**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, 2005**





*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)





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


**Securities
      registered pursuant to Section 12(g) of the Act:** Common
      Stock, $0.0001 Par Value




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. [
      ]




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes
      [X]
      No [ ]




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. [ ]





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





Revenues
      for year ended December 31, 2005: Zero.




Aggregate
      market value of the voting common stock held by non-affiliates of the registrant
      as of March 30, 2006 was $27,317,335 (451,526,206 shares at $0.0605, which
      was
      the last reported sales price of the Company’s common stock on the Over the
      Counter Bulletin Board for such date). (See definition of affiliate in Rule
      12b-2 of the Exchange Act.)





Number
      of
      shares of the registrant's common stock outstanding as of March 30, 2006 was
      454,370,082.





Documents
      Incorporated by Reference:


·
            Form
                2-E Notification under Regulation E dated February 22,
                2005


·
            Form
                1-E Notification under Regulation E dated July 24,
                2005





Transitional
      Small Business Disclosure Format (Check one). Yes [ ] No [X]





-1-


**TABLE
      OF CONTENTS**





**PART
                I**Item
                1.Description
                of BusinessItem
                2.Description
                of PropertyItem
                3.Legal
                ProceedingsItem
                4.Submission
                of Matters to a Vote of Security Holders**PART
                II**Item
                5.Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity SecuritiesItem
                6.Management’s
                Discussion and Analysis or Plan of OperationItem
                7.Financial
                StatementsItem
                8.Changes
                in and Disagreements with Accountants on Accounting andFinancial
                DisclosureItem
                8A.Controls
                and ProceduresItem
                8B.Other
                Information**PART
                III**Item
                9.Directors,
                Executive Officers, Promoters and Control Persons;Compliance
                with Section 16(a) of the Exchange ActItem
                10.Executive
                CompensationItem
                11.Security
                Ownership of Certain Beneficial Owners and Management andRelated
                Stockholder MattersItem
                12.Certain
                Relationships and Related TransactionsItem
                13.ExhibitsItem
                14.Principal
                Accountant Fees and Services**SIGNATURES****EXHIBITS**








-2-


**Special
      Note Regarding Forward-Looking Statements**





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.





-3-


**PARTI**




**ITEM
      1. DESCRIPTION OF BUSINESS**




**GENERAL
      INFORMATION ABOUT AMERICAN ENERGY PRODUCTION, INC.**




American
      Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) 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 the companies it
      has
      invested in 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 previously known as 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.




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.


-4-




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 previously known as 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.





Business
      Development Company.


A
      BDC is
      defined and regulated by the 1940 Act. A BDC must be organized in the United
      States for the purpose of investing in or lending to primarily private companies
      and making managerial assistance available to them. A BDC may use capital
      provided by public stockholders and from other sources to invest in long-term,
      private investments in businesses. A BDC provides stockholders the ability
      to
      retain the liquidity of a publicly traded stock, while sharing in the possible
      benefits, if any, of investing in primarily privately owned companies.




As
      a BDC,
      we may not acquire any asset other than “qualifying assets”, unless at the time
      we make the acquisition, the value of our qualifying assets represent at least
      70% of the value of our total assets. The principal categories of qualifying
      assets relevant to our business are:




·Securities
                purchased in transactions not involving any public offering, the
                issuer of
                which is an eligible portfolio company;·Securities
                received in exchange for or distributed with respect to securities
                described in the bullet above or pursuant to the exercise of options,
                warrants or rights relating to such securities; and·Cash,
                cash items, government securities or high quality debt securities
                (within
                the meaning of the 1940 Act), maturing in one year or less from the
                time
                of investment.




In
      general, as a BDC, we must have at least 70% of our assets in “eligible
      portfolio companies” and certain other assets. Pursuant to section 2 (a) (46) of
      the Investment Company Act of 1940 (the “1940 Act”) “eligible portfolio company”
means any issuer which:




(A)  Is
      organized under the laws of, and has its principle business in, any state or
      states:




(B)  Is
      neither an investment company as defined in section 3 of the 1940 Act (other
      than a Small Business Investment Company which is licensed by the Small Business
      Administration to operate under the Small Business Investment Act of 1958 and
      which is a wholly owned subsidiary of the business development company) nor
      a
      company which would be an investment company except for the exclusion from
      the
      definition of investment company in section 3 (c) of the 1940 Act,
      and




(C)  Satisfies
      one the following:




(i)
      It
      does not have any class of securities with respect to which a member of a
      national securities exchange, broker, or dealer may extend or maintain credit
      to
      or for a customer pursuant to rules or regulations adopted by the Board of
      Governors of the Federal Reserve System under section 7 of the Securities
      Exchange Act of 1934;




(ii)
      It
      is controlled by a business development company, either alone or as part of
      a
      group acting together, and such business development company in fact exercises
      a
      controlling influence over the management or policies of such Eligible Portfolio
      Company and, as a result of such control, has an affiliated person who is a
      director of such Eligible Portfolio Company;




(iii)
      It
      has total assets of not more than $4,000,000, and capital and surplus
      (shareholders’ equity less retained earnings) of not less than $2,000,000,
      except that the SEC may adjust such amounts by rule, regulation, or order to
      reflect changes in one or more generally accepted indices or other indicators
      for small businesses; or factors




(iv)
      It
      meets such other criteria as the SEC may, by rule, establish as consistent
      with
      the public interest, the protection of investors, and the purpose fairly
      intended by the policy and provisions of this title.




As
      a
      business development company, we are entitled to issue senior securities in
      the
      form of stock or senior securities representing indebtedness, including debt
      securities and preferred stock, as long as each class of senior security has
      an
      asset coverage of at least 200% immediately after each such issuance. In
      addition, while any senior securities remain outstanding, we must make
      provisions to prohibit any distribution to our stockholders unless we meet
      the
      applicable asset coverage ratio at the time of the distribution. See “Risk
      Factors.”




We
      may
      also be prohibited under the 1940 Act from knowingly participating in certain
      transactions with our affiliates without the prior approval of our Board of
      Directors who are not interested persons and, in some cases, prior approval
      by
      the SEC.




-5-


We
      will
      designate a chief compliance officer and will finalize a compliance program
      pursuant to the requirements of the 1940 Act. We expect that we will be
      periodically examined by the SEC for compliance with the 1940 Act.




As
      with
      other companies regulated by the 1940 Act, a business development company must
      adhere to certain substantive regulatory requirements. A majority of our
      directors must be persons who are not interested persons, as that term is
      defined in the 1940 Act. Additionally, we are required to provide and maintain
      a
      bond issued by a reputable fidelity insurance company to protect us against
      larceny and embezzlement. Furthermore, as a business development company, we
      are
      prohibited from protecting any director or officer against any liability to
      us
      or our stockholders arising from willful misfeasance, bad faith, gross
      negligence or reckless disregard of the duties involved in the conduct of such
      person’s office.




We
      may
      not change the nature of our business so as to cease to be, or withdraw our
      election as, a business development company unless authorized by vote of a
      “majority of the outstanding voting securities,” as defined in the 1940 Act. A
      majority of the outstanding voting securities of a company is defined under
      the
      1940 Act as the lesser of: (i) 67% or more of such company’s shares present
      at a meeting if more than 50% of the outstanding shares of such company are
      present and represented by proxy or (ii) more than 50% of the outstanding
      shares of such company.




Regulated
      Investment Company Status.




We
      currently intend to elect to be treated as an RIC under Subchapter M of the
      Code. If we qualify as an RIC and elect to be treated as an RIC, we will not
      be
      taxed on our investment company taxable income or realized net capital gains,
      to
      the extent that such taxable income or gains are distributed, or deemed to
      be
      distributed, to stockholders on a timely basis.




Taxable
      income generally differs from net income for financial reporting purposes due
      to
      temporary and permanent differences in the recognition of income and expenses,
      and generally excludes net unrealized appreciation or depreciation, as gains
      or
      losses are not included in taxable income until they are realized. In addition,
      gains realized for financial reporting purposes may differ from gains included
      in taxable income as a result of our election to recognize gains using
      installment sale treatment, which results in the deferment of gains for tax
      purposes until notes received as consideration from the sale of investments
      are
      collected in cash




Dividends
      declared and paid by the Company in a year generally differ from taxable income
      for that year as such dividends may include the distribution of current year
      taxable income, the distribution of prior year taxable income carried forward
      into and distributed in the current year, or returns of capital. We are
      generally required to distribute 98% of our taxable income during the year
      the
      income is earned to avoid paying an excise tax. If this requirement is not
      met,
      the Code imposes a nondeductible excise tax equal to 4% of the amount by which
      98% of the current year’s taxable income exceeds the distribution for the year.
      The taxable income on which an excise tax is paid is generally carried forward
      and distributed to stockholders in the next tax year. Depending on the level
      of
      taxable income earned in a tax year, we may choose to carry forward taxable
      income in excess of current year distributions into the next tax year and pay
      a
      4% excise tax on such income, as required.




When
      we
      elect to be treated as an RIC, in order to maintain that status, we must, in
      general, (1) continue to qualify as a business development company;
      (2) derive at least 90% of our gross income from dividends, interest,
      gains from the sale of securities and other specified types of income;
      (3) meet asset diversification requirements as defined in the Code; and
      (4) timely distribute to stockholders at least 90% of our annual
      investment company taxable income as defined in the Code. We intend to take
      all
      steps necessary to qualify as a regulated investment company. However, there
      can
      be no assurance that we will be able to qualify for such treatment in future
      years.




-6-


Operating
      and Regulatory Structure




Our
      investment activities are managed by our executive officers and supervised
      by
      our board of directors, a majority of whom are independent directors. As a
      BDC,
      we are required to comply with certain regulatory requirements. For example,
      we
      generally cannot privately co-invest in any portfolio company with any of our
      affiliates without an exemptive order from the Securities and Exchange
      Commission, or the “SEC.” Also, while we are permitted to finance investments
      using debt, our ability to use debt is limited in certain significant respects.
      We are not currently in compliance with all of the rules and regulations related
      to operating as a BDC.




We
      currently intend to elect to be treated for federal income tax purposes as
      an
      RIC, although in order to make an effective election, we must, among other
      things, distribute most of our net income and meet certain diversification
      of
      investment, income, and other distribution requirements. If we were to elect
      RIC
      treatment and meet such requirements, we would lose the tax benefit of our
      net
      operating loss carry-forwards.




Investment
      Objectives and Policies




Our
      business model is to achieve current income and capital gains. In order to
      achieve this model, we currently intend to invest in oil and gas production
      companies, primarily in the State of Texas, USA.




Changes
      to Investment Objectives and Policies




The
      Company will operate as an investment company and expects that the contracts
      to
      which it may become a party will be designed to build an investment portfolio
      and to enhance the Company’s stockholder value through capital appreciation and
      the potential of payments of dividends to the Company by investee companies.
      The
      Company currently expects to derive revenues through direct investments into
      private companies, start-up companies, and through the opportunities provided
      by
      turn-around companies




The
      Company’s investment objectives and policies are subject to change by a majority
      affirmative vote of the Company’s Board of Directors.




Investment
      Strategy




The
      Company favors companies that it believes present opportunities for superior
      performance through internal growth, product, or geographic expansion, the
      completion of complementary add-on acquisitions, or industry consolidations.




The
      Company would prefer to be a majority investor, without a fixed time horizon
      for
      the investments. This should allow for long-term commitments. The Company can
      continue to provide capital for add-on acquisitions that help build value after
      the initial closing.




-7-


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
      these
      companies 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.
      The capital invested by the Company is generally used by the portfolio companies
      to finance growth and working capital.




Managerial
      Assistance




As
      a BDC,
      we are generally required to make managerial assistance available to our
      portfolio companies. Additionally, it is our current intention to provide
      advisory services for management buyouts, recapitalizations, and the growth
      and
      capital needs of emerging growth companies. The Company will provide fee-based
      business expertise through in-house and contract consultants.




The
      Company has relationships with potential service providers in this process
      that
      include, legal, accounting, public relations, market makers, investment banking
      firms and investors.


Although
      management has limited experience in mergers and acquisitions, it plans to
      work
      with service providers to accomplish the following steps:




(A)  Develop
      detailed understanding of management’s expected outcomes;


(B)  Develop
      a
      timetable for transaction;


(C)  Validate
      proposed transaction terms with select buyers or sellers;


(D)  Perform
      due diligence;


(E)  Prepare
      executive summary and presentation materials - including financial model;


(F)  Pre-screen
      and contact potential buyers or sellers;


(G)  Coordinate
      principal meetings;


(H)  Coach
      management on how to communicate and negotiate with buyers and sellers and
      generally facilitate the interactions between management and buyers or sellers;


(I)  Assist
      with the preparation of responses to due diligence requests;


(J)  Assist
      with the negotiation of term sheets with interested parties; and


(K)  Work
      with
      management and the investor or lender to complete due diligence process and
      negotiate final closing documents.




-8-


The
      Company expects to take a very disciplined approach to procuring debt or equity
      capital for its clients. The following is an outline of its expected
      approach:




(A)  Develop
      detailed understanding of management’s expected outcomes;


(B)  Develop
      a
      timetable for transaction;


(C)  Validate
      proposed transaction terms with select institutional investors or lenders;


(D)  Finalize
      financing strategy and market positioning;


(E)  Perform
      due diligence;


(F)  Prepare
      executive summary and presentation materials - including financial model;


(G)  Pre-screen
      and contact investors;


(H)  Coordinate
      investor meetings;


(I)  Coach
      management on how to communicate and negotiate with institutional investors
      and
      generally facilitate the interactions between management and prospective
      investors and lenders;


(J)  Assist
      with the preparation of responses to investor due diligence
      requests;


(K)  Assist
      with the negotiation of term sheets with interested parties; and


(L)  Work
      with
      management and the investor or lender to complete due diligence process and
      negotiate final closing documents.




Due
      Diligence




We
      conduct diligence on prospective portfolio companies consistent with the best
      practices approach adopted by others in our sector. We believe that our
      management has the ability and knowledge to conduct appropriate and extensive
      due diligence investigations prior to our investing in a prospective client.
      In
      conducting our due diligence, we use publicly available information, as well
      as
      information derived from former and current management teams, consultants,
      competitors and investment bankers and the direct experience of our management
      and consultants.




Our
      due
      diligence will typically include:




•
            
            review
                of historical and prospective financial information;•
            
            on-site
                visits;•
            
            interviews
                with management, employees, customers and vendors of the potential
                portfolio company;•
            
            review
                of senior loan documents;•
            
            background
                checks; and•
            
            research
                relating to the company’s management, industry, markets, products and
                services, and competitors.




Upon
      the
      completion of due diligence and a decision to proceed with an investment in
      a
      company, our management presents the opportunity to our board of directors,
      which determines whether to pursue the potential investment. Additional due
      diligence with respect to any investment may be conducted on our behalf by
      attorneys and independent accountants prior to the closing of the investment,
      as
      well as other outside advisers, as appropriate.




-9-


Valuation
      Policies




*Valuation
      of Portfolio Investments*




As
      a
      business development company, the Company’s business plan calls for it to invest
      primarily in illiquid securities issued by private companies (“Private
      Investments”). These Private Investments are generally subject to restrictions
      on resale and generally have no established trading market. The Company values
      its Private Investments at fair value as determined in good faith by the
      Company’s board-of directors in accordance with the Company’s valuation policy.
      The Company determines fair value to be the amount for which an investment
      could
      be sold in an orderly disposition over a reasonable period of time between
      willing parties other than in a forced or liquidation sale. The Company’s
      valuation policy is intended to provide a consistent basis for establishing
      the
      fair value of the portfolio. The Company will record unrealized depreciation
      on
      investments when it believes that an asset has been impaired and full collection
      for the loan or realization of an equity security is doubtful. Conversely,
      the
      Company will record unrealized appreciation if it has a clear indication that
      the underlying portfolio company appreciates in value and, therefore, the
      Company’s security has also appreciated in value. Under this valuation policy,
      the Company does not consider temporary changes in the capital markets, such
      as
      interest rate movements or changes in the public equity markets, in order to
      determine whether an investment in a private company has been impaired or
      whether a private investment has increased in value. The value of investments
      in
      public securities is determined using quoted market prices discounted for
      restrictions on resale.




*Equity
      Securities*




Equity
      interests in portfolio companies for which there is no liquid public market
      are
      valued based on the enterprise value of the portfolio company, which is
      determined using various factors, including cash flow from operations of the
      portfolio company and other pertinent factors such as recent offers to purchase
      a portfolio company’s securities or other liquidation events. The determined
      fair values are generally discounted to account for restrictions on resale
      and
      minority control positions.




The
      value
      of the Company’s equity interests in public companies for which market
      quotations are readily available is based upon the closing public market price
      for the last day up to and including the balance sheet date. Securities that
      carry certain restrictions on sale are typically valued at a discount from
      the
      public market value of the security.




Dividend
      income, if any, is recorded on cumulative preferred equity securities on an
      accrual basis to the extent that such amounts are expected to be collected
      and
      on common equity securities on the record date for private companies or on
      the
      ex-dividend date for publicly traded companies.




*Loans
      and Debt Securities*




For
      loans
      and debt securities, to the extent that we invest in them, fair value generally
      approximates cost unless the borrower’s condition or external factors lead to a
      determination of fair value at a lower amount. When the Company receives nominal
      cost warrants or free equity securities (“nominal cost equity”), the Company
      allocates its cost basis in its investment between its debt securities and
      its
      nominal cost equity at the time of origination. At that time, the original
      issue
      discount basis of the nominal cost equity is recorded by increasing the cost
      basis in the equity and decreasing the cost basis in the related debt
      securities.




-10-


Interest
      income is recorded on an accrual basis to the extent that such amounts are
      expected to be collected. For loans and debt securities with contractual
      payment-in-kind interest, which represents contractual interest accrued and
      added to the loan balance that generally becomes due at maturity, the Company
      will not accrue payment-in-kind interest if the portfolio company valuation
      indicates that the payment-in-kind interest is not collectible. Loans classified
      as Grade 4 or Grade 5 assets do not accrue interest. Loan origination fees,
      original issue discount, and market discount are capitalized and then amortized
      into interest income using the effective interest method.




The
      weighted average yield on loans and debt securities is computed as the (a)
      annual stated interest rate earned plus the annual amortization of loan
      origination fees, original issue discount and market discount earned on accruing
      loans and debt securities, divided by (b) total loans and debt securities at
      value. The weighted average yield is computed as of the balance sheet date.
      Prepayment premiums are recorded on loans when received.




*Portfolio
      Valuation Process*




Our
      methodology includes the examination of, among other things, the underlying
      investment performance, financial condition, and market-changing events that
      impact valuation. Because of the type of investments that we make and the nature
      of our business, this valuation process requires an analysis of various
      factors.




In
      our
      valuation process, we use the AICPA’s definition of “current sale,” which means
      an “orderly disposition over a reasonable period of time between willing parties
      other than in a forced or liquidation sale.”




Our
      process for determining the fair value for a private finance investment is
      applied consistently across our portfolio. The process is as follows. First,
      we
      determine the portfolio company’s enterprise value as if we were to sell it in a
“current sale.” We then evaluate the amount of our debt and the position of our
      debt in the portfolio company’s capital structure. If the enterprise value of
      the portfolio company is in excess of the amount of our last dollar of
      investment capital given our priority in the capital structure, the fair value
      of our investment will be considered to be our cost or perhaps, given the
      structure of our particular security, greater than cost if we are to share
      in
      equity appreciation. If the enterprise value of the portfolio company is less
      than our last dollar of investment capital in the capital structure, then our
      investment has declined in value and we need to reduce the fair value of our
      investment and incur a charge to our earnings by recognizing unrealized
      depreciation.




Determining
      the enterprise value of a portfolio company, as if that portfolio company were
      to be sold in a “current sale,” is a very complex process, where we must analyze
      the historical and projected financial results of the portfolio company and
      analyze the public trading market and private M&A market to determine
      appropriate purchase price multiples. In addition, a reasonable discount to
      the
      value of our securities must also be reflected when we may have restrictions
      such as vesting periods for warrants or other factors. We also take into account
      the collectibility of non-cash interest to determine if we will continue to
      accrue such interest.




*Specific
      Considerations*




The
      valuation of illiquid private securities is inherently subjective, and as a
      result, we must exercise good judgment in our valuation process. Care should
      be
      exercised to assure that we have considered the position of the portfolio
      company today and the position of our security today given the data we have
      available. Care must also be taken so that the process is not too mechanical;
      however, there are some specific considerations that should be addressed in
      our
      valuation process as follows. The ultimate goal is a reasonable estimate of
      fair
      value determined in good faith.




-11-


Methodologies
      to determine enterprise value: There is no one methodology to determine
      enterprise value. Typically in the private equity business, companies are bought
      and sold based upon multiples of EBITDA, cash flow, revenues and in limited
      instances book value. In determining a multiple to use for valuation purposes,
      we look to private M&A statistics, counted public trading multiples or
      industry practices. In determining the right multiple, one needs to consider
      not
      only the fact that our company may be private relative to a peer group, but
      one
      must consider the size and scope of our company and its specific strengths
      and
      weaknesses. In some cases, when a company is at EBITDA breakeven or slightly
      below but has excellent future prospects, the best valuation methodology may
      be
      a discounted cash flow analysis based upon future projections. If a company
      is
      distressed, a liquidation analysis may provide the best indication of enterprise
      value.




Discounts
      on common equity securities: When determining the value of common equity
      securities or warrants to purchase such securities, we need to consider what
      type of discount to apply to the value of the security if we are in a minority
      position, have restrictions on resale, have specific concerns about the
      receptivity of the M&A market to a specific company at a certain time or
      other factors. Generally, we find that we apply larger discounts when we are
      new
      to an investment, and therefore, a sponsor-controlled exit strategy has not
      yet
      been developed. As an investment in the portfolio matures, we generally need
      to
      consider whether or not we should begin to reduce discounts, especially if
      we
      are generally aware that the sponsor or controlling shareholder group has begun
      to develop an exit strategy.




When
      we
      are the controlling shareholder, the discount imposed should generally be less
      than in the case of a minority position. We may still contemplate the need
      to
      discount for the current state of the M&A market or restrictions we may have
      imposed on us due to our relationship with management or other capital
      providers.




*Competition*




Virtually
      all of our existing and potential competitors are substantially larger and
      have
      considerably greater financial, technical, and marketing resources than we
      do
      and, due to our current limited capital, it may be difficult for us to compete
      successfully with these other companies. For example, some competitors may
      have
      a lower cost of funds and access to funding sources that are not available
      to
      us. In addition, some of our competitors may have higher risk tolerances or
      different risk assessments, which could allow them to consider a wider variety
      of investments and establish more relationships than us. Furthermore, many
      of
      our competitors are not subject to the regulatory restrictions that the 1940
      Act
      imposes on us as a business development company.




**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
      previously had and could have future losses, deficits and deficiencies in
      liquidity, which could impair our ability to continue as a going concern. Our
      independent registered public accounting firm has 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.




-12-


We
      have
      incurred net losses in prior years and this resulted in a significant
      accumulated deficit and stockholders’ deficiency as of December 31, 2004. As
      reflected in the accompanying financial statements, although the Company had
      net
      income of $13,920,315 for the year ended December 31, 2005, $14,852,861 of
      this
      amount was from a non-cash unrealized gain on investments to reflect the fair
      market value of the Company’s investments as of December 31, 2005. Accordingly,
      without the unrealized gain, the Company would have had a net loss for the
      year
      ended December 31, 2005. Additionally, the Company had net cash used in
      operations of $354,099 for the year ended December 31, 2005 and a working
      capital deficiency of $207,486 at December 31, 2005. 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
      have
      substantial current obligations and at December 31, 2005, we had $678,825 of
      total liabilities. The Company does not have sufficient cash resources or
      current assets 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 historye 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.




-13-


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.




-14-


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.




16.  Company
      resources utilized to be a BDC. The
      Company’s significant compliance costs as a BDC, in terms of both time and
      dollars, have operated as a drag on the Company’s resources and in many respects
      have diverted the effective utilization of capital previously raised by the
      Company to effectuate its overall investment business plan. Further, since
      the
      Company commenced operating as a BDC, the business, regulatory and financial
      climates have changed, making operations as a BDC more challenging and
      difficult.





17.  Non-Compliance
      with the requirements of the 1940 Act or as a BDC .
      The
      Board of Directors is currently reviewing the Company’s compliance with the 1940
      Act, in order to determine if it is in compliance with several important
      provisions of the 1940 Act, including the capital structure requirements. There
      is a risk that the SEC could take enforcement action against the Company if
      the
      SEC determines that the Company has not been operating in compliance with the
      1940 Act.




-15-


**EMPLOYEES**







As
      of
      March 30, 2006, 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 March
      30,
      2006, 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, 2005.





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 previous sole director. As of December 31, 2005 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 the future 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 and
      a 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 $62,798 of unpaid Federal payroll taxes and employee
      withholdings and related penalties and interest in its accrued expenses as
      of
      December 31, 2005. Such amounts are subject to potential federal tax liens.





**ITEM
      4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**





None




-16-


**PARTII**


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





As
      of
      March 30, 2006, the Company had 454,370,082 shares of common stock issued and
      outstanding and had approximately 449 certificate stockholders of record.
      Additionally, the Company had 75,000 shares issuable.





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".





The
      following table sets forth certain information as to the high and low bid
      quotations quoted on the OTCBB for our 2005 and 2004 fiscal years. 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.




**Period**
              **High**
              **Low**First
                  Quarter 2005
              0.03
              0.01Second
                  Quarter
              0.02
              0.01Third
                  Quarter
              0.10
              0.01Fourth
                  Quarter
              0.09
              0.05First
                  Quarter 2004
              0.09
              0.05Second
                  Quarter
              0.07
              0.02Third
                  Quarter
              0.05
              0.02Fourth
                  Quarter
              0.03
              0.01




The
      bid
      price of our common stock was $0.0605
      per share on March 30, 2006.





**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.





-17-


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 $0.0001 par
      value common stock.





On
      July
      24, 2005, 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 $5,000,000 of the
      Company’s common stock at prices between $0.015 and $0.10 per share, or
      50,000,000 and 333,333,333 shares, respectively. As a registered Investment
      Company under the Act, the Company is authorized to issue up to $5,000,000
      in
“free-trading” stock at prices ranging from $0.0015 to $0.10 per
      share.





As
      a
      result of the July 2005 1-E filing discussed above, through December 31, 2005,
      the Company received $2,240,633 of proceeds from the offering, net of $193,967
      of expenses, through the sale of 127,930,758 shares of the Company’s $0.0001 par
      value common stock.




**SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS AS OF DECEMBER
      31** **,
      2005**





There
      are
      no equity compensation plans authorized for the Company.




**OUR
      TRANSFER AGENT IS:**


Transfer
      Online, Inc.


227
      SW
      Pine Street, Suite 300


Portland,
      OR 97204


Telephone:
      (503) 227-2950


Fax:
      (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.





-18-


**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATIONS**




**SPECIAL
      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.





-19-


**GENERAL**




American
      Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) 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 previously known as 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.




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.





-20-


**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. Although the Company had net income of
      $13,920,315 for the year ended December 31, 2005, $14,852,861 of this amount
      was
      from a non-cash unrealized gain on investments to reflect the fair market value
      of the Company’s investments as of December 31, 2005. Accordingly, without the
      unrealized gain, the Company would have had a net loss for the year ended
      December 31, 2005. Additionally, the Company had net cash used in operations
      of
      $354,099 for the year ended December 31, 2005 and a working capital deficiency
      of $207,486 at December 31, 2005. The Company is also in default on certain
      notes to banks and is in the development stage with minimal revenues. During
      the
      years ended December 31, 2004 and 2003, the Company reported net losses of
      $5,049,995 and $1,939,035, 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 portfolio companies 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, 2005 for our
      majority-owned portfolio companies.





Description
            
            **Production**
              **Resources,
                Inc.**
            ****
            **Bend
                Arch Petroleum, Inc.**
            ****
            **Oil
                America Group**
            ****
            **AMEP
                Strategic Investments**Revenue
            
            $
            290,692
            
            $
            1,445,255
            
            $
            15,503
            
            $
            -Expenses
            
            
            398,238
            
            
            1,929,681
            
            
            68,595
            
            
            306Operating
                Loss
            
            
            (107,546
            )
            
            (484,426
            )
            
            (53,092
            )
            
            (306
            )Other
                Income
            
            
            -
            
            
            112,946
            
            
            4,631
            
            
            -Net
                Loss
            
            $
            (107,546
            )
            $
            (371,480
            )
            $
            (48,461
            )
            $
            (306
            )




-21-


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.





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.





On
      July
      24, 2005, 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 $5,000,000 of the
      Company’s common stock at prices between $0.015 and $0.10 per share, or
      50,000,000 and 333,333,333 shares, respectively. As a registered Investment
      Company under the Act, the Company is authorized to issue up to $5,000,000
      in
“free-trading” stock at prices ranging from $0.0015 to $0.10 per
      share.





As
      a
      result of the July 2005 1-E filing discussed above, through December 31, 2005,
      the Company received $2,240,633 of proceeds from the offering, net of $193,967
      of expenses, through the sale of 127,930,758 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, 2005. 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.




-22-


**GOING
      CONCERN**




The
      independent registered public accounting firms’ reports to our financial
      statements at December 31, 2005 and 2004 and for the years ended December 31,
      2005, 2004 and 2003, include an explanatory paragraph in addition to their
      audit
      opinion stating that our recurring losses from operations, net cash used in
      operations, stockholders’ (deficiency) equity, working capital deficiency, being
      in default on certain notes payable to banks and being in the development stage
      with no revenues as a business development company 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
      2005. 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 previous 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 were 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, 2005.





-23-


**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.





As
      a BDC,
      for financial statement purposes, investments are recorded at their value in
      our
      financial statements. Value, as defined in Section 2(a)(41) of the 1940 Act,
      is
      (i) the market price for those securities for which a market quotation is
      readily available and (ii) for all other securities and assets, fair value
      as
      determined in good faith by the board of directors. 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.





Because
      there is typically no readily available market value for the investments in
      our
      portfolio, we value substantially all of our investments at fair value as
      determined in good faith by our 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.





**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 at December 31, 2004 was
      $1,757,832 and increased by $317,066 in 2005 to $2,074,898 at December 31,
      2005.
      Net operating loss carry-forwards aggregate approximately $6,102,639 and expire
      in the years through 2025.





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.




-24-


**RESULTS
      OF OPERATIONS**




Results
      of Operations




Fiscal
      year ended December 31, 2005 compared to fiscal year ended December 31, 2004
      and
      compared to fiscal year ended December 31, 2003.


********Year
                  Ended December 31,****Investments
                  and Pre-BDC Operating Income**
              
              **2005**
              
              **2004**
              
              **2003**Oil
                  sales, net - Pre-BDC
              
              $
              -
              
              $
              40,010
              
              $
              6,648Investment
                  income - portfolio investmentsDividends
              
              
              -
              
              
              -
              
              
              -Interest
              
              
              -
              
              
              -
              
              
              -**Total
                  Investments and Pre-BDC Operating Income**
              
              
              **-**
              
              
              **40,010**
              
              
              **6,648****Expenses**Compensation
              
              
              120,000
              
              
              600,995
              
              
              61,601Consulting
              
              
              38,259
              
              
              256,934
              
              
              997,463Depletion
              
              
              -
              
              
              3,690
              
              
              297Depreciation
              
              
              7,894
              
              
              45,820
              
              
              28,247Equipment
                  rental
              
              
              -
              
              
              42,000
              
              
              21,000General
                  and administrative
              
              
              42,098
              
              
              61,682
              
              
              48,657Production
              
              
              -
              
              
              91,363
              
              
              51,360Professional
              
              
              140,595
              
              
              157,229
              
              
              91,041Website
              
              
              -
              
              
              28,550
              
              
              327,750**Total
                  Expenses**
              
              
              **348,846**
              
              
              **1,288,263**
              
              
              **1,627,415****Net
                  investment and pre-BDC operating loss**
              
              
              **(348,846**
              **)**
              
              **(1,248,252**
              **)**
              
              **(1,620,767**
              **)****Realized
                  and Unrealized Gain (Loss) from Investments and Other Income
                  (Expenses)**Gain
                  on settlement of debt
              
              
              -
              
              
              18,364
              
              
              -Other
                  income
              
              
              17,429
              
              
              6,726
              
              
              -Unrealized
                  gain on investments
              
              
              14,852,861
              
              
              -
              
              
              -Interest
                  expense
              
              
              (595,125
              )
              
              (3,820,828
              )
              
              (145,264
              )Payroll
                  tax expense and penalties
              
              
              (6,004
              )
              
              (6,004
              )
              
              (6,004
              )Loss
                  on settlement
              
              
              -
              
              
              -
              
              
              (167,000
              )**Total
                  Realized and Unrealized Gain (Loss) from Investments and Other
                  Income
                  (Expenses)**
              
              
              **14,269,161**
              
              
              **(3,801,742**
              **)**
              
              **(318,268**
              **)****Net
                  Income (Loss)**
              
              **$**
              **13,920,315**
              
              **$**
              **(5,049,995**
              **)**
              **$**
              **(1,939,035**
              **)**






-25-


For
      the year ended December 31, 2005





*Oil
      sales* *:*





Oil
      sales
      decreased $40,010, or 100%, to zero for 2005 from $40,010 for 2004. 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.




*Operating
      Expenses* *:*





Operating
      expenses decreased $939,417, or 73%, to $348,846 for 2005 from $1,288,263 for
      2004. The decrease was primarily the result of a $480,995 decrease in
      compensation, a $218,675 decrease in consulting, a $91,363 decrease in
      production and a $42,000 decrease in equipment rental. The decrease in
      compensation and consulting was primarily from a decrease in stock issued for
      these services in 2004 as compared to none in 2005. The decrease in production
      and equipment rental was related to oil and gas expenses in 2004 when the
      Company was not a BDC.





*Other
      Income (Expense)* *:*





Other
      income (expense) increased $18,070,093 of income, or 475% to $14,269,161 of
      income for 2005 from $3,801,742 of expense for 2004. The increase was primarily
      from a $14,852,861 increase for an unrealized gain on investments to reflect
      the
      fair value of the Company’s portfolio investments as of December 31, 2005. This
      increase was offset by a $3,225,703 decrease in interest expense in 2005 as
      compared to 2004 due to a convertible debenture beneficial conversion
      feature.





For
      the year ended December 31, 2004





*Oil
      sales* *:*





Oil
      sales
      increased $33,362, 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 $339,152, or 434%, to $1,288,263 for 2004 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.





-26-


*Other
      Income (Expense)* *:*





Other
      income (expense) increased $3,483,474 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.




**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents were $471,339 at December 31, 2005 as compared to $268,665
      at
      December 31, 2004, and working capital deficit was $207,486 at December 31,
      2005. The increase in cash was primarily from $2,240,633 of net proceeds from
      the issuance of common stock, offset by $1,650,556 of net advances to the
      Company’s majority-owned investees and $354,099 of cash used in operating
      activities.





*Operating
      Activities*





Cash
      used
      in operating activities was $354,099 for the year ended December 31, 2005
      compared to cash used of $511,266 for the year ended December 31, 2004. The
      decrease in cash used in operating activities was primarily that even though
      the
      Company recorded net income of $13,920,315, this amount includes a $14,852,861
      unrealized gain on investments to reflect the fair value of the Company’s
      portfolio investments as of December 31, 2005. Excluding this amount, the
      Company would have reported a net loss in the amount of $932,546. Additionally,
      by offsetting the $932,546 amount for $583,639 of interest expense related
      to
      the beneficial conversion feature on convertible debentures, the net amount
      would be $348,908 of cash used in operating activities and this represents
      an
      explanation for approximately 99% of the $354,099 of cash used in operating
      activities as discussed previously.





*Investing
      Activities*





Cash
      used
      in investing activities was $1,650,556 for the year ended December 31, 2005
      compared to $1,831,819 at December 31, 2004. The increase in cash used resulted
      entirely from an increase in advances made by the Company for its majority-owned
      investees.





*Financing
      Activities*





Cash
      provided by financing activities was $2,207,329 for the year ended December
      31,
      2005 compared to cash provided of $2,611,318 for the year ended December 31,
      2004. The increase in cash provided resulted primarily from $2,240,633 of net
      proceeds from the issuance of common stock, offset by $33,304 of repayments
      of
      loans.




Our
      principal uses of cash to date have been for operating activities and we have
      funded our operations during fiscal years 2005, 2004 and 2003 primarily by
      incurring indebtedness in the form of convertible debentures and issuing common
      stock.





-27-


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, 2005:




**DEBT**





*Our
      debt at December 31, 2005 and 2004 consisted of the following:*





***Lease
      Payable***




**2005******
            
            **2004**$21,238
                computer equipment lease, bearing interest at 10% per
                annum
            
            $
            16,131
            
            $
            18,153





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,
      2005, the balance of principal was $16,131. 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, 2005, the Company has
      recorded a total of $7,494 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, 2005, the
      transaction has not been finalized as the lessor has not agreed to the
      settlement. The Company expects to fully resolve this matter in the future
      at
      which time the value of the shares exchanged and any related gain or loss will
      be determined and recognized.





-28-


***Notes
      payable - Banks***





**2005******
            
            **2004**$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.
            
            $
            -
            
            $
            17,464$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.
            
            
            -
            
            
            13,818$
            -
            
            $
            31,282





On
      March
      12, 2001, we obtained a revolving bank line of credit in the amount of $70,000,
      of which $17,464 was outstanding at June 30, 2005. 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 was secured by all equipment, which had been repossessed as of December
      31, 2001 and $23,075 was applied to the balance. In August 2005, the entire
      balance was paid in full resulting in zero outstanding.





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 and the loan is secured
      by
      the automobile. In August 2005, the entire balance was paid in full resulting
      in
      zero outstanding.





***Loans
      and Note Payable Settlement with Related Party***





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.





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.





-29-


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.





***Convertible
      Debentures:***




**2005******
            
            **2004**$250,000
                Convertible Debenture, dated May 20, 2004, bearing interest at 8%
                per
                annum and due on December 1, 2005
            
            $
            -
            
            $
            70,000$400,000
                Convertible Debentures, dated June 15, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005
            
            
            57,967
            
            
            400,000$400,000
                Convertible Debentures, dated August 17, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005
            
            
            -
            
            
            400,000Less:
                Debt discount
            
            
            -
            
            
            (583,639
            )$
            57,967
            
            $
            286,361





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 was shown
      as
      outstanding even though the convertible debenture holder informed the Company
      that an election was made June 1, 2004 to convert the balance into common shares
      of the Company. Subsequently, the Company’s transfer agent determined that the
      conversion did occur and the common shares were issued to the convertible
      debenture holder even though the transfer agent report erroneously excluded
      the
      common share issuance. As of December 31, 2005, the transfer agent has corrected
      their report and show 7,000,000 shares of common stock issued to the convertible
      debenture holder at a price of $0.01 per share (50% of the closing share price
      on June 1, 2004, the effective conversion price.





As
      a
      result of the above conversions, all $250,000 of the convertible debenture
      has
      been converted.


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, 2005, all
      $250,000 of the debt discount has been amortized to interest
      expense.




-30-


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. 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. An agreement was reached
      whereby $342,033 of advances made by the Company to PRI during 2005, were used
      to reduce the convertible debenture balance to $57,967 as of December 31, 2005.
      The Company anticipates that an agreement will be structured whereby additional
      advances made by the Company will be utilized to eliminate the remaining
      balance. However, no agreement has been reached as of the date of these
      Financial Statements and the $57,967 balance is in default as the due date
      was
      December 1, 2005.




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 was amortized over the debt term
      of 17.5 months or through the due date of December 5, 2005. As of December
      31,
      2005, all $400,000 of the debt discount has been amortized to interest expense.




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). On January 18, 2005, the convertible debenture holder
      elected to convert $38,462 of the balance into common shares of the Company
      and
      as a result of the conversion, 2,500,000 shares of common stock were issued
      at
      $0.015386 per share. On January 31, 2005, the convertible debenture holder
      elected to convert $38,462 of the balance into common shares of the Company
      and
      as a result of the conversion, 2,500,000 shares of common stock were issued
      at
      $0.015386 per share. On February 2, 2005, the convertible debenture holder
      elected to convert $153,846 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
      $0.015386 per share. On February 14, 2005, the convertible debenture holder
      elected to convert $169,231 of the balance into common shares of the Company
      and
      as a result of the conversion, 11,000,000 shares of common stock were issued
      at
      $0.015386 per share.





As
      a
      result of the above conversions, all $1,000,000 of the convertible debenture
      has
      been converted.





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, 2005, all
      $1,000,000 of the debt discount has been amortized to interest
      expense.


-31-




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
      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.




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).





-32-


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.




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




During
      2005, 33,000,000 shares of common stock were issued from the conversion of
      $470,000 of convertible debentures discussed above.





As
      of
      December 31, 2005, the Company has recorded $153,124 of
      accrued interest 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
      balance as of December 31, 2005.





***Equity
      Financing***





For
      the
      years ended December 31, 2005, 2004 and 2003 the Company received $2,240,633,
      $717,500 and $217,323 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.


-33-





**Contractual
      Obligations and Commercial Commitments**





The
      following table highlights, as of December 31, 2005, our contractual obligations
      and commitments by type and period:


**Payments
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than 1 year**
            
            **1-3
                years**
            
            **4-5
                years**
            
            **After
                5 years**Debt:Lease
                Payable.
            
            $
            16,131
            
            $
            16,131
            
            $
            -
            
            $
            -
            
            $
            -Convertible
                Debentures
            
            
            57,967
            
            
            57,967
            
            
            -
            
            
            -
            
            
            -Accrued
                Interest Payable
            
            
            130,165
            
            
            130,165
            
            
            -
            
            
            -
            
            
            -Total
                Debt
            
            $
            204,263
            
            $
            204,263
            
            $
            -
            
            $
            -
            
            $
            -




**200** **6
      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





-34-


**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 principal executive officer and
      financial officer 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 audit committee, hired qualified members of the
      Board
      of Directors with significant experience related to the Company’s primary
      business plan and committed significant funds for legal and accounting work
      and
      the preparation of financial statements and audits. All of the above enables
      our
      Company's principal executive officer and financial officer 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
      March
      2006, the Board of Directors met and discussed the Company’s status as a BDC.
      When the Company elected to become a BDC, it was its intention to provide debt
      and equity capital to companies that it believed presented opportunities for
      superior performance through liquidity events, recapitalizations, internal
      growth, product or geographic expansion, the completion of complementary add-on
      acquisitions, or industry consolidations. The Company generally expected to
      invest in emerging and development-stage companies which otherwise lacked the
      necessary capital and depth of management to expand their businesses.




The
      Board
      of Directors is currently reviewing the Company’s compliance with the 1940 Act,
      in order to determine if it is in compliance with several important provisions
      of the 1940 Act, including the capital structure requirements. There is a risk
      that the SEC could take enforcement action against the Company if the SEC
      determines that the Company has not been operating in compliance with the 1940
      Act.





The
      Company’s significant compliance costs as a BDC, in terms of both time and
      dollars, have operated as a drag on the Company’s resources and in many respects
      have diverted the effective utilization of capital previously raised by the
      Company to effectuate its overall investment business plan. Further, since
      the
      Company commenced operating as a BDC, the business, regulatory and financial
      climates have changed, making operations as a BDC more challenging and
      difficult.





At
      the
      time of this report, the Board of Directors has not completed its review of
      the
      Company’s compliance with the 1940 Act.


-35-


**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, 2005, 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, 2005.





**Name**
            **Age**
            **Position**
            **Years
                of Service**Charles
                Bitters
            59
            President,
                CEO and
            4DirectorAugust
                Trevino
            49
            Director
            Since
                June 2005John
                Powell
            62
            Director
            Since
                November 2005







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 previously 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. Effective January 1, 2006, each member
      of the Board of Directors will be compensated at rate of $1,000 per month and
      will be reimbursed for expenses related to their activities.





-36-


None
      of
      our Officers and/or Directors signing this annual report 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.





Mr.
      Larry
      Horner was appointed a member of the Board of Directors in March 2006. In 1990,
      Mr. Horner filed for personal protection under Chapter 7 of the United States
      Bankruptcy Code.





**BOARD
      OF DIRECTORS/EXECUTIVE OFFICERS**





*Charles
      Bitters* is
      President, CEO and director of the Company. 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.





*August
      Trevino* has been
      a director of the Company since June 2005. Mr.
      Trevino is the owner of Venture Capital Assistance Group Inc. Venture Capital
      Assistance Group specializes in helping start-up companies acquire financing
      and
      management advice.





*John
      Powell* has been
      a director of the Company since November 2005. Mr. Powell is s easoned
      business professional with an extensive career in real estate including
      significant experience in development, construction and mortgage lending,
      structured sale events, federal housing and community development programs,
      asset management and disposition, appraisal and brokerage. He has been an
      entrepreneur, manager, team leader, and as an independent professional. Since
      2004, Mr. Powell has been a principal of J Powell Group LLC, a Carrollton,
      Texas
      based management consulting firm.




On
      March
      27, 2006, Mr. Larry Horner was appointed an Independent Director of the Company.
      Mr. Horner is a licensed Certified Public Accountant in the State of Texas,
      is a
      financial consultant, and will be Chairman of the Corporate Governance
      committee.





**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 0.8% of
      our
      stock as of March 30, 2006.





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 previous 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.





-37-


**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.





**SIGNIFICANT
      EMPLOYEES**





We
      have
      no employees who are not executive officers, but who are expected to make a
      significant contribution to the Company’s business.





**AUDIT
      COMMITTEE FINANCIAL EXPERT**





The
      SEC
      has adopted rules to implement certain requirements of the Sarbanes-Oxley Act
      of
      2002 pertaining to public company audit committees. One of the rules adopted
      by
      the SEC requires a company to disclose whether it has an “audit committee
      financial expert” serving on its audit committee. Our board of directors has not
      yet established an audit committee. In March 2006, the Company appointed Mr.
      Larry Horner as an independent member of the Board of Directors. Mr. Powell
      is a
      Certified Public Accountant and we believe he will meet the requirement of
      the
      audit committee financial expert.





**CODE
      OF ETHICS**





We
      have
      not yet adopted a code of ethics policy but the Board of Directors intends
      to
      adopt a code of ethics policy in the future.





**ITEM
      10. EXECUTIVE COMPENSATION**





**SUMMARY
      COMPENSATION TABLE**





The
      following table shows for the fiscal years ending December 31, 2005, 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"):





-38-





**Annual
                Compensation**
            **Long
                Term Compensation****Awards****Other**
            
            **Restricted****Stock**
            
            **Underlying**
            
            **Securities****Award(s)**
            
            **Options
                /**
            
            **Payouts****Name
                  and**
            
            **Year**
            
            **Salary**
            
            **Compensation**
            
            **($)**
            
            **SARs**
            
            **Compensation**
            
            **Payouts****Principal
                  Position**
            
            **($)**
            
            **($)**
            
            **($)**
            
            **($)**
            
            **(#)**
            
            **($)**
            
            **LTIP
                All Other**Charles
                Bitters
            
            
            2003
            
            $
            60,000
            
            
            -0-
            
            
            -0-
            
            $
            0
            
            
            -0-
            
            
            -0-CEO,
                President
            
            
            2004
            
            $
            120,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-And
                Director
            
            
            2005
            
            $
            120,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-





There
      were no grants of Stock Options or SAR ’s were
      issued or granted to our management during the calendar fiscal years ended
      December 31, 2005, 2004 or 2003, or the period ending on the date of this annual
      report.





No
      deferred compensation or long-term incentive plan awards were issued or granted
      to our management during the calendar fiscal years ended December 31, 2005,
      2004
      or 2003, or the period ending on the date of this annual report.




**EMPLOYMENT
      AGREEMENTS**





Effective
      July 1, 2003, the Company entered into a salary and equipment rental agreement
      with its president and previous 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 previous 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 previous 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. During the
      year
      ended December 31, 2005, the Company has accrued 120,000 for compensation.
      Additionally, the president and previous sole director advanced $26,270 of
      funds
      on behalf of the Company and the Company has repaid $355,000 resulting in an
      accrual balance of $102,725 as of December 31, 2005, classified as a component
      of Due To Related Parties in the accompanying Financial Statements.




-39-


**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 March
      30,
      2006, the number and percentage of outstanding shares of our Common Stock
      indicated in the following table:




**Shares
                Beneficially****Name
                and Address**
            
            **Owned
                Outstanding**
            
            **Percentage
                of Shares**Charles
                Bitters (3)
            
            
            2,843,846
            
            
            Less
                than 1
            %President,
                CEO and Chairman353
                South Hackberry AveNew
                Braunfels, TX 78130August
                Trevino
            
            
            -0-
            
            
            -0-Director6073
                Hwy 281 SouthMineral
                Wells, TX 76067John
                Powell
            
            
            -0-
            
            
            -0-Director1917
                Vista Oaks DriveCarrollton,
                TX 75007Total
                ownership by our
            
            
            2,843,846
            
            
            Less
                than 1
            %officers
                and directors(three
                individuals)





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





(2)
      Based
      on 454,370,082
      shares of our Common Stock issued and outstanding as of March 30, 2006.





(3)
      Includes 137,846 held directly in the name of Charles Bitters and 2,706,000
      held
      in street name. The ownership amounts were obtained from Section 16 reports
      filed with the SEC.





(4)
      In
      March 2006, Mr. Larry Horner was appointed as a member of the Company’s Board of
      Directors. As of the date of this annual report, Mr. Horner has no ownership
      in
      the Company.


-40-


**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**




The
      following disclosures comply with generally accepted accounting principles
      and
      the disclosure requirements under the SEC Regulation SX, Article 6, with regard
      to affiliate investments and transactions. See Schedule of Investments for
      identification of Investments in Affiliates.




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 previous 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 previous 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 previous 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 previous sole director occurs (See Note 5 - Debt and Note 8 -
      Commitments and Contingencies). The Company’s president and previous sole
      director has personally guaranteed the obligation. As of June 30, 2005, 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 during 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 previous 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 .





-41-


Effective
      July 1, 2003, the Company entered into a salary and equipment rental agreement
      with its president and previous 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 previous 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 previous 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. During the
      year
      ended December 31, 2005, the Company has accrued 120,000 for compensation.
      Additionally, the president and previous sole director advanced $26,270 of
      funds
      on behalf of the Company and the Company has repaid $355,000 resulting in an
      accrual balance of $102,725 as of December 31, 2005, 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, 2005, the Company advanced directly or indirectly,
      $1,645,556 of funds to its wholly-owned investees. In total, the Company has
      advanced $3,370,342 of funds to its wholly-owned investees and is included
      in
      the asset account entitled “Investment in and advanced to
      affiliates-majority-owned.




**ITEM
      13. EXHIBITS**


(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
            Form
                2-E Notification under Regulation E dated February 22,
                2005
            Incorporated
                by Reference3.2
            Form
                1-E Notification under Regulation E dated July 24, 2005
            Incorporated
                by Reference31.1
            Certification
                by Principal Executive Officer
            Attached31.2
            Certification
                of Principal Financial Officer
            Attached32
            Certifications
                of Principal Executive and Financial Officer Pursuant to
                906
            Attached





-42-


Item
      14. Principal Accountant Fees And Services




*Audit
      Fees*




The
      aggregate fees billed for the years ended December 31, 2005 and 2004 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-Q or services that are normally
      provided by the accountant in connection with statutory and regulatory filings
      or engagements for the years ended December 31, 2005 and 2004 was $30,000 and
      $33,000, respectively.




*Audit-Related
      Fees.*




The
      aggregate fees billed for the years ended December 31, 2005 and 2004 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 $0 and $900,
      respectively.




*Tax
      Fees*




No
      fees
      were billed for the years ended December 31, 2005 and 2004 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, 2005 and 2004 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, 2005 were attributed to work performed by persons other than
      Salberg’s full-time, permanent employees.





-43-


**SIGNATURES**





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








**AMERICAN
                ENERGY PRODUCTION, INC.**Date: April
              17, 2006
            By:
            /s/ Charles
              BittersCharles
              BittersPresident,
              CEO and Director





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 the registrant
      and
      in the capacities and on the dates indicated:








/s/
                Charles Bitters
              Charles
                Bitters
            President,
                Chief Executive Officer and Director (Principal Executive, Financial
                and
                Accounting Officer)
            April
                17, 2006/s/
                Alex Trevino
              Alex
                Trevino
            Director
            April
                17, 2006/s/
                John Powell
              John
                Powell
            Director
            April
                17, 2006









-44-
 **American
        Energy Production, Inc.**





**Page
                No.**Report
                of Independent Registered Public Accounting FirmBalance
                Sheets at December 31, 2005 and 2004Statements
                of Operations for the years ended December 31,
                2005, 2004 and 2003Statements
                of Changes in Stockholders’ Equity (Deficiency) for
                the years endedDecember
                31, 2005, 2004 and 2003Statement
                of Changes in Net Assets for the years ended December
                31, 2005 and 2004Statement
                of Cash Flows for the years ended December 31, 2005,
                2004 and 2003Schedule
                of Investments at December 31, 2005Notes
                to Financial Statements







F-1-


REPORT
      OF
INDEPENDENTREGISTERED 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) including
      the schedule of investments as of December 31, 2005 and 2004, and the related
      statements of operations, changes in stockholders’ equity (deficiency), and cash
      flows for the years ended December 31, 2005, 2004 and 2003 and for the period
      from February 20, 2003 (inception of development stage) to December 31, 2005,
      and the statement of changes in net assets for the years ended December 31,
      2005
      and 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
      $18,758,170 (98% of total assets and 101% 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, 2005 and 2004, and the results of
      its
      operations and its cash flows for the years ended December 31, 2005, 2004 and
      2003 and for the period from February 20, 2003 (inception of development stage)
      to December 31, 2005, and the statement of changes in net assets for the years
      ended December 31, 2005 and 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,
      although the Company had net income of $13,920,315 for the year ended December
      31, 2005, $14,852,861 of this amount was from a non-cash unrealized gain on
      investments to reflect the fair market value of the Company’s investments as of
      December 31, 2005. Accordingly, without the unrealized gain, the Company would
      have had a net loss for the year ended December 31, 2005. Additionally, the
      Company had net cash used in operations of $354,099 for the year ended December
      31, 2005 and a working capital deficiency of $207,486 at December 31, 2005.
      The
      Company is also in default on certain notes to banks and is in the development
      stage with no revenues. These items 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


SALBERG
&
              COMPANY, P.A.Date: April
              17, 2006
            By:
            /s/ SALBERG
              & COMPANY, P.A.SALBERG
&
COMPANY,
              P.A.Boca
              Raton, Florida





F-2-





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




**December****31,****2005**
            
            **2004****ASSETS****Current
                Assets**Cash
            
            $
            471,339
            
            $
            268,665Total
                Current Assets
            
            
            **471,339**
            
            
            **268,665****Property
                and equipment, net**
            
            
            **27,030**
            
            
            **34,923****Investments:**Investments
                in and advances to affiliates - majority-owned
            
            
            18,758,170
            
            
            2,596,786Total
                Investments
            
            **$**
            **18,758,170**
            
            **$**
            **2,596,786****Total
                Assets**
            
            **$**
            **19,256,539**
            
            **$**
            **2,900,374****LIABILITIES****Current
                Liabilities**Accounts
                payable
            
            
            309,040
            
            
            264,354Due
                to related parties
            
            
            102,725
            
            
            125,225Convertible
                debentures, net of discount
            
            
            57,966
            
            
            286,361Accrued
                interest payable
            
            
            130,165
            
            
            171,440Accrued
                payroll taxes and penalties
            
            
            62,798
            
            
            56,793Lease
                payable
            
            
            16,131
            
            
            18,153Notes
                payable - banks
            
            
            -
            
            
            31,282**Total
                Current Liabilities**
            
            **$**
            **678,825**
            
            **$**
            **953,608****Net
                Assets**
            
            **$**
            **18,577,714**
            
            **$**
            **1,946,766****Commitments
                and Contingencies (Note 8)**




See
      accompanying notes to financial statements.





F-3-





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




**December****31,****2005**
            
            **2004****Stockholders'
                Equity**Convertible
                preferred stock, Series B, $0.0001 par value,5,000,000
                shares authorized, 4,000,000 issued and outstanding
            
            $
            400
            
            $
            400Common
                stock, $0.0001 par value, 500,000,000 shares authorized452,870,082
                and 269,530,234 shares issued and outstanding
            
            
            45,287
            
            
            26,953Common
                stock issuable, $0.0001 par value, 75,000 and
              4,075,000
                shares
            
            
            8
            
            
            408Additional
                paid in capital
            
            
            21,542,084
            
            
            18,041,885Accumulated
                deficit
            
            
            (9,360,491
            )
            
            (9,360,491
            )Retained
                earnings (deficit) accumulated during development stage
            
            
            7,159,926
            
            
            (6,760,389
            )19,387,214
            
            
            1,948,766Less:
                Subscription Receivable
            
            
            (809,500
            )
            
            (2,000
            )**Total
                Stockholders' Equity**
            
            
            **18,577,714**
            
            
            **1,946,766****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **19,256,539**
            
            **$**
            **2,900,374**





See
      accompanying notes to financial statements.





F-4-





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




**2005**
            
            **Year
                Ended**
              **December
                31,**
              **2004**
            
            **2003**
            
            **Period
                from**
              **February
                20, 2003**
              **(Inception
                of**
              **Development
                Stage)**
              **to
                December 31, 2005****Investment
                and Pre-BDC Operating Income**Oil
                sales, net - Pre-BDC
            
            $
            -
            
            $
            40,010
            
            $
            6,648
            
            $
            46,658Investment
                income - portfolio investmentsDividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Total
                Investment and Pre-BDC Operating Income**
            
            
            **-**
            
            
            **40,010**
            
            
            **6,648**
            
            
            **46,658****Expenses**Compensation
            
            
            120,000
            
            
            600,995
            
            
            61,601
            
            
            782,596Consulting
            
            
            38,259
            
            
            256,934
            
            
            997,463
            
            
            1,125,193Depletion
            
            
            -
            
            
            3,690
            
            
            297
            
            
            3,987Depreciation
            
            
            7,894
            
            
            45,820
            
            
            28,247
            
            
            81,960Equipment
                rental
            
            
            -
            
            
            42,000
            
            
            21,000
            
            
            63,000General
                and administrative
            
            
            42,098
            
            
            61,682
            
            
            48,656
            
            
            152,437Production
            
            
            -
            
            
            91,363
            
            
            51,360
            
            
            142,723Professional
            
            
            140,595
            
            
            157,229
            
            
            91,041
            
            
            374,698Website
            
            
            -
            
            
            28,550
            
            
            327,750
            
            
            322,583**Total
                Expenses**
            
            
            **348,846**
            
            
            **1,288,263**
            
            
            **1,627,415**
            
            
            **3,049,177****Net
                investment and pre-BDC operating loss**
            
            
            **(348,846**
            **)**
            
            **(1,248,253**
            **)**
            
            **(1,620,767**
            **)**
            
            **(3,002,519**
            **)****Realized
                and Unrealized Gain (Loss) from Investments and Other Income
                (Expenses)**Gain
                on settlement of debt
            
            
            -
            
            
            18,364
            
            
            -
            
            
            18,364Unrealized
                gain on investments
            
            
            14,852,861
            
            
            -
            
            
            -
            
            
            14,852,861Other
                income
            
            
            17,429
            
            
            6,726
            
            
            -
            
            
            24,155Interest
                expense
            
            
            (595,125
            )
            
            (3,820,828
            )
            
            (145,264
            )
            
            (4,548,772
            )Payroll
                tax expense and penalties
            
            
            (6,004
            )
            
            (6,004
            )
            
            (6,004
            )
            
            (17,163
            )Loss
                on settlement
            
            
            -
            
            
            -
            
            
            (167,000
            )
            
            (167,000
            )**Total
                Realized and Unrealized Gain (Loss) from Investments and Other Income
                (Expenses)**
            
            
            **14,269,161**
            
            
            **(3,801,742**
            **)**
            
            **(318,268**
            **)**
            
            **10,162,445****Net
                Income (Loss)**
            
            **$**
            **13,920,315**
            
            **$**
            **(5,049,995**
            **)**
            **$**
            **(1,939,035**
            **)**
            **$**
            **7,159,926****Net
                Income (Loss) Per Share-Basic and Diluted**
            
            **$**
            **0.04**
            
            **$**
            **(0.03**
            **)**
            **$**
            **(0.03**
            **)**
            **$**
            **0.03****Weighted
                average Shares**
            
            
            **349,106,911**
            
            
            **184,212,699**
            
            
            **72,996,905**
            
            
            **209,958,003**


See
      accompanying notes to financial statements





F-5-
 
 **American
          EnergyProduction, Inc.**
 **(A
          Development Stage Company)**
 **Statements
          of Changes in Stockholders’ Equity (Deficiency)**
 **Years
          Ended December 31, 2005, 2004 and 2003**


****
            ****
            ****
            ****
            ****
            ****
            ****
            **Deficit**
            ****
            ****
            ****
            **Total**
            ********
            ****
            **Preferred
                Stock**
            ****
            **Preferred
                Stock**
            ****
            **Common
                Stock**
            ****
            **Common
                Stock**
            ****
            **Issuable**
            ****
            **Issuable**
            ****
            **Subscription**
            ****
            **Additional
                Paid In**
            ****
            **Accumulated**
            ****
            **Accumulated
                Development**
            ****
            **Deferred**
            ****
            **Stockholders’
                Equity**
            ********
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Receivable**
            ****
            **Capital**
            ****
            **Deficit**
            ****
            **Stage**
            ****
            **Services**
            ****
            **(Deficiency)****BALANCE
                AT DECEMBER 31, 2002**
            
            
            **-**
            
            **$**
            **-**
            
            
            **42,448,592**
            
            **$**
            **4,245**
            
            
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **8,639,750**
            
            **$**
            **(9,131,850**
            **)**
            **$**
            **-**
            
            **$**
            **(359,896**
            **)**
            **$**
            **(847,751**
            **)**Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            27,300,000
            
            
            2,730
            
            
            -
            
            
            -
            
            
            -
            
            
            1,025,070
            
            
            -
            
            
            -
            
            
            (45,900
            )
            
            981,900Common
                stock issued for settlement
            
            
            -
            
            
            -
            
            
            250,000
            
            
            25
            
            
            -
            
            
            -
            
            
            -
            
            
            17,475
            
            
            -
            
            
            -
            
            
            -
            
            
            17,500Common
                stock issued and issuable for cash, net of offering costs
                $1,696,648
            
            
            -
            
            
            -
            
            
            24,939,757
            
            
            2,494
            
            
            8,575,000
            
            
            858
            
            
            -
            
            
            213,972
            
            
            -
            
            
            -
            
            
            -
            
            
            217,323Common
                stock issued in exchange for chemical
            
            
            -
            
            
            -
            
            
            1,000,000
            
            
            100
            
            
            -
            
            
            -
            
            
            -
            
            
            10,900
            
            
            -
            
            
            -
            
            
            -
            
            
            11,000Common
                stock cancelled
            
            
            -
            
            
            -
            
            
            (2,886,900
            )
            
            (289
            )
            
            -
            
            
            -
            
            
            -
            
            
            289
            
            
            -
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            359,896
            
            
            359,896Net
                loss, year ended December 31, 2003
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (228,641
            )
            
            (1,710,394
            )
            
            -
            
            
            (1,939,035
            )**BALANCE
                AT DECEMBER 31, 2003**
            
            
            **-**
            
            **$**
            **-**
            
            
            **93,051,449**
            
            **$**
            **9,305**
            
            
            **8,575,000**
            
            **$**
            **858**
            
            **$**
            **-**
            
            **$**
            **9,907,456**
            
            **$**
            **(9,360,491**
            **)**
            **$**
            **(1,710,394**
            **)**
            **$**
            **(45,900**
            **)**
            **$**
            **1,199,167**
            **)**









See
      accompanying notes to financial statements




F-6-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Statements
      of Changes in Stockholders’ Equity (Deficiency)**


**Years
      Ended December 31, 2005, 2004 and 2003** ***(Continued)***







****
            
            ****
            
            **Deficit**
            
            ****
            
            **Total******
            
            **Preferred
                Stock**
            
            **Preferred
                Stock**
            
            **Common
                Stock**
            
            **Common
                Stock**
            
            **Issuable**
            
            **Issuable**
            
            **Subscription**
            
            **Additional
                Paid In**
            
            **Accumulated**
            
            **Accumulated
                Development**
            
            **Deferred**
            
            **Stockholders’
                Equity******
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Receivable**
            
            **Capital**
            
            **Deficit**
            
            **Stage**
            
            **Services**
            
            **(Deficiency)****BALANCE
                AT DECEMBER 31, 2003**
            
            
            -
            
            $
            -
            
            
            93,051,449
            
            $
            9,305
            
            
            8,575,000
            
            $
            858
            
            $
            -
            
            $
            9,907,456
            
            $
            (9,360,491
            )
            $
            (1,710,394
            )
            $
            (45,900
            )
            $
            (1,199,167
            )Common
                stock issued for conversion ofconvertible
                debentures
            
            
            -
            
            
            -
            
            
            131,333,333
            
            
            13,133
            
            
            -
            
            
            -
            
            
            -
            
            
            1,366,867
            
            
            -
            
            
            -
            
            
            -
            
            
            1,380,000Common
                stock issued for subscription receivable
            
            
            -
            
            
            -
            
            
            6,200,000
            
            
            620
            
            
            -
            
            
            -
            
            
            (2,000
            )
            
            61,380
            
            
            -
            
            
            -
            
            
            -
            
            
            60,000Convertible
                debentures beneficial conversionfeature
                value
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,280,000
            
            
            -
            
            
            -
            
            
            -
            
            
            4,280,000Common
                stock issued for cash,
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -net
                of offering costs of $134,500
            
            
            -
            
            
            -
            
            
            19,745,452
            
            
            1,975
            
            
            -
            
            
            -
            
            
            -
            
            
            715,525
            
            
            -
            
            
            -
            
            
            -
            
            
            717,500Common
                stock that was issuable at 12-31-03
            
            
            -
            
            
            -
            
            
            8,500,000
            
            
            850
            
            
            (8,500,000
            )
            
            (850
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued upon conversionof
                debentures for services
            
            
            -
            
            
            -
            
            
            1,000,000
            
            
            100
            
            
            -
            
            
            -
            
            
            -
            
            
            29,900
            
            
            -
            
            
            -
            
            
            -
            
            
            30,000Common
                stock issued in exchange for chemical
            
            
            -
            
            
            -
            
            
            700,000
            
            
            70
            
            
            -
            
            
            -
            
            
            -
            
            
            25,930
            
            
            -
            
            
            -
            
            
            -
            
            
            26,000Common
                stock issued for acquisition
            
            
            -
            
            
            -
            
            
            5,000,000
            
            
            500
            
            
            4,000,000
            
            
            400
            
            
            -
            
            
            471,100
            
            
            -
            
            
            -
            
            
            -
            
            
            472,000Preferred
                stock issued for conversion of debt
            
            
            3,500,000
            
            
            350
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            528,182
            
            
            -
            
            
            -
            
            
            -
            
            
            528,532Compensation
                expense in excess of debt to officer
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            480,995
            
            
            -
            
            
            -
            
            
            -
            
            
            480,995Preferred
                stock issued for services
            
            
            500,000
            
            
            50
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            134,950
            
            
            -
            
            
            -
            
            
            -
            
            
            135,000Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            2,000,000
            
            
            200
            
            
            -
            
            
            -
            
            
            -
            
            
            19,800
            
            
            -
            
            
            -
            
            
            -
            
            
            20,000Common
                stock issued in exchange for equipment
            
            
            -
            
            
            -
            
            
            2,000,000
            
            
            200
            
            
            -
            
            
            -
            
            
            -
            
            
            19,800
            
            
            -
            
            
            -
            
            
            -
            
            
            20,000Amortization
                of deferred services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            45,900
            
            
            45,900Net
                loss, year ended December 31, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,049,995
            )
            
            -
            
            
            (5,049,995
            )**BALANCE
                AT DECEMBER 31, 2004**
            
            
            **4,000,000**
            
            **$**
            **400**
            
            
            **269,530,234**
            
            **$**
            **26,953**
            
            
            **4,075,000**
            
            **$**
            **408**
            
            **$**
            **(2,000**
            **)**
            **$**
            **18,041,885**
            
            **$**
            **(9,360,491**
            **)**
            **$**
            **(6,760,389**
            **)**
            **$**
            **-**
            
            **$**
            **1,946,766**





F-7-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Statements
      of Changes in Stockholders’ Equity (Deficiency)**


****
            
            ****
            
            ****
            
            ****
            
            ****
            
            ****
            
            ****
            
            ****
            
            **Deficit**
            
            ****
            
            **Total******
            
            **Preferred
                Stock**
            
            **Preferred
                Stock**
            
            **Common
                Stock**
            
            **Common
                Stock**
            
            **Issuable**
            
            **Issuable**
            
            **Subscription**
            
            **Additional
                Paid In**
            
            **Accumulated**
            
            **Accumulated
                Development**
            
            **Deferred**
            
            **Stockholders’
                Equity******
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Receivable**
            
            **Capital**
            
            **Deficit**
            
            **Stage**
            
            **Services**
            
            **(Deficiency)****BALANCE
                AT DECEMBER 31, 2004**
            
            
            **4,000,000**
            
            **$**
            **400**
            
            
            **269,530,234**
            
            **$**
            **26,953**
            
            
            **4,075,000**
            
            **$**
            **408**
            
            **$**
            **(2,000**
            **)**
            **$**
            **18,041,885**
            
            **$**
            **(9,360,491**
            **)**
            **$**
            **(6,760,389**
            **)**
            **$**
            **-**
            
            **$**
            **1,946,766**Common
                stock issued for conversion ofconvertible
                debentures
            
            
            -
            
            
            -
            
            
            33,000,000
            
            
            3,300
            
            
            -
            
            
            -
            
            
            -
            
            
            466,700
            
            
            -
            
            
            -
            
            
            -
            
            
            470,000Common
                stock issued for subscription receivable
            
            
            -
            
            
            -
            
            
            18,409,090
            
            
            1,841
            
            
            -
            
            
            -
            
            
            (807,500
            )
            
            805,679
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for cash,net
                of offering costs of $193,967
            
            
            -
            
            
            -
            
            
            127,930,758
            
            
            12,793
            
            
            -
            
            
            -
            
            
            -
            
            
            2,227,840
            
            
            -
            
            
            -
            
            
            -
            
            
            2,240,633Common
                stock issued for issuable shares
            
            
            -
            
            
            -
            
            
            4,000,000
            
            
            400
            
            
            (4,000,000
            )
            
            (
                400
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income, year ended December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,920,315
            
            
            -
            
            
            13,920,315**BALANCE
                AT DECEMBER 31, 2005**
            
            
            **4,000,000**
            
            **$**
            **400**
            
            
            **452,870,082**
            
            **$**
            **45,287**
            
            
            **75,000**
            
            **$**
            **8**
            
            **$**
            **(809,500**
            **)**
            **$**
            **21,542,085**
            
            **$**
            **(9,360,491**
            **)**
            **$**
            **7,159,926**
            
            **$**
            **-**
            
            **$**
            **18,577,714**







See
      accompanying notes to financial statements





F-8-





**American
                EnergyProduction, Inc.****(A
                Development Stage Company)****Statement
                of Changes in Net Assets**




**Year
                  Ended****December
                  31, 2005**
              
              **December
                  31, 2004**Increase
                  in net assets from operations:Net
                  operating loss
              
              $
              (932,546
              )
              $
              (5,049,995
              )Unrealized
                  gain on investments
              
              
              14,852,861
              
              
              -Net
                  increase in net assets from operations
              
              
              13,920,315
              
              
              (5,049,995
              )Common
                  Stock transactions
              
              
              2,710,633
              
              
              8,195,927Total
                  increase in Net Assets
              
              
              16,630,948
              
              
              3,145,932Net
                  Assets:Beginning
                  of Period
              
              
              1,946,766
              
              
              (1,199,166
              )End
                  of period
              
              $
              18,577,714
              
              $
              1,946,766







See
      accompanying notes to financial statements








F-9-


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







**Period
                  from****February
                  20, 2003****Year
                  Ended**
              
              **(Inception
                  of****December
                  31,**
              
              **Development
                  Stage)****2005**
              
              **2004**
              
              **2003**
              
              **to
                  December 31, 2005****Cash
                  Flows From Operating Activities:****Net
                  income (loss)**
              
              $
              13,920,315
              
              $
              (5,049,995
              )
              $
              (1,939,035
              )
              $
              7,159,926Adjustments
                  to reconcile net loss to net cashused
                  in operations:Stock
                  issued for debt and services
              
              
              -
              
              
              185,000
              
              
              1,134,895
              
              
              951,555Stock
                  issued for equipment
              
              
              -
              
              
              20,000
              
              
              -
              
              
              20,000Stock
                  issued for chemical
              
              
              -
              
              
              26,000
              
              
              -
              
              
              37,000Stock
                  issued in settlement
              
              
              -
              
              
              -
              
              
              17,500
              
              
              17,500Unrealized
                  gain on investments
              
              
              (14,852,861
              )
              
              -
              
              
              -
              
              
              (14,852,861
              )Gain
                  on settlement of debt
              
              
              -
              
              
              (18,364
              )
              
              -
              
              
              (18,364
              )Loss
                  on settlement
              
              
              -
              
              
              -
              
              
              -
              
              
              149,500Interest
                  expense related to convertibledebentures
                  beneficial conversion feature
              
              
              583,639
              
              
              3,696,361
              
              
              -
              
              
              4,280,000Comp
                  expense in excess of debt to officer
              
              
              -
              
              
              480,995
              
              
              -
              
              
              480,995Amortization
                  of deferred services
              
              
              -
              
              
              45,900
              
              
              -
              
              
              405,796Depreciation
              
              
              7,894
              
              
              45,820
              
              
              9,031
              
              
              81,960Depletion
              
              
              -
              
              
              3,690
              
              
              73
              
              
              3,987Decrease
                  in accounts receivable - related party
              
              
              -
              
              
              10,132
              
              
              -
              
              
              3,484Decrease
                  in cash overdraft
              
              
              -
              
              
              (6,726
              )
              
              -
              
              
              (6,726
              )Increase
                  in accounts payable
              
              
              44,685
              
              
              14,679
              
              
              7,580
              
              
              68,252Decrease
                  in due to related party
              
              
              (22,500
              )
              
              (95,230
              )
              
              -
              
              
              (46,776
              )Increase
                  (decrease) in accrued interest payable
              
              
              (41,275
              )
              
              124,467
              
              
              104,600
              
              
              216,023Increase
                  in accrued payroll taxes payable
              
              
              6,004
              
              
              6,005
              
              
              4,503
              
              
              17,161**Net
                  Cash Used In Operating Activities**
              
              
              **(354,099**
              **)**
              
              **(511,266**
              **)**
              
              **(660,853**
              **)**
              
              **(1,031,588**
              **)****Cash
                  Flows From Investing Activities:**Purchase
                  of equipment
              
              
              -
              
              
              (145,074
              )
              
              (13,800
              )
              
              (178,975
              )Prepaid
                  advances to affiliates
              
              
              (1,650,556
              )
              
              (1,724,786
              )
              
              -
              
              
              (3,375,342
              )Purchase
                  of oil lease
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,500
              )**Net
                  Cash Used In Investing Activities**
              
              **$**
              **(1,650,556**
              **)**
              **$**
              **(1,831,819**
              **)**
              **$**
              **(28,300**
              **)**
              **$**
              **(3,562,817**
              **)**








See
      accompanying notes to financial statements




F-10-





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




****Year
                  Ended****
                **December
                  31,**
              
              
              **Period
                        from**February 20, 2003(Inception
                    ofDevelopment Stage)**2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **to
                  December 31, 2005****Cash
                Flows From Financing Activities:**Proceeds
                  for note payable - officer
              
              $
              -
              
              $
              -
              
              $
              32,297
              
              $
              32,070Repayment
                  of officer loan
              
              
              -
              
              
              -
              
              
              (115
              )
              
              (115
              )Proceeds
                  from loan - other
              
              
              -
              
              
              19,396
              
              
              35,000
              
              
              54,396Repayment
                  of loan proceeds - other
              
              
              (33,304
              )
              
              (35,578
              )
              
              (35,000
              )
              
              (105,976
              )Proceeds
                  from issuance of convertible debentures
              
              
              -
              
              
              1,850,000
              
              
              -
              
              
              1,850,000Proceeds
                  from issuance of common stock, netof
                  offering costs of $193,967 and $134,500
              
              
              2,240,633
              
              
              777,500
              
              
              124,047
              
              
              3,235,456Repayment
                  of lease payable
              
              
              -
              
              
              -
              
              
              (200
              )
              
              (87
              )**Net
                  Cash Provided By Financing Activities**
              
              
              **2,207,329**
              
              
              **2,611,318**
              
              
              **156,029**
              
              
              **5,065,744****Net
                  Increase (Decrease) in Cash**
              
              
              **202,674**
              
              
              **268,233**
              
              
              **(533,124**
              **)**
              
              **471,339****Cash
                  at Beginning of Period**
              
              
              **268,665**
              
              
              **432**
              
              
              **-**
              
              
              **-****Cash
                  at End of Period**
              
              **$**
              **471,339**
              
              **$**
              **268,665**
              
              **$**
              **(533,124**
              **)**
              **$**
              **471,339****Supplemental
                  disclosure of cash flow information:**Cash
                  interest paid
              
              $
              -
              
              $
              124,467
              
              $
              -
              
              $
              126,467Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
  **Supplemental
                  disclosure of non-cash Investing and financing
                  transactions:**Asset
                  acquisition paid with convertible note payable
              
              $
              -
              
              $
              -
              
              $
              2,000,000
              
              $
              2,000,000Conversion
                  of note payable to convertible debenture
              
              
              -
              
              
              2,000,000
              
              
              -
              
              
              2,000,000Conversion
                  of indebtedness to preferred stock
              
              
              -
              
              
              528,532
              
              
              -
              
              
              528,532Conversion
                  of conv. debentures to common stock
              
              
              470,000
              
              
              1,380,000
              
              
              -
              
              
              1,850,000Conversion
                  of conv. debentures by advances
              
              
              342,033
              
              
              -
              
              
              -
              
              
              342,033Asset
                  acquisition paid with conv. debenture and stock
              
              
              -
              
              
              800,000
              
              
              -
              
              
              800,000Asset
                  acquisition paid with stock
              
              
              -
              
              
              72,000
              
              
              -
              
              
              72,000Common
                  stock issued for subscription receivable
              
              
              807,500
              
              
              2,000
              
              
              -
              
              
              809,500Stock
                  Subscription receivable (23,964,530 shares)
              
              
              -
              
              
              -
              
              
              106,277
              
              
              -Transfer
                  of assets and liabilities to affiliate:Oil
                  and gas properties and equipment, net
              
              
              -
              
              
              2,074,498
              
              
              -
              
              
              2,074,498Convertible
                  debenture
              
              
              -
              
              
              2,000,000
              
              
              -
              
              
              2,000,000Accrued
                  interest payable
              
              
              -
              
              
              71,014
              
              
              -
              
              
              71,014










See
      accompanying notes to financial statements





F-11-





**American
                Energy Production, Inc.****(A
                Development Stage Company)****Schedule
                of Investments****December
                31, 2005****Percentage
                of****Title
                of**
            
            **Class
                Held on****Portfolio**
            
            
            
            **Securities
                Held**
            
            **a
                Fully Diluted**
            
            **At
                December 31, 2005****Company**
            
            **Industry**
            
            **By
                The Company**
            
            **Basis
                (2)**
            
            **Cost**
            
            **Fair
                Value****Control
                Investments - Majority Owned (1)**Production
                Resources, Inc.
            
            
            Oil
                and Gas Production
            
            
            Common
                Stock
            
            
            100
            %
            $
            967,065
            
            $
            4,639,085Oil
                America Group, Inc.
            
            
            Oil
                and Gas Production
            
            
            Common
                Stock
            
            
            100
            %
            
            187,000
            
            
            187,000Bend
                Arch Petroleum, Inc.
            
            
            Oil
                and Gas Production
            
            
            Common
                Stock
            
            
            100
            %
            
            2,670,688
            
            
            13,856,529AMEP
                Strategic Investments
            
            
            Investment
            
            
            Common
                Stock
            
            
            100
            %
            
            75,556
            
            
            75,556**Total
                Control Investments - Majority Owned**
            
            
            
            
            
            
            
            
            
            
            $
            3,900,309
            
            $
            18,758,170**Total
                Investments**
            
            
            
            
            
            
            
            
            
            
            
            **3,900,309**
            
            
            **18,758,170****Unearned
                Income**
            
            
            
            
            
            
            
            
            
            
            
            **-**
            
            
            **-****Total
                Investments, net of Unearned Income**
            
            
            
            
            
            
            
            
            
            
            **$**
            **3,900,309**
            
            **$**
            **18,758,170**(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-12-


**1.**  **HISTORY
      AND NATURE OF BUSINESS**







American
      Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) 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. Accordingly, the
      Company is presently registered as an Investment Company under the
      Act.




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.




F-13-


**2.**  **GOING
      CONCERN**




As
      reflected in the accompanying financial statements, although the Company had
      net
      income of $13,920,315 for the year ended December 31, 2005, $14,852,861 of
      this
      amount was from a non-cash unrealized gain on investments to reflect the fair
      market value of the Company’s investments as of December 31, 2005. Accordingly,
      without the unrealized gain, the Company would have had a net loss for the
      year
      ended December 31, 2005. Additionally, the Company had net cash used in
      operations of $354,099 for the year ended December 31, 2005 and a working
      capital deficiency of $207,486 at December 31, 2005. The Company is also in
      default on certain notes to banks and is in the development stage with no
      revenues as a BDC. 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.




In
      January 2004, we filed an election to become subject to Sections 55 through
      65
      of the Investment Company Act of 1940, such that we could commence conducting
      our business activities as a BDC. 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.




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. However, the filing was not acknowledged
      by the SEC and the Company re-filed the Form with the SEC, with an effective
      date of June 30, 2005. 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.




On
      July
      24, 2005, 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 $5,000,000 of the
      Company’s common stock at prices between $0.015 and $0.10 per share, or
      50,000,000 and 333,333,333 shares, respectively. As a registered Investment
      Company under the Act, the Company is authorized to issue up to $5,000,000
      in
“free-trading” stock at prices ranging from $0.0015 to $0.10 per
      share.




As
      a
      result of the July 2005 1-E filing discussed above, through December 31, 2005,
      the Company received $2,240,633 of proceeds from the offering, net of $193,967
      of expenses, through the sale of 127,930,758 shares of the Company’s $0.001 par
      value common stock (See Note 8- Commitments and Contingencies).




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.




F-14-


**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 the
      State of 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.





**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 *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 (See
      Note 4 - Investments).




F-15-


**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 previous 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
            
            $
            1,651,000Accumulated
                depletion
            
            
            (297
            )$
            1,650,703


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.


F-16-





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
            
            
            $
            391,400Accumulated
                depreciation
            
            
            
            (28,247
            )$
            363,153




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--------------------------|****Developed**
              **Non-Producing**
            **Undeveloped**
            **Total**
              **Proved**Gross
                Remaining ReservesOil/Condensate
                - Barrels
            
            
            
            2,198,662
            
            
            -
            
            
            2,198,662Gas
                - MMCF
            
            
            
            2,979
            
            
            -
            
            
            2,979Income
                DataFuture
                Net Revenue
            
            
            $
            59,971,644
            
            
            -
            
            $
            59,971,644Deductions
            
            
            
            (22,099,575
            )
            
            -
            
            
            (22,099,575
            )Future
                Net Income (FNI)
            
            
            $
            37,872,069
            
            
            -
            
            $
            37,872,069Discounted
                FNI at 10%
            
            
            $
            26,777,850
            
            
            -
            
            $
            26,777,850




F-17-


**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, 2005 and 2004.





**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,
      2005.





**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.





F-18-


**Value
      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.





As
      a BDC,
      for financial statement purposes, investments are recorded at their value in
      our
      financial statements. Value, as defined in Section 2(a)(41) of the 1940 Act,
      is
      (i) the market price for those securities for which a market quotation is
      readily available and (ii) for all other securities and assets, fair value
      as
      determined in good faith by the board of directors. 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).





Because
      there is typically no readily available market value for the investments in
      our
      portfolio, we value substantially all of our investments at fair value as
      determined in good faith by our 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.





**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”.




F-19-


**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. As of December 31, 2005, the Company had
      exceeded FDIC limits by $376,336.





**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.





F-20-


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 2004 and 2003 financial statements have been reclassified to
      conform to the 2005 presentation.




**4.**
            **INVESTMENTS
                IN AND ADVANCES TO
                AFFILIATES**





As
      of
      December 31, 2005, investments consisted of the following:


**Cost**
            
            **Fair
                Value**Investments
                in Equity Securities
            
            $
            3,900,309
            
            $
            18,758,170Less:
                Unearned Income
            
            
            -
            
            
            -Total
            
            $
            3,900,309
            
            $
            18,758,170




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.




F-21-


At
      June
      15, 2004, the full consideration was paid by the Company and in accordance
      with
      the rules of a BDC, the $800,000 purchase price for the capital stock of PRI
      was
      recorded as an investment in affiliate - majority-owned. Additionally, the
      terms
      of the agreement exchanged the $400,000 promissory note for a $400,000
      convertible debenture. As of June 15, 2004, the Company had advanced $366,598
      of
      expenditures on behalf of PRI and effective with the acquisition, this amount
      was reclassed as a component of the investment in affiliate -
      majority-owned.





As
      of
      December 31, 2005, the total investment and advance in affiliate for PRI
      reflected in the accompanying financial statements is $4,639,085, comprised
      of
      $967,065 of historical cost and an unrealized gain on investments of $3,672,020. The
      unrealized gain on investments is included as a component of realized and
      unrealized gain (loss) from investments and Other Income (Expenses) in the
      accompanying Statement of Operations for the year ended December 31, 2005. The
      $967,065 of historical cost is net of a $342,033 reduction of the $400,000
      convertible debenture discussed above for advances made by the Company on behalf
      of PRI. The fair value of this investment was 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, 2005, the Company had made $2,670,688 of net advances on behalf
      of
      its majority-owned affiliate, Bend Arch Petroleum, Inc., (“Bend Arch”). As of
      December 31, 2005, the total investment and advance in affiliate for Bend Arch
      reflected in the accompanying financial statements is $13,856,529, comprised
      of
      $2,670,688 of historical cost and an unrealized gain on investments of
      $11,185,841. The unrealized gain on investments is included as a component
      of
      realized and unrealized gain (loss) from investments and Other Income (Expenses)
      in the accompanying Statement of Operations for the year ended December 31,
      2005. The fair value of this investment was 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.





On
      February 20, 2003 (the “Acquisition Date”), the Company acquired from a certain
      related party assignor, who is controlled by the brother (see Note 5 - Debt
      and
      Note 9 - 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 5 - 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.




F-22-


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
      $115,000 of advances on behalf of its OAG. Including the advances, the total
      of
      $187,000 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.





As
      of
      December 31, 2005, the Company had made $75,556 of net advances on behalf of
      its
      majority-owned affiliate, AMEP Strategic Investments, Inc., (“AMEP Strategic”)
      and this amount has been recorded as investment in and advances to affiliates
      in
      the accompanying balance sheet.




**5.
      DEBT**


*Our
      debt at December 31, 2005 and 2004 consisted of the following:*





***Lease
                Payable***
            
            **2005**
            
            **2004**$21,238
                computer equipment lease, bearing interest at 10% per
                annum
            
            $
            16,131
            
            $
            18,153


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,
      2005, the balance of principal was $16,131. 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, 2005, the Company has
      recorded a total of $7,494 in accrued interest for this lease payable in the
      accompanying Balance Sheet.




F-23-


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, 2005, the
      transaction has not been finalized as the lessor has not agreed to the
      settlement. The Company expects to fully resolve this matter in the future
      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***





**2005**
            
            **2004**$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.
            
            
            -
            
            $
            17,464$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.
            
            
            
            
            
            13,818$
            -
            
            $
            31,282


On
      March
      12, 2001, we obtained a revolving bank line of credit in the amount of $70,000,
      of which $17,464 was outstanding at June 30, 2005. 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 was secured by all equipment, which had been repossessed as of December
      31, 2001 and $23,075 was applied to the balance. In August 2005, the entire
      balance was paid in full resulting in zero outstanding.




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 and the loan is secured
      by
      the automobile. In August 2005, the entire balance was paid in full resulting
      in
      zero outstanding.




***Loans
      and Note Payable Settlement with Related Party***




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.




F-24-


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 6 - Stockholders’ Equity and Note 9 - Related Party
      Transactions.




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 6 - Stockholders
      Equity).




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.




***Convertible
      Debentures:***


****


**2005**
            
            **2004**$250,000
                Convertible Debenture, dated May 20, 2004, bearing interest at 8%
                per
                annum and due on December 1, 2005
            
            $
            -
            
            $
            70,000$400,000
                Convertible Debentures, dated June 15, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005
            
            
            57,967
            
            
            400,000$400,000
                Convertible Debentures, dated August 17, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005
            
            
            -
            
            
            400,000Less:
                Debt discount
            
            
            -
            
            
            (583,639
            )$
            57,967
            
            $
            286,361


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 was shown
      as
      outstanding even though the convertible debenture holder informed the Company
      that an election was made June 1, 2004 to convert the balance into common shares
      of the Company. Subsequently, the Company’s transfer agent determined that the
      conversion did occur and the common shares were issued to the convertible
      debenture holder even though the transfer agent report erroneously excluded
      the
      common share issuance. As of December 31, 2005, the transfer agent has corrected
      their report and show 7,000,000 shares of common stock issued to the convertible
      debenture holder at a price of $0.01 per share (50% of the closing share price
      on June 1, 2004, the effective conversion price.


As
      a
      result of the above conversions, all $250,000 of the convertible debenture
      has
      been converted.




F-25-


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, 2005, all
      $250,000 of the debt discount has been amortized to interest
      expense.




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. 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. An agreement was reached
      whereby $342,033 of advances made by the Company to PRI during 2005, were used
      to reduce the convertible debenture balance to $57,967 as of December 31, 2005.
      The Company anticipates that an agreement will be structured whereby additional
      advances made by the Company will be utilized to eliminate the remaining
      balance. However, no agreement has been reached as of the date of these
      Financial Statements and the $57,967 balance is in default as the due date
      was
      December 1, 2005.




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 was amortized over the debt term
      of 17.5 months or through the due date of December 5, 2005. As of December
      31,
      2005, all $400,000 of the debt discount has been amortized to interest expense.




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).




On
      January 18, 2005, the convertible debenture holder elected to convert $38,462
      of
      the balance into common shares of the Company and as a result of the conversion,
      2,500,000 shares of common stock were issued at $0.015386 per share. On January
      31, 2005, the convertible debenture holder elected to convert $38,462 of the
      balance into common shares of the Company and as a result of the conversion,
      2,500,000 shares of common stock were issued at $0.015386 per share. On February
      2, 2005, the convertible debenture holder elected to convert $153,846 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 $0.015386 per share. On
      February 14, 2005, the convertible debenture holder elected to convert $169,231
      of the balance into common shares of the Company and as a result of the
      conversion, 11,000,000 shares of common stock were issued at $0.015386 per
      share.




As
      a
      result of the above conversions, all $1,000,000 of the convertible debenture
      has
      been converted.




F-26-


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, 2005, all
      $1,000,000 of the debt discount has been amortized to interest
      expense.




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,
      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.




F-27-


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.




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




During
      2005, 33,000,000 shares of common stock were issued from the conversion of
      $470,000 of convertible debentures discussed above.




As
      of
      December 31, 2005, the Company has recorded $153,124 of
      accrued interest 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
      balance as of December 31, 2005.




**6.
      STOCKHOLDERS’ EQUITY**




**Capital
      Structure**




We
      are
      authorized to issue up to 500,000,000 shares of our common stock, $0.0001 par
      value per share, of which 452,870,082 were issued and outstanding as of December
      31, 2005. However, in December 2003, 8,500,000 of previously issued shares
      were
      cancelled as the Company had exceeded the 100,000,000 share limit authorized
      at
      that time. These 8,500,000 shares were reissued in January 2004 with an approved
      vote to increase the authorized shares (See below). Additionally, as of December
      31, 2005, 75,000 shares were issuable as discussed below.




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. As of December 31, 2005, 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.




F-28-


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 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 - 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 was recorded in operations for 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
      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.




F-29-


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.




F-30-


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 that
      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 5 -
      Debt).




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




F-31-


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
      BDC.




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.




In
      January and February 2005, the Company issued a total of 26,000,000 shares
      of
      common stock at $0.015386 per share from the conversion of convertible
      debentures.




In
      March
      2005, the Company issued $2,500,000 shares of common stock at $0.01 per share
      to
      an entity in exchange for a $25,000 subscription receivable. The stock was
      valued at $0.01, the fair market value on the date of the transaction.
      Subsequently, the shares were issued in August 2005. As of December 31, 2005,
      the subscription receivable was still outstanding.




In
      June
      2005, the Company issued 4,000,000 shares of common stock that was issuable
      at
      March 31, 2005. 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.




F-32-


In
      June
      2005, the Company received $185,000 of proceeds from the sale of 18,500,000
      shares of common stock to two groups. The stock was valued at $0.01, the fair
      market value on the date of the sale. Subsequently, the shares were issued
      in
      August 2005.




In
      November 2005, the Company issued 909,090 shares of common stock at $0.03575
      per
      share to an entity in exchange for a $32,500 subscription receivable. The stock
      was valued at $0.03575, the fair market value on the date of the transaction.
      As
      of December 31, 2005, the subscription receivable was still outstanding.
      Subsequently, in February 2006, $32,500 of cash proceeds was received in payment
      of the subscription receivable.




In
      December 2005, the Company’s transfer agent determined that 15,000,000 shares
      that were actually issued to a third party in June 2004 had been erroneously
      excluded by the transfer agent from the reports provided the Company.
      Additionally, it was determined that the shares should not have been issued
      at
      all as the Company did not give authority to the transfer agent for the issuance
      of the shares. As of December 31, 2005, the transfer agent has corrected their
      report and show the 15,000,000 shares of common stock issued to the third party
      at a price of $0.05 per share (the fair market value closing share price in
      December 2005). Accordingly, the Company has recorded the fair value amount
      of
      $750,000 as a subscription receivable as of December 31, 2005 and is in
      discussions with both the third party and the transfer agent as to the
      settlement of this amount. As of the date of these financial statements, no
      settlement has been completed.




That
      Company issued 909,090 shares of common stock at $0.03575 per share to an entity
      in exchange for a $32,500 subscription receivable. The stock was valued at
      $0.03575, the fair market value on the date of the transaction. As of December
      31, 2005, the subscription receivable was still outstanding. Subsequently,
      in
      February 2006, $32,500 of cash proceeds was received by the Company in payment
      of the subscription receivable.




As
      a
      result of the July 2005 1-E filing discussed previously, through December 31,
      2005, the Company received $2,240,633 of proceeds from the offering, net of
      $193,967 of expenses, through the sale of 127,930,758 shares of the Company’s
      $0.001 par value common stock (See Note 8 - Commitments and
      Contingencies).




***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.




F-33-


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, 2005, 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,
      2005.




As
      of
      December 31, 2005, the Company has 75,000 shares issuable as detailed above.




***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).




F-34-


**7** **.**  **INCOME
      TAXES**





There
      was
      no income tax during 200 5,
      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:





**2005**
            
            **2004**
            
            **2003**Computed
                “expected” tax expense (benefit)
            $
            4,732,907
            $
            (1,716,998)
            $
            (581,534)Stock
                based issuances
            
            -
            
            78,540
            
            462,161Unrealized
                gain on investments
            
            (5,049,973)
            
            -
            
            -Change
                in valuation allowance
            
            317,066
            
            1,638,458
            
            119,373$
            -
            $
            -
            $
            -





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


**2005**
            
            ******2004**Deferred
                tax assetsNet
                operating loss
            
            $
            2,074,898
            
            $
            1,757,832Total
                deferred tax assets
            
            
            2,074,898
            
            
            1,757,832Valuation
                allowance
            
            
            (2,074,898
            )
            
            (1,757,832
            )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 at December 31, 2004 was
      $1,757,832 and increased by $317,066 in 2005 to $2,074,898 at December 31,
      2005.
      The Net operating loss carry-forwards aggregate approximately $6,102,639 and
      expire in years through 2025. 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.





F-35-


**8.
      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, 2005.




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 previous sole director occurs (see Note 5 - Debt and Note 9 -
      Related Party Transactions). As of September 30, 2005 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 the future at which time the value
      of
      the shares exchanged and any related gain or loss will be determined and
      recognized.




The
      Company has included $62,798 of unpaid Federal payroll taxes and employee
      withholdings and related penalties and interest in its accrued expenses as
      of
      December 31, 2005. 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.




F-36-


In
      January 2004, we filed an election to become subject to Sections 55 through
      65
      of the Investment Company Act of 1940, such that we could commence conducting
      our business activities as a BDC. 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.




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. However, the filing was not acknowledged
      by the SEC and the Company re-filed the Form with the SEC, with an effective
      date of June 30, 2005. 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.




On
      July
      24, 2005, 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 $5,000,000 of the
      Company’s common stock at prices between $0.015 and $0.10 per share, or
      50,000,000 and 333,333,333 shares, respectively. The Company is presently
      registered as an Investment Company under the 1940 Act and as such, is
      authorized to issue up to $5,000,000 in “free-trading” stock at prices ranging
      from $0.0015 to $0.10 per share.




As
      a
      result of the July 2005 1-E filing discussed above, through December 31, 2005,
      the Company received $2,240,633 of proceeds from the offering, net of $193,967
      of expenses, through the sale of 127,930,758 shares of the Company’s $0.001 par
      value common stock.




In
      December 2005, the Company determined that certain issuances of common stock
      had
      not been properly disclosed in reports made by the Company’s transfer agent. The
      Company discussed these items with the transfer agent and as of December 31,
      2005, the transactions have been reconciled and recorded properly in the Company
      records. However, the Company believes that one of these transactions, an
      unauthorized issuance by the transfer agent of 15,000,000 shares, should be
      reimbursed to the Company by either the third party who received the shares
      or
      the transfer agent. The Company has recorded the fair market valuation of
      $750,000 as a subscription receivable as of December 31, 2005 and is in
      discussions with both the third party and the transfer agent to resolve the
      issue. As of the date of these financial statements, no resolution of the matter
      has been completed.




We
      have
      determined that we may be out of compliance with certain of the rules and
      regulations governing the business and affairs, financial status, and financial
      reporting items required of BDCs. We are making every effort to determine our
      compliance as soon as is practicable with the relevant sections of the 1940
      Act
      and are working with our counsel to accomplish our review of that compliance.
      While we are seeking to comply with the 1940 Act, we cannot provide any specific
      time frame for our review to determine compliance. We cannot predict with
      certainty what, if any, regulatory consequences may result from the
      foregoing.




Our
      review may result in certain contingent liabilities to the Company as a result
      of potential actions by the SEC or others against the Company. Management as
      of
      the date of this report could not reasonably estimate such contingent
      liabilities, if any.




F-37-


The
      outcome of the above matter could have a significant impact on our ability
      to
      continue as a going concern.




**9.
      RELATED PARTY AND AFFILIATE TRANSACTIONS**




The
      following disclosures comply with generally accepted accounting principles
      and
      the disclosure requirements under the SEC Regulation SX, Article 6, with regard
      to affiliate investments and transactions. See Schedule of Investments for
      identification of Investments in Affiliates.




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 previous 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 5 - 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 previous 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 previous 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 previous sole director occurs (See Note 5 - Debt and Note 8 -
      Commitments and Contingencies). The Company’s president and previous sole
      director has personally guaranteed the obligation. As of June 30, 2005, 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 during 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 previous 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 .





F-38-


Effective
      July 1, 2003, the Company entered into a salary and equipment rental agreement
      with its president and previous 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 previous 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 previous 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. During the
      year
      ended December 31, 2005, the Company has accrued 120,000 for compensation.
      Additionally, the president and previous sole director advanced $26,270 of
      funds
      on behalf of the Company and the Company has repaid $355,000 resulting in an
      accrual balance of $102,725 as of December 31, 2005, 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, 2005, the Company advanced directly or indirectly,
      $1,650,556 of funds to its wholly-owned investees. In total, the Company has
      advanced $3,370,342 of funds to its wholly-owned investees which is included
      in
      the asset account entitled “Investment in and advanced to
      affiliates-majority-owned.





**10****.
                FINANCIAL INFORMATION**
              Following
                is a schedule of financial highlights for the year ended December
                31,
                2005:
            
            **Year****Ended****December
                31, 2005**Per
                Share Data:Net
                Asset Value at Beginning of Period (1)
            
            $
            0.01Unrealized
                Gain On Investments (1)
            
            
            0.03Net
                Operating Income (1)
            
            
            0.00Net
                increase in Stockholders Equity from Income
            
            
            0.03Net
                Asset Value at End of Period
            
            $
            0.04Per
                Share Market Value at End of Period
            
            $
            0.05Total
                Return (2)
            
            
            -90
            %Common
                Stock Outstanding and Issuable at End of Period
            
            
            452,945,082Ratio/Supplemental
                Data:Net
                Assets at End of Period
            
            $
            18,577,714Ratio
                of Operating Expenses to Net Assets
            
            
            2
            %Ratio
                of Net Operating Loss to Net Assets
            
            
            -2
            %




(1)
                Based on Total Shares Outstanding and Issuable(2)
                Total return equals the increase of the ending market value over
                the
                December 31, 2004 priceof
                $0.01 per share, divided by the beginning
                price.




F-39-




**11.
      SUBSEQUENT EVENTS**




On
      March
      27, 2006, Mr. Larry Horner was appointed an Independent Director of the Company.
      Mr. Horner is a licensed Certified Public Accountant in the State of Texas,
      is a
      financial consultant, and will be Chairman of the Corporate Governance
      committee.




The
      Board of
      Directors is currently reviewing the Company’s compliance with the 1940 Act, in
      order to determine if it is in compliance with several important provisions
      of
      the 1940 Act, including the capital structure requirements. There is a risk
      that
      the SEC could take enforcement action against the Company if the SEC determines
      that the Company has not been operating in compliance with the 1940
      Act.




The
      Company’s significant compliance costs as a BDC, in terms of both time and
      dollars, have operated as a drag on the Company’s resources and in many respects
      have diverted the effective utilization of capital previously raised by the
      Company to effectuate its overall investment business plan. Further, since
      the
      Company commenced operating as a BDC, the business, regulatory and financial
      climates have changed, making operations as a BDC more challenging and
      difficult.




At
      the
      time of this report, the Board of Directors has not completed its review of
      the
      Company’s compliance with the 1940 Act.