Transfer that is a sale to a third party subject to Section 9.3 shall not be effective unless and until the requirements of Section 9.3 have been satisfied.

(b)Any proposed Transfer of Units which is not subject to Section 9.5, shall not be effective unless and until notice (including the name and address of the proposed transferee and the date of the proposed Transfer) has been provided to the Company and the other Members.

(c)No Transfer of Units shall be effective unless and until the transferee has complied with Section 9.6.

(d)Any transfer of Units shall be deemed effective as of the last day of the calendar month in which the last of the conditions specified in this Section 9.5 is satisfied.

9.6Requirements for Effectiveness of Transfer. As a condition to recognizing the effectiveness of any proposed Transfer of Units, the remaining Members may require the transferor and/or the proposed transferee, to execute instruments of transfer, assignment and assumption and other documents, and to perform all other acts which the remaining Members may deem necessary or desirable to:

(a)Constitute such transferee, as an Assignee or a Substitute Member;

(b)Confirm that the Person acquiring Units, or being admitted as a Member, has agreed to be subject to and bound by this Agreement, as it may be further amended, regardless of whether the Person is to be admitted as a Substitute Member or will merely be an Assignee;

(c)Preserve the Company's status under the laws of each jurisdiction in which the Company is qualified, organized or does business after the Transfer;

(d)Maintain the Company's classification as a partnership for federal income tax purposes; and

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(e)Assure compliance with any applicable state and federal laws including securities laws and regulations.

9.7Admission of a Transferee as a Member. A transferee of Units shall be admitted as a Member with respect thereto if the transferee (a) complies with Section 9.8 and (b) is (i) a Member, (ii) an Affiliate with respect to the Transferring Member, (iii) a person or entity receiving Units as permitted by Section9.4(c), or (iv) unanimously approved as a substitute Member by the non-transferring Members.

9.8Transfer to a Person Not Admitted as a Member. Notwithstanding anything contained in this Agreement to the contrary, any transferee of Units shall be an Assignee and have no right to participate in the management of the business and affairs of the Company. Upon the Transfer of all of a Member's Units to an Assignee who is not admitted as a Member, the Company shall purchase from the transferring Member, and the transferring Member shall sell to the Company for a purchase price of $100.00, all remaining rights and interests retained by the transferring Member associated with the transferred Units.

SECTION 10

ADDITIONAL MEMBERS

The Members, by vote as in the percentage specified at Section 4.2 hereof, may make a Person a Member by the Company issuing Units for such consideration as the Members by unanimous consent determine. In such event, Exhibit "A" to this Agreement shall be amended to reflect the issuance of Additional Units and the New Members shall execute such documents as shall be required to reflect their acquisition of Units in the Company and their agreement to be bound by the terms of the Articles and this Agreement.

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SECTION 11

DISSOCIATION OF A MEMBER

11.1Dissociation. A Person ceases to be a Member upon the happening of any of the following events:

(a)The withdrawal of a Member (unless all of the other Members have consented to the withdrawal, the withdrawing Member will be liable for damages pursuant to Section 5.9);

(b)The expulsion of a Member;

(c)A Member becoming a Bankrupt Member;

(d)In the case of a Member who is a natural person, the adjudication of incompetency or death of the Member;

(e)In the case of a Member who is acting as a Member by virtue of being a trustee of a trust, the termination of the trust (but not merely the substitution of a new trustee);

(f)In the case of a Member that is an organization other than a corporation, the dissolution and commencement of winding up of the separate organization;

(g)In the case of a Member that is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter if not reinstated within ninety (90) days; or

(h)In the case of a Member that is an estate, the distribution by the fiduciary of the estate's Units.

11.2Rights of Dissociating Member. In the event any Member dissociates prior to the dissolution and winding up of the Company:

(a)If the Dissociation causes a dissolution and winding up of the Company under Section 12 of this Agreement, the Member shall be entitled to participate in the winding up of the Company to the same extent as any other Member, except that any Distributions to which the Member would have been entitled shall be reduced by the damages sustained by the Company as a result of the dissolution and winding up; and

(b)If the Dissociation does not cause a dissolution and winding up of the Company under Section 12 of this Agreement, the dissociated Person shall have no right to compel a liquidation of his Units and he shall thereafter hold Units as an Assignee.

SECTION 12

DISSOLUTION AND WINDING UP

12.1Dissolution. The Company shall be dissolved and its affairs wound up, upon the first to occur of the following events:

(a)The expiration of the term of existence of the Company set forth in the Articles and this Agreement;

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(b)The unanimous written consent of all of the Members;

(c)The Dissociation of any Member, unless the business of the Company is continued with the written consent of the remaining Members required for action pursuant to Section 4.2 hereof within one hundred eighty (180) days after Dissociation;

(d)At any time that there cease to be two (2) or more Members;

(e)The occurrence of circumstances requiring dissolution under Section 6.3; or

(f)Upon entry of a decree of judicial dissolution.

Upon the occurrence of any Event of Dissolution, a certificate of dissolution containing the information required by the Act shall be delivered to the Secretary of State for filing.

12.2Winding Up. Upon dissolution, the Members shall wind up all of the Company's affairs and proceed to liquidate all of the Company's assets as promptly as is consistent with obtaining their fair value. The Company's property and cash shall be distributed:

(a)To creditors, including Members who are creditors, to the extent permitted by law, in satisfaction of liabilities of the Company;

(b)To Members and Assignees in accordance with positive Capital Account balances taking into account all Capital Account adjustments for the Company's taxable year in which the liquidation occurs. Liquidation proceeds shall be paid within 60 days of the end of the Company's taxable year or, if later, within 90 days after the date of liquidation. Such Distributions shall be in cash or property (which need not be distributed proportionately) or partly in both, as determined by a Majority of the Members

The winding up of the Company shall be completed when all debts, liabilities, and obligations of the Company have been paid and discharged or reasonably adequate provision therefor has been made, and all of the remaining property and assets of the Company have been distributed to the Members.

SECTION 13

INDEMNIFICATION

13.1General. The Company shall indemnify any Person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (excluding actions by or in the right of the Company) and whether formal or informal, by reason of the fact that the Person is or was a Member of the Company, who, while a Member of the Company, is or was serving at the request of the Company as a director, officer, partner, member, trustee, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, business association, employee benefit plan or other enterprise, whether for profit or not, against expenses (including counsel fees), judgments, settlements, penalties and fines (including excise taxes assessed with respect to employee benefit plans) actually or reasonably incurred in accordance with such action, suit or proceeding, if the Person acted in good faith and in a manner reasonably believed by the Person to have been, in the case of conduct taken as a Member, in the best interest of the Company and in all other cases, not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, either the Person had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Person did not meet the prescribed standard of conduct. The Company may also, with the consent of a Majority of the Members, indemnify any Assignee or employee or agent of the Company who is not a Member in the manner and to the extent that it shall indemnify Members pursuant to this section.

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13.2Authorization. To the extent that a Member has been successful in the defense of any action, suit or proceeding referred to in Section 13.1, on the merits or otherwise, or in the defense of any claim, issue or other matter therein, the Company shall indemnify such Person against expenses (including counsel fees) actually and reasonably incurred by the Person. Any other indemnification under Section 13.1 shall be made by the Company only as authorized in the specific case, upon a determination that indemnification of the Member, employee or agent is permissible in the circumstances because the Person has met the applicable standard of conduct. Such determination may be made by either: (a) a Majority of the Members who are not at the time parties to such action, suit or proceeding; or (b) a written opinion authored by independent legal counsel.

13.3Reliance on Information. For purposes of any determination under Section 13.1, a Person shall be deemed to have acted in good faith and to have otherwise met the applicable standard of conduct set forth in Section 13.1 if the action is based on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by (a) one or more Members, officers or employees of the Company or another enterprise whom the Person reasonably believes to be reliable and competent in the matters presented: (b) legal counsel, public accountants, appraisers or other Persons as to matters reasonably believed to be within the Person's professional or expert competence; or (c) the board of directors or other governing body of another entity, employee benefit plan or other enterprise of which such Person is or was serving at the request of the Company as a director, officer, partner, member, trustee, employee or agent. The provisions of this Section 13.3 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 13.1.

13.4Advancement of Expenses. Expenses incurred in connection with any civil or criminal action, suit or proceeding may be paid for or reimbursed by the Company in advance of the final disposition of the action, suit or proceeding, as authorized in the specific case in the same manner described in Section 13.2, upon receipt of a written affirmation of the Member, employee or agent's good faith belief that such Person has met the standard of conduct described in Section 13.1 and upon receipt of a written undertaking by or on behalf of the Person to repay such amount if it shall ultimately be determined that the Person did not meet the standard of conduct, and a determination is made that the facts then known to those making the determination shall not preclude indemnification under this Section.

13.5Non-Exclusive Provisions: Vesting. The indemnification provided by this Section is not exclusive of any other rights to which a Person seeking indemnification may be entitled. The right of any Person to indemnification under this Section shall vest at the time of occurrence or performance of any event, act or omission giving rise to any action, suit or proceeding of the nature referred to in Section 13.1 and, once vested, shall not later be impaired as a result of any amendment, repeal, alteration or other modification of any or all of these provisions.

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13.6Definitions. For purposes of this Section, serving an employee benefit plan at the request of the Company shall include any service as a director, officer, employee or agent of an entity which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A Person who acted in good faith and in a manner reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the Company" referred to in this Section. For purposes of this Section, "party" includes any individual who is or was a plaintiff, defendant or respondent in any action, suit or proceeding, or who is threatened to be made a named defendant or respondent in any action, suit or proceeding.

SECTION 14

MISCELLANEOUS PROVISIONS

14.1Entire Agreement. This Agreement and the Articles represent the entire agreement among all the Members.

14.2Amendment or Modification of this Agreement. This Agreement may be amended or modified from time to time only by a written instrument approved by the Majority Vote of the Units then outstanding.

14.3No Partnership Intended for Nontax Purposes. The Members have formed the Company pursuant to the Act, and expressly do not intend to form a partnership or a limited partnership. The Members do not intend to be partners one to another, or partners as to any third party. To the extent any Member, by word or action, represents to another person that any other Member is a partner or that the Company is a partnership, the Member making such wrongful representation shall be liable to any other Member who incurs personal liability by reason of such wrongful representation.

14.4Rights of Creditors and Third Parties under this Agreement. This Agreement is entered into among the Members for the exclusive benefit of the Company, its Members, and their successors and assignees. This Agreement is expressly not intended for the benefit of any creditor of the Company or any other Person. Except and only to the extent provided by applicable statute, no creditor or third party shall have any rights under this Agreement or any agreement between the Company and any Member with respect to any Capital Contribution or otherwise.

14.5Notice. All notices required or permitted by this Agreement shall be in writing. Notice to the Company shall be given to its principal office or personally delivered to the custodian of the Company's records. Notice to a Member or Assignee shall be given or personally delivered to the Member or Assignee at the address on Exhibit A as amended from time to time unless such Member or Assignee has notified the Company in writing of a different address.

14.6Severability. Every provision of this Agreement is intended to be severable. If any term or provision of this Agreement is illegal or invalid for any reason, the illegality or invalidity shall not affect the legality or validity of the remainder of this Agreement.

14.7Number and Gender. All provisions and references to gender shall be deemed to refer to masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.

14.8Binding Effect. Except as otherwise provided in this Agreement, every covenant, term and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective heirs, legatees, legal representatives, successors and assigns.

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14.9Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all such parties executed the same document. All such counterparts shall constitute one agreement.

14.10Ohio Law Controlling. The laws of the State of Ohio, including the Act, shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto.

14.11Representation. Each party hereby represents and covenants that each has had the opportunity to consult with their independent attorney(s) and/or tax advisors prior to the execution of this Agreement.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

JOHN D. OIL & GAS CO.
BY:	/Gregory J. Osborne/
Its: President______________
M2KLB HOLDCO, LLC
BY:	/Lance Osborne/
Its:Managing Member________
WONDER IF, LLC
BY:	/Steve Passov/
Its:Member__________________
ALPHA ACQUISITION, LLC
BY:	/Lance Osborne/
Its:Managing Member_________

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APPENDIX

"Act" means the Ohio Revised Code Title 17, Chapter 1705 etseq., as amended from time to time.

"Affiliate" shall mean (i) any person directly or indirectly controlling, controlled by or under common control with any Member; (ii) any person directly or indirectly owning or controlling fifteen percent (15%) or more of the voting securities or capital of any Member which is a corporation, or fifteen percent (15%) or more of the capital or profit interests of any member which is a partnership, joint venture, limited liability company or other unincorporated association, or fifteen percent (15%) or more in beneficial interest of any Member which is a trust; or (iii) (A) the spouse, siblings (or their spouses) of any Member of Affiliate described in clauses (i) or (ii) immediately preceding, or the lineal descendants (or their spouses) of any Member, any such Affiliate, or any of their respective spouses or siblings (or their spouses), or (B) any trust for the primary preceding. Without limiting the generality of the foregoing, "control" of a person means the possession directly or indirectly of the power to direct or cause the direction of the management or policies of such person; any general partner of a partnership shall be deemed to control such partnership if it is the sole general partner, or it owns fifteen percent (15%) or more of the aggregate capital or profits interests owned by all general partners in such partnership, but not otherwise; any trustee of a trust shall be deemed to control such trust; any director or executive officer shall not be deemed to control any corporation solely by reason of such director's or executive officer's position as such; and any employer shall not be deemed to control any employee solely by reason of such employer's position as such.

"Agent" shall mean the agent designated by the Company from time to time for service of process pursuant to Section 1705.06 of the Act.

"Agreement" means this Operating Agreement as amended from time to time.

"Articles" means the Articles of Organization of the Company as properly adopted and amended from time to time by the Members and filed with the Ohio Secretary of State pursuant to the Act.

"Assignee" means an assignee of Units who is not a Member at the time of the assignment and is not admitted as a Substitute Member.

"Bankrupt Member" means a Member who: (i) has become the subject of a decree or order for relief under any bankruptcy, insolvency or similar law affecting creditors' rights now existing or hereafter in effect; or (ii) has initiated, either in an original proceeding or by way of answer in any state insolvency or receivership proceeding, an action for liquidation, arrangement, composition, readjustment, dissolution, or similar relief.

"Capital Account" means the amount of cash and fair market value of services or property (net of any liabilities secured by contributed property that the Company is considered to assume or take subject to under Section 752 of the Code) that a Member or Assignee has contributed to the Company as Capital Contributions pursuant to Section 6 hereof, adjusted as follows:

(i)The Capital Account shall be increased by all Profits allocated to such Person pursuant to Section 7 hereof.

(ii)The Capital Account shall be decreased by (a) the amount of cash and the fair market value of all property distributed to such Person by the Company (net of liabilities securing such distributed property that such Person is considered to assume or take subject to under Section 752 of the Code) and (b) all Losses allocated to such Person pursuant to Section 7 hereof.

(iii)The Capital Account shall be credited in the case of an increase or debited in the case of a decrease to reflect such Person's allocable share of any adjustment to the adjusted basis of Company assets pursuant to Section 734(b) of the Code to the extent provided by Section 1.704-l(b)(2)(iv)(m) of the Regulations.

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(iv)The Capital Account shall be adjusted in any other manner required by Section 1.704-l(b)(2)(iv) of the Regulations or otherwise, in order to be deemed properly maintained for federal income tax purposes.

(v)Capital Accounts shall not bear interest.

(vi)The transferee of Units shall succeed to the Capital Account attributable to the Units transferred.

"Capital Contribution" means any contribution of cash, property or services to the Company made by or on behalf of a Member or Assignee pursuant to Section 6 hereof.

"Code" means the Internal Revenue Code of 1986, as amended from time to time.

"Company" means the limited liability company organized pursuant to the Articles and this Agreement, and any successor limited liability company.

"Default Interest Rate" means, at a given time, a rate of interest equal to four percent (4%) in excess of the rate then in effect on the Company's first mortgage financing or, if not applicable or readily determinable, thirteen percent (13%).

"Delinquent Member" means a Member or Assignee who has failed to meet the Commitment of that Member or Assignee.

"Distribution" means a transfer of cash or property to a Member or Assignee on account of Units as described in Section 7 hereof.

"Dissociation" means any action which causes a Person to cease being a Member as described in Section 11 hereof.

"Dissolution Event" means an event, the occurrence of which will result in the dissolution of the Company under Section 12 hereof.

"Fiscal Year" means the taxable year of the Company.

"Majority-in-Interest" means Members holding from time to time a majority of the Units.Majority Vote" means, at any given time, Members voting affirmatively on a matter holding in the aggregate more than fifty percent (50%) of the outstanding Units held by such Members voting thereon.

"Member" means any Person who has signed this Agreement as a Member or who is hereafter admitted as a Member of the Company pursuant to this Agreement.

"Regulations" except where the context indicates otherwise, means the permanent, temporary, proposed, or proposed and temporary regulations of Department of the Treasury under the Code as such regulations may be changed from time to time.

"Related Person" means, with respect to any Member, such Member's spouse, ancestors, lineal descendants, trusts for the sole benefit of any such persons, and partnerships eighty percent (80%) or more owned by the Member.

"Substitute Member" means an Assignee who is admitted as a Member.

"Transfer" means any transference of Units, sale, gift, assignment, pledge, granting of a security interest or other disposition, including any disposition by operation of law.

“Unanimous Vote” means a vote concurred in by Members representing one hundred percent (100%) of the outstanding Units.

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"Unit" means a fractional share of the membership interest of a Member or an Assignee in the Company, the numerator of which is one (1) and the denominator of which is the total number of Units outstanding from time to time. As of the date of this Agreement, the Company has 100 Units outstanding. The number of Units initially issued to each Member in exchange for their Initial Capital Contribution is set forth on Exhibit A which shall be amended in the event that the Company issues additional Units or acquires any outstanding Units.

"Vote" means each Member's voting rights as provided for in Section 5.7 of this Agreement.

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EX-10.2

Exhibit 10.2

OPERATING CONTRACT

This Operating Contract entered into this ______________7th ____day of October, 2008 by and between:

Operator:	John D. Oil and Gas Company
Address:	8500 Station St. Suite 345, Mentor, OH 44060
Owner:	Lucky Brothers, LLC
Address:	7670 Tyler Blvd., Mentor, Ohio 44060
Contractor:	Great Plains Exploration, LLC
Address:	8500 Station St. Suite 113, Mentor, 01I 44060

In consideration of mutual promises and agreements herein contained, OWNER engages OPERATOR as an independent contractor to operate the hereinafter designated well in conformity herewith.

A. NAME AND LOCATION OF WELL Alpha Plaza Investments, Ltd. Property-Highland Heights, Ohio

B. OBLIGATIONS OF CONTRACTOR

1. To engage a qualified contractor to drill the well on terms and conditions which are approved by Owner.

2. To thereafter do and perform any and all things necessary or incidental to the proper operation of the well.

3. To comply with all rules and regulations of the State of Ohio and other agencies having jurisdiction.

4. To furnish, by telephone call, a detailed daily drilling report to OWNER'S office at 440-255-6325 before 11:00 AM.

5. To provide OWNER with monthly reports concerning the operation of the well on or before the twentieth (20^t") day of each month for the previous month.

6 To notify local inspector for the Ohio Department of Natural Resources, Division of Mineral Resources Management, when needed.

7. To carry at all times during the term of this Agreement at OPERATOR'S expense, insurance of the type and in minimum amounts as follows.

A. Statutory workers' compensation and employer's liability insurance covering all of the contractor's employees.

B. Comprehensive general liability insurance with limits of $5,000,000 per occurrence for death or bodily injury or property damage, naming as additional insureds OWNER and Alpha Plaza Investments, Ltd.

C. Automobile liability insurance with limits of $1,000,000 per occurrence combined limit for bodily injury and property damage.

D. OPERATOR agrees to provide OWNER and Alpha Plaza Investments, Ltd. with a certificate of insurance evidencing coverage's upon request by the OWNER or Alpha Plaza Investments, Ltd.

E. CONTRACTOR shall indemnify, defend and save harmless Operator, Lucky Brothers, LLC, and Alpha Plaza Investments, Ltd. in connection with any and all claims for injury to or damage of personal property and for injury or death to personsoccasioned by the acts of CONTRACTOR, CONTRACTOR'S employees, agents, and servants.

8. OPERATOR agrees to pay all claims for labor, material, services, and supplies furnished by OPERATOR hereunder and agrees to allow no lien or charge to be fixed upon the lease, the well(s), the land on which the well(s) is/are to be drilled, or other property of OWNER. OPERATOR agrees to indemnify, protect and save OWNER harmless from and against all such claims and liens.

9. OPERATOR shall be an independent contractor with respect to performanceof all work hereunder and neither OPERATOR nor anyone employed by OWNER shall be deemed for any purpose to be the employee, agent, servant, or representative of the OWNER in the performance of any work or service or any part thereof in any manner dealt with hereunder, OPERATOR shall have no direction or control of OPERATOR of its employees and agents except in the results to be obtained. Work contemplated herein shall meet the approval of OWNER and shall be subject to the general right of inspection provided for the operator to secure the satisfactory completion thereof.

OPERATOR agrees not to sublet or assign any of the work required hereunder, except for the work normally performed by subcontractors, without the express written consent of OWNER.

In the event of the failure or inability of OPERATOR to perform any of its obligations hereunder in a timely manner, OWNER shall have all rights remedies provided by law, including without limitation the right to immediately terminate this agreement.

C. OBLIGATIONS OF OWNER:

1. To insure that OPERATOR has access at all times to the well and to all of the equipment associated therewith.

To reimburse OPERATOR for all expenses incurred in connection with the performance of OPERATOR'S duties hereunder.

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D. OBLIGATIONS OF OPERATOR:

1. Comply with all obligations of OWNER under and pursuant to OWNER'S lease with Alpha Plaza Investments, Ltd. and with OPERATOR'S other obligations hereunder.

2. UNDERGROUND DAMAGE: OPERATOR agrees to defend and indemnify OWNER for any and all claims against OWNER resulting from operations under this Agreement on account of injury to, destruction of or loss or impairment of any property right in or to oil, gas or other mineral substance or water, if at the time of the act or omission causing such injury, destruction, loss, or impairment, said substance had not been reduced to physical possession above the surface of the earth, and for any loss or damage to any formation, strata, or reservoir beneath the surface of the earth.

3. JURISDICTION AND VENUE: This Agreement shall be governed in all respects by law of the State of Ohio, without regard to conflict of laws or provisions thereof Any action filed by either party as a result of a dispute resulting from this Agreement shall only be filed in the Common Pleas Court of Lake County, Ohio, or in the United States District Court for the Northern District of Ohio, Eastern Division it being expressly agreed by the parties that said forums shall have exclusive and sole jurisdiction and venue to hear disputes between the parties arising out of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have set their signatures and executed this instrument as of the date and year first above written.

OWNER:	OPERATOR:
LUCKY BROTHERS, LLC	JOHN D. OIL AND GAS
	COMPANY
	BY: /GREGORY J. OSBORNE/
	PRESIDENT
BY: ALPHA ACQUISITION, LLC
Co-Managing Member
BY: /LANCE F. OSBORNE/
Authorized Member
BY: JOHN D OIL AND GAS COMPANY
Co-Managing Member
BY: /GREGORY J. OSBORNE, PRESIDENT

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EX-10.3

Exhibit 10.3

DRILLING CONTRACT

This drilling contract entered into this _7th__ day of October, 2008 by and between:

Operator:	John D. Oil and Gas Company
Address:	8500 Station St. Suite 345, Mentor, OH 44060
Contractor:	Great Plains Exploration, LLC
Address:	8500 Station St. Suite 113, Mentor, OH 44060

In consideration of mutual promises and agreements herein contained, OPERATOR engages CONTRACTOR as an independent contractor to drill the hereinafter designated well(s) in search of oil and/or gas, in conformity herewith.

A. NAME AND LOCATION OF WELLS  Alpha Plaza Investments, Ltd. Property-Highland Heights, Ohio

B. TIME ELEMENT: CONTRACTOR agrees to commence operations for drilling of well(s) by November 1, 2008, and to diligently proceed with drilling of the well(s). It is agreed by both parties that time is of the essence in this contract.

C. Depth: CONTRACTOR agrees to drill the well(s) with due diligence to a depth Of 3,000 + or - feet or to the Clinton formation as specified by the OPERATOR. OPERATOR must be present at completion of well. Dayrates will apply until OPERATOR or his REPRESENTATIVE is available to complete the well.

D. OBLIGATIONS OF CONTRACTOR

1. To drill the well or wells on a fluid footage basis for the sum of $18.00 per foot

2. To do and perform any and all things necessary or incidental to the proper drilling of the well(s).

3. To comply with all rules and regulations of the State of Ohio and other agencies having jurisdiction.

4. To furnish, by telephone call, a detailed daily drilling report to OPERATOR'S office at 440-255-6325 before 11:00 AM.

5. To furnish OPERATOR a copy of CONTRACTOR'S daily time sheets and geolograph copy upon completion of drilling operation.

6. To furnish all equipment and labor for the drilling of the well(s) including bits, fuel, drill pipe, and other services and materials as may be specified within this contract.

7. To drill a proper diameter hole to set surface and other casing and supply drilling bits, as needed, for the same.

8. To drill a 7-7/8" diameter hole to contract depth and supply drilling bits, as needed, for the same.

9. To notify local inspector for the Ohio Department of Natural Resources, Division of Mineral Resources Management, when needed.

10. To collect, wash and sack samples at intervals designated by OPERATOR.

11. To furnish rig time of up to 24 hrsfor running and cementing of 8-5/8" surface casing, logging and running 4-1/2" production casing. If new or used surface or production casing is supplied by OPERATOR to CONTRACTOR, any problems arising from same, (i.e. separation, "fishing", etc.), OPERATOR shall be responsible for all expenses thereof, including day work rates of CONTRACTOR unless caused by CONTRACTOR'S negligence.

A. All other time will be billed at $450.00per hour.

B. If in the event that conductor pipe needs to be cemented, dayrates will apply from spud time until back out from under conductor with the footage needed to drill conductor hole deducted from the total depth of the well.

12. To Drill the well(s) at the site designated by the OPERATOR.

13. If for any reason air drilling cannot continue due to flare, gas in hole, water in hole, permit conditions, operator's instructions, etc. then dayrates will begin form the point that air drilling stopped. Dayrates will apply as follows:

With Drill Pipe

Without Drill Pipe$450.00 per hour Stand-By Without Crew

14. To carry at all times during the term of this Agreement at CONTRACTOR'S expense, insurance of the type and in minimum amounts as follows.

A. Statutory workers' compensation and employer's liability insurance covering all of the contractor's employees.

B. Comprehensive general liability insurance with limits of $5,000,000 per occurrence for death or bodily injury or property damage, naming as additional insureds OPERATOR, Lucky Brothers, LLC, and Alpha Plaza Investments, Ltd.

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C. Automobile liability insurance with limits of $1,000,000 per occurrence combined limit for bodily injury and property damage.

D. CONTRACTOR agrees to provide OPERATOR, Lucky Brothers, LLC, and Alpha Plaza Investments, Ltd. with a certificate of insurance evidencing coverage's upon request by OPERATOR, Lucky Brothers, LLC, or Alpha Plaza Investments, Ltd.

E. CONTRACTOR shall indemnify, defend and save harmless OPERATOR, Lucky Brothers, LLC, and Alpha Plaza Investments, Ltd. in connection with any and all claims for injury to or damage of personal property and for injury or death to persons occasioned by the acts of CONTRACTOR, CONTRACTOR’S employees, agents, and servants.

15. CONTRACTOR agrees to pay all claims for labor, material, services, and supplies furnished by CONTRACTOR hereunder and agrees to allow no lien or charge to be fixed upon the lease, the well(s), the land on which the well(s) is/are to be drilled, or other property of OPERATOR. CONTRACTOR agrees to indemnify, protect and save OPERATOR harmless from and against all such claims and liens.

16. Should the hole, for any cause attributable to CONTRACTOR'S negligence be lost or damaged while CONTRACTOR is engaged in the performance of work hereunder on a footage basis, all such loss or damage to the hole shall be borne by CONTRACTOR. If the hole is not in condition to be carried to the contract depth, CONTRACTOR shall properly plug and abandon the hole and, if requested by OPERATOR, commence a new hole without delay at the CONTRACTOR'S cost. The drilling of the new hole shall be conducted under the terms and conditions of this Contract and in the same manner as though it were the hole that had been lost or damaged. In such case, CONTRACTOR shall not be entitled to any payment or compensation for expenditures made or incurred by CONTRACTOR or in connection with the abandoned hole. If any casing or material cannot be recovered from the lost hole or, if recovered, is damaged beyond further use, and provided such loss or damage was the result of or caused by CONTRACTOR'S negligence, CONTRACTOR shall replace all such casing or materials at CONTRACTOR’S cost.

17. CONTRACTOR shall be an independent contractor with respect to performance of all work hereunder and neither CONTRACTOR nor anyone employed by CONTRACTOR shall be deemed for any purpose to be the employee, agent, servant, or representative of the OPERATOR in the performance of any work or service or any part thereof in any manner dealt with hereunder, OPERATOR shall have no direction or control of CONTRACTOR or of its employees and agents except in the results to be obtained. Work contemplated herein shall meet the approval of OPERATOR and shall be subject to the general right of inspection provided for the operator to secure the satisfactory completion thereof.

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CONTRACTOR agrees not to sublet or assign any of the work required hereunder, except for the work normally performed by subcontractors, without the express written consent of OPERATOR.

In the event of the failure or inability of CONTRACTOR to perform any of its obligations hereunder in a timely manner, OPERATOR shall have all rights remedies provided by law, including without limitation the right to immediately terminate this agreement.

18. Other duties and obligations of CONTRACTOR:

A. Provide 1 (one) frac tank for cementing.

B. Provide 1 (one) Dozer to help with equipment and trucks.

C. To provide fresh water.

D. In the event that OPERATOR provides a dozer to build location or dig pits, all dozer time will be billed at $85.00 per hour and operator travel time will be billed at $35.00 per hour.

E. In the event that OPERATOR provides a skid steer broom/bucket for roadway mud cleaning, it will be billed at $45.00 per hour and operator travel time will be billed at $35.00 per hour.

E. OBLIGATIONS OF OPERATOR:

1. To stake and provide state drilling permit and surety bond.

2. OPERATOR will notify CONTRACTOR of any impending road regulations, including Frost Laws, which may restrict CONTRACTOR from moving or relocating his equipment. OPERATOR is not responsible due to CONTRACTOR'S negligence and if negligent, CONTRACTOR will be held liable.

3. To furnish right of way into and out of location and to be fully responsible for land and crop damage, except as set forth as above. OPERATOR is not responsible for CONTRACTOR'S negligence, and if negligent, CONTRACTOR will be held liable.

4. To backfill pits and restore location.

5. To furnish all casing, float equipment, cement equipment, head equipment, and cement.

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6. To furnish all plugging material if well is dry. If well is to be plugged, OPERATOR will pay at day work rate after remainder of rig time allowable is used. (D-11).

7. OPERATOR shall pay in full within 30days of CONTRACTOR'S invoice date. A one percent (1%) interest charge will be added each month.

8. UNDERGROUND DAMAGE: OPERATOR agrees to defend and indemnify CONTRACTOR for any and all claims against CONTRACTOR resulting from operations under this Agreement on account of injury to, destruction of or loss or impairment of any property right in or to oil, gas or other mineral substance or water, if at the time of the act or omission causing such injury, destruction, loss, or impairment, said substance had not been reduced to physical possession above the surface of the earth, and for any loss or damage to any formation, strata, or reservoir beneath the surface of the earth.

9. LIABILITY FOR WILD WELL: CONTRACTOR shall be liable for the costs of regaining control of any wild well, as well for the costs of removal of any debris, and shall indemnify OPERATOR in this regard.

10. JURISDICTION AND VENUE: This Agreement shall be governed in all respects by law of the State of Ohio, without regard to conflict of laws or provisions thereof Any action filed by either party as a result of a dispute resulting from this Agreement shall only be filed in the Common Pleas Court of Lake County, Ohio, or in the United States District Court for the Northern District of Ohio, Eastern Division it being expressly agreed by the parties that said forums shall have exclusive and sole jurisdiction and venue to hear disputes between the parties arising out of this Agreement.

11. Other duties and obligations of OPERATOR:

A. Necessary County and/or local permits.

B.  Furnish access way, culvert and rock as necessary.

C.  Provide Trackhoe if needed.

D.  Provide mud or road scraper.

E.  Provide Porta-Jon on location.

F.  Provide pit liners and/or reinforced pit liners.

G.  All soap, mud and chemicals needed to drill well.

H.  Fuel surcharge on anything over $1.00 per gallon times the depth of the well.

I.    Location and pits of suitable size to drill well.

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IN WITNESS WHEREOF, the parties hereto have set their signatures and executed this instrument as of the date and year first above written.

CONTRACTOR:		OPERATOR:
Great Plains Exploration, LLC		John D. Oil and Gas Company
By:	/GREGORY J. OSBORNE	By:	/GREGORY J. OSBORNE/
Its: PRESIDENT ___________________		Its: PRESIDENT ________________________

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EX-31.1

Exhibit 31.1

Certifications Pursuant to 17 CFR Section 240.13a-14

I, Richard M. Osborne certify that:

1. I have reviewed this quarterly report on Form 10-Q of John D. Oil and Gas Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2008

By: /s/ Richard M. Osborne

Richard M. Osborne

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications Pursuant to 17 CFR Section 240.13a-14

I, C. Jean Mihitsch certify that:

1. I have reviewed this quarterly report on Form 10-Q of John D. Oil and Gas Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2008

By: /s/ C. Jean Mihitsch

C. Jean Mihitsch

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report of John D. Oil and Gas Company (the “Company”) on Form 10-Q for the period ending September 30, 2008 (the “Report”) with the Securities and Exchange Commission, I, Richard M. Osborne, Chairman of the Board and Chief Executive Officer of the Company, and I, C. Jean Mihitsch, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 14, 2008	By:	/s/ Richard M. Osborne
		Richard M. Osborne
	Chairman of the Board and Chief Executive Officer
Date: November 14, 2008	By:	/s/ C. Jean Mihitsch
		C. Jean Mihitsch
	Chief Financial Officer