# UNITED STATES
SECURITES AND EXCHANGE COMMISSION Washington, D.C. 20549

# Form 10-K

# [X] ANNUAL REPORT
UNDER SECTION 13 OR 15(D) OF THE

# SECURITIES EXCHANGE
ACT OF 1934

For Fiscal Year Ended December 31, 2004

Commission File #
333-52812

AMERICAN ENERGY PRODUCTION,
INC.(Exact name of
registrant as specified in its charter)

DELAWARE (State or other
jurisdiction of incorporation or organization)

74-2945581 (IRS Employer
Identification Number)

6073 Hwy 281 South,
Mineral Wells, TX 76067 (Address of principal
executive offices)(Zip Code)

(210) 410-8158(Registrants
telephone no., including area code)

(Former name, former
address and former fiscal year, if changed since last report)

Securities registered
pursuant to Section 12(b) of the Act: None

Securities registered
pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value

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 [  ] No [X]

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B not contained in this form,
and no disclosure will be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (  )

Revenues for year ended December 31,
2004: $40,010. Aggregate market value of the voting common stock held by non-affiliates of
the registrant as of April 8, 2005 was $5,394,347 (298,030,234 shares at the bid price of
$0.0181). Number of shares of the registrants common stock outstanding as of April
8, 2005 was 298,030,234.

The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements.
Certain of the statements contained herein, which are not historical facts, are
forward-looking statements with respect to events, the occurrence of which involve risks
and uncertainties. These forward- looking statements may be impacted, either positively or
negatively, by various factors. Information concerning potential factors that could affect
our company is detailed from time to time in our companys reports filed with the
Commission. This Report contains forward looking statements relating to our
companys current expectations and beliefs. These include statements concerning
operations, performance, financial condition, anticipated acquisitions and anticipated
growth. For this purpose, any statements contained in this Report or the Form 10-K, Forms
10-Q, Forms 8-K, and the Information Statement referred to herein that are not statements
of historical fact are forward-looking statements. Without limiting the generality of the
foregoing, words such as may, will, would,
expect, believe, anticipate, intend,
could, estimate, or continue, or the negative or other
variation thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and uncertainties,
which are beyond our companys control. Should one or more of these risks or
uncertainties materialize or should our companys underlying assumptions prove
incorrect, actual outcomes and results could differ materially from those indicated in the
forward-looking statements.

The information in this Report is
qualified in its entirety by reference to the entire Report; consequently, this Report
must be read in its entirety. Information may not be considered or quoted out of context
or without referencing other information contained in this Report necessary to make the
information considered, not misleading.

# PART I

# ITEM 1. DESCRIPTION OF
BUSINESS

# GENERAL INFORMATION
ABOUT AMERICAN ENERGY PRODUCTION, INC.

American Energy Production, Inc.
(American Energy, the Company, we, us) is
a publicly traded business development company (see below) that is engaged primarily in
the investment in other companies that acquire, develop, produce, explore and sell oil and
gas. The Company anticipates that its investees will be able to sell all oil that it can
produce to petroleum refiners and marketers under the terms of short-term purchase
contracts and at prices in accordance with arrangements that are customary in the oil
industry. Our capital is generally used by our portfolio companies to finance growth and
working capital.

Prior to becoming a business
development company effective in January 2004, the Company was engaged directly in the
above activities since February 20, 2003, when it acquired certain oil assets and began
its new development stage. (See below) Prior to that, the Company was f/k/a Communicate
Now.com, Inc. and was incorporated on January 31, 2000 under the laws of the State of
Delaware. On July 15, 2002, the Company changed its corporate name to American Energy
Production, Inc.

On February 20, 2003, upon the
acquisition of certain oil and gas assets, the Company entered into a new development
stage. Activities during the development stage include acquisition of assets, obtaining
geological reports, developing an implementation plan to extract oil and gas, completing
initial sales of oil and seeking capital.

On January 12, 2004, the Company
filed a Form N-54 with the Securities and Exchange Commission (SEC) to be
regulated as a Business Development Company (BDC) pursuant to the provisions
of section 54(a) of the Investment Company Act of 1940 (the (Act), to be
subject to the provisions of section 55 through 65 of the Act. The Company has determined
that its operating model best approximates that of an investment company and intends to
make investments into developing businesses in the oil and gas and other industries.
Additionally, the Board of Directors determined that it was necessary to raise additional
capital to carry out the companys business plan and the Company filed a Form 1-E
pursuant to the Securities Act of 1933 notifying the SEC of the Companys intent to
sell up to $4,000,000 of the Companys common stock at prices between $0.01 and $0.10
per share, or 40,000,000 and 400,000,000 shares, respectively. On January 29, 2004, the
1-E filing notification with the SEC became effective. The Company is presently registered
as an Investment Company under the Act and as such, is authorized to issue up to
$4,000,000 in free-trading stock at prices ranging from $0.01 to $0.10 per
share.

As a BDC, the Company will be
structured in a manner more consistent with its current business strategy. As a result,
the Company is positioned to raise capital in a more efficient manner and to develop and
expand its business interests. The Company believes that potential acquisitions, in total,
will enhance value to stockholders through capital appreciation and payments of dividends
to the Company by its investee companies.

BDC regulation was created in 1980 by
Congress to encourage the flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are regulated by the
Investment Company Act of 1940. BDCs report to stockholders like traditional
operating companies and file regular quarterly and annual reports with the Securities and
Exchange Commission. BDCs are required to make available significant managerial
assistance to their portfolio companies.

American Energy Production, Inc.
(American Energy or the Company) is a reporting company under the
federal securities laws and its shares of common stock are publicly traded on the Over The
Counter Electronic Bulletin Board (OTCBB) under the symbol AMEP.
The Company was f/k/a Communicate Now.com, Inc. and was incorporated on January 31, 2000
under the laws of the State of Delaware. On July 15, 2002, the Company changed its
corporate name to American Energy Production, Inc.

On February 20, 2003, upon the
acquisition of certain oil and gas assets, the Company entered a new development stage.
Activities during the development stage include acquisition of assets, obtaining
geological reports, developing an implementation plan to extract oil and gas and seeking
capital.

On January 12, 2004, the Company
filed a Form N-54 with the Securities and Exchange Commission (SEC) to be
regulated as a Business Development Company (BDC) pursuant to the provisions
of section 54(a) of the Investment Company Act of 1940 (the (Act), to be
subject to the provisions of section 55 through 65 of the Act. The Company has determined
that its operating model best approximates that of an investment company and intends to
make investments into developing businesses in the oil and gas and other industries.
Additionally, the Board of Directors determined that it was necessary to raise additional
capital to carry out the companys business plan and the Company filed a Form 1-E
pursuant to the Securities Act of 1933 notifying the SEC of the Companys intent to
sell up to $4,000,000 of the Companys common stock at prices between $0.01 and $0.10
per share, or 400,000,000 and 40,000,000 shares, respectively. On January 29, 2004, the
1-E filing notification with the SEC became effective. The Company is presently registered
as an Investment Company under the Act and as such, is authorized to issue up to
$4,000,000 in free-trading stock at prices ranging from $0.01 to $0.10 per
share.

# RISK FACTORS

An investment in the securities of
the Company involves extreme risks and the possibility of the loss of a shareholders
entire investment. A prospective investor should evaluate all information discussed in
this Report and the risk factors discussed below in relation to his financial
circumstances before investing in any securities of the Company.

1. Going Concern Risk

We have had and could have losses,
deficits and deficiencies in liquidity, which could impair our ability to continue as a
going concern. Our independent auditors have indicated that certain factors raise
substantial doubt about our ability to continue as a going concern and these factors are
discussed in note 2 to our audited financial statements. Since its inception, the Company
has suffered recurring losses from operations and has been dependent on existing
stockholders and new investors to provide the cash resources to sustain its operations.

We have incurred net losses in prior
years and this has resulted in a significant accumulated deficit and stockholders
deficiency at December 31, 2004. We had net losses of $5,049,995 for the year ended
December 31, 2004 and $1,939,035 for the year ended December 31, 2003. In addition, we had
negative cash flows from operations of $511,266 for the year ended December 31, 2004 and
$166,338 for the year ended December 31, 2003. At December 31, 2004, our current
liabilities exceeded our current assets by $272,751, we had an accumulated deficit of
$9,360,491 from previous business operations and we had a deficit accumulated during the
development stage for our new business operations of $6,760,389. The Company is also in
default on certain notes to banks and is in the development stage with minimal revenues.

The time required for us to become
profitable is highly uncertain, and we cannot assure you that we will achieve or sustain
profitability or generate sufficient cash flow from operations to meet our planned capital
expenditures, working capital and debt service requirements. If required, our ability to
obtain additional financing from other sources also depends on many factors beyond our
control, including the state of the capital markets and the prospects for our business.
The necessary additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common stock.

We have substantial current
obligations and at December 31, 2004, we had $953,608 of total liabilities. The Company
does not have sufficient cash resources to pay these obligations.

Our substantial debt obligations pose
risks to our business and stockholders by:

| |  | making
it more difficult for us to satisfy our obligations;
| | - | -----------------------------------------------------------

| |  | requiring us to dedicate a substantial portion of our cash flow to principal and interest
payments on our debt obligations, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures and other corporate requirements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | impeding us from obtaining additional financing in the future for working capital, capital
expenditures and general corporate purposes; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | making us more vulnerable to a downturn in our business and limit our flexibility to plan
for, or react to, changes in our business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

We cannot assure you that we will
generate sufficient cash flow from operations or obtain additional financing to meet
scheduled debt payments and financial covenants. If we fail to make any required payment
under the agreements and related documents governing our indebtedness or fail to comply
with the financial and operating covenants contained in them, we would be in default.

|2. | No Current Relevant Operating History. The Company has no current
          relevant operating history, and is a development stage company with minimal
          revenues. The Company faces all of the risks of a new business and those risks
          specifically inherent in the investigation, acquisition, or involvement in a new
          business opportunity. Purchase of any securities of the Company must be regarded
          as placing funds at a high risk in a new or start-up venture with
          all of the unforeseen costs, expenses, problems, and difficulties to which such
          ventures are subject.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | No Assurance of Success or Profitability. There is no assurance that the
          Company will acquire a favorable business opportunity. In addition, even if the
          Company becomes involved in a business opportunity, there is no assurance that
          it will generate revenues or profits, or that the market price of the
          Companys Common Stock will be increased thereby.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Type of Business Acquired. The type of business to be acquired (if any)
          may be one that desires to avoid effecting a public offering and the
          accompanying expense, delays, and federal and state requirements which purport
          to protect investors. Because of the Companys limited capital, it is more
          likely than not that any acquisition by the Company will involve other parties
          whose primary interest is the acquisition of a publicly traded company.
          Moreover, any business opportunity acquired may be currently unprofitable or
          present other negative factors.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Lack of Diversification. Because of the limited financial resources of
          the Company, it is unlikely that the Company will be able to diversify its
          acquisitions or operations. The Companys probable inability to diversify
          its activities into more than one area will subject the Company to economic
          fluctuations within a particular business or industry and therefore increase the
          risks associated with the Companys operations.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Regulations. An acquisition made by the Company may be of a business that
          is subject to regulation or licensing by federal, state, or local authorities.
          Compliance with such regulations and licensing can be expected to be a
          time-consuming, expensive process and may limit other investment opportunities
          of the Company.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Conflicts of Interest. Certain conflicts of interest exist between the
          Company and its executive officers and directors. Each of them has other
          business interests to which they devote their primary attention, and they may be
          expected to continue to do so although management time should be devoted to the
          business of the Company. As a result, conflicts of interest may arise that can
          be resolved only through their exercise of such judgment as is consistent with
          their fiduciary duties to the Company.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Indemnification of Officers and Directors. The Companys Articles of
          Incorporation provide for the indemnification of its directors, officers,
          employees, and agents, under certain circumstances, against attorneys fees
          and other expenses incurred by them in any litigation to which they become a
          party arising from their association with or activities on behalf of the
          Company. The Company may also bear the expenses of such litigation for any of
          its directors, officers, employees, or agents, upon such persons promise
          to repay the Company therefore if it is ultimately determined that any such
          person shall not have been entitled to indemnification. This indemnification
          policy could result in substantial expenditures by the Company, which it will be
          unable to recoup.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Dependence upon Outside Advisors. To supplement the business experience
          of management, the Company may be required to employ accountants, technical
          experts, appraisers, attorneys, or other consultants or advisors. The selection
          of any such advisors will be made by management without any input from
          shareholders. Furthermore, it is anticipated that such persons may be engaged on
          an as needed basis without a continuing fiduciary or other
          obligation to the Company.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Need for Additional Financing. The Companys funds will not be
          adequate to take advantage of any available business opportunities. Even if the
          Company were to obtain sufficient funds to acquire an interest in a business
          opportunity, it may not have sufficient capital to exploit the opportunity. The
          ultimate success of the Company will depend upon its ability to raise additional
          capital. The Company has not investigated the availability, source, or terms
          that might govern the acquisition of additional capital and will not do so until
          it evaluates its needs for additional financing. When additional capital is
          needed, there is no assurance that funds will be available from any source or,
          if available, that they can be obtained on terms acceptable to the Company. If
          not available, the Companys operations will be limited to those that can
          be financed with its modest capital.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | Competition. The search for potentially profitable business opportunities
          is intensely competitive. The Company expects to be at a disadvantage when
          competing with many firms that have substantially greater financial and
          management resources and capabilities than the Company. These competitive
          conditions will exist in any industry in which the Company may become
          interested.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | No Foreseeable Dividends. The Company has not paid dividends on its
          Common Stock and does not anticipate paying such dividends in the foreseeable
          future.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | Loss of Control by Present Management and Shareholders. The Company may
          consider an acquisition in which the Company would issue as consideration for
          the business opportunity to be acquired an amount of the Companys
          authorized but unissued Common Stock that could, upon issuance, constitute as
          much as 95% of the voting power and equity of the Company. The result of such an
          acquisition would be that the acquired companys stockholders and
          management would control the Company, and the Companys management could be
          replaced by persons unknown at this time. Such a merger could leave investors in
          the securities of the Company with a greatly reduced percentage of ownership of
          the Company. Management could sell its control block of stock at a premium price
          to the acquired companys stockholders, although management has no plans to
          do so.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | Dilutive Effects of Issuing Additional Common Stock. The majority of the
          Companys authorized but unissued Common Stock remains unissued. The board
          of directors of the Company has authority to issue such unissued shares without
          the consent or vote of the shareholders of the Company. The issuance of these
          shares may further dilute the interests of investors in the securities of the
          Company and will reduce their proportionate ownership and voting power in the
          Company.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. | Thinly-traded Public Market. There currently is only a thinly traded or
          virtually inactive public market for the securities of the Company, and no
          assurance can be given that a more active market will develop or that an
          investor will be able to liquidate his investment without considerable delay, if
          at all. If a more active market should develop, the price may be highly
          volatile. Factors such as those discussed in this Risk Factors
          section may have a significant impact upon the market price of the securities of
          the Company. Owing to what may be expected to be the low price of the
          securities, many brokerage firms may not be willing to effect transactions in
          the securities. Even if an investor finds a broker willing to effect a
          transaction in these securities, the combination of brokerage commissions, state
          transfer taxes, if any, and any other selling costs may exceed the selling
          price. Further, many lending institutions will not permit the use of such
          securities as collateral for any loans.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# EMPLOYEES

As of December 31, 2004, American
Energy has 1 full-time employee, including executive officers, non- executive officers,
secretarial and clerical personnel and field personnel.

# ITEM 2. DESCRIPTION OF
PROPERTY

As of December 31, 2004, the address
for the corporate offices is at 6073 Hwy 281 South, Mineral Wells, TX 76067.

We currently do not have a lease and we
are not paying rent on this space. It is being provided to the Company by our sole
officer/director free of charge. We expect we will have to lease more substantial office
in the near future and that the cost of the space may be material to our operations.

# ITEM 3. LEGAL
PROCEEDINGS

From time to time we may become
subject to proceedings, lawsuits and other claims in the ordinary course of business
including proceedings related to environmental and other matters. Such matters are subject
to many uncertainties, and outcomes are not predictable with assurance.

The Company is subject to various
lawsuits and unasserted claims from vendors for non-payment of accounts payable plus
related legal fees. Excluding legal fees, which cannot be estimated, the Company has
included all amounts in its accounts payable as of December 31, 2004.

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director. As of December 31, 2004
the transaction has not been finalized as the lessor has not agreed to the settlement.
However, the 100,000 shares were transferred to the lessor in September 2003. The Company
expects to fully resolve this matter in fiscal 2005 at which time the value of the shares
exchanged and any related gain or loss will be determined and recognized

In December 2003, a cash settlement
was reached for a lawsuit from one stockholder who invested $100,000 in the Company for
100,000 common shares during a private placement. The settlement of $149,500 was paid by
the Companys sole officer/director personally and the Company has been released from
all obligations related to the lawsuit. The $149,500 was recorded as a Loss on Settlement
in the accompanying Statement of Operations for the twelve months ended December 31, 2003
and as Due to Related Party in the accompanying Balance Sheet.

The Company has included $56,788 of
unpaid Federal payroll taxes and employee withholdings and related penalties and interest
in its accrued expenses as of December 31, 2004. Such amounts are subject to potential
federal tax liens.

During 2002, the Company cancelled
various consulting contracts due to non-performance and demand was made for the return of
these shares to the treasury. As of the issuance date of these financial statements,
certain shares had been cancelled and returned to the treasury.

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None

# PART II

# ITEM 5. MARKET FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of April 8, 2005, American Energy
had 298,030,234 shares of common stock issued and outstanding and had approximately 448
certificate stockholders of record. Additionally, the Company had 4,075,000 shares
issuable. The following table sets forth certain information as to the high and low bid
quotations quoted on the OTCBB for our fiscal 2004 year. Information with respect to
over-the-counter bid quotations represents prices between dealers, does not include retail
mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.
The Companys common stock, par value $0.0001 per share (the Common
Stock), is traded on the Over the Counter Bulletin Board (OTCBB) under
the symbol AMEP.

|               | Period | High | Low 
|-------------- | ------ | ---- | ----
|First Quarter  | 2004   | 0.09 | 0.05
|Second Quarter |        | 0.07 | 0.02
|Third Quarter  |        | 0.05 | 0.02
|Fourth Quarter |        | 0.03 | 0.01
|First Quarter  | 2003   | 0.07 | 0.02
|Second Quarter |        | 0.10 | 0.03
|Third Quarter  |        | 0.13 | 0.02
|Fourth Quarter |        | 0.11 | 0.07

The bid price of our common stock was
$0.0181 per share on April 11, 2005.

# RECENT FINANCING AND SALE
OF UNREGISTERED SECURITIES

In January 2004, the Board of
Directors determined that it was necessary to raise additional capital to carry out the
companys business plan and the Company filed a Form 1-E pursuant to the Securities
Act of 1933 notifying the SEC of the Companys intent to sell up to $4,000,000 of the
Companys common stock at prices between $0.01 and $0.10 per share, or 40,000,000 and
400,000,000 shares, respectively. On January 29, 2004, the 1-E filing notification with
the SEC became effective. The Company is presently registered as an Investment Company
under the Act and as such, is authorized to issue up to $4,000,000 in
free-trading stock at prices ranging from $0.01 to $0.10 per share.

On February 22, 2005, the
Companys Board of Directors determined that it was in the best interest of the
Company to discontinue the offering discussed above and to investigate other financing
alternatives. Accordingly, the Company has filed a Form 2-E pursuant to the Securities Act
of 1933 notifying the SEC of the Companys termination of the offering. The Form 2-E
filing discloses that the Company received $1,820,000 of proceeds from the offering, net
of $30,000 of expenses, through the sale of 171,000,000 shares of the Companys
$0.001 par value common stock.

# SECURITIES AUTHORIZED
FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS AS OF DECEMBER 31, 2004

|                              | Number of Securities to be
issued upon exercise of
outstanding options,
warrants and rights | Weighted-average price of
outstanding options
warrants and rights | Number of Securities
remaining available for
future issuance under
equity compensation
plans(excluding securities
reflected in column (a))
|----------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------
|                              | (a)                                                                                         | (b)                                                               | (c)                                                                                                                                       
|Equity compensation plans     | -0-                                                                                         | -0-                                                               | -0-                                                                                                                                       
|approved by security holders 
|Equity compensation plans not | -0-                                                                                         | -0-                                                               | -0-                                                                                                                                       
|approved by security holders 
|TOTAL                         | -0-                                                                                         | -0-                                                               | -0-                                                                                                                                       

# OUR TRANSFER AGENT IS:

Transfer Online, Inc.227
SW Pine Street, Suite 300 Portland, OR 97204Telephone: (503)
227-2950Fax: (503) 227-6874

# DIVIDENDS

We presently intend to retain future
earnings to support our growth. The Company has not paid cash dividends on its common
stock and does not intend to pay any cash dividend in the foreseeable future. Any payment
of cash dividends in the future will be dependent upon: the amount of funds legally
available, our earnings; financial condition; capital requirements; and other factors
which our Board of Directors deems relevant.

# ITEM 6.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONSSPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

Safe Harbor  The following is a
discussion of our financial condition, results of operations, liquidity and capital
resources. This discussion should be read in conjunction with our audited financial
statements and the notes thereto included elsewhere in this Form 10-K.

Some of the statements under
Description of Business, Risk Factors, Managements
Discussion and Analysis or Plan of Operation, and elsewhere in this Report and in
the Companys periodic filings with the Securities and Exchange Commission constitute
forward-looking statements. These statements involve known and unknown risks, significant
uncertainties and other factors what may cause actual results, levels of activity,
performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such forward- looking
statements. Such factors include, among other things, those listed under Risk
Factors and elsewhere in this Report.

In some cases, you can identify
forward-looking statements by terminology such as may, will,
should, could, intends, expects,
plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of
such terms or other comparable terminology.

The forward-looking statements herein
are based on current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will obtain or have
access to adequate financing for each successive phase of its growth, that there will be
no material adverse competitive or technological change in condition of the Companys
business, that the Companys President and other significant employees will remain
employed as such by the Company, and that there will be no material adverse change in the
Companys operations, business or governmental regulation affecting the Company. The
foregoing assumptions are based on judgments with respect to, among other things, further
economic, competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond the
Companys control.

Although management believes that the
expectations reflected in the forward-looking statements are reasonable, management cannot
guarantee future results, levels of activity, performance or achievements. Moreover,
neither management nor any other persons assumes responsibility for the accuracy and
completeness of such statements.

# GENERAL

American Energy Production, Inc.
(American Energy, the Company, we, us) is
a publicly traded business development company (see below) that is engaged primarily in
the investment in other companies that acquire, develop, produce, explore and sell oil and
gas. The Company anticipates that its investees will be able to sell all oil that it can
produce to petroleum refiners and marketers under the terms of short-term purchase
contracts and at prices in accordance with arrangements that are customary in the oil
industry. Our capital is generally used by our portfolio companies to finance growth and
working capital. Prior to becoming a business development company effective in January
2004, the Company was engaged directly in the above activities since February 20, 2003,
when it acquired certain oil assets and began its new development stage  (See
below). Prior to that, the Company was f/k/a Communicate Now.com, Inc. and was
incorporated on January 31, 2000 under the laws of the State of Delaware. On July 15,
2002, the Company changed its corporate name to American Energy Production, Inc.

On February 20, 2003, upon the
acquisition of certain oil and gas assets, the Company entered into a new development
stage. Activities during the development stage include acquisition of assets, obtaining
geological reports, developing an implementation plan to extract oil and gas, completing
initial sales of oil and seeking capital.

On January 12, 2004, the Company
filed a Form N-54 with the Securities and Exchange Commission (SEC) to be
regulated as a Business Development Company (BDC) pursuant to the provisions
of section 54(a) of the Investment Company Act of 1940 (the (Act), to be
subject to the provisions of section 55 through 65 of the Act. The Company has determined
that its operating model best approximates that of an investment company and intends to
make investments into developing businesses in the oil and gas and other industries.
Additionally, the Board of Directors determined that it was necessary to raise additional
capital to carry out the companys business plan and the Company filed a Form 1-E
pursuant to the Securities Act of 1933 notifying the SEC of the Companys intent to
sell up to $4,000,000 of the Companys common stock at prices between $0.01 and $0.10
per share, or 40,000,000 and 400,000,000 shares, respectively. On January 29, 2004, the
1-E filing notification with the SEC became effective. The Company is presently registered
as an Investment Company under the Act and as such, is authorized to issue up to
$4,000,000 in free-trading stock at prices ranging from $0.01 to $0.10 per
share (See Recent Developments below).

As a BDC, the Company will be
structured in a manner more consistent with its current business strategy. As a result,
the Company is positioned to raise capital in a more efficient manner and to develop and
expand its business interests. The Company believes that potential acquisitions, in total,
will enhance value to stockholders through capital appreciation and payments of dividends
to the Company by its investee companies.

BDC regulation was created in 1980 by
Congress to encourage the flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are regulated by the
Investment Company Act of 1940. BDCs report to stockholders like traditional
operating companies and file regular quarterly and annual reports with the Securities and
Exchange Commission. BDCs are required to make available significant managerial
assistance to their portfolio companies.

# OVERVIEW OF COMPANY.

Since its inception, the Company has
suffered recurring losses from operations and has been dependent on existing stockholders
and new investors to provide the cash resources to sustain its operations. During the
years ended December 31, 2004, 2003 and 2002, the Company reported net losses of
$5,049,995, $1,939,035 and $2,770,129, respectively. The Company is a development stage
company and has had minimal revenues.

The Companys long-term
viability as a going concern is dependent on certain key factors, as follows:

| |  | The Companys ability to continue to obtain sources of outside financing to support
near term operations and to allow the Company to continue to make investments
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Companys ability to increase profitability and sustain a cash flow level that
will ensure support for continuing operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

In accordance with BDC regulations,
our majority-owned investees are not consolidated and accordingly, their financial
information is not included in our accompanying audited Financial Statements. However, a
significant portion of the proceeds received by the Company from the issuance of
convertible debentures and the sale of common stock has been utilized as advances for our
investees. The following represents unaudited supplemental information for the year
ended December 31, 2004 for our majority-owned investees.

|Description    | Production
Resources, Inc. | Bend
Arch
Petroleum, Inc. | Oil
America
Group, Inc.
|-------------- | -------------------------- | ------------------------- | -----------------------
|Revenue        | $ 163,988                  | $ 917,911                 | $   --                 
|Operating Loss | (311,552)                  | (302,251)                 | --                     
|Net Loss       | $(311,552)                 | $(308,826)                | $   --                 

The above unaudited supplemental
information does not include all the information and footnotes necessary for a
comprehensive presentation of financial position and results of operations for our
majority-owned investees.

# RECENT DEVELOPMENTS

In January 2004, the Companys
Board of Directors determined that it was necessary to raise additional capital to carry
out the companys business plan and the Company filed a Form 1-E pursuant to the
Securities Act of 1933 notifying the SEC of the Companys intent to sell up to
$4,000,000 of the Companys common stock at prices between $0.01 and $0.10 per share,
or 40,000,000 and 400,000,000 shares, respectively. On January 29, 2004, the 1-E filing
notification with the SEC became effective and the Company is registered as an Investment
Company under the Act and as such, is authorized to issue up to $4,000,000 in
free-trading stock at prices ranging from $0.01 to $0.10 per share.

On February 22, 2005, the
Companys Board of Directors determined that it was in the best interest of the
Company to discontinue the offering discussed above and to investigate other financing
alternatives. Accordingly, the Company has filed a Form 2-E pursuant to the Securities Act
of 1933 notifying the SEC of the Companys termination of the offering. The Form 2-E
filing discloses that the Company received $1,820,000 of proceeds from the offering, net
of $30,000 of expenses, through the sale of 171,000,000 shares of the Companys
$0.001 par value common stock.

# CRITICAL ACCOUNTING
ESTIMATES AND POLICIES

The methods, estimates and judgment
we use in applying our most critical accounting policies have a significant impact on the
results we report in our financial statements. The Securities and Exchange Commission has
defined the most critical accounting policies as the ones that are most important to the
portrayal of our financial condition and results, and require us to make our most
difficult and subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based upon this definition, our most critical
estimates include going concern, the valuation of stock based compensation, the allocation
of the purchase price to certain oil and gas related assets acquired, depreciable and
depletable useful lives of property and equipment, the evaluation of whether our assets
are impaired, the valuation of our investments, the valuation allowance for deferred tax
assets and the estimate of reserves of oil and gas that are used to develop projected
income whereby an appropriate discount rate has been used. We also have other key
accounting estimates and policies, but we believe that these other policies either do not
generally require us to make estimates and judgments that are as difficult or as
subjective, or it is less likely that they would have a material impact on our reported
results of operations for a given period. For additional information see Note 3
Summary of Significant Accounting Policies in the notes to our audited
financial statements contained in our annual report on Form 10-K for the fiscal year ended
December 31, 2004. Although we believe that our estimates and assumptions are reasonable,
they are based upon information presently available. Actual results may differ
significantly from these estimates.

# GOING CONCERN

The independent auditors
reports to our financial statements for the years ended December 31, 2004, 2003 and 2002,
include an explanatory paragraph in addition to their audit opinion stating that our
recurring losses from operations, net cash used in operations, stockholders
deficiency, working capital deficiency, being in default on certain notes payable to banks
and being in the development stage with minimal revenues raise substantial doubt about our
ability to continue as a going concern. Our financial statements do not include any
adjustments to reflect the possible effects on recoverability and classification of assets
or the amounts and classification of liabilities that may result from our inability to
continue as a going concern.

# VALUATION OF NON-CASH
ISSUANCES OF COMMON STOCK

The Company issued common stock to
several parties in non-cash transactions during 2004. For the majority of these issuances,
valuation was determined based upon the stock closing price on the date of grant.

# ALLOCATION OF THE
PURCHASE PRICE TO CERTAIN OIL AND GAS RELATED ASSETS ACQUIRED

On February 20, 2003 (the
Acquisition Date), the Company acquired from a certain related party assignor,
who is the of the Companys president and sole director, an interest in certain oil
and gas leases, oil and gas wells located on those leases, surface and underground
equipment, pipelines and other property and fixtures in or on the leases, rights of way,
leases, contracts and agreements for pipeline compressor stations or boosters utilized in
the operations of the facilities by the assignors. The Company accounted for the purchase
as an asset acquisition at its fair market value of $2,000,000 under the purchase method
of accounting pursuant to Statement of Financial Accounting Standards No. 141
Business Combinations. Accordingly, the purchase price was allocated to the
various assets and the results of any operations relating to the acquired assets are
included in the Companys financial statements from the Acquisition Date.

# DEPRECIABLE AND
DEPLETABLE USEFUL LIVES OF PROPERTY AND EQUIPMENT

Prior to electing BDC status and transferring
oil and gas assets to investees, the Company used the successful efforts method of
accounting for acquisition, exploration, development and production of oil and gas
properties, whereby only the direct costs of acquiring or drilling successful (proved
reserves) were capitalized. Costs of acquisition, development, and exploration activities
that are not known to have resulted in the discovery of reserves (unproved) were charged
to operations. All capitalized costs of oil and gas properties were depleted using
the units-of-production method based on total proved reserves. The capitalized cost of
support equipment and fixtures were depreciated over their estimated useful life
once they are placed into service.

# EVALUATION OF ASSET
IMPAIRMENT

We account for the impairment of
long-lived assets including proved properties in accordance with Financial Accounting
Standards, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the book value of the asset may not be
recoverable. Recoverability of the asset is measured by comparison of its carrying amount
to the undiscounted cash flow that the asset or asset group is expected to generate. If
such assets or asset groups are considered to be impaired, the loss recognized is the
amount by which the carrying amount of the property if any, exceeds its fair market value.
Based on our impairment analysis of oil and gas leases and property and equipment, no
impairment charge has been recorded for the year ended December 31, 2004.

# VALUATION OF INVESTMENTS

Investments in securities of
unaffiliated issuers represent holdings of less than 5% of the issuers voting common
stock. Investments in and advances to affiliates are presented as (i)
majority-owned, if holdings, directly or indirectly, represent over 50% of the
issuers voting common stock, (ii) controlled companies if the holdings,
directly or indirectly, represent over 25% and up to 50% of the issuers voting
common stock and (iii) other affiliates if the holdings, directly or indirectly,
represent 5% to 25% of the issuers voting common stock. Investments  other
than securities represent all investments other than in securities of the issuer.

Investments in securities or other
than securities of privately held entities are initially recorded at their original cost
as of the date the Company obtained an enforceable right to demand the securities or other
investment purchased and incurred an enforceable obligation to pay the investment price.

For financial statement purposes,
investments are recorded at their fair value. Effective June 15, 2004, the Company
acquired a privately held oil company; effective April 1, 2004, the Company formed a new
controlled entity to transfer its assets and certain liabilities into for purposes of
holding this entity as an investment and effective November 2004, the Company acquired Oil
America Group (See Note 4  Investments in and Advances to Affiliates). Currently,
readily determinable fair values do not exist for these transactions and the investment in
the privately held company and the newly formed controlled entity are recorded at cost,
which approximates estimated fair value as of December 31, 2004. The fair value of these
investments is determined in good faith by the Companys Board of Directors pursuant
to a valuation policy and consistent valuation process. Due to the inherent uncertainty of
these valuations, the estimates may differ significantly from the values that would have
been used had a ready market for the investments existed and the differences may be
material. Our valuation methodology includes the examination of among other things, the
underlying portfolio company performance, financial condition and market changing events
that impact valuation. Realized gains (losses) from the sale of investments and unrealized
gains (losses) from the valuation of investments are reflected in operations during the
period incurred. There were no realized or unrealized gains or losses for the years ended
December 31, 2004 and 2003.

# VALUATION ALLOWANCE FOR
DEFERRED TAX ASSETS

In assessing the recoverability of
deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The valuation allowance has
been increased by $1,638,458 for the Period February 20, 2003 (Inception of Development
Stage) through December 31, 2004 as a result of increased net operating losses. Net
operating loss carry-forwards aggregate approximately $1,757,832 and expire in the years
through 2024.

As discussed previously, on February
20, 2003, upon the acquisition of certain oil and gas assets, the Company entered a new
development stage. As a result of this change, and IRS Section 382 rules, the net
operating loss carry-forwards from previous years to February 20, 2003 will not be
allowable and are not included in the above disclosures.

# ESTIMATE OF RESERVES OF
OIL AND GAS

Prior to electing BDC status and
transferring oil and gas assets to investees, the Company used the successful efforts
method of accounting for acquisition, exploration, development and production of oil and
gas properties, whereby only the direct costs of acquiring or drilling successful (proved
reserves) are capitalized. Costs of acquisition, development, and exploration activities
that are not known to have resulted in the discovery of reserves (unproved) are charged to
operations. All capitalized costs of oil and gas properties were depleted using the
units-of-production method based on total proved reserves.

On June 15, 2004, the Company
assigned $2,074,498, or 100% of its oil and gas properties securing a $2,000,000
convertible debenture to a majority owned investee.

# RESULTS OF OPERATIONS

Results of Operations

Fiscal year ended December 31, 2004
compared to fiscal year ended December 31, 2003 and fiscal year ended December 31, 2003
compared to fiscal year ended December 31, 2002.

|                                  | Year Ended December 31, |                |                 
|--------------------------------- | ----------------------- | -------------- | ----------------
|
|Operating Income                  |                         |                |                 
|Oil sales, net                    | $      40,010           | $        6,648 | $             --
|                                  |                         |                |                 
|Total Operating Income            | 40,010                  | 6,648          | --              
|Operating Expenses               
|Compensation                      | 600,995                 | 61,601         | 250,000         
|Consulting                        | 256,934                 | 997,463        | 2,335,938       
|Depletion                         | 3,690                   | 297            | --              
|Depreciation                      | 45,820                  | 28,247         | --              
|Equipment rental                  | 42,000                  | 21,000         | --              
|General and administrative        | 61,682                  | 48,657         | 366             
|Production                        | 91,363                  | 51,360         | --              
|Professional                      | 157,229                 | 91,041         | 139,773         
|Website                           | 28,550                  | 327,750        | --              
|                                  |                         |                |                 
|Total Operating Expenses          | 1,288,263               | 1,627,415      | 2,726,077       
|Loss from Operations              | (1,248,252)             | (1,620,767)    | (2,726,077)     
|Other Expense                    
|Gain on settlement of debt        | 18,364                  | --             | --              
|Other income                      | 6,726                   | --             | 4,000           
|Interest expense                  | (3,820,828)             | (145,264)      | (38,102)        
|Payroll tax expense and penalties | (6,004)                 | (6,004)        | (5,950)         
|Loss on settlement                | --                      | (167,000)      | (4,000)         
|                                  |                         |                |                 
|Total Other Expense               | (3,801,742)             | (318,268)      | (44,052)        
|                                  |                         |                |                 
|Net Loss                          | $(5,049,995)            | $(1,939,035)   | $(2,770,129)    
|                                  |                         |                |                 

For the year ended
December 31, 2004

Oil sales:

Oil sales increased $33,363, or 100%,
to $40,010 for 2004 from $6,648 for 2003. Prior to electing BDC status and transferring
oil and gas assets to a majority-owned investee, the Company previously sold crude oil
under short-term agreements at prevailing market rates. Until February 20, 2003, the
Company was actively seeking oil and gas leases for acquisition and operation and had no
sales.

Operating Expenses:

Operating expenses decreased
$339,153, or 434%, to $1,288,263 for 2003 from $1,627,415 for 2003. The decrease was
primarily the result of a $740,529 decrease in consulting and a $299,200 decrease in
website expense, offset by a $539,394 increase in compensation. The decrease in consulting
and website expense was primarily from a decrease in stock issued for these services in
2004 as compared to 2003. The increase in compensation was primarily due to the issuance
of 3,500,000 of Series A preferred stock in exchange for the conversion of indebtedness
owed to the Companys President. In accordance with APB 26, paragraph 20 and Practice
Alert Bulletin 2000-1, the Company evaluated and recorded $480,995 excess of the value of
the preferred stock, which was computed based on the conversion ratio and quoted trade
price of the common stock on the settlement date, over the debt qualified as compensation
expense and was recorded as such as of June 30, 2004 with an offset to additional paid-in
capital.

Other Income (Expense):

Other income (expense) increased
$3,483,475 of expense, or 2,630% to $3,801,742 for 2004 from $318,268 of expense for 2003.
The increase was primarily due to a $3,675,565 increase in interest expense due to a
convertible debenture beneficial conversion feature.

For the year ended
December 31, 2003

Oil sales:

Oil sales increased $6,648, or 100%,
to $6,648 for 2003 from $0 for 2002. The increase was primarily the result of the fact
that the Company entered a new development stage on February 20, 2003, as the result of
the acquisition of certain oil and gas assets. Until February 20, 2003, the Company was
actively seeking oil and gas leases for acquisition and operation and had no sales.

Operating Expenses:

Operating expenses decreased
$1,098,662, or 40.3%, to $1,627,415 for 2003 from $2,726,077 for 2002. The decrease was
primarily the result of a $1,338,476 decrease in consulting, a $188,339 decrease in
compensation, a $48,732 decrease in professional, and a $327,750 increase in website
expense. The decrease in compensation, consulting and professional was primarily the
result that in 2002, the Company had $2,696,355 of expense for the issuance of common
stock pursuant to an S-8 registration statement for an employee benefit plan. The increase
in website expense related to stock issued to consultants for website development.

Other Income (Expense):

Other income (expense) increased
$274,216, or 62.5% to $318,268 for 2003 from $44,052 for 2002. The increase was primarily
due to an increase of loss on settlement of $163,000 and an increase in interest expense
of $107,162. The increase in loss on settlement of $163,000 was primarily comprised of
$149,500 for a lawsuit by a stockholder who invested $100,000 and received 100,000 shares
of common stock during a private placement. The increase in interest expense was primarily
comprised of a $103,233 accrual for interest on a $2,000,000 convertible note payable from
the February 20, 2003 acquisition of certain oil and gas assets.

# Liquidity and Capital
Resources

Cash and cash equivalents were
$268,668 at December 31, 2004 as compared to $432 at December 31, 2003, and working
capital deficit was $272,751 at December 31, 2004. The increase in cash was primarily from
$1,850,000 of proceeds from the issuance of convertible debentures and $777,500 of net
proceeds from the issuance of common stock, offset by $1,724,786 of net advances to the
Companys majority-owned investees.

Operating Activities

Cash used in operating activities was
$511,266 for the year ended December 31, 2004 compared to cash used of $660,583 for the
year ended December 31, 2003. Even though there was a $3,110,960 increase in the net loss
for 2004 from 2003, there was an offsetting $3,696,361 adjustment for the beneficial
conversion feature on convertible debentures.

Investing Activities

Cash used in investing activities was
$1,831,820 for the year ended December 31, 2004 compared to $28,300 at December 31, 2003.
The increase in cash used resulted primarily from a $1,724,786 increase in advances made
by the Company for its majority-owned investees in 2004.

Financing Activities

Cash provided by financing activities
was $2,611,318 for the year ended December 31, 2004 compared to cash provided of $156,029
for the year ended December 31, 2003. The increase in cash provided resulted primarily
from $1,850,000 of proceeds from the issuance of convertible debentures and $777,500 of
net proceeds from the issuance of common stock, offset by $1,724,786 of advances made by
the Company to its majority-owned investees.

Our principal uses of cash to date
have been for operating activities and we have funded our operations during fiscal years
2004 and 2003 primarily by incurring indebtedness in the form of convertible debentures
and issuing common stock.

We have substantial debt obligations.
These debt obligations pose a significant liquidity risk to our business and stockholders
by requiring us to dedicate a substantial portion of our cash flow to principal and
interest payments on our debt obligations, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures and other corporate requirements.
Additionally, these debt obligations may impede us from obtaining additional financing in
the future for working capital, capital expenditures and other corporate requirements and
may make us more vulnerable to a downturn in our business and limit our flexibility to
plan for, or react to, changes in our business.

The following summarizes our debt
obligations at December 31, 2004:

# SHORT-TERM DEBT

Our short-term debt at December
31, 2004 and 2003 consisted of the following:

Lease Payable

|                                                                    | 2004 | 2003
|------------------------------------------------------------------- | ---- | ----
|$21,238 computer equipment lease, bearing interest at 10% per annum |      |     
|                                                                    |      |     

On April 16, 2001, the Company leased
computer equipment under a 36-month lease that was accounted for as a capital lease in the
amount of $21,238 and at December 31, 2004, the balance of principal was $18,153. The
amount is personally guaranteed by a former officer/director and a current
officer/director of the Company. The lease was secured by all leased equipment and
perfected by a financing statement; however, the Company liquidated the equipment and paid
the office space lessor the $4,000 proceeds. As of December 31, 2004, the Company has
recorded a total of $5,342 in accrued interest for this lease payable in the accompanying
Balance Sheet.

In November 2003, a settlement was
reached with the lessor to forgive the outstanding principal and accrued interest on the
lease payable once the transfer of 100,000 shares of the Companys common stock
personally held by the Companys president and director occurs. The president of the
Company transferred these shares on September 15, 2003. As of December 31, 2004, the
transaction has not been finalized as the lessor has not agreed to the settlement. The
Company expects to fully resolve this matter in 2005 at which time the value of the shares
exchanged and any related gain or loss will be determined and recognized  (see Note
8  Commitments and Contingencies and Note 9  Related Party Transactions).

Notes payable 
Banks

|                                                                                 | 2004 | 2003
|-------------------------------------------------------------------------------- | ---- | ----
|$70,000 bank revolving line of credit, dated March 12, 2001, bearing interest at |      |     
|default rate of 18% per annum, due March 11, 2002. In Default at December 31,    |      |     
|2004                                                                             |      |     
|$42,000 bank line of credit, dated December 31, 2001, bearing interest at        |      |     
|prime plus 2% (6% at December 31, 2003), due on demand. In Default at December   |      |     
|31, 2003                                                                         |      |     
|$19,396 bank automobile loan, dated July 6, 2004, bearing interest at 6.99% per  |      |     
|annum, monthly installments of principal and interest with final payment due in  |      |     
|February 2006                                                                    |      |     
|                                                                                 |      |     
|                                                                                 |      |     
|                                                                                 |      |     
|                                                                                 |      |     

On March 12, 2001, we obtained a
revolving bank line of credit in the amount of $70,000, of which $17,463 is outstanding at
September 30, 2004. The interest rate was originally at 11.5% but has converted to the
default rate of 18% per annum as the line of credit was due March 11, 2002 and was in
default. This line of credit is secured by all equipment which had been repossessed as of
December 31, 2001 and $23,075 was applied to the balance. As of December 31, 2004, the
Company has recorded a total of $10,223 in accrued interest for this line of credit in the
accompanying Balance Sheet. The line of credit is in default at December 31, 2004.

On December 31, 2001, we obtained a
bank line of credit for $42,000, of which $41,799 was outstanding and in default at March
31, 2004. In June 2004, the lender agreed to a settlement payment in the amount of
$30,000, which the Company made and the difference of $11,799 and accrued interest of
$6,565 was recorded as a gain on settlement of debt in the accompanying Statement of
Operations.

In July 2004, we obtained a bank
automobile loan in the amount of $19,396 (including accrued interest of 6.99% per annum).
Monthly principal and interest payments of $1,077 are due with final payment in February
2006. The loan is secured by the automobile and as of December 31, 2004, the balance
outstanding is $13,818.

Loans and Note Payable
Settlement with Related Party

Notes payable to related party at
December 31, 2003 are payable to a former officer/director of the Company who is a
principal stockholder as follows:

|                                                   | 2004 | 2003
|-------------------------------------------------- | ---- | ----
|Dated Oct. 18, 2000, interest at 6.5%, matured     |      |     
|Oct. 16, 2001, in default at December 31, 2003     |      |     
|Dated Mar. 21, 2001, interest at 6%, matured       |      |     
|March 21, 2003, in default at December 31, 2003    |      |     
|Dated Apr. 4, 2001, interest at 6%, matured        |      |     
|Apr. 4, 2002, in default at December 31, 2003      |      |     
|Dated Apr. 11, 2001, interest at 6%, matured       |      |     
|Apr. 11, 2002, in default at December 31, 2003     |      |     
|Dated Apr. 23, 2001, interest at 6.5%, matured     |      |     
|Apr. 23, 2002, in default at December 31, 2003     |      |     
|Dated Jun. 15, 2001, interest at 6%, matured       |      |     
|Jun3 15, 2002, in default at December 31, 2003     |      |     
|Dated July 6, 2001, interest at 6.5%, matured      |      |     
|December 6, 2001, in default at December 31, 2003  |      |     
|Dated July 6, 2001, interest at 6.5%, matured      |      |     
|December 6, 2001, in default at December 31, 2003  |      |     
|Dated July 13, 2001, interest at 6.5%, matured     |      |     
|December 13, 2001, in default at December 31, 2003 |      |     
|Dated July 20, 2001, interest at 6.5%, matured     |      |     
|December 20, 2001, in default at December 31, 2003 |      |     
|Dated Aug. 3, 2001, interest at 6.5%, matured      |      |     
|December 3, 2001, in default at December 31, 2003  |      |     
|Dated Aug. 21, 2001, interest at 6%, matured       |      |     
|December 21, 2001, in default at December 31, 2003 |      |     
|Dated Sep. 10, 2001, interest at 6.5%, matured     |      |     
|December 10, 2001, in default at December 31, 2003 |      |     
|                                                   |      |     
|                                                   |      |     
|                                                   |      |     

Beginning in January of 2002 and
through December 2003, the Companys officer/director advanced the Company $52,615
for payment of corporate expenses. In August 2003, $115 was repaid leaving a balance
outstanding of $52,510 at December 31, 2003. The loan was non-interest bearing, unsecured
and due on demand.

On January 5, 2004, the entire
$52,510 amount outstanding was exchanged for designated Series A preferred stock. (See
Note Payable  Related Party below, Note 10  Related Party Transactions and
Note 7  Stockholders Equity (Deficiency).

At December 31, 2003, $411,595 of
Notes Payable to related party were outstanding and in default. The Notes Payable had been
payable to a former officer/director of the Company and who is a principal stockholder and
has been transferred to the current president in a private transaction.

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 designated Series A preferred stock in
exchange for the conversion of the total $464,005 of indebtedness owed to the
Companys president. The $464,005 indebtedness comprised the entire $52,510 of loan
payable  related party (see above) and $411,495 of Note Payable  related
party. In connection with the forgiveness of the note principal, the Companys
president forgave the related accrued interest totaling $64,527 in a separate transaction
on the same date. As a result, the Company has treated the $64,527 as a contribution of
capital at the date of debt forgiveness by recording additional paid in capital. The
Company recognized a compensation expense of $480,995 based on the estimated $945,000
value of the 3,500,000 common shares which was based on the quoted trade price per share
of $0.09 on the settlement date.

In July 2003, the Company received
$35,000 from an unrelated party. As of December 31, 2003, the Company had repaid the
principal portion of this loan for $35,000 and $2,000 in accrued interest.

# 6. LONG-TERM DEBT

Our long-term debt at December 31,
2004 and 2003 consisted of the following:

Convertible Note Payable

|                                                              | 2004 | 2003
|------------------------------------------------------------- | ---- | ----
|$2,000,000 Convertible Note Payable, dated February 20, 2003, |      |     
|bearing interest at 6% per annum and due July 25, 2007        |      |     
|                                                              |      |     

Convertible Debentures:

|                                                                                  | 2004 | 2003
|--------------------------------------------------------------------------------- | ---- | ----
|$250,000 Convertible Debenture, dated May 20, 2004, bearing interest at 8% per    |      |     
|annum and due on December 1, 2005                                                 |      |     
|$400,000 Convertible Debentures, dated June 15, 2004, bearing interest at 8% per  |      |     
|annum and due on December 1, 2005                                                 |      |     
|$400,000 Convertible Debenture, dated August 17, 2004, bearing interest at 8% per |      |     
|annum and due on December 1, 2005                                                 |      |     
|Less: Debt discount                                                               |      |     
|                                                                                  |      |     
|                                                                                  |      |     
|                                                                                  |      |     

In May 2004, the Company received
$250,000 in gross proceeds from the issuance of a convertible debenture. The terms of the
convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. On May 17, 2004, the convertible debenture holder elected to convert
$30,000 of the balance into common shares of the Company and as a result of the
conversion, 3,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On June 10, 2004, the convertible debenture holder elected to
convert $85,000 of the balance into common shares of the Company and as a result of the
conversion, 8,500,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On July 19, 2004, the convertible debenture holder elected to
convert $65,000 of the balance into common shares of the Company and as a result of the
conversion, 6,500,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). The remaining $70,000 of the $250,000 convertible debenture remains
outstanding at December 31, 2004.

In accordance with EITF Issue 98-5 as
amended by EITF Issue 00-27, the Company has evaluated that the $250,000 convertible
debenture discussed above has a beneficial conversion feature as the exercise price for is
less than the fair value of the Companys common stock on the measurement date.
Accordingly, the Company has recognized this beneficial conversion feature by recording a
debt discount as a contra account to the convertible debenture for $250,000 and $250,000
to additional paid-in capital. As of December 31, 2004, $208,715 was amortized to interest
expense and a debt discount of $41,285 remains.

Effective June 15, 2004, the Company
issued a $400,000 convertible debenture to PRI in accordance with the acquisition
agreement between PRI and the Company (See Acquisition Footnote). The terms of the
convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. The entire $400,000 is outstanding as of December 31, 2004.

In accordance with EITF Issue 98-5,
as amended by EITF Issue 00-027, the Company has evaluated that the convertible debenture
discussed above has a beneficial conversion feature as the exercise price is less than the
fair value of the Companys common stock on the measurement date. Accordingly, the
Company has recognized this beneficial conversion feature by recording a debt discount as
a contra account to the convertible debenture for $400,000 and $400,000 to additional
paid-in capital. The debt discount will be amortized over the debt term of 17.5 months or
through the due date of December 5, 2005. As of December 31, 2004, the Company has
recorded $149,064 of amortization of the debt discount for the period from June 15 through
December 31, 2004 and has recorded this amount as interest expense in the statement of
operations with a remaining discount of $250,936 as of December 31, 2004.

In August 2004, the Company received
$1,000,000 in gross proceeds from the issuance of a convertible debenture. The terms of
the convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. On September 14, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On September 22, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On October 8, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On October 12, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On November 4, 2004, the convertible debenture holder elected to
convert $200,000 of the balance into common shares of the Company and as a result of the
conversion, 20,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). The remaining $400,000 of the original $1,000,000 convertible
debenture remains outstanding as of December 31, 2004.

In accordance with EITF Issue 98-5 as
amended by EITF Issue 00-27, the Company has evaluated that the $1,000,000 convertible
debenture discussed above has a beneficial conversion feature as the exercise price for is
less than the fair value of the Companys common stock on the measurement date.
Accordingly, the Company has recognized this beneficial conversion feature by recording a
debt discount as a contra account to the convertible debenture for $1,000,000 and
$1,000,000 to additional paid-in capital. As of December 31, 2004, $708,583 has been
amortized to interest expense and a discount of $291,417 remains.

On February 20, 2003, the Company
executed a $2,000,000 convertible note payable accruing interest at 6% with a company
controlled by the brother of the Companys sole officer and director. The maturity
date was July 25, 2007. The convertible note payable was payable at maturity in preferred
stock of the Company at $1.00 per share and. the preferred stock was convertible into
common stock at $1.00 per share. Additionally, at the option of the holder, the debt may
be settled for cash. The note is secured by a deed of trust and a lien against the leases
and the wells and other liens against the same leases and wells of $25,000.

On January 5, 2004, the $2,000,000
convertible note payable was exchanged for a convertible debenture for the same amount and
due January 1, 2007. The terms of the convertible debentures include an interest rate of
8% per annum and convertible at any time at the option of the holder or the Company into
common shares of the Company at a price equal to fifty percent (50%) of the closing bid
price of the common stock on the date written notice is received by the Company of the
election to convert. In accordance with EITF Issue 98-5 and 00-27, the Company has
evaluated that the convertible debenture has a beneficial conversion feature as the
exercise price is less than the fair value of the Companys common stock on the
measurement date. Accordingly, the Company has recognized this beneficial conversion
feature by charging the statement of operations $2,000,000 for interest expense and
$2,000,000 for additional paid-in capital. The conversion feature inherent in the
convertible debentures was fully recognized as of June 30, 2004 since it was disposed of
through assignment to Bend Arch, the Companys investee (see below)

On June 15, 2004, the Company
assigned the oil and gas properties secured by the $2,000,000 convertible debenture to its
majority-owned affiliate Bend Arch. Accordingly, the $2,000,000 convertible debenture
along with $77,589 of accrued interest was transferred to Bend Arch on June 15, 2004.

In January 2004, the Company received
$600,000 in gross proceeds from the issuance of two convertible debentures, one for
$100,000 and the other for $500,000. The terms of the convertible debentures include an
interest rate of 8% per annum and convertible at any time at the option of the holder or
the Company into common shares of the Company at a price equal to fifty percent (50%) of
the closing bid price of the common stock on the date written notice is received by the
Company of the election to convert. $100,000 of the convertible debentures was due and
payable on March 14, 2004 and $500,000 was due and payable on December 31, 2005.

On February 5, 2004, the $100,000
convertible debenture holder elected to convert the entire balance into common shares of
the Company and as a result of the conversion, 3,333,333 shares of common stock were
issued at $0.03 per share (50% of the closing share price on February 5, 2004). In March,
2004, $200,000 of the $500,000 convertible debenture was converted into 20,000,000 shares
of common stock at $0.01 (50% of the closing price). In May 2004, the remaining $300,000
of convertible debenture was converted into 30,000,000 shares of common stock at $0.01 per
share (50% of the closing price).

In accordance with EITF Issue 98-5
and 00-27, the Company has evaluated that the convertible debentures discussed above have
a beneficial conversion feature as the exercise price is less than the fair value of the
Companys common stock on the measurement date. Accordingly, the Company has
recognized this beneficial conversion feature by charging the statement of operations
$600,000 for interest expense and the balance sheet $600,000 for additional paid-in
capital. The conversion feature inherent in the convertible debentures was fully
recognized as of June 30, 2004 since they were fully converted as of June 30, 2004.

In January 2004, the Company issued a
$30,000 convertible debenture to a consultant for services related to the filing by the
Company to become a BDC as mentioned previously. The terms of the convertible debenture
include an interest rate of 8% per annum and convertible at any time at the option of the
holder or the Company into common shares of the Company at a price equal to fifty percent
(50%) of the closing bid price of the common stock on the date written notice is received
by the Company of the election to convert. On February 5, 2004, the convertible holder
elected to convert the entire balance into common shares of the Company and 1,000,000
shares of common stock were issued at $0.03 per share (50% of the closing share price on
February 5, 2004).

In accordance with EITF Issue 98-5,
the Company has evaluated that the $30,000 convertible debenture discussed above has a
beneficial conversion feature as the exercise price for is less than the fair value of the
Companys common stock on the measurement date. Accordingly, the Company has
recognized this beneficial conversion feature by charging the statement of operations
$30,000 for interest expense and $30,000 for additional paid-in capital. The conversion
feature inherent in the convertible debentures was fully recognized as of June 30, 2004
since they were fully converted as of June 30, 2004.

As of December 31, 2004, the Company
has recorded $125,831 of accrued interest  long-term for the convertible debentures
outstanding. As discussed previously, several convertible debenture holders have elected
to convert all or a portion of the convertible debentures into common stock. However, the
conversion has not included accrued interest and although the Company believes that no
further common stock will be issued for these conversions, the accrued balance for these
converted debentures is included in the accrued interest  long-term balance as of
December 31, 2004.

Equity Financing

For the years ended December 31,
2004, 2003 and 2002 the Company received $717,500, $217,323 and zero of proceeds, net of
offering costs, from the issuance of common stock, respectively.

Liquidity

To continue with our business plan,
we will require additional short-term working capital and we have not had generating
sufficient cash from operations to fund our operating activities through the end of fiscal
2004. Presently, as a BDC, our only source of revenues is through distributions from our
majority-owned investees. We cannot assure you that we will receive distributions from our
majority-owned investees, if any, and that borrowings under any interim financing we are
able to secure will be sufficient to meet our projected cash flow needs.

Our ability to obtain additional
financing depends on many factors beyond our control, including the state of the capital
markets, the market price of our common stock, the prospects for our business as a BDC and
the success of our majority-owned investees. Additionally, any necessary additional
financing may not be available to us or may be available only on terms that would result
in further dilution to the current owners of our common stock. Failure to obtain
commitments for interim financing and subsequent project financing, would have a material
adverse effect on our business, results of operations and financial condition. If the
financing we require to sustain our working capital needs is unavailable or insufficient
or we do not receive the necessary financing, we may be unable to continue as a going
concern.

# Off-Balance Sheet
Arrangements

We have no off-balance sheet
arrangements.

# Contractual Obligations
and Commercial Commitments

The following table highlights, as of
December 31, 2004, our contractual obligations and commitments by type and period:

|                         | Payments Due by Period
|------------------------ | ----------------------
|
|Short-Term Debt:         |                       
|Lease Payable            |                       
|Note Payable - Banks     |                       
|                         |                       
|                         |                       
|Total Short-Term Debt    |                       
|                         |                       
|Long-Term Debt:          |                       
|Convertible Debentures,  |                       
|Net of discount          |                       
|                         |                       
|Accrued Interest Payable |                       
|                         |                       
|Total Long-Term Debt     |                       
|                         |                       
|Total Debt               |                       
|                         |                       

# 2005 OUTLOOK

The ability to invest further will be
heavily dependent on securing additional capital from investors or debt. Additionally, the
Company as a BDC is highly dependent on the success of its majority-owned investees. There
is no assurance that additional equity or debt financing will be available on terms
acceptable to Management or that the Companys majority-owned affiliates will be
successful.

# ITEM 7. FINANCIAL
STATEMENTS

The Companys Financial
Statements and Notes thereto are filed together with this report starting at Page F-1.

# ITEM 8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

# Item 8A. Controls And
Procedures.

As of the date this report is filed,
an evaluation was performed under the supervision and with the participation of the
Companys principal executive officers and financial officers of the effectiveness of
the design and operation of the Companys disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of
the period covered by this report.

As of the date this report is filed,
our Companys new principal executive officers and financial officers have made
significant changes in the Companys internal controls and in other factors that
could significantly affect internal controls subsequent to the date of the above-described
evaluation period. In particular, the Company has adopted an independent audit committee,
has committed funds for legal and accounting work and the preparation of financial
statements and audits, and has brought the Company out of its dormant period as of May
2003, all of which enables our Companys principal executive officers and financial
officers to maintain our Company as current pursuant to its Exchange Act reporting
obligations and provide our Company with an effective design and operation of disclosure
controls and procedures.

# Item 8B. Other
Information.

In January 2004, the Companys
Board of Directors determined that it was necessary to raise additional capital to carry
out the companys business plan and the Company filed a Form 1-E pursuant to the
Securities Act of 1933 notifying the SEC of the Companys intent to sell up to
$4,000,000 of the Companys common stock at prices between $0.01 and $0.10 per share,
or 40,000,000 and 400,000,000 shares, respectively. On January 29, 2004, the 1-E filing
notification with the SEC became effective and the Company is registered as an Investment
Company under the Act and as such, is authorized to issue up to $4,000,000 in
free-trading stock at prices ranging from $0.01 to $0.10 per share.

On February 22, 2005, the
Companys Board of Directors determined that it was in the best interest of the
Company to discontinue the offering discussed above and to investigate other financing
alternatives. Accordingly, the Company filed a Form 2-E pursuant to the Securities Act of
1933 notifying the SEC of the Companys termination of the offering. The Form 2-E
filing disclosed that the Company received $1,820,000 of proceeds from the offering, net
of $30,000 of expenses, through the sale of 171,000,000 shares of the Companys
$0.001 par value common stock.

# PART III

ITEM 9. DIRECTORS AND EXECUTIVE
OFFICERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The directors and officers of the
Company, as of December 31, 2004, are set forth below. The directors hold office for their
respective term and until there successors are duly elected and qualified. The officers
serve at the will of the Board of Directors.

# Directors and Executive
Officers

Set forth below are the names, ages,
years of service and positions of the executive officers and directors of the Company as
of December 31, 2004.

|Name            | Age | Position | Years of Service
|--------------- | --- | -------- | ----------------
|Charles Bitters |     |          |                 
|                |     |          |                 

The Directors serve until their
successors are elected by the shareholders. Vacancies on the Board of Directors may be
filled by appointment of the majority of the continuing directors. The executive officers
serve at the discretion of the Board of Directors. The Directors named above will serve
until the next annual meeting of the shareholders of the Company in the fiscal year 2005.
Directors will be elected for one-year terms at each annual shareholders meeting.

All officers and directors listed
above will remain in office until the next annual meeting of our stockholders, and until
their successors have been duly elected and qualified. There are no agreements with
respect to the election of Directors. We have not compensated our Directors for service on
our Board of Directors, any committee thereof, or reimbursed for expenses incurred for
attendance at meetings of our Board of Directors and/or any committee of our Board of
Directors. Officers are appointed annually by our Board of Directors and each Executive
Officer serves at the discretion of our Board of Directors. We do not have any standing
committees. Our Board of Directors may in the future determine to pay Directors fees
and reimburse Directors for expenses related to their activities.

None of our Officers and/or Directors
have ever filed any bankruptcy petition, been convicted of or been the subject of any
criminal proceedings or the subject of any order, judgment or decree involving the
violation of any state or federal securities laws.

# BOARD OF
DIRECTORS/EXECUTIVE OFFICERS

CHARLES BITTERS is President and sole
 director of American Energy Production, Inc.  Mr. Bitters has over 25 years experience in all
phases of the petroleum industry including drilling of oil and gas wells and the
stimulation, production and operation of oil and gas wells. Mr. Bitters has been President
of the Company since 2001. From 1997 to 2000, he was the Managing Member of Trinity Group,
LLC, an oil and gas lease production company. Mr. Bitters holds a Bachelor of Science
degree from Tarleton State University.

# FAMILY RELATIONSHIPS

Charles Bitters is the father of
Amanda Bitters, Sole Director and Officer of Daambr Production Corporation, which owns
3,436,000 shares or approximately 1.2% of our stock.

On February 20, 2003, the Company
acquired certain oil and gas properties for $2,000,000 from a company controlled by the
brother of the Companys president and sole director in exchange for a market rate
promissory note. The promissory note was subsequently exchanged for a convertible
debenture and transferred to a majority-owned affiliate. The oil and gas properties were
also transferred to that same majority-owned affiliate.

# CERTAIN LEGAL PROCEEDINGS

No director, nominee for director, or
executive officer of the Company has appeared as a party in any legal proceeding material
to an evaluation of his ability or integrity during the past five years.

# COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT.

Section 16(a) of the Securities
Exchange Act of 1934, as amended (the Exchange Act) requires the
Companys officers, directors and persons who own more than 10% of the Companys
Common Stock to file reports of ownership and changes in ownership with the SEC and the
National Association of Securities Dealers, Inc. Officers, directors and greater than 10%
stockholders are required by regulation to furnish the Company with copies of all forms
they file pursuant to Section 16(a) of the Exchange Act. We believe all filings as
required under Section 16(a) of the Exchange Act were properly made.

# ITEM 10. EXECUTIVE
COMPENSATION

# SUMMARY COMPENSATION
TABLE

The following table shows for the
fiscal years ending December 31, 2004 and 2003, the compensation awarded or paid by
American Energy Production, Inc. to its Chief Executive Officer and any of the executive
officers of American Energy whose total salary and bonus exceeded $100,000 US during such
year (The Named Executive Officers):

SUMMARY COMPENSATION TABLE

|                |  | Annual Compensation | Long Term Compensation | 
|--------------- |  | ------------------- | ---------------------- | 
|
|
|Charles Bitters |  |                     | 2002                   | 
|CEO, President  |  |                     | 2003                   | 
|And Director    |  |                     | 2004                   | 

There were no grants of
Stock Options or of an SAR in 2004.

# EMPLOYMENT AGREEMENTS

Effective July 1, 2003, the Company
entered into a salary and equipment rental agreement with its president and sole director.
Under the terms of the agreement, the Company will pay a salary of $10,000 per month and
$3,500 in equipment rental per month for the use of the Companys presidents
personal pickup truck, car, pulling unit, winch truck, backhoe and water truck used in the
field operations. Additionally, the president and sole director has from time to time,
advanced expenses of the Company from his personal funds. At December 31, 2003, the
accrued balance owed to the president and sole director was $220,455. During the year
ended December 31, 2004, the Company accrued $162,000 of expense related to the salary and
rental agreement, composed of $120,000 for compensation and $42,000 for equipment rental
fee. Additionally, the president and sole director advanced $23,770 of funds on behalf of
the Company and the Company repaid $281,000 resulting in an accrual balance of $125,225 as
of December 31, 2004, classified as a component of Due To Related Parties in the
accompanying Financial Statements.

# ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Based upon information received from
the persons concerned, each person known to us to be the beneficial owner of more than
five percent of the outstanding shares of our Common Stock, each director, each of our
executive officers and all of our directors and executive officers as a group, owned
beneficially as of April 8, 2005, the number and percentage of outstanding shares of our
Common Stock indicated in the following table:

|Name and Address            | Shares Beneficially
Owned Outstanding | Percentage of Shares
|--------------------------- | ------------------------------------- | --------------------
|Reef Holdings Ltd.          |                                       |                     
|Turks & Caicos Islands      |                                       |                     
|Charles Bitters (3)         |                                       |                     
|President, CEO and Chairman |                                       |                     
|353 South Hackberry Ave     |                                       |                     
|New Braunfels, TX 78130     |                                       |                     
|Total ownership by our      |                                       |                     
|officers and directors      |                                       |                     
|(one individual)            |                                       |                     

(1)    
          Unless otherwise indicated, all shares are held directly with sole voting and
          investment power.

(2)    
          Based on 298,030,234 shares of our Common Stock issued and outstanding as of
          April 8, 2005.

# ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

On February 20, 2003, the Company acquired
certain oil and gas properties for $2,000,000 from a company controlled by the brother of
the Companys president and sole director in exchange for a market rate promissory
note. The promissory note was subsequently exchanged for a convertible debenture and
transferred to a majority-owned affiliate. The oil and gas properties were also
transferred to that same majority-owned affiliate.

During the year ended December 31,
2003, the Companys president and sole director paid $32,297 of general and
administrative fees and professional fees on behalf of the Company. Additionally, during
the year ended December 31, 2003, the Company repaid $115 of previously loaned funds. As
of December 31, 2003, the Company owed $52,510 for these loans and these transactions were
classified as Loan Payable  Officer. (See discussion below on January 5, 2004 for
conversion of Loan Payable  Officer to Preferred Stock).

During the year ended December 31,
2003, the Companys president and sole director paid $8,000 in prepaid acquisition
costs. The loan is non-interest bearing, unsecured and due on demand.

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director occurs. The
Companys president and sole director has personally guaranteed the obligation. As of
December 31, 2004, the transaction has not been finalized as the lessor has not agreed to
the settlement. However, the 100,000 shares were transferred to the lessor in September
2003. The Company expects to fully resolve this matter in 2005 at which time the value of
the shares exchanged and any related gain or loss will be determined and recognized.

In December 2003, a cash settlement
was reached for a lawsuit from one stockholder who invested $100,000 in the Company for
100,000 common shares during a private placement. The settlement of $149,500 was paid by
the Companys sole officer/director personally and the Company has been released from
all obligations related to the lawsuit.

In December 2003, the Company
recognized $6,648 of revenue from the sale of oil to a third party. Payments from oil
sales are remitted by customers, to an operator, who is a company controlled by the
brother of the Companys president and sole director. The operator then remits these
payments to the Company. At December 31, 2003, the related amount owed the Company was
classified as Accounts Receivable  Related Party in the accompanying Financial
Statements.

We currently do not have a lease and
we are not paying rent on our space. It is being provided to the Company by our sole
officer/director free of charge.

Effective July 1, 2003, the Company
entered into a salary and equipment rental agreement with its president and sole director.
Under the terms of the agreement, the Company will pay a salary of $10,000 per month and
$3,500 in equipment rental per month for the use of the Companys presidents
personal pickup truck, car, pulling unit, winch truck, backhoe and water truck used in the
field operations. Additionally, the president and sole director has from time to time,
advanced expenses of the Company from his personal funds. At December 31, 2003, the
accrued balance owed to the president and sole director was $220,455. During the year
ended December 31, 2004, the Company accrued $162,000 of expense related to the salary and
rental agreement, composed of $120,000 for compensation and $42,000 for equipment rental
fee. Additionally, the president and sole director advanced $23,770 of funds on behalf of
the Company and the Company repaid $281,000 resulting in an accrual balance of $125,225 as
of December 31, 2004, classified as a component of Due To Related Parties in the
accompanying Financial Statements.

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 designated Series A preferred stock in
exchange for the conversion of $464,005 of indebtedness owed to the Companys
president. The $464,005 indebtedness comprised the entire $52,510 of loan payable 
related party and $411,495 of Note Payable  related party. The $411,495 note
indebtedness had been acquired by the president in a private transaction from a former
officer. In connection with the forgiveness of the note principal, the Companys
president forgave the related accrued interest totaling $64,527 in a separate transaction
on the same date. As a result, the Company has treated the $64,527 as a contribution of
capital at the date of debt forgiveness by charging additional paid in capital. The
Company recognized $480,995 of compensation expense.

During the year ended December 31,
2004 the Company advanced directly or indirectly, $1,724,786 of funds to its wholly-owned
investees. This amount is included in the asset account entitled Investment in and
advanced to affiliates-majority-owned.

# ITEM 13. EXHIBITS AND
REPORTS ON FORM 8-K

(a)    
          The following exhibits are filed as a part of, or incorporated by reference
          into, this Annual Report on Form 10- K:

|Exhibit | Title | Location
|------- | ----- | --------
|3.1     |       |         
|        |       |         
|        |       |         
|        |       |         
|3.2     |       |         
|        |       |         
|31.1    |       |         
|        |       |         
|31.2    |       |         
|        |       |         
|32      |       |         
|        |       |         
|        |       |         

(b)    
          Reports on Form 8-K:

The following reports on Form 8-K
were filed during the last quarter of the period covered by this Form 10-K.

|                  | 
|----------------- | 
|Date              | 
|October 5, 2004   | 
|November 12, 2004 | 
|December 27, 2004 | 

Item 14. Principal
Accountant Fees And Services

Audit Fees

The aggregate fees billed for the
years ended December 31, 2004 and 2003 for professional services rendered by Salberg &
Company, P.A. (Salberg) for the audit of the Companys annual financial
statements and review of financial statements included in the Companys Form 10-QSB
or services that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for the years ended December 31, 2004 and 2003 was
$33,000 and $64,000, respectively.

Audit-Related Fees.

The aggregate fees billed for the
years ended December 31, 2004 and 2003 for assurance and related services by Salberg that
are reasonably related to the performance of the audit or review of the Companys
financial statements and are not reported under the category Audit Fees described above
was $900 and $0, respectively.

Tax Fees

No fees were billed for the years
ended December 31, 2004 and 2003 for tax compliance, tax advice, or tax planning services
by Salberg that are reasonably related to the performance of the audit or review of the
Companys financial statements and are not reported under the category Audit Fees
described above.

All Other Fees

No fees were billed for the years
ended December 31, 2004 and 2003 for products and services provided by Salberg, other than
the services reported in the Audit Fees, Audit-Related Fees, and Tax Fees categories
above.

Audit Committee
Pre-Approval Policies

The Companys standing audit
committee currently does not have any pre-approval policies or procedures concerning
services performed by Salberg. All the services performed by Salberg that are described
above were pre-approved by the Companys standing audit committee. None of the hours
expended on Salbergs engagement to audit the Companys financial statements for
the year ended December 31, 2004 were attributed to work performed by persons other than
Salbergs full-time, permanent employees.

SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, this report has been signed by the following
persons on behalf of AMERICAN ENERGY PRODUCTION, INC., in the capacities and on the dates
indicated.

|NAME AND SIGNATURE  | TITLE | DATE
|------------------- | ----- | ----
|/s/ Charles Bitters |       |     
|Charles Bitters     |       |     
|                    |       |     
|                    |       |     

# American Energy
Production, Inc.(A Development Stage
Company)

|                                                                               | Page No.
|------------------------------------------------------------------------------ | --------
|Report of Independent Registered Public Accounting Firm                        | 2       
|Balance Sheet at December 31, 2004 and 2003                                    | 3-4     
|Statements of Operations for the years ended December 31, 2004, 2003 and 2002  | 5       
|Statements of Changes in Stockholders Equity (Deficiency) for the years ended
|December 31, 2004, 2003 and 2002                                               | 6-7     
|Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002   | 8-9     
|Schedule of Investments at December 31, 2004                                   | 10      
|Notes to Financial Statements                                                  | 11-38   

F-1

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.

To
the Board of Directors and Shareholders of:       American Energy Production, Inc. (a
development stage company)

We have audited the accompanying
balance sheet of American Energy Production, Inc. (a development stage company) as of
December 31, 2004 and 2003, and the related statements of operations, changes in
stockholders equity (deficiency), and cash flows for the years ended December 31,
2004, 2003 and 2002 and for the period from February 20, 2003 (inception of development
stage) to December 31, 2004. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

As more fully discussed in Note 4 to
the financial statements, securities amounting to $2,596,786 (90% of total assets and 133%
of net assets) have been valued at fair value as determined by the Board of Directors. We
have reviewed the procedures applied by the directors in valuing such securities and have
inspected underlying documentation; while in the circumstances the procedures appear to be
reasonable and the documentation appropriate, determination of fair values involves
subjective judgment which is not susceptible to substantiation by auditing procedures.

In our opinion, subject to the effect
on the financial statements of the valuation of securities determined by the Board of
Directors as described in the preceding paragraph, the financial statements referred to
above present fairly, in all material respects, the financial position of American Energy
Production, Inc. (a development stage company) at December 31, 2004 and 2003, and the
results of its operations and its cash flows for the years ended December 31, 2004, 2003
and 2002 and for the period from February 20, 2003 (inception of development stage) to
December 31, 2004 in conformity with accounting principles generally accepted in the
United States of America.

The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Companys recurring losses from operations
and net loss in 2004 of $5,049,995, cash used in operation of $511,266 in 2004, working capital deficit of $272,751 at December 31,
2004, accumulated deficit from prior business operations and deficit accumulated during
the development stage at December 31, 2004 of $9,360,491 and $6,760,389, respectively,
raise substantial doubt about its ability to continue as a going concern.
Managements plans as to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ SALBERG &
COMPANY, P.A.Boca Raton, FloridaApril
 12, 2005

F-2

American Energy
Production, Inc.(A Development Stage Company) Balance
Sheet

|                                                           | December 31, | 
|---------------------------------------------------------- | ------------ | 
|
|ASSETS                                                     |              | 
|Current Assets                                             |              | 
|Cash                                                       |              | 
|Accounts receivable - related party                        |              | 
|                                                           |              | 
|Total Current Assets                                       |              | 
|                                                           |              | 
|Property and equipment, net                                |              | 
|                                                           |              | 
|                                                           |              | 
|Prepaid acquisition costs                                  |              | 
|Investments:                                               |              | 
|Investments in and advances to affiliates - majority-owned |              | 
|                                                           |              | 
|Total Investments                                          |              | 
|                                                           |              | 
|Total Assets                                               |              | 
|                                                           |              | 
|                                                           |              | 
|                                                           |              | 
|LIABILITIES                                                |              | 
|Current Liabilities                                        |              | 
|Cash overdraft                                             |              | 
|Accounts payable                                           |              | 
|Due to related parties                                     |              | 
|Accrued interest payable - current                         |              | 
|Accrued payroll taxes and penalties                        |              | 
|Lease payable                                              |              | 
|Notes payable - banks                                      |              | 
|Loan payable - officer                                     |              | 
|Notes payable - related party                              |              | 
|                                                           |              | 
|Total Current Liabilities                                  |              | 
|                                                           |              | 
|Convertible note payable                                   |              | 
|Convertible debentures, net of discount                    |              | 
|Accrued interest payable - long term                       |              | 
|                                                           |              | 
|Total Long Term Liabilities                                |              | 
|                                                           |              | 
|Total Liabilities                                          |              | 
|                                                           |              | 

# Commitments and
Contingencies

See accompanying notes
to financial statements.

F-3

American Energy
Production, Inc.(A Development Stage Company)Balance
Sheet (Continued)

|                                                                  | December 31, | 
|----------------------------------------------------------------- | ------------ | 
|
|Stockholders' Equity (Deficiency)                                 |              | 
|Convertible preferred stock, Series B, $0.0001 par value,         |              | 
|5,000,000 shares authorized, 4,000,000 issued and outstanding     |              | 
|Common stock, $0.0001 par value, 500,000,000 shares authorized    |              | 
|269,530,234 and 93,051,449 shares issued and outstanding          |              | 
|                                                                  |              | 
|Common stock issuable, $0.0001 par value, 4,075,000 and 8,575,000 |              | 
|shares                                                            |              | 
|Additional paid in capital                                        |              | 
|                                                                  |              | 
|Accumulated deficit                                               |              | 
|Deficit accumulated during development stage                      |              | 
|                                                                  |              | 
|                                                                  |              | 
|                                                                  |              | 
|Less:  Subscription Receivable                                    |              | 
|                                                                  |              | 
|Less: Deferred stock based expenses                               |              | 
|                                                                  |              | 
|Total Stockholders' Equity (Deficiency)                           |              | 
|                                                                  |              | 
|Total Liabilities and Stockholders' Equity (Deficiency)           |              | 
|                                                                  |              | 
|                                                                  |              | 

See accompanying notes
to financial statements.

F-4

American Energy
Production, Inc. (A
Development Stage Company)Statements  of Operations

|                                     | Year Ended
December 31, | Period from
February 20, 2003
(Inception of
Development Stage) |   |            
|------------------------------------ | ----------------------- | -------------------------------------------------------------- | - | -----------
|
|Operating Income                     |                         |                                                                |   |            
|Oil sales, net                       |                         |                                                                | $ | 40,010     
|                                     |                         |                                                                |   |            
|Total Operating Income               |                         |                                                                |   | 40,010     
|                                     |                         |                                                                |   |            
|Operating Expenses                   |                         |                                                               
|Compensation                         |                         |                                                                |   | 600,995    
|Consulting                           |                         |                                                                |   | 256,934    
|Depletion                            |                         |                                                                |   | 3,690      
|Depreciation                         |                         |                                                                |   | 45,820     
|Equipment rental                     |                         |                                                                |   | 42,000     
|General and administrative           |                         |                                                                |   | 61,682     
|Production                           |                         |                                                                |   | 91,363     
|Professional                         |                         |                                                                |   | 157,229    
|Website                              |                         |                                                                |   | 28,550     
|                                     |                         |                                                                |   |            
|Total Operating Expenses             |                         |                                                                |   | 1,288,263  
|                                     |                         |                                                                |   |            
|                                     |                         |                                                                |   |            
|Loss from Operations                 |                         |                                                                |   | (1,248,253 
|Other Expense                        |                         |                                                               
|Gain on settlement of debt           |                         |                                                                |   | 18,364     
|Other income                         |                         |                                                                |   | 6,726      
|Interest expense                     |                         |                                                                |   | (3,820,828 
|Payroll tax expense and penalties    |                         |                                                                |   | (6,004     
|Loss on settlement                   |                         |                                                                |   | --         
|                                     |                         |                                                                |   |            
|Total Other Expense                  |                         |                                                                |   | (3,801,742 
|                                     |                         |                                                                |   |            
|Net Loss                             |                         |                                                                | $ | (5,049,995 
|                                     |                         |                                                                |   |            
|                                     |                         |                                                                |   |            
|Net Loss Per Share-Basic and Diluted |                         |                                                                | $ | (0.03      
|                                     |                         |                                                                |   |            
|Weighted average Shares              |                         |                                                                |   | 184,212,699
|                                     |                         |                                                                |   |            

See accompanying notes
to financial statements

F-5

# American Energy
Production, Inc.(A Development Stage Company)Statements of Changes in Stockholders Equity
(Deficiency)

Years Ended December
31, 2004, 2003 and 2002

|                                             | Preferred Stock

Shares | Preferred Stock

Amount | Common Stock

Shares | Common Stock

Amount | Issuable
Shares | Issuable
Amount | Subscription
Receivable | Additional Paid In

Capital | Accumulated
Deficit | Accumulated Development

Stage | Deferred
Services | Deficit
Stockholders Equity

(Deficiency)
|-------------------------------------------- | ----------------------- | ----------------------- | -------------------- | -------------------- | --------------- | --------------- | ----------------------- | --------------------------- | ------------------- | ------------------------------ | ----------------- | ------------------------------------------
|BALANCE AT  DECEMBER 31, 2001                |                         |                         |                      |                      |                 | --              |                         |                             |                     | 23,148,120                     |                   |                                           
|Common stock issued for compensation         |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 1,000,000                      |                   |                                           
|Common stock issued for consulting services  |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 11,225,000                     |                   |                                           
|Common stock issued for 20% stock dividend   |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 7,074,772                      |                   |                                           
|Net loss for year ended December 31, 2002    |                         |                         | -                    |                      |                 | --              |                         |                             |                     | --                             |                   |                                           
|BALANCE AT DECEMBER 31, 2002                 |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 42,448,592                     |                   |                                           
|Common stock issued for services             |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 27,300,000                     |                   |                                           
|Common stock issued for settlement           |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 250,000                        |                   |                                           
|Common stock issued and issuable for cash,   |                         |                        
|net of offering costs $1,696,6               |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 24,939,757                     |                   |                                           
|Common stock issued in exchange for chemical |                         |                         | -                    |                      |                 | --              |                         |                             |                     | 1,000,000                      |                   |                                           
|Common stock cancelled                       |                         |                         | -                    |                      |                 | --              |                         |                             |                     | (2,886,900                     | )                 |                                           
|Amortization of deferred services            |                         |                         | -                    |                      |                 | --              |                         |                             |                     | --                             |                   |                                           
|Net loss, year ended December 31, 2003       |                         |                         | -                    |                      |                 | --              |                         |                             |                     | --                             |                   |                                           
|BALANCE AT DECEMBER 31, 2003                 |                         |                         | -                    |                      |                 | --              |                         |                             | $                   | --    93,051,449               |                   |                                           

F-6

# American Energy
Production, Inc.(A Development Stage
Company) Statements of Changes
in Stockholders Equity (Deficiency) Years Ended December
31, 2004, 2003 and 2002 (Continued)

|                                                  | Preferred Stock

Shares | Preferred Stock

Amount | Common Stock

Shares | Common Stock

Amount | Issuable
Shares | Issuable
Amount | Subscription
Receivable | Additional Paid In

Capital | Accumulated
Deficit | Accumulated Development

Stage | Deferred
Services | Deficit
Stockholders Equity

(Deficiency)
|------------------------------------------------- | ----------------------- | ----------------------- | -------------------- | -------------------- | --------------- | --------------- | ----------------------- | --------------------------- | ------------------- | ------------------------------ | ----------------- | ------------------------------------------
|BALANCE AT  DECEMBER 31, 2003                     |                         |                         |                      | --                   |                 | $               | --                      |                             |                     | 93,051,449                     |                   | $                                         
|Common stock issued for conversion of             |                         |                        
|convertible debentures                            |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 131,333,333                    |                   |                                           
|Common stock issued for subscription receivable   |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 6,200,000                      |                   |                                           
|Convertible debentures beneficial conversion      |                         |                        
|feature value                                     |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | --                             |                   |                                           
|Common stock issued for cash,                     |                         |                         |                      | --                   |                
|net of offering costs of $134,500                 |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 19,745,452                     |                   |                                           
|Common stock that was issuable at 12-31-03        |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 8,500,000                      |                   |                                           
|Common stock issued upon conversion               |                         |                        
|of debentures for services                        |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 1,000,000                      |                   |                                           
|Common stock issued in exchange for chemical      |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 700,000                        |                   |                                           
|Common stock issued for acquisition               |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 5,000,000                      |                   |                                           
|Preferred stock issued for conversion of debt     |                         |                         |                      | 3,500,000            |                 |                 | 350                     |                             |                     | --                             |                   |                                           
|Compensation expense in excess of debt to officer |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | --                             |                   |                                           
|Preferred stock issued for services               |                         |                         |                      | 500,000              |                 |                 | 50                      |                             |                     | --                             |                   |                                           
|Common stock issued for services                  |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 2,000,000                      |                   |                                           
|Common stock issued in exchange for equipment     |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | 2,000,000                      |                   |                                           
|Amortization of deferred services                 |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | --                             |                   |                                           
|Net loss, year ended December 31, 2004            |                         |                         |                      | --                   |                 |                 | --                      |                             |                     | --                             |                   |                                           
|BALANCE AT DECEMBER 31, 2004                      |                         |                         |                      | 4,000,000            |                 | $               | 400                     |                             |                     | 269,530,234                    |                   | $                                         
|                                                  |                         |                         |                      |                      |                 |                 |                         |                             |                     |                                |                   |                                           

See accompanying notes
to financial statements

F-7

American Energy
Production, Inc.(A Development Stage Company)Statements
of Cash Flows

|                                                | 2004 | Year Ended
December 31,
2003 | 2002 | Period from
February 20, 2003
(Inception of
Development Stage)
to December 31, 2004
|----------------------------------------------- | ---- | ---------------------------- | ---- | -----------------------------------------------------------------------------------
|Cash Flows From Operating Activities:           |      |                              |      |                                                                                    
|Net loss                                        |      |                              | $    | (5,049,995                                                                         
|Adjustments to reconcile net loss to net cash   |      |                             
|used in operations:                             |      |                             
|Stock issued for debt and services              |      |                              |      | 185,000                                                                            
|Stock issued for equipment                      |      |                              |      | 20,000                                                                             
|Stock issued for chemical                       |      |                              |      | 26,000                                                                             
|                                                |      |                              |      |                                                                                    
|Stock issued in settlement                      |      |                              |      | --                                                                                 
|Gain on settlement of debt                      |      |                              |      | (18,364                                                                            
|Loss on settlement                              |      |                              |      | --                                                                                 
|Interest expense related to convertible         |      |                             
|debentures beneficial conversion feature        |      |                              |      | 3,696,361                                                                          
|Comp expense in excess of debt to officer       |      |                              |      | 480,995                                                                            
|Amortization of deferred services               |      |                              |      | 45,900                                                                             
|Depreciation                                    |      |                              |      | 45,820                                                                             
|Depletion                                       |      |                              |      | 3,690                                                                              
|Changes in operating assets and liabilities:    |      |                             
|Decrease in accounts receivable - related party |      |                              |      | 10,132                                                                             
|Decrease in cash overdraft                      |      |                              |      | (6,726                                                                             
|Increase in accounts payable                    |      |                              |      | 14,679                                                                             
|Decrease (increase)in due to related party      |      |                              |      | (95,230                                                                            
|Increase in accrued interest payable            |      |                              |      | 124,467                                                                            
|Increase in accrued payroll taxes payable       |      |                              |      | 6,005                                                                              
|                                                |      |                              |      |                                                                                    
|Net Cash Used In Operating Activities           |      |                             
|                                                |      |                              |      | (511,266                                                                           
|Cash Flows From Investing Activities:           |      |                             
|Prepaid acquisition cost disbursement           |      |                              |      | 38,041                                                                             
|Purchase of equipment                           |      |                              |      | (145,074                                                                           
|Prepaid advances to affiliates                  |      |                              |      | (1,724,786                                                                         
|Purchase of oil lease                           |      |                              |      | --                                                                                 
|                                                |      |                              |      |                                                                                    
|Net Cash Used In Investing Activities           |      |                              | $    | (1,831,819                                                                         
|                                                |      |                              |      |                                                                                    

See accompanying notes
to financial statements

F-8

# American Energy
Production, Inc.(A Development Stage Company)Statements
of Cash Flows (Continued)

|                                                      | 2004 | Year Ended
December 31,
2003 | 2002 | Period from
February 20, 2003
(Inception of
Development Stage)
to December 31, 2004
|----------------------------------------------------- | ---- | ---------------------------- | ---- | -----------------------------------------------------------------------------------
|Cash Flows From Financing Activities:                 |      |                              |      |                                                                                    
|Proceeds from cash overdraft                          |      |                              |      | --                                                                                 
|Proceeds for note payable - officer                   |      |                             
|                                                      |      |                              |      | --                                                                                 
|Repayment of officer loan                             |      |                             
|                                                      |      |                              |      | --                                                                                 
|Proceeds from loan  - other                           |      |                             
|                                                      |      |                              |      | 19,396                                                                             
|Repayment of loan proceeds - other                    |      |                             
|                                                      |      |                              |      | (35,578                                                                            
|Proceeds from issuance of convertible debentures      |      |                             
|                                                      |      |                              |      | 1,850,000                                                                          
|Proceeds from issuance of                             |      |                             
|common stock, net of offering costs of $134,500       |      |                             
|                                                      |      |                              |      | 777,500                                                                            
|Repayment of lease payable                            |      |                             
|                                                      |      |                              |      | --                                                                                 
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Net Cash Provided By Financing Activities             |      |                              |      | 2,611,318                                                                          
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Net Increase(Increase) in Cash                        |      |                             
|                                                      |      |                              |      | 268,233                                                                            
|Cash at Beginning of Period                           |      |                             
|                                                      |      |                              |      | 432                                                                                
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Cash at End of Period                                 |      |                              | $    | 268,665                                                                            
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Cash interest paid                                    |      |                              | $    | 124,467                                                                            
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Supplemental disclosure of  non-cash transactions     |      |                             
|Asset acquisition paid with convertible note payable  |      |                              | $    | --                                                                                 
|                                                      |      |                              |      |                                                                                    
|                                                      |      |                              |      |                                                                                    
|Conversion of note payable to convertible debenture   |      |                              |      | 2,000,000                                                                          
|Conversion of indebtedness to preferred stock         |      |                              |      | 528,532                                                                            
|Conversion of conv debentures to common stock         |      |                              |      | 1,380,000                                                                          
|Asset acquisition paid with conv. debenture and stock |      |                              |      | 800,000                                                                            
|Asset acquisition paid with stock                     |      |                              |      | 72,000                                                                             
|Common stock issued for subscription receivable       |      |                              |      | 2,000                                                                              
|Stock Subscription receivable (23,964,530 shares)     |      |                              |      | --                                                                                 
|Transfer of assets and liabilities to affiliate:      |      |                             
|Oil and gas properties and equipment, net             |      |                              |      | 2,074,498                                                                          
|Convertible debenture                                 |      |                              |      | 2,000,000                                                                          
|Accrued interest payable                              |      |                              |      | 71,014                                                                             
|                                                      |      |                              |      |                                                                                    

See accompanying notes
to financial statements

F-9

# American Energy
Production, Inc.(A Development Stage Company)Schedule of InvestmentsDecember 31, 2004

|Portfolio
Company                          | Industry | Title of
Securities Held
By The Company | Percentage of
Class Held on
a Fully Diluted
Basis (2) | At December 31, 2004
Cost               Fair Value
|------------------------------------------ | -------- | --------------------------------------- | ----------------------------------------------------- | --------------------------------------------------
|Control Investments - Majority Owned (1)   |          |                                         |                                                       |                                                   
|Production Resources, Inc.                 |          |                                         | Oil and Gas Production                                |                                                   
|                                          
|Oil America Group, Inc.                    |          |                                         | Oil and Gas Production                                |                                                   
|                                          
|Bend Arch Petroleum, Inc.                  |          |                                         | Oil and Gas Production                                |                                                   
|                                          
|Total Control Investments - Majority Owned |          |                                         |                                                       |                                                   
|                                          
|Total Investments                          |          |                                         |                                                       |                                                   
|Unearned Income                            |          |                                         |                                                       |                                                   
|                                          
|Total Investments, net of Unearned Income  |          |                                         |                                                       |                                                   
|                                          

(1)    
          Majority owned investments are generally defined under the Investment Company
          Act of 1940 as companies in which we own more than 50% of the voting securities
          of the company. If we own 100% of a Company, it is presented as majority owned.
          (2) All common stock is in private companies, non-income producing and
          restricted at the relevant period end.

See accompanying notes
to financial statements

F-10

# American Energy
Production, Inc. (A Development Stage
Company) Notes to Financial
Statements December 31, 2004

# 1. HISTORY AND NATURE OF BUSINESS

American Energy Production, Inc.
(American Energy, the Company, we, us) is
a publicly traded business development company (see below) that is engaged primarily in
the investment in other companies that acquire, develop, produce, explore and sell oil and
gas. The Company anticipates that its investees will be able to sell all oil that it can
produce to petroleum refiners and marketers under the terms of short-term purchase
contracts and at prices in accordance with arrangements that are customary in the oil
industry. Our capital is generally used by our portfolio companies to finance growth and
working capital.

Prior to becoming a business
development company effective in January 2004, the Company was engaged directly in the
above activities since February 20, 2003, when it acquired certain oil assets and began
its new development stage  (See below). Prior to that, the Company was f/k/a
Communicate Now.com, Inc. and was incorporated on January 31, 2000 under the laws of the
State of Delaware. On July 15, 2002, the Company changed its corporate name to American
Energy Production, Inc.

On February 20, 2003, upon the
acquisition of certain oil and gas assets, the Company entered into a new development
stage. Activities during the development stage include acquisition of assets, obtaining
geological reports, developing an implementation plan to extract oil and gas, completing
initial sales of oil and seeking capital.

On January 12, 2004, the Company
filed a Form N-54 with the Securities and Exchange Commission (SEC) to be
regulated as a Business Development Company (BDC) pursuant to the provisions
of section 54(a) of the Investment Company Act of 1940 (the (Act), to be
subject to the provisions of section 55 through 65 of the Act. The Company has determined
that its operating model best approximates that of an investment company and intends to
make investments into developing businesses in the oil and gas and other industries.
Additionally, the Board of Directors determined that it was necessary to raise additional
capital to carry out the companys business plan and the Company filed a Form 1-E
pursuant to the Securities Act of 1933 notifying the SEC of the Companys intent to
sell up to $4,000,000 of the Companys common stock at prices between $0.01 and $0.10
per share, or 40,000,000 and 400,000,000 shares, respectively. On January 29, 2004, the
1-E filing notification with the SEC became effective. The Company is presently registered
as an Investment Company under the Act and as such, is authorized to issue up to
$4,000,000 in free-trading stock at prices ranging from $0.01 to $0.10 per
share (See Note 11  Subsequent Events).

As a BDC, the Company will be
structured in a manner more consistent with its current business strategy. As a result,
the Company is positioned to raise capital in a more efficient manner and to develop and
expand its business interests. The Company believes that potential acquisitions, in total,
will enhance value to stockholders through capital appreciation and payments of dividends
to the Company by its investee companies.

BDC regulation was created in 1980 by
Congress to encourage the flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are regulated by the
Investment Company Act of 1940. BDCs report to stockholders like traditional
operating companies and file regular quarterly and annual reports with the Securities and
Exchange Commission. BDCs are required to make available significant managerial
assistance to their portfolio companies.

# 2. GOING CONCERN

As reflected in the accompanying
financial statements, the Company has a net loss of $5,049,995 and net cash used in
operations of $511,266 for the year ended December 31, 2004 and a working capital
deficiency of $272,751 and a deficit accumulated during the development stage of
$6,760,389 at December 31, 2004. The Company is also in default on certain notes to banks
and is in the development stage with minimal revenues. The ability of the Company to
continue as a going concern is dependent on the Companys ability to further
implement its business plan, raise capital, and generate revenues. The financial
statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern

The time required for us to become
profitable is highly uncertain, and we cannot assure you that we will achieve or sustain
profitability or generate sufficient cash flow from operations to meet our planned capital
expenditures, working capital and debt service requirements. If required, our ability to
obtain additional financing from other sources also depends on many factors beyond our
control, including the state of the capital markets and the prospects for our business.
The necessary additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common stock.

We cannot assure you that we will
generate sufficient cash flow from operations or obtain additional financing to meet
scheduled debt payments and financial covenants. If we fail to make any required payment
under the agreements and related documents governing our indebtedness or fail to comply
with the financial and operating covenants contained in them, we would be in default. The
financial statements do not include any adjustments to reflect the possible effects on
recoverability and classification of assets or the amounts and classification of
liabilities which may result from the inability of the Company to continue as a going
concern.

We expect that future revenues in the
near term will consist of any potential unrealized gains on our investment properties and
in the long term any potential interest or dividends if the Companies we invest in become
profitable. Accordingly, the Company determined that it would be necessary to raise
additional capital to carry out the companys business plan and in January 2004,
filed a Form 1-E pursuant to the Securities Act of 1933 notifying the SEC of the
Companys intent to sell up to $4,000,000 of the Companys common stock.

During the year ending December 31,
2004, the Company received $1,850,000 of proceeds from the issuance of convertible
debentures authorized by the Form 1-E filing (See Note 6  Long-Term Debt, Note 7
 Stockholders Equity (Deficiency) and Note 11  Subsequent Events).

In January 2004, the Company secured
a $5,000,000 commitment for financing and received an initial $500,000 under the
commitment from an unrelated third party. Additionally, in April 2004, the Company secured
an additional $10,000,000 commitment for financing from the same unrelated third party
discussed above.

As a result, we believe we will have
sufficient resources to cover our working capital requirements for the next twelve months.

# 3. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

# Basis of Presentation
and Concentration

The accompanying financial statements
are prepared in accordance with the guidance in the AICPAs Audit and Accounting
Guide, Audits of Investment Companies since the Company elected to be
regulated as a Business Development Company effective January 29, 2004.

In accordance with Article 6 of
Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the
Company does not consolidate portfolio company investments, including those in which it
has a controlling interest.

The Companys investees have a
concentration in the oil and gas business in Texas, USA.

# Accounting Estimates

When preparing financial statements in
conformity with U.S. GAAP, our management must make estimates based on future events which
affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements, and revenues and expenses
during the reporting period. Actual results could differ from these estimates. Significant
estimates in the accompanying financial statements includes the realizability of a note
receivable, provision for uncollectible investor loans, impairment of property and
equipment, evaluation of a beneficial conversion feature in convertible debentures and
convertible preferred stock, valuation of the fair value of financial instruments,
valuation of non-cash issuances of common stock, the valuation of our investments and the
valuation allowance for deferred tax assets.

# Cash and Cash Equivalents

Cash and cash equivalents include all
highly liquid investments with a maturity date of three months or less when purchased.

# Investments

Investments in securities of
unaffiliated issuers represent holdings of less than 5% of the issuers voting common
stock. Investments in and advances to affiliates are presented as (i)
majority-owned, if holdings, directly or indirectly, represent over 50% of the
issuers voting common stock, (ii) controlled companies if the holdings,
directly or indirectly, represent over 25% and up to 50% of the issuers voting
common stock and (iii) other affiliates if the holdings, directly or indirectly,
represent 5% to 25% of the issuers voting common stock. Investments  other
than securities represent all investments other than in securities of the issuer.

Investments in securities or other
than securities of privately held entities are initially recorded at their original cost
as of the date the Company obtained an enforceable right to demand the securities or other
investment purchased and incurred an enforceable obligation to pay the investment price.

For financial statement purposes,
investments are recorded at their fair value. Effective June 15, 2004, the Company
acquired a privately held oil company; effective April 1, 2004, the Company formed a new
controlled entity to transfer its assets and certain liabilities into for purposes of
holding this entity as an investment and effective November 2004, the Company acquired Oil
America Group (See Note 4  Investments in and Advances to Affiliates). Currently,
readily determinable fair values do not exist for these transactions and the investment in
the privately held company and the newly formed controlled entity are recorded at cost,
which approximates estimated fair value as of December 31, 2004. The fair value of these
investments is determined in good faith by the Companys Board of Directors pursuant
to a valuation policy and consistent valuation process. Due to the inherent uncertainty of
these valuations, the estimates may differ significantly from the values that would have
been used had a ready market for the investments existed and the differences may be
material. Our valuation methodology includes the examination of among other things, the
underlying portfolio company performance, financial condition and market changing events
that impact valuation.

Realized gains (losses) from the sale
of investments and unrealized gains (losses) from the valuation of investments are
reflected in operations during the period incurred. There were no realized or unrealized
gains or losses for the years ended December 31, 2004 and 2003.

# Oil and Gas Properties

Prior to electing BDC status and
transferring oil and gas assets to investees, the Company used the successful efforts
method of accounting for acquisition, exploration, development and production of oil and
gas properties, whereby only the direct costs of acquiring or drilling successful (proved
reserves) are capitalized. Costs of acquisition, development, and exploration activities
that are not known to have resulted in the discovery of reserves (unproved) are charged to
operations. All capitalized costs of oil and gas properties were depletedusing the
units-of-production method based on total proved reserves.

On June 15, 2004, the Company
assigned $2,074,498, or 100% of its oil and gas properties securing a $2,000,000
convertible debenture to a majority owned investee (See Note 4  Investments).

# Property and Equipment

Property and equipment is recorded at
cost and depreciated over its estimated useful life, which range, from three to five
years, using the straight line method. Property and Equipment owned by the Company prior
to a June 15, 2004 transfer to Bend Arch Petroleum, Inc., a majority-owned investee (See
Note 4  Investments) is presented below.

On February 20, 2003 (the
Acquisition Date), the Company acquired from a certain related party assignor,
who is the brother of the Companys president and sole director, an interest in
certain oil and gas leases, oil and gas wells located on those leases, surface and
underground equipment, pipelines and other property and fixtures in or on the leases,
rights of way, leases, contracts and agreements for pipeline compressor stations or
boosters utilized in the operations of the facilities by the assignors. The above
properties are located in Comanche and Eastland Counties, Texas, in the United States of
America. The Company plans to extract and sell oil and gas from existing wells. The
consideration paid was a convertible note payable for $2,000,000 at 6% interest, maturing
July 25, 2007. All the leases and wells are collateral for the note payable. The Company
accounted for the purchase as an asset acquisition at its fair market value of $2,000,000
under the purchase method of accounting discussed in Statement of Financial Accounting
Standards No. 141 Business Combinations. The purchase price was allocated to
the various assets as discussed below. The results of any operations relating to the
acquired assets are included in the Companys financial statements from the
Acquisition Date.

The Company has evaluated that the
convertible note payable in accordance with EITF Issue No. 98-5 does not have any
beneficial conversion feature as the exercise price of $1.00 exceeded the fair value of
the Companys common stock on the measurement date of $0.04.

(A)    
          Oil and Gas Properties:

Oil and Gas Properties Acquisition
costs of proved property consists of oil and gas lease acquisition costs relating to
proved, developed, non-producing properties. The cost allocated to the lease was
$1,642,500 on the Acquisition Date. During the year ended December 31, 2003, the Company
acquired an additional $8,500 in oil and gas leases.

Oil and gas properties
were as follows at December 31, 2003:

|                       | 
|---------------------- | 
|Oil and gas properties | 
|Accumulated depletion  | 
|                       | 
|                       | 
|                       | 
|                       | 

Amortization of these costs into
production costs (depletion expense), using the units-of-production method, began when
production commenced during 2003. The Company extracted approximately 100 test barrels of
saleable oil during the year ended December 31, 2003 and the cost of these barrels has
been expensed as production costs as they were test barrels. In December 2003, the Company
extracted 304 barrels and sold these to a third party recognizing $6,648 of revenue that
is recorded in the accompanying Statement of Operations for the year ended December 31,
2003. Accumulated depletion and depletion expense for the years ended December 31, 2003
and December 31, 2002 was $297 and $0, respectively.

Payments from oil sales are remitted
by customers, to the operator, who is a related party. The operator then remits these
payments to the Company.

(B)     Property and
Equipment:

Capitalized Costs
Relating to Oil and Gas Properties:

Certain support equipment and
fixtures were acquired as part of the asset acquisition. The portion of the aggregate
$2,000,000 purchase price allocated to support equipment and fixtures, based upon the fair
market values of such support equipment and fixtures, was $357,500. During the year ended
December 31, 2003, the Company acquired $33,900 in additional support equipment and
fixtures.

|                                                             | 
|------------------------------------------------------------ | 
|Property and equipment were as follows at December 31, 2003: | 
|Support equipment and fixtures                               | 
|Accumulated depreciation                                     | 
|                                                             | 
|                                                             | 
|                                                             | 

The Company began depreciation of the
acquired support equipment and fixtures when development commenced during the year ended
December 31, 2003. Accumulated depreciation and depreciation expense for the years ended
December 31, 2003 and December 31, 2002 was $28,247 and $0, respectively.

Supplementary Oil and Gas
information as of December 31, 2003 (Unaudited):

Proved properties      
               $1,651,000

Estimated Gross Reserves and Income
Data as of December 31, 2003 for United States Properties:

|                         | |--------------------------PROVED--------------------------|
|------------------------ | ------------------------------------------------------------
|
|Gross Remaining Reserves |                                                             
|Oil/Condensate - Barrels |                                                             
|Gas - MMCF               |                                                             
|Income Data              |                                                             
|Future Net Revenue       |                                                             
|Deductions               |                                                             
|Future Net Income (FNI)  |                                                             
|Discounted FNI at 10%    |                                                             

# Accounting for the
Impairment of Long-Lived Assets

We account for the impairment of
long-lived assets in accordance with Financial Accounting Standards, SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that
long-lived assets be reviewed for impairment whenever events or changes in circumstances
indicate that the book value of the asset may not be recoverable. Recoverability of the
asset is measured by comparison of its carrying amount to the undiscounted cash flow that
the asset or asset group is expected to generate. If such assets or asset groups are
considered to be impaired, the loss recognized is the amount by which the carrying amount
of the property, if any, exceeds its fair market value. Based upon our evaluation, no
impairment was determined for the years ended December 31, 2004 and 2003.

# Beneficial Conversion
Feature in Convertible Debentures

In accordance with EITF Issue 98-5,
as amended by EITF 00-27, we must evaluate the potential effect of any beneficial
conversion terms related to convertible instruments such as convertible debt or
convertible preferred stock. The Company has issued convertible debentures. A beneficial
conversion may exist if the holder, upon conversion, may receive instruments that exceed
the value of the convertible instrument. Valuation of the benefit is determined based upon
various factors including the valuation of equity instruments, such as warrants, that may
have been issued with the convertible instruments, conversion terms, value of the
instruments to which the convertible instrument is convertible, etc. Accordingly, the
ultimate value of the beneficial feature is considered an estimate due to the partially
subjective nature of valuation techniques.

# Fair Value of Financial
Instruments

We define the fair value of a
financial instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of accounts receivable, accounts
payable and accrued liabilities approximates fair value because of the short maturity of
those instruments. The estimated fair value of our other obligations is estimated based on
the current rates offered to us for similar maturities. Based on prevailing interest rates
and the short-term maturity of all of our indebtedness, management believes that the fair
value of our obligations approximates book value at December 31, 2004.

# Stock-Based Compensation

The Company accounts for stock
options issued to employees in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation cost is measured on
the date of grant as the excess of the current market price of the underlying stock over
the exercise price. Such compensation amounts are amortized over the respective vesting
periods of the option grant. The Company adopted the disclosure provisions of SFAS No. 123
Accounting for Stock-Based Compensation, and SFAS No. 148 Accounting for
Stock Based Compensation  Transition and Disclosure, which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures
for employee stock option grants as if the fair-valued based method defined in SFAS No.
123 had been applied.

The Company accounts for stock
options or warrants issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123. Under this method, the Company records an expense equal to
the fair value of the options or warrants issued. The fair value is computed using an
options pricing model.

# Revenue Recognition

Prior to electing BDC status and
transferring oil and gas assets to an investee, the Company previously sold crude oil
under short-term agreements at prevailing market rates. Revenue from oil sales is
recognized at the point of sale, that is, when oil is extracted from the tanks. Generally
this is the point where the customer has taken title and has assumed the risks and rewards
of ownership, the sales price is fixed or determinable and collectibility is reasonably
assured.

Revenues from the current and future
activities as a Business Development Company which may include investment income such as
interest income and dividends, and realized or unrealized gains and losses on investments
will be recognized in accordance with the AICPAs Audit and Accounting Guide,
Audits of Investment Companies.

# Concentration of Risk

One purchaser accounted for 100% of
the Companys oil sales in 2004 and 2003. Previously, the Company sold crude oil to
customers in the United States and performed ongoing credit evaluations of its
customers financial condition and generally requires no collateral.

Our financial instruments that are
potentially exposed to credit risk consist primarily of cash, accounts payable and notes
payable, for which the carrying amounts approximate fair value. Long-term convertible
debentures book value approximates fair value due to the market terms of the convertible
debentures. At certain times during the year, our demand deposits held in banks exceeded
the federally insured limit of $100,000.

# Income Taxes

Income taxes are accounted for under
the asset and liability method of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). Under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

# Net Loss per Common Share

Basic earnings per share are computed
only on the weighted average number of common shares outstanding during the respective
periods. There were no additional items to adjust the numerator or denominator in the EPS
computations.

# Accumulated Other
Comprehensive Income

As of the date of these Financial
Statements, we had no components of other comprehensive income as defined by Statement of
Financial Accounting Standards No. 130.

# Recent Accounting
Developments

The Financial Accounting Standards Board
(FASB) has recently issued several new accounting pronouncements, which may
apply, to the Company.

In December 2004, the FASB issued
SFAS No. 153, entitled Exchanges of Non-monetary Assets  An Amendment of APB
Opinion No.29. SFAS No. 153 amends Opinion 29 to eliminate the exception for
non-monetary exchanges of non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The adoption of SFAS 153 did
not impact the financial statements.

In December 2004, the FASB issued
SFAS No. 123 (Revised), entitled Share-Based Payment. This revised Statement
eliminates the alternative to use APB Opinion No. 25s intrinsic value method of
accounting that was provided in SFAS No. 123 as originally issued. Under Opinion 25,
issuing stock options to employees generally resulted in recognition of no compensation
cost. This Statement requires entities to recognize the cost of employee services received
in exchange for awards of equity instruments based on the grant-date fair value of those
awards. For public companies that file as a small business issuer, this Statement is
effective as of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. The adoption of SFAS 123 (Revised) will have an impact the
financial statements if the Company issues stock options to the employees in the future.

# Reclassifications

Certain amounts in the 2002 and 2003
financial statements have been reclassified to conform to the 2004 presentation.

# 4. INVESTMENTS IN AND
ADVANCES TO AFFILIATES

As of December 31, 2004, investments
consisted of the following:

|                                 | Cost | Fair Value
|-------------------------------- | ---- | ----------
|Investments in Equity Securities |      |           
|Less: Unearned Income            |      |           
|                                 |      |           
|Total                            |      |           

The Companys investment
portfolio is currently all in private companies that acquire, develop, produce, explore
and sell oil and gas and is all held as non income producing and restricted common stock.
The Company anticipates that its investees will be able to sell all oil that they can
produce to petroleum refiners and marketers under the terms of short-term purchase
contracts and at prices in accordance with arrangements that are customary in the oil
industry. Our capital is generally used by our portfolio companies to finance growth and
working capital.

In June 2003, the Company entered
into a non-binding Letter of Intent agreement to acquire substantially all of the assets
and related liabilities of Production Resources, Inc. (PRI) with an option to
acquire the outstanding voting common stock of PRI. The purchase price was $800,000
consisting of a $400,000 promissory note and $400,000 worth of Company common stock. The
closing of the acquisition of PRI was scheduled to be effective on January 5, 2004,
however, since several conditions precedent to closing, including the payment by the
Company of the consideration, were not satisfied, the closing was delayed. The assets of
PRI include over 1,500 producing acres and 193 existing oil wells fully equipped and
capable of producing oil.

At June 15, 2004, the full
consideration was paid by the Company and in accordance with the rules of a Business
Development Company, the $800,000 purchase price for the capital stock of PRI has been
recorded as an investment in affiliate  majority-owned. As of June 15, 2004, the
Company had advanced $366,598 of expenditures on behalf of PRI and effective with the
acquisition, this amount has been reclassed as a component of the investment in affiliate
 majority-owned.

At December 31, 2004, the total
investment and advance in affiliate for PRI reflected in the accompanying financial
statements is $1,236,098. This amount is the historical cost for the Company and a readily
determinable fair value does not exist for the underlying common stock of PRI. The fair
value of this investment is determined in good faith by the Companys Board of
Directors and due to the inherent uncertainty of these valuations, the estimates may
differ significantly from the values that would have been used had a ready market for the
investments existed and that difference may be material.

As of December 31, 2004, the Company
had made $1,263,688 of net advances on behalf of its majority-owned affiliate, Bend Arch
Petroleum, Inc., (Bend Arch) and this amount has been recorded as investment
in and advances to affiliates in the accompanying balance sheet.

On February 20, 2003 (the
Acquisition Date), the Company acquired from a certain related party assignor,
who is controlled by the brother (see Note 6  Long-term Debt and Note 10 
Related Party Transactions) of the Companys president and director, an interest in
certain oil and gas leases, oil and gas wells located on those leases, surface and
underground equipment, pipelines and other property and fixtures in or on the leases,
rights of way, leases, contracts and agreements for pipeline compressor stations or
boosters utilized in the operations of the facilities by the assignors. The above
properties are located in Comanche and Eastland Counties, Texas, in the United States of
America. The Company planned to extract and sell oil and gas from existing wells. The
consideration paid was a convertible promissory note for $2,000,000 at 6% interest,
maturing July 25, 2007. All the leases and wells are collateral for the promissory note.

The Company had evaluated that the
convertible promissory note in accordance with EITF Issue No. 98-5 did not have any
beneficial conversion feature as the exercise price of $1.00 exceeded the fair value of
the Companys common stock on the measurement date of $0.04.

On January 5, 2004, the $2,000,000
convertible promissory note (See Note 6  Long-Term Debt) was exchanged for a
convertible debenture for the same amount and due January 1, 2007. The terms of the
convertible debentures include an interest rate of 8% per annum and conversion at any time
at the option of the holder or the Company into common shares of the Company at a price
equal to fifty percent (50%) of the closing bid price of the common stock on the date
written notice is received by the Company of the election to convert.

In accordance with EITF Issue 98-5,
the Company has evaluated that the convertible debenture has a beneficial conversion
feature as the exercise price is less than the fair value of the Companys common
stock on the measurement date. Accordingly, the Company has recognized this beneficial
conversion feature by charging the statement of operations $2,000,000 for interest expense
and $2,000,000 for additional paid-in capital. The conversion feature inherent in the
convertible debentures was fully recognized as of June 30, 2004 since it was disposed of
through assignment to Bend Arch, the Companys investee (see below)

On June 15, 2004, the Company
assigned $2,074,498 of oil and gas properties securing the $2,000,000 convertible
debenture to Bend Arch. Accordingly, the Company transferred the $2,000,000 convertible
debenture and $77,589 of accrued interest to Bend Arch on June 15, 2004.

On November 9, 2004, the Company
signed a definitive agreement to purchase all of the outstanding shares of Oil American
Group Inc. (OAG) in a stock for stock trade. The purchase price was 4,000,000
shares of restricted 144 Company stock and was valued at $72,000, or $0.018 per share, the
fair market value on November 9, 2004. Additionally, the Company has made $25,000 of
advances on behalf of its OAG. Including the advances, the total of $97,000 has been
recorded as investment in and advances to affiliates in the accompanying balance sheet.

OAG is now a majority-owned investee
of the Company, specializing in oil and gas acquisitions, drilling prospective properties
and managing oil and gas partnerships.

# 5. SHORT-TERM DEBT

Our short-term debt at December
31, 2004 and 2003 consisted of the following:

Lease Payable

|                                                                    | 2004 | 2003
|------------------------------------------------------------------- | ---- | ----
|$21,238 computer equipment lease, bearing interest at 10% per annum |      |     

On April 16, 2001, the Company leased
computer equipment under a 36-month lease that was accounted for as a capital lease in the
amount of $21,238 and at December 31, 2004, the balance of principal was $18,153. The
amount is personally guaranteed by a former officer/director and a current
officer/director of the Company. The lease was secured by all leased equipment and
perfected by a financing statement; however, the Company liquidated the equipment and paid
the office space lessor the $4,000 proceeds. As of December 31, 2004, the Company has
recorded a total of $5,342 in accrued interest for this lease payable in the accompanying
Balance Sheet.

In November 2003, a settlement was
reached with the lessor to forgive the outstanding principal and accrued interest on the
lease payable once the transfer of 100,000 shares of the Companys common stock
personally held by the Companys president and director occurs. The president of the
Company transferred these shares on September 15, 2003. As of December 31, 2004, the
transaction has not been finalized as the lessor has not agreed to the settlement. The
Company expects to fully resolve this matter in 2005 at which time the value of the shares
exchanged and any related gain or loss will be determined and recognized  (see Note
9  Commitments and Contingencies and Note 10  Related Party Transactions).

Notes payable - Banks

|                                                                                 | 2004 | 2003
|-------------------------------------------------------------------------------- | ---- | ----
|$70,000 bank revolving line of credit, dated March 12, 2001, bearing interest at |      |     
|default rate of 18% per annum, due March 11, 2002. In Default at December 31,    |      |     
|2004                                                                             |      |     
|                                                                                 |      |     
|$42,000 bank line of credit, dated December 31, 2001, bearing interest at        |      |     
|prime  plus 2% (6% at December 31, 2003), due on demand. In Default at December  |      |     
|31, 2003                                                                         |      |     
|$19,396 bank automobile loan, dated July 6, 2004, bearing interest at 6.99% per  |      |     
|annum, monthly installments of principal and interest with final payment due in  |      |     
|February 2006                                                                    |      |     
|                                                                                 |      |     
|                                                                                 |      |     
|                                                                                 |      |     

On March 12, 2001, we obtained a
revolving bank line of credit in the amount of $70,000, of which $17,463 is outstanding at
September 30, 2004. The interest rate was originally at 11.5% but has converted to the
default rate of 18% per annum as the line of credit was due March 11, 2002 and was in
default. This line of credit is secured by all equipment which had been repossessed as of
December 31, 2001 and $23,075 was applied to the balance. As of December 31, 2004, the
Company has recorded a total of $10,223 in accrued interest for this line of credit in the
accompanying Balance Sheet. The line of credit is in default at December 31, 2004.

On December 31, 2001, we obtained a
bank line of credit for $42,000, of which $41,799 was outstanding and in default at March
31, 2004. In June 2004, the lender agreed to a settlement payment in the amount of
$30,000, which the Company made and the difference of $11,799 and accrued interest of
$6,565 was recorded as a gain on settlement of debt in the accompanying Statement of
Operations.

In July 2004, we obtained a bank
automobile loan in the amount of $19,396 (including accrued interest of 6.99% per annum).
Monthly principal and interest payments of $1,077 are due with final payment in February
2006. The loan is secured by the automobile and as of December 31, 2004, the balance
outstanding is $13,818.

Loans and Note Payable
Settlement with Related Party

Notes payable to related party at
December 31, 2004 and 2003 are payable to a former officer/director of the Company who is a
principal stockholder as follows:

|                                                   | 2004 | 2003
|-------------------------------------------------- | ---- | ----
|Dated Oct. 18, 2000, interest at 6.5%, matured     |      |     
|Oct. 16, 2001,in default at December  31, 2003     |      |     
|Dated Mar. 21, 2001, interest at 6%, matured       |      |     
|March 21, 2003, in default at December 31, 2003    |      |     
|Dated Apr. 4, 2001, interest at 6%, matured        |      |     
|Apr. 4, 2002, in default at December 31, 2003      |      |     
|Dated Apr. 11, 2001, interest at 6%, matured       |      |     
|Apr. 11, 2002, in default at December 31, 2003     |      |     
|Dated Apr. 23, 2001, interest at 6.5%, matured     |      |     
|Apr. 23, 2002, in default at December 31, 2003     |      |     
|Dated Jun. 15, 2001, interest at 6%, matured       |      |     
|Jun3 15, 2002, in default at December 31, 2003     |      |     
|Dated July 6, 2001, interest at 6.5%, matured      |      |     
|December 6, 2001, in default at December 31, 2003  |      |     
|Dated July 6, 2001, interest at 6.5%, matured      |      |     
|December 6, 2001, in default at December 31, 2003  |      |     
|Dated July 13, 2001, interest at 6.5%, matured     |      |     
|December 13, 2001, in default at December 31, 2003 |      |     
|Dated July 20, 2001, interest at 6.5%, matured     |      |     
|December 20, 2001, in default at December 31, 2003 |      |     
|Dated Aug. 3, 2001, interest at 6.5%, matured      |      |     
|December 3, 2001, in default at December 31, 2003  |      |     
|Dated Aug. 21, 2001, interest at 6%, matured       |      |     
|December 21, 2001, in default at December 31, 2003 |      |     
|Dated Sep. 10, 2001, interest at 6.5%, matured     |      |     
|December 10, 2001, in default at December 31, 2003 |      |     
|                                                   |      |     
|                                                   |      |     
|                                                   |      |     

Beginning in January of 2002 and
through December 2003, the Companys officer/director advanced the Company $52,625
for payment of corporate expenses. In August 2003, $115 was repaid leaving a balance
outstanding of $52,510 at December 31, 2003. The loan was non-interest bearing, unsecured
and due on demand.

On January 5, 2004, the entire
$52,510 amount outstanding was exchanged for designated Series A preferred stock. (See
Note Payable  Related Party below, Note 10  Related Party Transactions and
Note 7  Stockholders Equity (Deficiency).

At December 31, 2003, $411,595 of
Notes Payable to related party were outstanding and in default. The Notes Payable had been
payable to a former officer/director of the Company and who is a principal stockholder and
has been transferred to the current president in a private transaction.

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 designated Series A preferred stock in
exchange for the conversion of the total $464,005 of indebtedness owed to the
Companys president. The $464,005 indebtedness comprised the entire $52,510 of loan
payable  related party (see above) and $411,495 of Note Payable  related
party. In connection with the forgiveness of the note principal, the Companys
president forgave the related accrued interest totaling $64,527 in a separate transaction
on the same date. As a result, the Company has treated the $64,527 as a contribution of
capital at the date of debt forgiveness by recording additional paid in capital. The
Company recognized a compensation expense of $480,995 based on the estimated $945,000
value of the 3,500,000 common shares which was based on the quoted trade price per share
of $0.09 on the settlement date (See Note 7  Stockholders Equity (Deficiency).

In July 2003, the Company received
$35,000 from an unrelated party. As of December 31, 2003, the Company had repaid the
principal portion of this loan for $35,000 and $2,000 in accrued interest.

---

# 6. LONG-TERM DEBT

Our long-term debt at December 31,
2004 and 2003 consisted of the following:

Convertible Note Payable

|                                                              | 2004 | 2003
|------------------------------------------------------------- | ---- | ----
|$2,000,000 Convertible Note Payable, dated February 20, 2003, |      |     
|bearing interest at 6% per annum and due July 25, 2007        |      |     
|                                                              |      |     

Convertible Debentures:

|                                                                                  | 2004 | 2003
|--------------------------------------------------------------------------------- | ---- | ----
|$250,000 Convertible Debenture, dated May 20, 2004, bearing interest at 8% per    |      |     
|annum and due on December 1, 2005                                                 |      |     
|                                                                                  |      |     
|$400,000 Convertible Debentures, dated June 15, 2004, bearing interest at 8% per  |      |     
|annum and due on December 1, 2005                                                 |      |     
|$400,000 Convertible Debenture, dated August 17, 2004, bearing interest at 8% per |      |     
|annum and due on December 1, 2005                                                 |      |     
|Less: Debt discount                                                               |      |     
|                                                                                  |      |     
|                                                                                  |      |     
|                                                                                  |      |     
|                                                                                  |      |     

In May 2004, the Company received
$250,000 in gross proceeds from the issuance of a convertible debenture. The terms of the
convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. On May 17, 2004, the convertible debenture holder elected to convert
$30,000 of the balance into common shares of the Company and as a result of the
conversion, 3,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On June 10, 2004, the convertible debenture holder elected to
convert $85,000 of the balance into common shares of the Company and as a result of the
conversion, 8,500,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On July 19, 2004, the convertible debenture holder elected to
convert $65,000 of the balance into common shares of the Company and as a result of the
conversion, 6,500,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). The remaining $70,000 of the $250,000 convertible debenture remains
outstanding at December 31, 2004.

In accordance with EITF Issue 98-5 as
amended by EITF Issue 00-27, the Company has evaluated that the $250,000 convertible
debenture discussed above has a beneficial conversion feature as the exercise price for is
less than the fair value of the Companys common stock on the measurement date.
Accordingly, the Company has recognized this beneficial conversion feature by recording a
debt discount as a contra account to the convertible debenture for $250,000 and $250,000
to additional paid-in capital. As of December 31, 2004, $208,715 was amortized to interest
expense and a debt discount of $41,285 remains.

Effective June 15, 2004, the Company
issued a $400,000 convertible debenture to PRI in accordance with the acquisition
agreement between PRI and the Company (See Acquisition Footnote). The terms of the
convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. The entire $400,000 is outstanding as of December 31, 2004.

In accordance with EITF Issue 98-5,
as amended by EITF Issue 00-027, the Company has evaluated that the convertible debenture
discussed above has a beneficial conversion feature as the exercise price is less than the
fair value of the Companys common stock on the measurement date. Accordingly, the
Company has recognized this beneficial conversion feature by recording a debt discount as
a contra account to the convertible debenture for $400,000 and $400,000 to additional
paid-in capital. The debt discount will be amortized over the debt term of 17.5 months or
through the due date of December 5, 2005. As of December 31, 2004, the Company has
recorded $149,064 of amortization of the debt discount for the period from June 15 through
December 31, 2004 and has recorded this amount as interest expense in the statement of
operations with a remaining discount of $250,936 as of December 31, 2004.

In August 2004, the Company received
$1,000,000 in gross proceeds from the issuance of a convertible debenture. The terms of
the convertible debenture includes an interest rate of 8% per annum and convertible at any
time at the option of the holder or the Company into common shares of the Company at a
price equal to fifty percent (50%) of the closing bid price of the common stock on the
date written notice is received by the Company of the election to convert and is due
December 1, 2005. On September 14, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On September 22, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On October 8, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On October 12, 2004, the convertible debenture holder elected to
convert $100,000 of the balance into common shares of the Company and as a result of the
conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). On November 4, 2004, the convertible debenture holder elected to
convert $200,000 of the balance into common shares of the Company and as a result of the
conversion, 20,000,000 shares of common stock were issued at $0.01 per share (50% of the
closing share price). The remaining $400,000 of the original $1,000,000 convertible
debenture remains outstanding as of December 31, 2004.

In accordance with EITF Issue 98-5 as
amended by EITF Issue 00-27, the Company has evaluated that the $1,000,000 convertible
debenture discussed above has a beneficial conversion feature as the exercise price for is
less than the fair value of the Companys common stock on the measurement date.
Accordingly, the Company has recognized this beneficial conversion feature by recording a
debt discount as a contra account to the convertible debenture for $1,000,000 and
$1,000,000 to additional paid-in capital. As of December 31, 2004, $708,583 has been
amortized to interest expense and a discount of $291,417 remains.

On February 20, 2003, the Company
executed a $2,000,000 convertible note payable accruing interest at 6% with a company
controlled by the brother of the Companys sole officer and director (See Note 9
 Related Party Transactions). The maturity date was July 25, 2007. The note was
payable at maturity in preferred stock of the Company at $1.00 per share and. the
preferred stock was convertible into common stock at $1.00 per share. Additionally, at the
option of the holder, the debt may be settled for cash. The note is secured by a deed of
trust and a lien against the leases and the wells and other liens against the same leases
and wells of $25,000.

On January 5, 2004, the $2,000,000
convertible note payable was exchanged for a convertible debenture for the same amount and
due January 1, 2007. The terms of the convertible debenture include an interest rate of 8%
per annum and convertible at any time at the option of the holder or the Company into
common shares of the Company at a price equal to fifty percent (50%) of the closing bid
price of the common stock on the date written notice is received by the Company of the
election to convert. In accordance with EITF Issue 98-5 and 00-27, the Company has
evaluated that the convertible debenture has a beneficial conversion feature as the
exercise price is less than the fair value of the Companys common stock on the
measurement date. Accordingly, the Company has recognized this beneficial conversion
feature by charging the statement of operations $2,000,000 for interest expense and
$2,000,000 for additional paid-in capital. The conversion feature inherent in the
convertible debenture was fully recognized as of June 30, 2004 since it was disposed of
through assignment to Bend Arch, the Companys investee (see below)

On June 15, 2004, the Company
assigned the oil and gas properties secured by the $2,000,000 convertible debenture to its
majority-owned affiliate Bend Arch. Accordingly, the $2,000,000 convertible debenture
along with $77,589 of accrued interest was transferred to Bend Arch on June 15, 2004 (See
Note 4  Investments in and Advances to Affiliates).

In January 2004, the Company received
$600,000 in gross proceeds from the issuance of two convertible debentures, one for
$100,000 and the other for $500,000. The terms of the convertible debentures include an
interest rate of 8% per annum and convertible at any time at the option of the holder or
the Company into common shares of the Company at a price equal to fifty percent (50%) of
the closing bid price of the common stock on the date written notice is received by the
Company of the election to convert. $100,000 of the convertible debentures was due and
payable on March 14, 2004 and $500,000 was due and payable on December 31, 2004.

On February 5, 2004, the $100,000
convertible debenture holder elected to convert the entire balance into common shares of
the Company and as a result of the conversion, 3,333,333 shares of common stock were
issued at $0.03 per share (50% of the closing share price on February 5, 2004). In March,
2004, $200,000 of the $500,000 convertible debenture was converted into 20,000,000 shares
of common stock at $0.01 (50% of the closing price). In May 2004, the remaining $300,000
of convertible debenture was converted into 30,000,000 shares of common stock at $0.01 per
share (50% of the closing price).

In accordance with EITF Issue 98-5
and 00-27, the Company has evaluated that the convertible debentures discussed above have
a beneficial conversion feature as the exercise price is less than the fair value of the
Companys common stock on the measurement date. Accordingly, the Company has
recognized this beneficial conversion feature by charging the statement of operations
$600,000 for interest expense and the balance sheet $600,000 for additional paid-in
capital. The conversion feature inherent in the convertible debentures was fully
recognized as of June 30, 2004 since they were fully converted as of June 30, 2004.

In January 2004, the Company issued a
$30,000 convertible debenture to a consultant for services related to the filing by the
Company to become a BDC as mentioned previously. The terms of the convertible debenture
include an interest rate of 8% per annum and convertible at any time at the option of the
holder or the Company into common shares of the Company at a price equal to fifty percent
(50%) of the closing bid price of the common stock on the date written notice is received
by the Company of the election to convert. On February 5, 2004, the convertible holder
elected to convert the entire balance into common shares of the Company and 1,000,000
shares of common stock were issued at $0.03 per share (50% of the closing share price on
February 5, 2004).

In accordance with EITF Issue 98-5,
the Company has evaluated that the $30,000 convertible debenture discussed above has a
beneficial conversion feature as the exercise price for is less than the fair value of the
Companys common stock on the measurement date. Accordingly, the Company has
recognized this beneficial conversion feature by charging the statement of operations
$30,000 for interest expense and $30,000 for additional paid-in capital. The conversion
feature inherent in the convertible debentures was fully recognized as of June 30, 2004
since they were fully converted as of June 30, 2004.

As of December 31, 2004, the Company
has recorded $125,831 of accrued interest  long-term for the convertible debentures
outstanding. As discussed previously, several convertible debenture holders have elected
to convert all or a portion of the convertible debentures into common stock. However, the
conversion has not included accrued interest and although the Company believes that no
further common stock will be issued for these conversions, the accrued balance for these
converted debentures is included in the accrued interest  long-term balance as of
December 31, 2004.

# 7. STOCKHOLDERS
EQUITY (DEFICIENCY)

# Capital Structure

We were previously authorized to
issue up to 100,000,000 shares of our common stock, $0.0001 par value per share, of which
269,530,234 and 93,051,449 were issued and outstanding as of December 31, 2004 and 2003,
respectively. However, in December 2003, 8,500,000 of previously issued shares were
cancelled as the Company had exceeded the 100,000,000 authorized share limit. These
8,500,000 shares were reissued in January 2004 with an approved vote to increase the
authorized shares (See below). As of December 31, 2004 and 2003, 4,075,000 and 8,075,000
shares were issuable as discussed below, respectively.

On December 18, 2003, the
Companys shareholders approved an increase in authorized common shares from
100,000,000 to 500,000,000 and the authorization of 5,000,000 shares of preferred stock,
$0.0001 par value per share. Under the terms of the designation, these Series A shares are
not entitled to dividends. The shares are convertible, at the option of the holder, at any
time, into three times as many common shares as Series A, preferred that are held. There
are no liquidation rights or preferences to Series A, preferred stock holders as compared
to any other class of stock. These shares are non-voting, however, the holders, as a class
may elect two directors. At December 31, 2004, 4,000,000 preferred shares were issued and
outstanding.

Issuances of Preferred
Stock:

On January 5, 2004, The Board of
Directors approved the issuance of up to 4,000,000 shares of designated Series A preferred
stock. Under the terms of the designation, these Series A shares are not entitled to
dividends. The shares are convertible, at the option of the holder, into three times as
many common shares as Series A, preferred that are held. There are no liquidation rights
or preferences to Series A, preferred stock holders as compared to any other class of
stock. These shares are non-voting, however, the holders, as a class may elect two
directors. In February 2004, the Company announced the addition of two new outside
directors to the Board of Directors as previously authorized.

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 of the 4,000,000 designated Series A
preferred stock in exchange for the conversion of $464,005 of indebtedness owed to the
Companys president of the Company. The $464,005 indebtedness comprised the entire
$52,510 of loan payable  related party and $411,495 of Note Payable  related
party balances as recorded at December 31, 2003 (See Note 5  Short-Term Debt). The
$411,495 note indebtedness had been acquired by the president in a private transaction
from a former officer. In connection with the forgiveness of the note principal, the
Companys president forgave the related accrued interest totaling $64,527 in a
separate transaction on the same date. As a result, the Company has treated this as a
contribution of capital at the date of debt forgiveness by recording additional paid in
capital.

In accordance with APB 26, paragraph
20 and Practice Alert Bulletin 2000-1, the Company has evaluated that the $480,995 excess
of the value of the preferred stock, which was computed based on the conversion ratio and
quoted trade price of the common stock on the settlement date, over the debt qualified as
compensation expense and was recorded as such as of June 30, 2004 with an offset to
additional paid-in capital. Due to the valuation method of the preferred stock, there was
no remaining value for a beneficial conversion feature.

On January 5, 2004, the Board
approved the issuance of the remaining 500,000 shares of Series A preferred stock to three
consultants for services performed in relation to the filing for the Company to become a
Business Development Company as discussed previously. The 500,000 shares were issued as
follows: 200,000 shares to one consultant for consulting services rendered, 200,000 shares
to one consultant for consulting services rendered and 100,000 shares to one attorney for
legal services rendered.

In accordance with FAS 123, the
Company has valued the preferred stock, based on the conversion rate and quoted trade
price of the common stock on the grant date, at $135,000 which is recorded in operations
in the year ended December 31, 2004 with an offset to additional paid-in capital. Due to
the valuation method of the preferred stock, there was no remaining value for a beneficial
conversion feature.

---

Issuances of Common Stock:

On June 7, 2001 (the Agreement
Date), the Company issued 25,000 fully vested common shares as a sign on bonus to a
new employee. The shares were valued at the trading price of $2.00 on the Agreement Date
resulting in a compensation expense of $50,000. Under a 90 day agreement dated July 11,
2001 (the Agreement Date) for promotional and marketing services, the Company
issued 125,000 fully vested common shares and a stockholder paid the service provider
75,000 free trading shares. The trading price of the Companys common stock on the
Agreement Date was $1.40. The 75,000 shares are treated as contributed capital. The
Company recognized an aggregate consulting expense on the Agreement Date of $280,000 based
on the $1.40 fair market value of the stock.

On May 23, 2002, the Company approved
an Employee Benefit Plan (the Plan) for the purpose of providing stock based
awards to its employees as defined in the plan. Under the terms of the plan, the Board of
Directors may discontinue the plan at any time and no employee has any rights to be
granted shares under the plan.

On May 25, 2002, the Company filed as
an exhibit to a Form S-8 registration statement the above plan and registered 12,500,000
shares, of which 12,225,000 were granted and issued on May 29, 2002 as discussed below.

On May 29, 2002, the Company issued
11,225,000 shares of common stock, pursuant to the plan, having a fair value of $2,806,250
based on the $.25 quoted trading price on the grant date in exchange for legal and
consulting services. As of December 31, 2002, the Company has expensed $2,335,938 of
consulting fees, $110,418 of legal fees, and deferred $359,896 related to future legal and
consulting services.

On May 29, 2002, the Company issued
1,000,000 shares of common stock, pursuant to the plan, having a fair value of $250,000
based on the $.25 quoted trading price on the grant date in exchange for services of a
corporate officer. As of December 31, 2002, the Company has expensed the entire $250,000
related to past services.

On June 19, 2002, the Company
declared a 20% stock divided totaling 7,074,764 shares having a fair value of $2,263,924
based on the $.32 quoted trading price on the declaration date. Accordingly, the Company
had charged its accumulated deficit, and recorded the value to common stock and additional
paid-in capital for the 20% stock dividend. These shares were issued to stockholders of
record as of August 16, 2002. All shares and per share amounts have been retroactively
restated for all periods presented in the accompanying financial statements to give effect
for the 20% stock dividend.

On January 24, 2003, the
Companys Board of Directors adopted a resolution to remove from registration any and
all remaining shares of common stock registered under its Form S-8, which have not been
issued or reserved for issuance under the Employee Benefit Plan as filed August 23, 2002.

On January 27, 2003, the
Companys Board of Directors adopted a resolution to create the 2003 Employee Benefit
Plan. The Company has authorized for registration 25,000,000 shares of its common stock on
Form S-8. Under the terms of this Employee Benefit Plan, the Company issued 24,750,000
shares of its common stock to various unrelated third parties for future services. The
shares are valued at the Companys quoted market trading price at each grant date
since the shares are deemed fully vested at the grant date and the related expense will be
recognized over the term of the respective service agreement. The following provides
details of these grants:

On January 1, 2003, 4,000,000 common
shares were granted for a six-month service period valued at $0.02 per share based on the
closing quoted market trading price or $80,000. All shares were fully vested at the grant
date. For the year ended December 31, 2003, the Company recognized $80,000 of consulting
expense.

On January 29, 2003, 2,000,000 common
shares were granted for a six-month service period valued at $0.02 per share based on the
closing quoted market trading price or $40,000. All shares were fully vested at the grant
date. For the year ended December 31, 2003, the Company recognized $40,000 of consulting
expense.

In February 2003, the Company reached
an oral agreement with a former consultant to issue additional common stock under the
terms of the initial agreement. In May 2003, the Company issued an additional 250,000
shares of its common stock valued at $0.07 per share based on the closing quoted market
trading price or $17,500. All shares were fully vested at the grant date. These shares
were issued as part of a settlement with the consultant based on work performed and to be
performed. The $17,500 has been recorded as Loss on Settlement in the accompanying
Statement of Operations for the year ended December 31, 2003.

On February 8, 2003, 5,100,000 common
shares were granted for a one-year service period valued at $0.07 per share based on the
closing quoted market trading price or $357,000. All shares were fully vested at the grant
date. For the year ended December 31, 2003, the Company recognized $327,750 of website
expense and $29,750 was recorded as deferred services in stockholders deficiency at
December 31, 2003.

On March 1, 2003, 10,000,000 common
shares were granted for a six-month service period valued at $0.03 per share based on the
closing quoted market trading price or $300,000. All shares were fully vested at the grant
date. During the year ended December 31, 2003, the Company recognized $300,000 of
consulting expense.

On March 28, 2003, 1,700,000 common
shares were granted for a one-year service period valued at $0.038 per share based on the
closing quoted market trading price or $64,600. All shares were fully vested at the grant
date. During the year ended December 31, 2003, the Company recognized $48,450 of
consulting expense and recorded $16,150 as deferred services in stockholders
deficiency at December 31, 2003.

On July 11, 2003, the Company issued
1,700,000 shares of common stock for consulting services to be rendered. The term of the
agreement was for six months. At the date of grant, the shares had a fair value of $0.07
per share based on the closing quoted market trading price or $119,000. All shares were
fully vested at the grant date. During the year ended December 31, 2003, the Company
recognized $119,000 of consulting expense.

On July 23, 2003, the Board of
Directors adopted a resolution to issue up to 30,000,000 shares of common stock in
connection with a Regulation S offering (amended, see below). On August 4,
2003, the Company issued 10,975,227 shares of common stock under this offering that were
sold overseas through an unrelated third party for gross proceeds of $690,087. The
unrelated party retained an offering cost equivalent to 91% of gross proceeds totaling
$621,079, which was offset against additional paid in capital. The Company received net
proceeds of $69,008

On August 10, 2003, the Company
issued 1,000,000 shares of common stock and at the date of grant, the shares had a fair
value of $0.011 per share based on the closing quoted market trading price or $11,000. The
shares were issued in exchange for $11,000 of oil chemical to be used by the Company. As
the oil chemical was to be utilized for testing purposes, the Company has recorded the
$11,000 as production expense in the accompanying Statement of Operations for the year
ended December 31, 2003.

On August 10, 2003, the Company
issued 500,000 shares of common stock and at the date of grant, the shares had a fair
value of $0.011 per share based on the closing quoted market trading price or $5,500. The
shares were issued for $5,500 in cash proceeds.

On August 15, 2003, the Company
issued 2,100,000 shares of common stock for consulting services to be rendered. The term
of the agreement was for four months. At the date of grant, the shares had a fair value of
$0.024 per share based on the closing quoted market trading price or $50,400. All shares
were fully vested at the grant date. During the year ended December 31, 2003, the Company
recognized $50,400 of consulting expense.

On August 15, 2003, the Company
issued 700,000 shares of common stock for consulting services to be rendered. The term of
the agreement was for four months. At the date of grant, the shares had a fair value of
$0.024 per share based on the closing quoted market trading price or $16,800. All shares
were fully vested at the grant date. During the year ended December 31, 2003, the Company
recognized $16,800 of consulting expense.

Under the terms of the same
Regulation S offering discussed previously, during the year ended December 31,
2003, an additional 21,964,530 shares were sold to subscribing investors at an average of
$0.055 per share (See Common Stock Issuable below). Gross proceeds were $1,218,387. The
unrelated party retained an offering cost equivalent to 88% of gross proceeds totaling
$1,076,272 which was offset against additional paid in capital. The Company received net
proceeds of $137,065. Subsequently, the Company had offering cost transactions that
adjusted the total offering costs by $702 to $1,075,570.

As a result of the Regulation
S offering discussed above, in total, the Company issued 32,939,757 shares of
common stock and recognized $211,824 of net proceeds.

On October 15, 2003, the
Companys Board of Directors adopted a resolution to increase the number of shares
allowed to be sold under the terms of the Regulation S stock offering to
35,000,000 shares.

In January 2004, 8,500,000 of
previously cancelled shares were reissued with an approved vote to increase the authorized
shares (See above).

During 2004, 131,333,333 shares of
common stock were issued from the conversion of $1,410,000 of convertible debentures
discussed above (see Note 6).

In March 2004, the Company determined
that 1,000,000 shares had inadvertently been transferred by the Companys sole
officer and director to the former president of PRI (this transfer occurred in 2003). The
Company is in the process of having this error corrected and the shares transferred will
be rescinded and the 1,000,000 common shares returned to the sole officer and director of
the Company.

Effective March 29, 2004, the Company
received a $500,000 commitment to purchase 4,545,454 shares of common stock at $.11 per
share in accordance with the terms of a $10,000,000 commitment from an unrelated third
party. At March 31, 2004, $300,000 of the commitment was received as cash proceeds and the
remaining $200,000 was received in April 2004. In May 2004, the 4,545,454 shares of common
stock were issued to the investor.

In March 2004 the Company issued
5,000,000 shares of common stock at $0.01 per share for $50,000 of proceeds.

In April 2004, the Company issued
5,000,000 shares of common stock at $0.01 per share to an investor for $50,000 of cash
proceeds.

In May 2004, the Company issued
1,200,000 shares of common stock at $0.01 per share to two investors for $12,000 of cash
proceeds.

In May 2004, the Company issued
200,000 shares of common stock at $0.01 per share to an individual in exchange for a
$2,000 subscription receivable.

In May 2004, the Company issued
700,000 shares of common stock at $0.01 per share to two individuals in exchange of oil
chemical to be used by the Company. The stock was valued at the quoted trade price of
$0.037 per share or $26,000 and charged to the Statement of Operations.

In May and June 2004, the Company
issued 2,000,000 shares of common stock at $0.01 per share for services provided in
relation to the Company becoming a Business Development Company.

In June 2004, the Company issued
1,090,909 shares of common stock at $.11 per share for $120,000 in accordance with the
terms of a $10,000,000 commitment from an unrelated third party.

In June 2004, the Company issued
5,000,000 shares of common stock to PRI in consideration of the $400,000 due per the
acquisition agreement (see Note 4  Investments in and Advances to Affiliates).

In August 2004, the Company issued
909,090 shares of common stock at $.11 per share for $100,000 in accordance with the terms
of a $10,000,000 commitment from an unrelated third party.

In September 2004, the Company issued
6,000,000 shares of common stock at $0.01 per share to three individuals in exchange for a
$60,000 subscription receivable. In October 2004, the Company received $60,000 of cash
proceeds from the three individuals in payment of the subscription receivable.

In September 2004, the Company issued
2,000,000 shares of common stock at $0.01 per share to an individual for services
provided. The service agreement between the Company and the individual incorrectly
indicated that 200,000 shares were to be issued instead of 2,000,000 and the Company is in
the process of correcting the agreement to reflect the 2,000,000 shares. The common stock
was valued at the contemporaneous sales price of $0.01 per share or $20,000 and charged to
consulting expense.

In September 2004, the Company issued
2,000,000 shares of common stock at $0.01 per share to an individual in exchange for
assets to be used by a Company investee. Accordingly, the $20,000 was recorded as an
investment.

Common Stock Issuable:

On June 30, 2003, the Company
cancelled 212,500 shares of its common stock previously issued to a former consultant for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $21. These shares were properly included and accounted for in the loss
per share computation for the periods they were outstanding.

On August 13, 2003, the Company
cancelled 2,474,400 shares of its common stock previously issued to a former attorney for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $247. These shares were properly included and accounted for in the
loss per share computation for the periods they were outstanding.

On September 2, 2003, the Company
cancelled 200,000 shares of its common stock previously issued to a former consultant for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $20. These shares were properly included and accounted for in the loss
per share computation for the periods they were outstanding.

In December 2003, 8,500,000 of the
21,964,530 shares issued from the Regulation S offering were cancelled because
the Company had over sold its authorized maximum of 100,000,000 common shares. As a
result, the Company has reclassed these shares as issuable. On December 18, 2003, the
shareholders of the Company approved an increase in the authorized shares from 100,000,000
to 500,000,000.

As of December 31, 2004, 75,000
shares remained issuable to an overseas investor who had subscribed for an amount
exceeding the shares that were actually issued under the terms of the Regulation
S offering in 2003. The investor had paid for the full subscription, and as
such, no amounts are due to the Company.

In July 2004, the Company entered
into a consulting agreement with a third party for services during a six month period
through December 2004. In consideration of service performed, the Company will pay the
consultant $5,000 monthly, comprised of $3,000 in cash and $2,000 in common stock. As of
December 31, 2004, $30,000 of consulting fees were due under the agreement but the Company
had paid only $18,000 of this amount, leaving a balance due of $12,000, comprised of
$12,000 in common stock due. Accordingly, the Company has recorded $12,000 as accounts
payable in the accompanying Financial Statements as of December 31, 2004.

On November 9, 2004, the Company
signed a definitive agreement to purchase all of the outstanding shares of Oil American
Group Inc. (OAG) in a stock for stock trade. The purchase price was 4,000,000
shares of restricted 144 Company stock and was valued at $72,000, or $0.018 per share, the
fair market value on November 9, 2004. The shares have not been issued and have been
recorded as Common Stock Issuable as of December 31, 2004.

Common Stock Cancelled:

On June 30, 2003, the Company
cancelled 212,500 shares of its common stock previously issued to a former consultant for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $21. These shares were properly included and accounted for in the loss
per share computation for the periods they were outstanding.

On August 13, 2003, the Company
cancelled 2,474,400 shares of its common stock previously issued to a former attorney for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $247. These shares were properly included and accounted for in the
loss per share computation for the periods they were outstanding.

On September 2, 2003, the Company
cancelled 200,000 shares of its common stock previously issued to a former consultant for
non-performance under the terms of the original agreement. The transaction was treated as
a settlement. The shares were returned to the treasury. The transaction was treated as a
recapitalization by charging the par value of the common stock and crediting additional
paid in capital for $20. These shares were properly included and accounted for in the loss
per share computation for the periods they were outstanding.

In December 2003, 8,500,000 of the
21,964,530 shares issued from the Regulation S offering were cancelled because
the Company had over sold its authorized maximum of 100,000,000 common shares. As a
result, the Company has reclassed these shares as issuable. On December 18, 2003, the
shareholders of the Company approved an increase in the authorized shares from 100,000,000
to 500,000,000 (See Capital Structure above).

---

# 8. INCOME TAXES

There was no income tax during 2004
and 2003 due to the Companys net loss.

The Companys tax expense
differs from the expected tax expense for the period ended December 31,
(computed by applying the Federal Corporate tax rate of 34% to loss before taxes), as
follows:

|                                          |  |  |  
|----------------------------------------- |  |  | -
|Computed "expected" tax expense (benefit) |  |  | $
|Stock based issuances                     |  |  |  
|Change in valuation allowance             |  |  |  
|                                          |  |  |  
|                                          |  |  | $
|                                          |  |  |  

The tax effects of temporary
differences that gave rise to significant portions of deferred tax assets and liabilities
at December 31, are as follows:

|                          | 2004 | 2003
|------------------------- | ---- | ----
|Deferred tax assets       |      |     
|Net operating loss        |      |     
|                          |      |     
|Total deferred tax assets |      |     
|Valuation allowance       |      |     
|                          |      |     
|Net deferred tax asset    |      |     
|                          |      |     

In assessing the recoverability of
deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The valuation allowance has
been increased by $1,638,458 for the period February 20, 2003 (Inception of development
stage) through December 31, 2004 as a result of increased net operating losses. Net
operating loss carry-forwards aggregate approximately $1,757,832 and expire in years
through 2024. As discussed previously, on February 20, 2003, upon the acquisition of
certain oil and gas assets, the Company entered a new development stage. As a result of
this change, and IRS Section 382 rules, the net operating loss carry-forwards from
previous years to February 20, 2003 will not be allowable and are not included in the
above disclosures.

# 9. COMMITMENTS AND
CONTINGENCIES

From time to time we may become
subject to proceedings, lawsuits and other claims in the ordinary course of business
including proceedings related to environmental and other matters. Such matters are subject
to many uncertainties, and outcomes are not predictable with assurance.

The Company is subject to various
lawsuits and unasserted claims from vendors for non-payment of accounts payable plus
related legal fees. Excluding legal fees, which cannot be estimated, the Company has
included all amounts in its accounts payable as of December 31, 2004.

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director occurs (see Note 5
 Short-Term Debt and Note 10  Related Party Transactions). As of December 31,
2004 the transaction has not been finalized as the lessor has not agreed to the
settlement. However, the 100,000 shares were transferred to the lessor in September 2003.
The Company expects to fully resolve this matter in 2005 at which time the value of the
shares exchanged and any related gain or loss will be determined and recognized.

The Company has included $56,793 of
unpaid Federal payroll taxes and employee withholdings and related penalties and interest
in its accrued expenses as of December 31, 2004. Such amounts are subject to potential
federal tax liens.

We have elected to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code. In order to
maintain our status as a regulated investment company, we are required to (i) distribute
at least 90% of our investment company taxable income and 90% of any ordinary pre-RIC
built in gains we recognize between January 1, 2004 and December 31, 2013, less any taxes
due on those gains to avoid corporate level taxes on the amount distributed to
stockholders (other than any built in gain recognized between January 1, 2004 and December
31, 2013) and (ii) distribute (actually or on a deemed basis) at least 98% of our income
(both ordinary income and net capital gains) to avoid an excise tax. We intend to make
distributions on a quarterly basis to our stockholders of all of our income, except for
certain net capital gains and adjustments for long-term incentive compensation expense. We
intend to make deemed distributions to our stockholders of any retained net capital gains.

We may not be able to achieve
operating results that will allow us to make distributions at a specific level or to
increase the amount of these distributions from time to time. In addition, we may be
limited in our ability to make distributions due to the asset coverage test for borrowings
applicable to us as a business development company under the Investment Company Act of
1940 and due to provisions in our credit facilities. If we do not distribute a certain
percentage of our income annually, we will suffer adverse tax consequences, including
possible loss of our status as a regulated investment company. We cannot assure
shareholders that they will receive any distributions or distributions at a particular
level.

# 10. RELATED PARTY
TRANSACTIONS

On February 20, 2003, the Company
acquired certain oil and gas properties for $2,000,000 from a company controlled by the
brother of the Companys president and sole director in exchange for a market rate
promissory note. The promissory note was subsequently exchanged for a convertible
debenture and transferred to a majority-owned affiliate (See Note 6  Long-Term
Debt). The oil and gas properties were also transferred to that same majority-owned
affiliate (See Note 4  Investments).

During the year ended December 31,
2003, the Companys president and sole director paid $32,297 of general and
administrative fees and professional fees on behalf of the Company. Additionally, during
the year ended December 31, 2003, the Company repaid $115 of previously loaned funds. As
of December 31, 2003, the Company owed $52,510 for these loans and these transactions were
classified as Loan Payable  Officer. (See discussion below on January 5, 2004 for
conversion of Loan Payable  Officer to Preferred Stock).

During the year ended December 31,
2003, the Companys president and sole director paid $8,000 in prepaid acquisition
costs. The loan is non-interest bearing, unsecured and due on demand.

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director occurs (See Note 5
 Short-Term Debt and Note 9  Commitments and Contingencies). The
Companys president and sole director has personally guaranteed the obligation. As of
December 31, 2004, the transaction has not been finalized as the lessor has not agreed to
the settlement. However, the 100,000 shares were transferred to the lessor in September
2003. The Company expects to fully resolve this matter in 2005 at which time the value of
the shares exchanged and any related gain or loss will be determined and recognized.

In December 2003, a cash settlement
was reached for a lawsuit from one stockholder who invested $100,000 in the Company for
100,000 common shares during a private placement. The settlement of $149,500 was paid by
the Companys sole officer/director personally and the Company has been released from
all obligations related to the lawsuit.

In December 2003, the Company
recognized $6,648 of revenue from the sale of oil to a third party. Payments from oil
sales are remitted by customers, to an operator, who is a company controlled by the
brother of the Companys president and sole director. The operator then remits these
payments to the Company. At December 31, 2003, the related amount owed the Company was
classified as Accounts Receivable  Related Party in the accompanying Financial
Statements.

We currently do not have a lease and
we are not paying rent on our space. It is being provided to the Company by our sole
officer/director free of charge.

Effective July 1, 2003, the Company
entered into a salary and equipment rental agreement with its president and sole director.
Under the terms of the agreement, the Company will pay a salary of $10,000 per month and
$3,500 in equipment rental per month for the use of the Companys presidents
personal pickup truck, car, pulling unit, winch truck, backhoe and water truck used in the
field operations. Additionally, the president and sole director has from time to time,
advanced expenses of the Company from his personal funds. At December 31, 2003, the
accrued balance owed to the president and sole director was $220,455. During the year
ended December 31, 2004, the Company accrued $162,000 of expense related to the salary and
rental agreement, composed of $120,000 for compensation and $42,000 for equipment rental
fee. Additionally, the president and sole director advanced $23,770 of funds on behalf of
the Company and the Company repaid $281,000 resulting in an accrual balance of $125,225 as
of December 31, 2004, classified as a component of Due To Related Parties in the
accompanying Financial Statements.

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 designated Series A preferred stock in
exchange for the conversion of $464,005 of indebtedness owed to the Companys
president. The $464,005 indebtedness comprised the entire $52,510 of loan payable 
related party and $411,495 of Note Payable  related party. The $411,495 note
indebtedness had been acquired by the president in a private transaction from a former
officer. In connection with the forgiveness of the note principal, the Companys
president forgave the related accrued interest totaling $64,527 in a separate transaction
on the same date. As a result, the Company has treated the $64,527 as a contribution of
capital at the date of debt forgiveness by charging additional paid in capital. The
Company recognized $480,995 of compensation expense.

During the year ended December 31,
2004 the Company advanced directly or indirectly, $1,724,786 of funds to its wholly-owned
investees. This amount is included in the asset account entitled Investment in and
advanced to affiliates-majority-owned.

# 11. SUBSEQUENT EVENTS

Previously, the Companys Board
of Directors determined that it was necessary to raise additional capital to carry out the
companys business plan and the Company filed a Form 1-E pursuant to the Securities
Act of 1933 notifying the SEC of the Companys intent to sell up to $4,000,000 of the
Companys common stock at prices between $0.01 and $0.10 per share, or 40,000,000 and
400,000,000 shares, respectively. On January 29, 2004, the 1-E filing notification with
the SEC became effective and the Company is registered as an Investment Company under the
Act and as such, is authorized to issue up to $4,000,000 in free-trading stock
at prices ranging from $0.01 to $0.10 per share.

On February 22, 2005, the
Companys Board of Directors determined that it was in the best interest of the
Company to discontinue the offering discussed above and to investigate other financing
alternatives. Accordingly, the Company has filed a Form 2-E pursuant to the Securities Act
of 1933 notifying the SEC of the Companys termination of the offering. The Form 2-E
filing discloses that the Company received $1,820,000 of proceeds from the offering, net
of $30,000 of expenses, through the sale of 171,000,000 shares of the Companys
$0.001 par value common stock.

Through April 8,2005 the
Company issued an additional 26,000,000 shares from the conversion of convertible
debentures.