UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549











[X]
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934





For
      the quarterly period ended March 31, 2007





[
      ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





For
      the transition period from ________ to _________





Commission
      File number: *333-52812*




**American
      Energy Production, Inc.**


(Exact
      name of registrant as specified in its charter)


**DELAWARE**
            **74-2945581**(STATE
                OR JURISDICTION OF
              INCORPORATION
                OR ORGANIZATION)
            (IRS
                EMPLOYER
              IDENTIFICATION
                NO.)





**6073
                Hwy 281 South, Mineral Wells, TX**
            **76067**(BUSINESS
                ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
            (ZIP
                CODE)





**REGISTRANT’S
      TELEPHONE NUMBER, INCLUDING AREA CODE:** (210)
      410-8158





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 [ ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated


filer,
      or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange
      Act).


Large
      accelerated filer [ ]  Accelerated
      filer [ ]  Non-Accelerated
      filer
      [X]





Indicate
      by check mark whether the registrant is a shell company


(as
      defined in Rule 12b-2 of the Exchange Act).


Yes
      [ ]  No [X]





As
      of May 1, 2007, there were approximately 494,170,082 shares


of
      common stock, $0.001 par value, issued and outstanding.


American
      Energy Production, Inc.


-1-


Form
      10-Q Index


March
      31, 2007


PagePart
                  I-Financial InformationItem
                  1.
                  Financial Statements
              -Balance
                  Sheets at March 31, 2007 (Unaudited) and December 31, 2006
              -Statements
                  of
                  Operations for the Three Months EndedMarch 31, 2007 and 2006 and the period from February 1,
                  2003(Inception of development stage) to March 31, 2007
                  (Unaudited)
              -Statements
                      of
                      Cash Flows for the Three Months Ended
                    March
                      31, 2007 and 2006 and for the period from February 1,
                      2003
                    (Inception
                      of development stage) to March 31, 2007
                      (unaudited)
              -Schedule
                    of
                    Changes in Net Assets for the ThreeMonths
                    ended
                  March
                    31, 2007 (Unaudited)
              -Schedule
                  of
                  Investments at March 31, 2007 (Unaudited)
              -Notes
                  to Financial Statements (Unaudited)
              -Item
                    2.
                    Management's Discussion and Analysis of Financial Condition
                  and Results of Operations
              -Item
                    3.
                    Quantitative and Qualitative Disclosures AboutMarket
                    Risk
              -Item
                  4.
                  Controls and Procedures
              -Part
                  II-Other InformationItem
                  1.
                  Legal Proceedings
              -Item
                  1A. Risk Factors
              -Item
                  2.
                  Unregistered Sales of Equity Securities and Use of
                  Proceeds
              -Item
                  3.
                  Defaults upon Senior Securities
              -Item
                  4.
                  Submission of Matters to a Vote of Security Holders
              -Item
                  5.
                  Other Information
              -Item
                  6.
                  Exhibits
              -Signatures
              -





-2-


PART
      I


FINANCIAL
      INFORMATION





Item
      1-Financial Statements





**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Balance
      Sheets**




**ASSETS****(Unaudited)****3/31/2007**
            
            **12/31/2006****Current
                Assets**Cash
            
            $
            14,653
            
            $
            2,280**Total
                Current Assets**
            
            
            **14,653**
            
            
            **2,280****Property
                and equipment, net**
            
            
            **17,189**
            
            
            **19,135****Investments:**Investments
                in and advances to majority-owned
            
            
            21,644,055
            
            
            **21,665,612**portfolio
                companies**Total
                Investments**
            
            
            **21,644,055**
            
            
            **21,665,612****Total
                Assets**
            
            **$**
            **21,675,897**
            
            **$**
            **21,687,027****LIABILITIES****Current
                Liabilities**Accounts
                payable
            
            $
            330,346
            
            $
            327,113Advances
                from majority-owned portfolio companies
            
            
            16,435
            
            
            -Due
                to related parties
            
            
            140,725
            
            
            98,225Convertible
                debentures
            
            
            57,967
            
            
            57,967Accrued
                interest payable
            
            
            141,486
            
            
            139,033Accrued
                payroll taxes and penalties
            
            
            70,303
            
            
            68,802Lease
                payable
            
            
            16,131
            
            
            16,131**Total
                Current Liabilities**
            
            **$**
            **773,393**
            
            **$**
            **707,270****Net
                Assets**
            
            **$**
            **20,902,505**
            
            **$**
            **20,979,756**




See
      accompanying notes to unaudited financial statements.


-3-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Balance
      Sheets** ***(Continued)***





**Commitments
                and Contingencies (Note 7)****Stockholders'
                Equity**
            
            **(Unaudited)****3/31/2007**
            
            **12/31/2006**Convertible
                preferred stock, Series A, $0.0001 par value,5,000,000
                shares authorized, 3,500,000 shares
            
            $
            350
            
            $
            350Common
                stock, $0.0001 par value,500,000,000
                shares authorized, 494,170,082 shares
            
            
            49,417
            
            
            49,417Common
                stock issuable, $0.0001 par value, 75,000 shares
            
            
            8
            
            
            8Additional
                paid in capital
            
            
            23,998,250
            
            
            23,998,250Accumulated
                deficit
            
            
            (9,360,491
            )
            
            (9,360,491
            )Retained
                earnings during development stage
            
            
            7,116,972
            
            
            7,194,22321,804,505
            
            
            21,881,756Less:
                Subscription Receivable
            
            
            (902,000
            )
            
            (902,000
            )**Total
                Stockholders' Equity**
            
            
            **20,902,505**
            
            
            **20,979,756****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **21,675,897**
            
            **$**
            **21,687,027****Net
                Asset Value Per Share**
            
            **$**
            **0.04**
            
            **$**
            **0.04**





See
      accompanying notes to unaudited financial statements.




-4-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Statements
      of Operations**


**(Unaudited)**




**Period
                from****February
                20, 2003****Three
                Months Ended**
            
            
            **(Inception
                of****March
                31,**
            
            
            **Development
                Stage)****2007**
            
            
            **2006**
            
            
            **to
                Mar 31, 2007****Investment
                and Pre-BDC Operating Income**Oil
                sales, net
            
            $
            -
            
            $
            -
            
            $
            46,658Investment
                income - portfolio investmentsInterest
            
            
            -
            
            
            -
            
            
            -Dividends
            
            
            -
            
            
            -
            
            
            -**Total
                Investment and Pre-BDC****Operating
                Income**
            
            
            **-**
            
            
            **-**
            
            
            **46,658****Operating
                Expenses**Compensation
            
            
            30,000
            
            
            30,000
            
            
            932,596Consulting
            
            
            3,260
            
            
            -
            
            
            1,277,592Depletion
            
            
            -
            
            
            -
            
            
            3,987Depreciation
            
            
            1,946
            
            
            1,946
            
            
            91,800Equipment
                rental
            
            
            -
            
            
            -
            
            
            63,000General
                and administrative
            
            
            13,674
            
            
            16,837
            
            
            216,700Production
            
            
            -
            
            
            -
            
            
            143,349Professional
            
            
            24,417
            
            
            24,466
            
            
            634,639Website
            
            
            -
            
            
            -
            
            
            322,583**Total
                Operating Expenses**
            
            
            **73,297**
            
            
            **73,249**
            
            
            **3,686,246****Net
                Investment and Pre-BDC Operating Loss**
            
            
            **(73,297**
            **)**
            
            **(73,249**
            **)**
            
            **(3,639,588**
            **)****Other
                Income (Expense)**Gain
                on settlement of debt
            
            
            -
            
            
            -
            
            
            18,364Other
                income
            
            
            -
            
            
            20,000
            
            
            44,155Unrealized
                gain on investments
            
            
            -
            
            
            -
            
            
            15,445,803Interest
                expense
            
            
            (2,453
            )
            
            (2,050
            )
            
            (4,560,093
            )Payroll
                tax expense and penalties
            
            
            (1,501
            )
            
            (1,501
            )
            
            (24,669
            )Loss
                on settlement
            
            
            -
            
            
            -
            
            
            (167,000
            )**Total
                Other Income (Expense)**
            
            
            (3,954
            )
            
            16,449
            
            
            10,756,560**Net
                Decrease in Net Assets (post-BDC)****and
                Net Income (pre-BDC)**
            
            **$**
            **(77,251**
            **)**
            **$**
            **(56,800**
            **)**
            **$**
            **7,116,972****Net
                Decrease in Net Assets (post-BDC)****and
                Net Income (pre-BDC) Per Share -****Basic
                and Diluted**
            
            **$**
            **(0.00**
            **)**
            **$**
            **(0.00**
            **)**
            **$**
            **0.02****Weighted
                average Shares Outstanding**
            
            
            **494,245,082**
            
            
            **456,733,971**
            
            
            **293,438,883**




See
      accompanying notes to unaudited financial statements


-5-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Statements
      of Cash Flows**


**(Unaudited)**





**Period
                from****February
                20, 2003****Three
                Months Ended**
            
            **(Inception
                of****March
                31,**
            
            **Development
                Stage)****2007**
            
            **2006**
            
            **to
                March 31, 2007****Cash
                Flows From Operating Activities:**Net
                Decrease in Net Assets (post-BDC) and
            
            $
            (77,251
            )
            $
            (56,800
            )
            $
            7,116,973Net
                Income (pre-BDC)Adjustments
                to reconcile net decrease in Net Assets(post-BDC)
                and Net Income (pre-BDC) to Net CashUsed
                In Operating Activities:Stock
                issued for debt and services
            
            
            -
            
            
            -
            
            
            951,555Stock
                issued for equipment
            
            
            -
            
            
            -
            
            
            20,000Stock
                issued for chemical
            
            
            -
            
            
            -
            
            
            37,000Stock
                issued in settlement
            
            
            -
            
            
            -
            
            
            17,500Unrealized
                gain on investments
            
            
            -
            
            
            -
            
            
            (15,445,803
            )Gain
                on settlement of debt
            
            
            -
            
            
            -
            
            
            (18,364
            )Loss
                on settlement
            
            
            -
            
            
            -
            
            
            149,500Interest
                expense related to convertibledebentures
                beneficial conversion feature
            
            
            -
            
            
            -
            
            
            4,280,000Compensation
                expense in excess of debt to officer
            
            
            -
            
            
            -
            
            
            480,995Amortization
                of deferred services
            
            
            -
            
            
            -
            
            
            405,796Depreciation
            
            
            1,946
            
            
            1,946
            
            
            91,800Depletion
            
            
            -
            
            
            -
            
            
            3,987Changes
                in operating assets and liabilities:Decrease
                in accounts receivable - related party
            
            
            -
            
            
            -
            
            
            3,484Decrease
                in cash overdraft
            
            
            -
            
            
            -
            
            
            (6,726
            )Increase
                (decrease) in accounts payable
            
            
            3,233
            
            
            (6,180
            )
            
            89,558Increase
                (decrease) in due to related party
            
            
            42,500
            
            
            (17,000
            )
            
            (8,776
            )Increase
                in accrued interest payable
            
            
            2,453
            
            
            2,050
            
            
            227,345Increase
                in accrued payroll taxes payable
            
            
            1,501
            
            
            1,500
            
            
            24,665**Net
                Cash Used In Operating Activities**
            
            
            (25,618
            )
            
            (74,484
            )
            
            (1,579,511
            )**Cash
                Flows From Investing Activities:**Purchase
                of equipment
            
            
            -
            
            
            -
            
            
            (178,975
            )Advances
                to majority-owned portfolio companies
            
            
            (23,000
            )
            
            (424,500
            )
            
            (5,784,842
            )Advances
                from majority-owned portfolio companies
            
            
            16,435
            
            
            -
            
            
            16,435Repayments
                from majority-owned portfolio companies
            
            
            44,556
            
            
            -
            
            
            116,556Purchase
                of oil lease
            
            
            -
            
            
            -
            
            
            (8,500
            )**Net
                Cash Provide By (Used In) Investing Activities**
            
            $
            37,991
            
            $
            (424,500
            )
            $
            (5,839,326
            )




See
      accompanying notes to unaudited financial statements


-6-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Statements
      of Cash Flows** ***(Continued)***


**(Unaudited)**





****
            
            **Period
                from******
            
            ****
            
            ****
            
            **February
                20, 2003******
            
            **Three
                Months Ended**
            
            **(Inception
                of******
            
            **March
                31,**
            
            **Development
                Stage)******
            
            **2007**
            
            **2006**
            
            **to
                Mar 31, 2007****Cash
                Flows From Financing Activities:**Proceeds
                for note payable - officer
            
            
            -
            
            
            -
            
            
            32,070Repayment
                of officer loan
            
            
            -
            
            
            -
            
            
            (115
            )Proceeds
                from loan - other
            
            
            -
            
            
            -
            
            
            54,396Repayment
                of loan proceeds - other
            
            
            -
            
            
            -
            
            
            (105,976
            )Proceeds
                from issuance of convertible debentures
            
            
            -
            
            
            -
            
            
            1,850,000Proceeds
                from common stock issuable, net ofoffering
                costs
            
            
            -
            
            
            193,920
            
            
            5,570,702Proceeds
                from repayment of subscription receivable
            
            
            -
            
            
            32,500
            
            
            32,500Repayment
                of lease payable
            
            
            -
            
            
            -
            
            
            (87
            )**Net
                Cash Provided By Financing Activities**
            
            
            -
            
            
            226,420
            
            
            7,433,490**Net
                Increase (Decrease) in Cash**
            
            
            **12,373**
            
            
            **(272,564**
            **)**
            
            **14,653**Cash
                at Beginning of Period
            
            
            2,280
            
            
            471,339
            
            
            -**Cash
                at End of Period**
            
            
            **14,653**
            
            
            **198,775**
            
            
            **14,653**Cash
                interest paid
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **47,750****Supplemental
                disclosure of non-cash transactions**Asset
                acquisition paid with convertible note payable
            
            $
            -
            
            $
            -
            
            $
            2,000,000Conversion
                of note payable to convertible debenture
            
            -
            
            
            2,000,000Conversion
                of indebtedness to preferred stock
            
            
            -
            
            
            -
            
            
            528,532Conversion
                of preferred stock to common stock
            
            
            -
            
            
            150
            
            
            -Conversion
                of convertible debentures to common stock
            
            
            -
            
            
            -
            
            
            1,850,000Conversion
                of convertible debentures by advances
            
            
            -
            
            
            -
            
            
            342,033Asset
                acquisition paid with convertible debenture and stock
            
            
            -
            
            
            -
            
            
            800,000Asset
                acquisition paid with stock
            
            
            -
            
            
            -
            
            
            72,000Common
                stock issued for subscription receivable
            
            
            -
            
            
            125,000
            
            
            809,500Transfer
                of assets and liabilities to affiliate:Oil
                and gas properties and equipment, net
            
            
            -
            
            
            -
            
            
            2,074,498Convertible
                debenture
            
            
            -
            
            
            -
            
            
            2,000,000Accrued
                interest payable
            
            
            -
            
            
            -
            
            
            71,014Net
                receivable from transfer of assets and liabilities
            
            
            -
            
            
            -
            
            
            3,484




See
      accompanying notes to unaudited financial statements


-7-


**American
                Energy Production, Inc.****(A
                Development Stage Company)****Schedule
                of Changes in Net Assets****(Unaudited)**




**Three
                Months Ended****March
                31, 2007**Decrease
                in net assets from operations:Net
                operating loss
            
            $
            (77,251
            )Net
                decrease in net assets from operations
            
            
            (77,251
            )Total
                decrease in Net Assets
            
            
            (77,251
            )Net
                Assets:Beginning
                of Period
            
            
            20,979,756End
                of period
            
            $
            20,902,505




See
      accompanying notes to unaudited financial statements


-8-


**American
                Energy Production, Inc.**
              **(A
                Development Stage Company)**
              **Schedule
                of Investments**
              **March
                31, 2007**
              **(Unaudited)****Percentage
                of****Title
                of**
            **Class
                Held on****Portfolio**
            
            **Securities
                Held**
            **a
                Fully Diluted**
            **At
                March 31, 2007****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%
            $
                984,565
            $
                4,735,505Oil
                America Group, Inc.
            Oil
                and Gas Production
            Common
                Stock
            100%
            257,000
            257,000Bend
                Arch Petroleum, Inc.
            Oil
                and Gas Production
            Common
                Stock
            100%
            4,956,688
            16,651,551**Total
                Control Investments - Majority Owned**
            
            
            
            $
                6,198,253
            $
                21,644,056**Total
                Investments**
            
            
            
            **6,198,253**
            **21,644,056****Unearned
                Income**
            
            
            
            **-**
            **-****Total
                Investments, net of Unearned Income**
            
            
            
            **$
                6,198,253**
            **$
                21,644,056****(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 unaudited financial statements


-9-


**American
      Energy Production, Inc.**


**(A
      Development Stage Company)**


**Notes
      to Financial Statements**


**March
      31, 2007**


**(Unaudited)**


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





American
      Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) is
      a publicly traded business development company (“BDC”) 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 majority owned portfolio
      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.
      Our capital is generally used by our portfolio companies to finance growth
      and
      working capital.





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-54A with the Securities and
      Exchange Commission (“SEC”) to be regulated as a BDC under the Investment
      Company Act of 1940, as amended (“Act”). Accordingly, the Company is presently
      regulated as a BDC under the Act. BDC’s report to stockholders like traditional
      operating companies and file regular quarterly and annual reports with the
      SEC.
      A BDC is required to make available significant managerial assistance to its
      portfolio companies. At the time of its election, the Company had determined
      that its operating model best approximated that of a BDC and intended to make
      investments into developing businesses in the oil and gas and other industries.




At
      the
      time it became a BDC, in January 2004, the Company determined that it was
      necessary to raise additional capital to carry out the Company’s business plan.
      Accordingly, the Company filed a Form 1-E with the SEC, notifying it of the
      Company’s intent to sell up to $4,000,000 of the Company’s common stock at
      prices between $0.01 and $0.10 per share, or 400,000,000 and 40,000,000 shares,
      respectively. On February 22, 2005, the Board determined that it was in the
      best
      interests of the Company to discontinue the offering and to investigate other
      financing alternatives. Accordingly, the Company filed a Form 2-E notifying
      the
      SEC of the Company’s termination of the offering. However, the Form 2-E filing
      was not received by the SEC and the Company re-filed the Form 2-E with the
      SEC,
      effective June 30, 2005. As disclosed in the Form 2-E, 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 second Form 1-E with the SEC 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 333,333,333 and 50,000,000 shares,
      respectively (the “July 2005 Offering”). As a result of the July 2005 Offering,
      through March 31, 2006, the Company received $2,434,553 of proceeds from the
      offering, net of $193,967 of expenses, through the sale of 131,930,758 shares
      of
      the Company’s $0.001 par value common stock.




-10-


The
      July
      2005 Offering, however, was reviewed by the SEC Staff, which issued a comment
      letter to the Company (the “Comment Letter”) raising a number of questions
      relating to the offering. In response to the Comment Letter, the Company
      voluntarily suspended the July 2005 Offering and undertook a review of its
      compliance with the 1940 Act. The Company subsequently determined that it was
      not in compliance with several important provisions of the 1940 Act.




Specifically,
      the Company determined that it had, among other things: failed to adequately
      disclose the process of valuing its portfolio securities; issued convertible
      debentures, potentially violating Section 61 of the 1940 Act; issued shares
      for
      services to be provided to the Company, potentially violating Section 23 of
      the
      1940 Act; failed to properly constitute the Board through a shareholder vote,
      pursuant to Section 16 of the 1940 Act; failed to have a majority of directors
      that were not interested persons of the Company, pursuant to Section 56(a)
      of
      the 1940 Act; failed to obtain a fidelity bond, potentially violating Section
      17
      of the 1940 Act; issued preferred stock, which did not have voting rights equal
      to that of the common stock, potentially violating Section 18(i) of the 1940
      Act; and neglected to adopt compliance policies and procedures. In addition,
      the
      Company has never appointed a Chief Compliance Officer. In the absence of an
      active Chief Compliance Officer and complete diligence on the part of the
      Company, there can be no assurance that there are no additional compliance
      issues.




The
      Board
      reviewed the facts surrounding these compliance failures and their implications
      for the Company. Ultimately, the Board caused the Company to take certain steps
      to remediate the compliance failures, including issuing a proxy statement to
      properly elect two of the Directors, contacting the holders of the shares issued
      for services to request that the Company repurchase those shares, and retaining
      experienced BDC counsel. The Company’s violations of the 1940 Act may cause the
      Company to incur certain liabilities. Such liabilities cannot be estimated
      by
      management as of this time, but may include regulatory enforcement actions.
      However, such liabilities, if incurred, could have a significant impact on
      the
      Company’s ability to continue as a going concern.




The
      Company has informed the SEC Staff of these steps. However, these efforts will
      not fully cure all of the 1940 Act compliance deficiencies currently affecting
      the Company and it is unclear how those deficiencies will impact the Company
      in
      the future. The Company’s significant compliance and remediation costs, in terms
      of both time and dollars, have operated as an encumbrance on the Company’s
      resources.




The
      Company has determined, based on the nature of its investments that the Company
      is not currently required to be regulated as a BDC because it does not meet
      the
      definition of an “investment company” in the 1940 Act. This is due to the fact
      that its non-cash assets consist almost entirely of investment in companies
      that
      it wholly-owns. Thus, it is operating, and intends to operate, as a holding
      company rather than an investment company.




Accordingly,
      and after careful consideration of the 1940 Act requirements applicable to
      BDCs,
      its holding company operations, an evaluation of the Company’s ability to
      operate as a going concern in an investment company regulatory environment,
      the
      cost of 1940 Act compliance needs and a thorough assessment of the Company’s
      current business model, the Board determined that continuation as a BDC is
      not
      in the best interests of the Company and its shareholders at the present time.
      Further, were the Company to remain a BDC, the Company would be required to
      substantially change its business model to meet the definition of an “investment
      company.”




In
      making
      the determination that continuation as a BDC is not in the best interests of
      the
      Company and its shareholders, the Board considered the viable alternatives
      available to the Company at this time. The Board considered that the Company
      could remain an investment company and restructure its portfolio investments
      to
      reduce its ownership of investee companies to non-majority ownership positions,
      while attempting to cure the significant compliance failures that it has
      incurred. However, the Board determined that the Company’s business model
      required majority ownership of its portfolio companies and that the significant
      expense associated with that alternative would make it unlikely that the Company
      would be able to continue operations.




-11-


On
      March
      13, 2007, at a Special Meeting of Shareholders, the Shareholders approved and
      authorized the Board to withdraw the Company’s election to be treated as a BDC
      under the 1940 Act and the election of three directors to the Board. On April
      3,
      2007, the Company filed a Form N-54C to withdraw its election to be regulated
      as
      a BDC and as of that date, is no longer a BDC under the 1940 Act. However,
      as of
      March 31, 2007, we were still a BDC and as such, the financial statements
      included in this filing are as a BDC. Going forward, the Company will no longer
      be a BDC with unconsolidated majority-owned portfolio companies but rather
      be an
      oil and gas operating company with consolidated subsidiaries.





The
      Company may face certain contingent liabilities as a result of potential actions
      by the SEC or others against the Company. As of the date of this report,
      management could not reasonably estimate such contingent liabilities, if any.
      The outcome of any such actions could have a significant impact on our ability
      to continue as a going concern.





**2.
      GOING CONCERN**





As
      reflected in the accompanying financial statements, the Company has a net
      decrease in net assets of $77,251 and net cash used in operations of $25,618
      for
      the three months ended March 31, 2007. Additionally, the Company is also in
      default on certain notes to banks, is in the development stage with no
      investment income as a BDC, and is subject to certain contingencies as discussed
      in Notes 1 and 7, which could have a material impact on the Company’s financial
      condition and operations. The ability of the Company to continue as a going
      concern is dependent on the Company’s ability to raise capital and going
      forward, generate revenues and cash flow from its business plan as an oil and
      gas operating company. The Company is authorized to issue 500,000,000 shares
      of
      its $0.0001 par value common stock and as of the date of this report, there
      are
      494,074,082 shares outstanding. As a result, the ability of the Company to
      raise
      capital from the sale of common stock is minimal and is a serious impediment
      to
      the Company’s ability to provide liquidity during the time frame that the
      Company is commencing its business plan as an oil and gas operating company.
      The
      financial statements included in this report 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.





**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
      of Presentation and Concentration**





The
      accompanying unaudited financial statements are prepared in accordance with
      the
      guidance in the AICPA’s Audit and Accounting Guide, “Audits of Investment
      Companies”, Article 6 of Regulation S-X and in accordance with the 1940 Act and
      rules and regulations since the Company elected to be regulated as a BDC in
      January 2004.




The
      unaudited financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States of America (“U.S. GAAP”) and
      the rules and regulations of the SEC for interim financial information.
      Accordingly, they do not include all the information and footnotes necessary
      for
      a comprehensive presentation of financial position and results of operations.





-12-


It
      is
      management’s opinion, however, that all material adjustments (consisting of
      normal recurring adjustments and certain non-recurring adjustments) have been
      made which are necessary for a fair financial statement presentation. The
      results for the interim period are not necessarily indicative of the results
      to
      be expected for the year.





For
      further information, refer to the audited financial statements and footnotes
      of
      the Company for the year ending December 31, 2006 included in the Company’s
      annual report on Form 10-K.





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 majority-owned portfolio companies 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, 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.





**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.




-13-


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 Majority-Owned Portfolio
      Companies).





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 determined fair values 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.




**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 March 31,
      2007.





**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 BDC 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.”





-14-


**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 as income in the period that includes the enactment
      date.





**Net
      Decrease in Assets (Post-BDC) and Net Income per Common Share
      (Pre-BDC)**





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





**Accumulated
      Other Comprehensive Income**





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





**Recent
      Accounting Developments**





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





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





In
      May
      2005, the FASB issued SFAS No. 154, entitled Accounting Changes and Error
      Corrections. SFAS No. 154 replaces APB Opinion No. 20, Accounting Changes,
      and
      FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
      Statements, and changes the requirements for the accounting for and reporting
      of
      a change in accounting principle. SFAS No. 154 applies to all voluntary changes
      in accounting principle and to changes required by an accounting pronouncement
      in the instance that the pronouncement does not include specific transition
      provisions. APB Opinion No. 20 previously required that most voluntary changes
      in accounting principle be recognized by including in net income of the period
      of the change the cumulative effect of changing to the new accounting principle.
      SFAS No. 154 requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, unless it is impracticable to
      determine either the period specific effects or the cumulative effect of the
      change. SFAS No. 154 defines *retrospective
      application* as the
      application of a different accounting principle to prior accounting periods
      as
      if that principle had always been used or as the adjustment of previously issued
      financial statements to reflect a change in the reporting entity. SFAS No.
      154
      also redefines *restatement* as the
      revising of previously issued financial statements to reflect the correction
      of
      an error. SFAS No. 154 carries forward without change the guidance contained
      in
      APB Opinion No. 20 for reporting the correction of an error in previously issued
      financial statements and a change in accounting estimate. SFAS No. 154 also
      carries forward the guidance in APB Opinion No. 20 requiring justification
      of a
      change in accounting principle on the basis of preferability. SFAS No. 154
      is
      effective in fiscal years beginning after December 31, 2005. The Company is
      in
      the process of evaluating the impact of changing from a BDC to an operating
      company but anticipates that the adoption of SFAS No. 154 will not have a
      material effect on the Company’s financial statements.





-15-


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 Company’s first
      interim period applicable to SFAS 123 (Revised) is for the three months ended
      March 31, 2006. However, the adoption of SFAS 123 (Revised) does not have an
      impact to the financial statements since the Company, as a BDC, may no longer
      issue stock based compensation under the 1940 Act. However, since the Company
      intends to withdraw its election as a BDC, SFAS 123 (Revised) may have an impact
      to future financial statements of the Company.


**Reclassifications**





Certain
      amounts in the 2006 financial statements have been reclassified to conform
      to
      the 2007 presentation.




**4.**
            **INVESTMENTS
                IN AND ADVANCES TO MAJORITY-OWNED PORTFOLIO
                COMPANIES**





As
      of March 31, 2007, investments consisted of the following:





**Cost**
            
            **Fair
                Value**Investments
                in Equity Securities
            
            $
            6,198,253
            
            $
            21,644,056Less:
                Unearned Income
            
            
            -
            
            
            -Total
            
            $
            6,198,253
            
            $
            21,644,056




The
      Company’s investment portfolio is currently all in majority owned 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 majority-owned portfolio 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. Our capital is generally used by our
      portfolio companies to finance growth and working capital.




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





At
      June
      15, 2004, the full consideration was paid by the Company and in accordance
      with
      the rules of being 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 majority-owned portfolio
      company.


-16-





As
      of
      March 31, 2007, the total investment and advance to majority-owned portfolio
      company for PRI reflected in the accompanying financial statements is
      $4,735,505, comprised of $984,565 of historical cost and a cumulative unrealized
      gain on investments of $3,750,940 that is included as a component of realized
      and unrealized gain (loss) from investments and Other Income (Expenses) in
      the
      Statement of Operations for the period from February 20, 2003 (Inception of
      Development) to March 31, 2007 (see detailed schedule of the investment in
      and
      advance to below). The $984,565 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
      March 31, 2007, the Company had made $4,956,688 of net advances on behalf of
      its
      majority-owned portfolio company, Bend Arch Petroleum, Inc., (“Bend Arch”). As
      of March 31, 2007, the total investment in and advance to majority-owned
      portfolio company for Bend Arch reflected in the accompanying financial
      statements is $16,651,551, comprised of $4,956,688 of historical cost and a
      cumulative unrealized gain on investments of $11,694,863 that is included as
      a
      component of realized and unrealized gain (loss) from investments and Other
      Income (Expenses) in the Statement of Operations for the period from February
      20, 2003 (Inception of Development) to March 31, 2007 (see detailed schedule
      of
      the investment in and advance to below). 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, 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.




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.


-17-


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. In accordance with the rules of a BDC, the $72,000 purchase
      price for the capital stock of OAG was recorded as an investment in
      majority-owned portfolio company. Additionally, the Company has made $185,000
      of
      advances to OAG and including the advances, the total of $257,000 has been
      recorded as investment in and advances to majority-owned portfolio companies
      in
      the accompanying balance sheet as of March 31, 2007 (see detailed schedule
      of
      the investment in and advance to below.) OAG is now a majority-owned portfolio
      company of the Company, specializing in oil and gas acquisitions, drilling
      prospective properties and managing oil and gas partnerships.





As
      of
      December 31, 2006, the Company had advanced $3,556 to its majority-owned
      portfolio company, AMEP Strategic Investments, Inc., (“AMEP Strategic”). During
      the three month period ending March 31, 2007, AMEP Strategic repaid the Company
      the $3,556 of advances and the total investment and advance to majority-owned
      portfolio company for AMEP Strategic is zero as of March 31, 2007 (see detailed
      schedule of the investment in and advance to below.). Additionally, during
      the
      three months ended March 31, 2007, AMEP Strategic advanced $16,435 to the
      Company and this amount is classified as Advances from majority-owned portfolio
      companies at March 31, 2007.





In
      accordance with Rule 12-14 of Regulation S-X, the following information is
      provided for the Company’s Investments in and Advances to Majority-Owned
      Portfolio Companies balance as of March 31, 2007:





**Investments
                In and Advances to**
              **Majority-Owned
                Portfolio Companies**
              **As
                of March 31, 2007****Number
                of shares -****Name
                of issuer**
            
            **principal****And
                title of**
            
            **amount
                of bonds**
            
            **Amount
                of**
            
            
            
            **Historical
                cost****Issue
                or**
              **nature
                of**
            
            **notes
                and other indebtedness**
            
            **Equity
                in net**
              **profit
                and loss**
            
            **Amount
                of**
              **dividends
                or**
            
            **Value
                of each**
              **item
                at close****Indebtedness**
            
            **at
                close of period (1)**
            
            **for
                the period (2)**
            
            **interest
                (3)**
            
            **of
                period (4)****Investments
                in majority-**
              **owned
                portfolio companies:**Production
                Resources, Inc.
            
            $
            184,565
            
            $
            800,000
            
            $
            -
            
            $
            984,565Oil
                America Group, Inc.
            
            
            185,000
            
            
            72,000
            
            
            -
            
            
            257,000Bend
                Arch Petroleum, Inc.
            
            
            4,956,688
            
            
            -
            
            
            -
            
            
            4,956,688Total
            
            $
            5,326,253
            
            $
            872,000
            
            $
            -
            
            $
            6,198,253(1)
                Represents net advances by the Company on behalf of its majority
                owned
                portfolio companies.(2)
                Represents historical purchase paid by the Company.(3)
                No dividends or interest were paid by the majority-owned portfolio
                companies as of March 31, 2007.(4)
                Represents total historical cost without unrealized gain or loss
                included
                (aggregate of (1), (2) and (3).)




-18-


**Advances
                To - January 1, 2007 to March 31, 2007****Dec.
                31, 2006**
            
            **Advances**
            
            **Repayments**
            
            **Mar.
                31, 2007**Production
                Resources, Inc.
            
            $
            184,565
            
            $
            -
            
            $
            -
            
            $
            184,565Oil
                America Group, Inc.
            
            
            180,000
            
            
            5,000
            
            
            -
            
            
            185,000Bend
                Arch Petroleum, Inc.
            
            
            4,979,688
            
            
            18,000
            
            
            41,000
            
            
            4,956,688AMEP
                Strategic Investments
            
            
            3,556
            
            
            -
            
            
            3,556
            
            
            -Total
            
            $
            6,219,809
            
            $
            23,000
            
            $
            44,556
            
            $
            6,198,253





**5.
      DEBT**





*Our
      debt at March 31, 2007 consisted of the following:*




***Lease
              Payable***
            
            **Mar.
                31.**
              **2007**
            
            **Dec.
                31.**
              **2006**$21,238
                computer equipment lease, bearing interest at 10% per
                annum
            
            $
            16,131
            
            $
            16,131





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 March 31,
      2006,
      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 March 31, 2007, the Company has recorded a total
      of
      $13,034 in accrued interest for this lease payable in the accompanying Balance
      Sheet.





In
      November 2003, a settlement was negotiated 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 September 30, 2006, 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 7 - Commitments and Contingencies
      and
      Note 8 - Related Party Transactions).





-19-


***Notes
      payable - Banks***





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 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. (See Note Payable - Related Party below,
      Note 6 - Stockholders’ Equity and Note 8 - 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.





-20-






**Mar.
                31**
            **Dec.
                31.*****Convertible
              Debentures:***
            **2007******
            **2006**$400,000
                Convertible Debentures, dated June 15, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005 -In
                Default at March 31, 2007
            $
                57,967
            $
                57,967$
                57,967
            $
                57,967





In
      May
      2004, the Company received $250,000 in gross proceeds from the issuance of
      a
      convertible debenture. The terms of the convertible debenture include an
      interest rate of 8% per annum, 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 corrected
      their report and the 7,000,000 shares of common stock were 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. The entire $250,000 of 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 September 30,
      2006.
      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.


-21-




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. The entire $400,000
      of 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. The entire $1,000,000 of 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 8 - 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.


-22-


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 majority owned
      portfolio company (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.




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.




-23-


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




As
      of March 31, 2007, the Company has recorded $128,452 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 March 31, 2007.





**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 494,170,082 were issued and outstanding as of March
      31, 2007. Additionally, as of March 31, 2007, 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 March 31, 2007, 3,500,000 preferred shares
      were issued and outstanding.





As
      discussed above, the Company is authorized to issue 500,000,000 shares of its
      $0.0001 par value common stock and as of the date of this report, there are
      494,074,082 shares outstanding. As a result, the ability of the Company to
      raise
      capital from the sale of common stock is minimal.





***Issuances
      (Retirements) 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.




-24-


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.




In
      February 2006, the 500,000 shares of Series A preferred stock discussed above
      were converted into 1,500,000 shares of common stock in accordance with the
      conversion rights discussed previously.




***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.





-25-


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.





-26-


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.





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.


-27-





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.





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.
      Subsequently, in February 2006, $32,500 of cash proceeds was received in payment
      of the subscription receivable.





-28-


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. The transfer agent corrected their report and now 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 recorded the fair value amount of $750,000 as a
      subscription receivable and is still outstanding as of March 31, 2007. The
      Company 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.





In
      January 2006, the Company’s transfer agent determined that an additional
      2,500,000 shares that were actually issued to a third party in January 2005
      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. The transfer agent corrected their report and now
      show the 2,500,000 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 January 2006).
      Accordingly, the Company recorded the fair value amount of $125,000 as a
      subscription receivable and is still outstanding as of March 31, 2007. The
      Company 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.




In
      February 2006, 500,000 shares of the Company’s Series A preferred stock
      discussed above were converted into 1,500,000 shares of the Company, $0.001
      par
      value common stock in accordance with the conversion rights discussed
      previously.




On
      July
      24, 2005, the Company filed a Form 1-E pursuant to the Securities Act 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. In December 2006, the Company’s Board of
      Directors determined that it was in the best interest of the Company to
      discontinue the offering discussed above. Accordingly, the Company filed a
      Form
      2-E notifying the SEC of the Company’s termination of the offering. As disclosed
      in the Form 2-E, the Company received $4,575,879 of proceeds from the offering,
      net of $280,627 of expenses, through the sale of 165,230,758 shares of the
      Company’s $0.001 par value common stock.





***Common
      Stock Issuable:***





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 March 31,
      2007.





***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.





-29-


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).





**7.
      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 March 31, 2007.





The
      Company and certain of its majority-owned portfolio companies are delinquent
      in
      the filing of franchise tax reports with the State of Texas and the State of
      Delaware and as a result, the Company and certain of its majority-owned
      portfolio companies are not in good standing. The Company and its majority-owned
      portfolio companies are in the process of filing the required reports and may
      face certain penalties and interest due to the delinquent status of the reports.





In
      November 2003, a settlement was negotiated 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 occurs (see Note 5 - Debt and Note 8 - Related Party
      Transactions). As of March 31, 2007 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 $70,303 of unpaid Federal payroll taxes and employee
      withholdings and related penalties and interest in its accrued expenses as
      of
      March 31, 2007. Although the unpaid Federal taxes are from the predecessor
      company, Communicate Now.com, Inc., such amounts are subject to potential
      federal tax liens for the Company.





-30-


The
      Company has $330,346 of accounts payable as of March 31, 2007 and almost all
      of
      this balance is from the predecessor company, Communicate Now.com, Inc. Since
      these trade accounts payable have been outstanding for an extended period of
      time with no communication between the Company and any of the vendors, the
      Company is commencing the process of eliminating the liabilities from its
      records. However, there can be no assurance that the Company will be successful
      in its efforts to eliminate the liabilities.




We
      had
      intended to make an election to be taxed as a regulated investment company
      under
      Subchapter M of the Internal Revenue Code. Had we so elected, we would have
      been
      required to (i) distribute at least 90% of our investment company taxable income
      and 90% of any ordinary pre-RIC built in gains we recognized 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 intended
      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 intended to make deemed distributions to
      our
      stockholders of any retained net capital gains. However, as previously
      discussed, the Company has withdrawn its election to be a BDC, will no longer
      be
      subject to the 1940 Act and, will not have the option of being taxed as a
      regulated investment company under Subchapter M if the Internal Revenue Code.




In
      December 2005 and January 2006, 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
      the transactions have been reconciled and recorded properly in the Company
      records. However, the Company believes that two of these transactions, an
      unauthorized issuance by the transfer agent of 15,000,000 shares and an
      additional unauthorized issuance of 2,500,000 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 the two
      transactions in the amount of $875,000 as a subscription receivable as of March
      31, 2007 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.




As
      previously discussed, in May 2006, the Company received a letter of inquiry
      from
      the SEC, primarily related to its operations as a BDC and its compliance with
      the requirements thereto. In response to the SEC correspondence, the Company
      conducted a review of its compliance with the 1940 Act and determined that
      it
      was not in compliance with the 1940 Act. While the Company believed the BDC
      model was the right structure for it at the time that it elected such status,
      it
      has determined that, going forward, it should, consistent with its current
      balance sheet and structure, withdraw its election to be regulated as a BDC.




On
      March
      13, 2007, a Special Meeting of Shareholders (the “Special Meeting”) of the
      Company was held to authorize the Board of Directors of the Company (the
“Board”) to withdraw the Company’s election to be treated as a BDC under the
      1940 Act and to elect to the Board, Mr. John D. Powell, Mr. Larry P. Horner
      and
      Mr. Charles Bitters. As a result of the Special Meeting, the Shareholders
      approved both items and on April 3, 2007, the Company filed a Form N-54C with
      the SEC to effect the BDC withdrawal. Going forward, the Company intends to
      pursue a business model whereby it will be an oil and gas operating company
      with
      wholly-owned subsidiaries that are currently classified as majority-owned
      portfolio companies under the current BDC structure.




The
      withdrawal of the Company’s election to be regulated as a BDC under the 1940 Act
      will result in a significant change in the Company's required method of
      accounting. BDC financial statement presentation and accounting utilizes the
      value method of accounting used by investment companies, which allows BDCs
      to
      recognize income and value their investments at market value as opposed to
      historical cost. In addition, majority-owned subsidiaries are not consolidated;
      rather, investments in those subsidiaries are reflected on the balance sheet
      as
      an investment in a majority-owned portfolio company at fair value.




-31-


In
      accordance with BDC accounting requirements, the Company has recorded a
      significant unrealized gain on its investments. As an operating company, the
      required financial statement presentation and accounting for securities held
      will be either the fair value or historical cost method of accounting, depending
      on how the Company’s investments are classified and how long the Company intends
      to hold the investment. Since the Company’s only investments have been in its
      wholly-owned portfolio companies, all of the previously recorded unrealized
      gain
      on investments will be no longer be reflected in the Company’s financial
      statements. Thus, though there is no reason to believe that the worth of the
      investments would be different, the method of accounting will change.




Changing
      the Company’s method of accounting could reduce the market value of its
      investments in privately held companies by eliminating the Company’s ability to
      report an increase in value of its holdings as they occur. As an operating
      company, the Company will be required to consolidate its financial statements
      with subsidiaries, thus eliminating the portfolio company reporting benefits
      available to BDCs. Also, as an operating company, the Company will no longer
      present a Net Asset Value (“NAV”) in its financial statements or supplemental
      NAV financial information in the footnotes to the Company’s consolidated
      financial statements.




Please
      see Note 12 - Unaudited Supplemental Information for unaudited pro forma
      comparisons of the Company’s balance sheet and statement of operations, showing
      the difference between the BDC presentation and the presentation that will
      be
      made going forward after the de-election.




Because
      the Company will be considered an “oil and gas operating company”, the Company
      will use 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) will
      be
      charged to operations. All capitalized costs of oil and gas properties will
      be
      depleted using the units-of-production method based on total proved reserves.




The
      change in accounting due to the conversion to an operating company from a BDC
      is
      considered a change in accounting principle. As a result, in accordance with
      Statement of Financial Accounting Standard 154, "Accounting for Changes and
      Error Corrections," which requires that a change in accounting principle be
      retrospectively applied to all prior periods presented, the Company’s financial
      statements will be presented on an operating and consolidated basis for all
      current and prior periods presented on a retrospective basis without regard
      to
      the BDC method of accounting. The change in presentation may have an impact
      on
      the market’s response to the Company, the nature and extent of which cannot be
      predicted.




The
      Company does not believe that withdrawing its election to be regulated as a
      BDC
      will have any impact on its federal income tax status, because the Company
      never
      elected to be treated as a regulated investment company under Subchapter M
      of
      the Internal Revenue Code. Instead, the Company has always been subject to
      corporate level federal income tax on its income (without regard to any
      distributions it makes to its shareholders) as a “regular” corporation under
      Subchapter C of the Internal Revenue Code.




The
      Company may face certain contingent liabilities as a result of potential actions
      by the SEC or others against the Company. As of the date of this report,
      management could not reasonably estimate such contingent liabilities, if any.
      The outcome of the above matter could have a significant impact on our ability
      to continue as a going concern.




The
      Company is authorized to issue 500,000,000 shares of its $0.0001 par value
      common stock and as of the date of this report, there are 494,074,082 shares
      outstanding. As a result, the ability of the Company to raise capital from
      the
      sale of common stock is minimal and is a serious impediment to the Company’s
      ability to provide liquidity during the time frame that the Company is
      commencing its business plan as an oil and gas operating company. The financial
      statements included in this report do not include any adjustments that might
      be
      necessary if the Company is unable to continue as a going concern.


-32-


**8.
      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
      in exchange for a market rate promissory note. The promissory note was
      subsequently exchanged for a convertible debenture and transferred to a
      majority-owned portfolio company (See Note 5 - Debt). The oil and gas properties
      were also transferred to that same majority-owned portfolio company (See Note
      4
      - Investments).





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





In
      November 2003, a settlement was negotiated 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 occurs (See Note 5 - Debt and Note 8 - Commitments and
      Contingencies). The Company’s President 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 negotiated for a lawsuit from one
      stockholder who invested $100,000 in the Company receiving 100,000 common shares
      during a private placement. The settlement of $149,500 was paid by the Company’s
      President 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.
      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 President free of charge.





Effective
      July 1, 2003, the Company entered into a salary and equipment rental agreement
      with its President. Under the terms of the agreement, the Company would 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 of the Company 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 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.
      As
      of January 1, 2005, the $3,500 per month equipment rental agreement with the
      President was terminated. During the year ended December 31, 2005, the Company
      accrued $120,000 for compensation. Additionally, the President advanced $26,270
      of funds on behalf of the Company and the Company repaid $355,000 resulting
      in
      an accrual balance of $102,725 as of December 31, 2005. During the year ended
      December 31, 2006, the Company accrued $120,000 for compensation, repaid
      $137,500 and the President advanced $10,000 of funds on behalf of the Company
      resulting in an accrual balance of $98,225. During the three months ended March
      31, 2007, the Company accrued $30,000 for compensation, reduced the balance
      $3,000 as a correction of a deposit incorrectly recorded in fiscal 2006 and
      the
      President advanced $15,500 of funds on behalf of the Company. As a result,
      the
      accrued balance as of March 31, 2007 is $140,725 and is classified as a
      component of Due To Related Parties in the accompanying Financial
      Statements.





-33-


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 three months ended March 31, 2007, the Company advanced directly or
      indirectly, $23,000 of funds to its majority-owned portfolio companies and
      was
      repaid $44,556 (net repayments of $21,556). In total, the Company has advanced
      $5,784,842 of funds to its majority-owned portfolio companies, which is included
      in the asset account entitled “Investment in and advances to majority-owned
      portfolio companies.




During
      the three months ended March 31, 2007, one of the Company’s majority-owned
      portfolio companies repaid previous advances in the amount of $3,556 (included
      in the $44,556 repayments discussed above) resulting in the advance balance
      being zero as of March 31, 2007. Additionally, the majority-owned portfolio
      company advanced an additional $16,435 of funds to the Company and this amount
      has been classified as a liability named advances from majority-owned portfolio
      companies as of March 31, 2007.


**9.
                FINANCIAL INFORMATION**
              
              Following
                is a schedule of financial highlights for the three months ended
                March 31,
                2007:
            
            **Three
                Months****Ended****March
                31, 2007**Per
                Share Data:Net
                Asset Value at Beginning of Period (1)
            
            $
            0.04Net
                Decrease in Assets (1)
            
            
            0.00Net
                increase in Stockholders Equity from Income
            
            
            0.00Net
                Asset Value at End of Period
            
            $
            0.04Per
                Share Market Value at End of Period
            
            $
            0.06Total
                Return (2)
            
            
            -88
            %Common
                Stock Outstanding and Issuable at End of Period
            
            
            494,245,082Ratio/Supplemental
                Data:Net
                Assets at End of Period
            
            $
            20,902,505Ratio
                of Operating Expenses to Net Assets
            
            
            0
            %Ratio
                of Net Operating Loss to Net Assets
            
            
            0
            %(1)
                Based on Total Shares Outstanding and Issuable(2)
                Total return equals the increase of the ending market value over
                the
                December 31, 2006 priceOf
                $0.05 per share, divided by the beginning
                price.





-34-


**10.
      UNAUDITED SUPPLEMENTAL INFORMATION**


The
      following represents unaudited pro forma comparisons of the Company’s balance
      sheet and statement of operations, showing the difference between the BDC
      presentation and the presentation that will be made going forward after the
      Company’s election to withdraw being regulated as a BDC.





**American
                Energy Production, Inc.****(A
                Development Stage Company)****March
                31, 2007****Pro-Forma
                Balance Sheet****(Unaudited)****ASSETS****As
                presented**
            
            **Pro-Forma****3/31/2007**
            
            **3/31/2007****Current
                Assets**Cash
            
            $
            14,653
            
            $
            77,919Accounts
                receivable
            
            
            -
            
            
            1,205Other
                current assets
            
            
            -
            
            
            118,121**Total
                Current Assets**
            
            
            **14,653**
            
            
            **197,245****Property
                and equipment, net**
            
            
            **17,189**
            
            
            **4,370,470****Investments:**Investments
            
            
            -
            
            
            2,837Investments
                in and advances to affiliates - majority-owned
            
            
            21,644,055
            
            
            -**Total
                Investments**
            
            
            **21,644,055**
            
            
            **2,837****Other
                Assets**Development
                programs - related party
            
            
            -
            
            
            52,526Other
            
            
            
            
            
            39,332Total
                Other Assets
            
            
            -
            
            
            91,858**Total
                Assets**
            
            
            **21,675,897**
            
            
            **4,662,410****LIABILITIES****Current
                Liabilities**Accounts
                payable
            
            $
            330,346
            
            $
            330,349Advances
                from majority-owned portfolio companies
            
            
            16,435
            
            
            -Other
                current liabilities
            
            
            -
            
            
            185Due
                to related parties
            
            
            140,725
            
            
            681,770Convertible
                debentures
            
            
            57,967
            
            
            -Note
                payable
            
            
            -
            
            
            2,018,101Accrued
                interest payable
            
            
            141,486
            
            
            219,075Accrued
                payroll taxes and penalties
            
            
            70,303
            
            
            70,303Lease
                payable
            
            
            16,131
            
            
            16,131**Total
                Current Liabilities**
            
            **$**
            **773,393**
            
            
            **3,335,914**




-35-


**American
                Energy Production, Inc.****(A
                Development Stage Company)****March
                31, 2007****Pro-Forma
                Balance Sheet****(Unaudited)****Commitments
                and Contingencies (Note 7)****Stockholders'
                Equity****3/31/2007**
            
            
            **Pro-Forma****Unaudited**
            
            
            **3/31/2007**Convertible
                preferred stock, Series A, $0.0001 par value,5,000,000
                shares authorized, 3,500,000 issued and outstanding
            
            $
            350
            
            $
            350Common
                stock, $0.0001 par value, 500,000,000 shares authorized494,170,082
                shares issued and outstanding
            
            
            49,417
            
            
            49,417Common
                stock issuable, $0.0001 par value, 75,000 shares
            
            
            8
            
            
            8Additional
                paid in capital
            
            
            23,998,250
            
            
            23,534,053Accumulated
                deficit
            
            
            (9,360,491
            )
            
            (9,360,491
            )Retained
                earnings during development stage
            
            
            7,116,972
            
            
            (11,994,839
            )21,804,505
            
            
            2,228,496Less:
                Subscription Receivable
            
            
            (902,000
            )
            
            (902,000
            )**Total
                Stockholders' Equity**
            
            
            **20,902,505**
            
            
            **1,326,496****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **21,675,898**
            
            **$**
            **4,662,410**





-36-





**American
                Energy Production, Inc.****(A
                Development Stage Company)****Pro-Forma
                Statement of Operations****(Unaudited)*****(As
                Reported)***
            
            ***(Pro-Forma)*****Period
                from**
            
            **Period
                from****February
                20, 2003**
            
            **February
                20, 2003****(Inception
                of**
            
            **(Inception
                of****Development
                Stage)**
            
            **Development
                Stage)****to
                Mar. 31, 2007**
            
            **to
                Mar. 31, 2007****Revenues**Oil
                and Gas sales, net
            
            $
            46,658
            
            $
            4,298,535Management
                fees, net
            
            
            -
            
            
            27,870Royalties,
                net
            
            
            
            
            
            4,285**Total
                Revenues**
            
            
            **46,658**
            
            
            **4,330,690****Operating
                Expenses**Compensation
            
            
            932,596
            
            
            1,122,237Consulting
            
            
            1,277,592
            
            
            1,277,592Depletion
            
            
            3,987
            
            
            3,987Depreciation
            
            
            91,800
            
            
            180,889Rent
            
            
            63,000
            
            
            95,501General
                and administrative
            
            
            216,700
            
            
            851,631Production
            
            
            143,349
            
            
            7,359,299Professional
            
            
            634,639
            
            
            656,286Taxes
            
            
            -
            
            
            62,560Website
            
            
            322,583
            
            
            322,583**Total
                Operating Expenses**
            
            
            **3,686,246**
            
            
            **11,932,565****Operating
                Loss**
            
            
            **(3,639,588**
            **)**
            
            **(7,601,875**
            **)****Other
                Income (Expense)**Gain
                on settlement of debt
            
            
            18,364
            
            
            18,364Other
                income
            
            
            44,155
            
            
            347,009Unrealized
                gain on investments
            
            
            15,445,803
            
            
            -Interest
                expense
            
            
            (4,560,093
            )
            
            (4,566,668
            )Payroll
                tax penalties
            
            
            (24,669
            )
            
            (24,669
            )Loss
                on settlement
            
            
            (167,000
            )
            
            (167,000
            )**Total
                Other Income (Expense)**
            
            
            10,756,560
            
            
            (4,392,964
            )**Net
                Loss**
            
            **$**
            **7,116,972**
            
            **$**
            **(11,994,839**
            **)****Net
                Loss Per Share - Basic and Diluted**
            
            **$**
            **0.02**
            
            **$**
            **(0.04**
            **)****Weighted
                average Shares**
            
            
            **293,438,883**
            
            
            **293,438,883**


-37-


**11.
      SUBSEQUENT EVENTS**




On
      April
      3, 2007, the Company filed a Form N-54C to withdraw its election to be regulated
      as a BDC and as of that date, is no longer a BDC under the 1940 Act. However,
      as
      of March 31, 2007, we were still a BDC and as such, the financial statements
      included in this filing are as a BDC. Going forward, the Company will no longer
      be a BDC with unconsolidated majority-owned portfolio companies but rather
      be an
      oil and gas operating company with consolidated subsidiaries. With
      the filing of the N-54C, effective April 3, 2007, the Company has commenced
      a
      new development stage and has not generated any significant revenue to date
      as
      an oil and gas operating company. The results of operations for April 1, 2007
      through April 3, 2007 were not material and therefore, the Company will utilize
      April 1, 2007 as the inception date for the new development stage





On
      April
      26, 2007, the Company filed a Form 8-K disclosing that Salberg & Company,
      P.A. (“Salberg”) has declined to stand for re-election as the Company’s
      independent registered public accounting firm with respect to the audit of
      the
      Company's financial statements for the year ended December 31, 2007. Salberg
      informed the Company on April 19, 2007 that it could not continue to satisfy
      the
      partner rotation requirement promulgated by the Sarbanes-Oxley Act of 2002.
      Salberg had served as the Company's independent registered public accounting
      firm for the financial statements at December 31, 2006 and 2005 and for the
      years ended December 31, 2006, 2005 and 2004. Salberg’s audit reports for such
      years did not contain an adverse opinion or disclaimer of opinion, nor were
      they
      qualified or modified as to uncertainty, audit scope, or accounting principles
      except for a modification as to the Company's ability to continue as a going
      concern. There were no disagreements with Salberg on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedures, which disagreement(s), if not resolved to the satisfaction of
      Salberg would have caused it to make reference to the subject matter of the
      disagreement(s) in connection with its reports. There were no reportable events
      as set forth in Item 304(a)(1)(iv) of Regulation S-B.




The
      Company's board of directors has authorized the appointment of Shelley
      International LLC (“Shelley”) to serve as the Company's independent registered
      public accounting firm for the quarterly review of the balance sheet as of
      March
      31, 2007 and the related statements of operations, stockholders’ equity and cash
      flows for the period then ended. During the fiscal years ending December 31,
      2006, 2005 and 2004 and prior to the appointment of Shelley, neither the
      Company, or anyone on its behalf, consulted with Shelley regarding any of the
      accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-B.


-38-


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





The
      following analysis of our financial condition and results of operations
      contained in this section should be read in conjunction with our financial
      statements and related notes and schedules thereto appearing elsewhere in this
      Quarterly Report, as well as the sections entitled "Selected Financial Data"
      and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" and the financial statements and related notes and schedules thereto
      included in our annual report on Form 10-K for the year ended December 31,
      2006.





This
      Quarterly Report, including the Management's Discussion and Analysis of
      Financial Condition and Results of Operations, contains forward-looking
      statements that involve substantial risks and uncertainties. These
      forward-looking statements are not historical facts, but rather are based on
      current expectations, estimates and projections about our industry, our beliefs,
      and our assumptions. Words such as "anticipates", "expects", "intends", "plans",
      "believes", "seeks", and "estimates" and variations of these words and similar
      expressions are intended to identify forward-looking statements. These
      statements are not guarantees of future performance and are subject to risks,
      uncertainties, and other factors, some of which are beyond our control and
      difficult to predict and could cause actual results to differ materially from
      those expressed or forecasted in the forward-looking statements, including
      without limitation:


•
            economic
                downturns or recessions may impair our portfolio companies'
                performance;


•
            a
                contraction of available credit and/or an inability to access the
                equity
                markets could impair our lending and investment
                activities;


•
            the
                risks associated with the possible disruption in the Company's operations
                due to terrorism;


•
            future
                changes in laws or regulations and conditions in our operating areas;
                and•
            the
                risks, uncertainties and other factors we identify from time to time
                in
                our filings with the Securities and Exchange Commission, including
                our
                Form 10-Ks, Form 10-Qs and Form
                8-Ks.





Although
      we believe that the assumptions on which these forward-looking statements are
      based are reasonable, any of those assumptions could prove to be inaccurate
      and
      as a result, the forward-looking statements based on those assumptions also
      could be inaccurate. In light of these and other uncertainties, the inclusion
      of
      a projection or forward-looking statement in this Quarterly Report should not
      be
      regarded as a representation by us that our plans and objectives will be
      achieved. You should not place undue reliance on these forward-looking
      statements, which apply only as of the date of this Quarterly Report. We
      undertake no obligation to update such statements to reflect subsequent
      events.





-39-


**OVERVIEW**





American
      Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) is
      a publicly traded BDC 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 majority owned portfolio 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. Our capital is generally
      used by our portfolio companies to finance growth and working capital.





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-54A with the Securities and
      Exchange Commission (“SEC”) to be regulated as a BDC under the Investment
      Company Act of 1940, as amended (“Act”). Accordingly, the Company is presently
      regulated as a BDC under the Act. BDC’s report to stockholders like traditional
      operating companies and file regular quarterly and annual reports with the
      SEC.
      A BDC is required to make available significant managerial assistance to its
      portfolio companies. At the time of its election, the Company had determined
      that its operating model best approximated that of a BDC and intended to make
      investments into developing businesses in the oil and gas and other industries.





The
      Company has determined, based on the nature of its investments that the Company
      is not currently required to be regulated as a BDC because it does not meet
      the
      definition of an “investment company” in the 1940 Act. This is due to the fact
      that its non-cash assets consist almost entirely of investment in companies
      that
      it wholly-owns. Thus, it is operating, and intends to operate, as a holding
      company rather than an investment company.




Accordingly,
      and after careful consideration of the 1940 Act requirements applicable to
      BDCs,
      its holding company operations, an evaluation of the Company’s ability to
      operate as a going concern in an investment company regulatory environment,
      the
      cost of 1940 Act compliance needs and a thorough assessment of the Company’s
      current business model, the Board determined that continuation as a BDC is
      not
      in the best interests of the Company and its shareholders at the present time.
      Further, were the Company to remain a BDC, the Company would be required to
      substantially change its business model to meet the definition of an “investment
      company.”




In
      making
      the determination that continuation as a BDC is not in the best interests of
      the
      Company and its shareholders, the Board considered the viable alternatives
      available to the Company at this time. The Board considered that the Company
      could remain an investment company and restructure its portfolio investments
      to
      reduce its ownership of investee companies to non-majority ownership positions,
      while attempting to cure the significant compliance failures that it has
      incurred. However, the Board determined that the Company’s business model
      required majority ownership of its portfolio companies and that the significant
      expense associated with that alternative would make it unlikely that the Company
      would be able to continue operations.




-40-


On
      March
      13, 2007, at a Special Meeting of Shareholders, the Shareholders approved and
      authorized the Board to withdraw the Company’s election to be treated as a BDC
      under the 1940 Act and the election of three directors to the Board. On April
      3,
      2007, the Company filed a Form N-54C to withdraw its election to be regulated
      as
      a BDC and as of that date, is no longer a BDC under the 1940 Act. However,
      as of
      March 31, 2007, we were still a BDC and as such, the financial statements
      included in this filing are as a BDC. Going forward, the Company will no longer
      be a BDC with unconsolidated majority-owned portfolio companies but rather
      be an
      oil and gas operating company with consolidated subsidiaries.





As
      reflected in the accompanying financial statements, the Company had a net loss
      of $77,251 and net cash used in operations of $25,618 for the three months
      ended
      March 31, 2007. Additionally, 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 raise capital and generate revenues as an oil and gas operating company.





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.





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 is authorized to issue 500,000,000 shares
                of its
                $0.0001 par value common stock and as of the date of this report,
                there
                are 494,074,082 shares outstanding. As a result, the ability of the
                Company to raise capital from the sale of common stock is minimal
                and is a
                serious impediment to the Company’s ability to provide liquidity during
                the time frame that the Company is commencing its business plan as
                an oil
                and gas operating company. The financial statements included in this
                report do not include any adjustments that might be necessary if
                the
                Company is unable to continue as a going concern.





·
            The
                Company may face certain contingent liabilities as a result of potential
                actions by the SEC or others against the Company. As of the date
                of this
                report, management could not reasonably estimate such contingent
                liabilities, if any. The outcome of the above matter could have a
                significant impact on our ability to continue as a going
                concern.





·
            The
                Company and certain of its majority-owned portfolio companies are
                delinquent in the filing of franchise tax reports with the State
                of Texas
                and the State of Delaware and as a result, the Company and certain
                of its
                majority-owned portfolio companies are not in good standing. The
                Company
                and its majority-owned portfolio companies are in the process of
                filing
                the required reports and may face certain penalties and interest
                due to
                the delinquent status of the reports.





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 to our majority owned
      portfolio companies.





-41-


The
      following represents unaudited supplemental information for the three months ended March 31, 2007 for our
      majority-owned portfolio companies.


**Description**
            ****
            **Production**
              **Resources,
                Inc.**
            
            **Bend
                Arch Petroleum, Inc.**
            
            **Oil
                America Group**
            
            **AMEP
                Strategic Investments**Revenue
            
            $
            86,704
            
            $
            279,467
            
            $
            -
            
            $
            -Operating
                Expenses
            
            
            88,309
            
            
            690,541
            
            
            4,294
            
            
            12Operating
                Income (Loss)
            
            
            (1,605
            )
            
            (411,074
            )
            
            (4,294
            )
            
            (12
            )Other
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Income (Loss)
            
            $
            (1,605
            )
            $
            (411,074
            )
            $
            (4,294
            )
            $
            (12
            )




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 portfolio companies.




**RECENT
      DEVELOPMENTS**




On
      April
      3, 2007, the Company filed a Form N-54C to withdraw its election to be regulated
      as a BDC and as of that date, is no longer a BDC under the 1940 Act. However,
      as
      of March 31, 2007, we were still a BDC and as such, the financial statements
      included in this filing are as a BDC. Going forward, the Company will no longer
      be a BDC with unconsolidated majority-owned portfolio companies but rather
      be an
      oil and gas operating company with consolidated subsidiaries. With
      the filing of the N-54C, effective April 3, 2007, the Company has commenced
      a
      new development stage and has not generated any significant revenue to date
      as
      an oil and gas operating company. The results of operations for April 1, 2007
      through April 3, 2007 were not material and therefore, the Company will utilize
      April 1, 2007 as the inception date for the new development stage





On
      April
      26, 2007, the Company filed a Form 8-K disclosing that Salberg & Company,
      P.A. (“Salberg”) has declined to stand for re-election as the Company’s
      independent registered public accounting firm with respect to the audit of
      the
      Company's financial statements for the year ended December 31, 2007. Salberg
      informed the Company on April 19, 2007 that it could not continue to satisfy
      the
      partner rotation requirement promulgated by the Sarbanes-Oxley Act of 2002.
      Salberg had served as the Company's independent registered public accounting
      firm for the financial statements at December 31, 2006 and 2005 and for the
      years ended December 31, 2006, 2005 and 2004. Salberg’s audit reports for such
      years did not contain an adverse opinion or disclaimer of opinion, nor were
      they
      qualified or modified as to uncertainty, audit scope, or accounting principles
      except for a modification as to the Company's ability to continue as a going
      concern. There were no disagreements with Salberg on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedures, which disagreement(s), if not resolved to the satisfaction of
      Salberg would have caused it to make reference to the subject matter of the
      disagreement(s) in connection with its reports. There were no reportable events
      as set forth in Item 304(a)(1)(iv) of Regulation S-B.





The
      Company's board of directors has authorized the appointment of Shelley
      International LLC (“Shelley”) to serve as the Company's independent registered
      public accounting firm for the quarterly review of the balance sheet as of
      March
      31, 2007 and the related statements of operations, stockholders’ equity and cash
      flows for the period then ended. During the fiscal years ending December 31,
      2006, 2005 and 2004 and prior to the appointment of Shelley, neither the
      Company, or anyone on its behalf, consulted with Shelley regarding any of the
      accounting or auditing concerns stated in Item 304(a)(2) of Regulation
      S-B.




-42-


**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
      unaudited financial statements contained in our annual report on Form 10-Q
      for
      the three months ended March 31, 2007. Although we believe that our estimates
      and assumptions are reasonable, they are based upon information presently
      available. Actual results may differ significantly from these
      estimates.




**GOING
      CONCERN**




The
      independent registered public accounting firms’ reports to our financial
      statements at December 31, 2006 and 2005 and for the years ended December 31,
      2006, 2005 and 2004, 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 from
      February 20, 2003 (Inception of Development) to March 31, 2007. 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 brother of the Company’s President, 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.




-43-


**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 property and equipment, no impairment charge has been recorded for the three
      months ended March 31, 2007.





**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.





-44-


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, 2005 was
      $2,074,898 and increased by $189,786 in 2006 to $2,264,684 at December 31,
      2006.
      Net operating loss carry-forwards aggregate approximately $6,660,833 and expire
      in the years through 2026.





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
      portfolio company.


-45-


**RESULTS
      OF OPERATIONS**





***Three
      Months ended March 31, 2007 compared to March 31,
      2006.***





**Three
                Months Ended****March
                31,****2007**
            
            **2006****Investment
                Income**Oil
                sales, net
            
            $
            -
            
            $
            -Investment
                income - portfolio investmentsInterest
            
            
            -
            
            
            -Dividends
            
            
            -
            
            
            -**Total
                Investment Income**
            
            
            **-**
            
            
            **-****Operating
                Expenses**Compensation
            
            
            30,000
            
            
            30,000Consulting
            
            
            3,260
            
            
            -Depletion
            
            
            -
            
            
            -Depreciation
            
            
            1,946
            
            
            1,946Equipment
                rental
            
            
            -
            
            
            -General
                and administrative
            
            
            13,674
            
            
            16,837Production
            
            
            -
            
            
            -Professional
            
            
            24,417
            
            
            24,466Website
            
            
            -
            
            
            -**Total
                Operating Expenses**
            
            
            **73,297**
            
            
            **73,249****Net
                Investment Loss**
            
            
            **(73,297**
            **)**
            
            **(73,249**
            **)****Other
                Income (Expense)**Gain
                on settlement of debt
            
            
            -
            
            
            -Other
                income
            
            
            -
            
            
            20,000Unrealized
                gain on investmentsInterest
                expense
            
            
            (2,453
            )
            
            (2,050
            )Payroll
                tax expense and penalties
            
            
            (1,501
            )
            
            (1,501
            )Loss
                on settlement
            
            
            -
            
            
            -**Total
                Other Income (Expense)**
            
            
            (3,954
            )
            
            16,449**Net
                Increase in Net Assets**
            
            **$**
            **(77,251**
            **)**
            **$**
            **(56,800**
            **)**





-46-


**Three
      Months Ended March 31, 2007 compared to March 31, 2006**





*Investment
      Income* *:*





There
      was
      no investment income for the three months ended March 31, 2007 or 2006,
      respectively.




*Operating
      Expenses* *:*





Operating
      expenses increased $48, or less than 1%, to $73,297 for 2007 from $73,249 for
      2006. The increase was primarily the result of a $3,260 increase in consulting
      offset by a $3,163 decrease in general and administrative. The increase in
      consulting was primarily for financial advising services by a third
      party.





*Other
      Income (Expense)* *:*





Other
      income (expense) decreased $20,403 of income, or 124% to $3,954 of expense
      for
      2007 from $16,449 of income for 2006. The decrease was primarily from a $20,000
      decrease in other income from 2006 with no comparable amount for
      2007.





**Liquidity
      and Capital Resources**




Cash
      and
      cash equivalents were $14,653 at March 31, 2007 as compared to $2,280 at
      December 31, 2006, and working capital deficit was $758,740 at March 31, 2007
      as
      compared to a working capital deficit of $704,991 at December 31, 2006. The
      increase in cash was primarily from $37,991 of net repayments and advances
      from
      the Company’s majority-owned portfolio companies, offset by $25,618 of cash used
      in operations. The increase in the working capital deficit was primarily from
      a
      $42,500 increase in due to related parties and $16,435 of advances from the
      Company’s majority-owned portfolio companies.





*Operating
      Activities*





Cash
      used
      in operating activities was $25,618 for the three months ended March 31, 2007
      compared to cash used of $74,484 for the three months ended March 31, 2006.
      The
      decrease in cash used in operations for 2007 was primarily from an increase
      in
      the due to related parties balance in 2007 as compared to 2006.





*Investing
      Activities*





Cash
      provided by investing activities was $37,991 for the three months ended March
      31, 2007 compared to cash used of $424,500 for the three months ended March
      31,
      2006. The decrease in cash used resulted from a $401,500 decrease in advances
      to
      majority-owned portfolio companies, offset by $16,435 of advances from and
      $44,556 of repayments from majority-owned portfolio companies.





-47-


*Financing
      Activities*





There
      was
      no cash financing activities for 2007 compared to $226,420 of cash provided
      for
      the three months ended March 31, 2006. In 2006, the company had $193,920 of
      cash
      of net proceeds from the issuance of common stock and $32,500 of cash proceeds
      from the repayment of a subscription receivable.




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





Our
      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 March 31, 2007:





**DEBT**





*Our
      debt consisted of the following:*


**Mar.
                31,**
            
            **Dec.
                31,*****Lease
              Payable***
            
            **********2007******
            
            **2006**$21,238
                computer equipment lease, bearing interest at 10% per
                annum
            
            $
            16,131
            
            $
            16,131





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 June 30, 2006,
      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 March 31, 2007, the Company has recorded a total
      of
      $13,034 in accrued interest for this lease payable in the accompanying Financial
      Statements.





In
      November 2003, an agreement 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 March 31, 2007, 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.





-48-


***Notes
      payable - Banks***





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.





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.





-49-








**Mar.
                31,**
            
            **Dec.
                31,*****Convertible
              Debentures:***
            
            **2007**
            
            **2006**$400,000
                Convertible Debentures, dated June 15, 2004, bearing interest at
                8% per
                annum and due on December 1, 2005 -in
                default at March 31, 2007.
            
            $
            57,967
            
            $
            57,967$
            57,967
            
            $
            57,967





In
      May
      2004, the Company received $250,000 in gross proceeds from the issuance of
      a
      convertible debenture. The terms of the convertible debenture include an
      interest rate of 8% per annum, 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 corrected
      their report and the 7,000,000 shares of common stock were 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. During 2004 and 2005, the entire
      $250,000 of debt discount was amortized to interest expense relating to the
      $250,000 convertible debenture that was fully converted as of December 31,
      2005.




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 March 31, 2007.
      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. During 2004 and
      2005, the entire $400,000 of debt discount was amortized to interest expense
      related to the $400,000 convertible debenture being fully converted as of
      December 31, 2005.




-50-


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. During 2004 and 2005, the entire
      $1,000,000 of debt discount was amortized to interest expense related to the
      $1,000,000 convertible debenture being fully converted as of December 31,
      2005.




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 8 - 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 majority owned
      portfolio company (see below).




-51-


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 Majority-Owned Portfolio Companies).




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. In 2004, the Company recognized a 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 related to the
      $600,000 convertible debenture issued and subsequently converted in
      2004.




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





In
      accordance with EITF Issue 98-5, the Company has evaluated that the $30,000
      convertible debenture discussed above has a beneficial conversion feature as
      the
      exercise price for is less than the fair value of the Company’s common stock on
      the measurement date. In 2004, the Company recognized a beneficial conversion
      feature by charging the statement of operations $30,000 for interest expense
      and
      $30,000 for additional paid-in capital related to the $30,000 convertible
      debenture that was issued and subsequently converted during 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 March 31, 2007, the Company has recorded $128,452 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 March 31, 2007.





-52-


***Equity
      Financing***





For
      the
      three months ended March 31, 2007 and 2006, the Company received zero and
      $193,920 of proceeds, net of offering costs, from the issuance of common stock,
      respectively.





***Liquidity***





To
      continue with our business plan, we will require additional working capital
      as
      we have not been generating sufficient cash from operations as a BDC to fund
      our
      operating activities through the end of fiscal 2006. The ability of the Company
      to continue as a going concern is dependent on the Company’s ability to raise
      capital and going forward, generate revenues and cash flow from its business
      plan as an oil and gas operating company. The Company is authorized to issue
      500,000,000 shares of its $0.0001 par value common stock and as of the date
      of
      this report, there are 494,074,082 shares outstanding. As a result, the ability
      of the Company to raise capital from the sale of common stock is minimal and
      is
      a serious impediment to the Company’s ability to provide liquidity during the
      time frame that the Company is commencing its business plan as an oil and gas
      operating company. The financial statements included in this report do not
      include any adjustments that might be necessary if the Company is unable to
      continue as a going concern.




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 and the prospects for our business. Additionally, any necessary
      additional financing may not be available to us or may be available only on
      terms that would result in further dilution to the current owners of our common
      stock. Failure to obtain commitments for interim financing and subsequent
      project financing, would have a material adverse effect on our business, results
      of operations and financial condition. If the financing we require to sustain
      our working capital needs is unavailable or insufficient or we do not receive
      the necessary financing, we may be unable to continue as a going
      concern.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





**Contractual
      Obligations and Commercial Commitments**





The
      following table highlights, as of March 31, 2007, 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
            
            
            141,486
            
            
            141,486
            
            
            -
            
            
            -
            
            
            -Total
                Debt
            
            $
            215,584
            
            $
            215,584
            
            $
            -
            
            $
            -
            
            $
            -





-53-


**2007
      OUTLOOK**





The
      ability of the Company to continue as a going concern is dependent on the
      Company’s ability to raise capital and going forward, generate revenues and cash
      flow from its business plan as an oil and gas operating company. The Company
      is
      authorized to issue 500,000,000 shares of its $0.0001 par value common stock
      and
      as of the date of this report, there are 494,074,082 shares outstanding. As
      a
      result, the ability of the Company to raise capital from the sale of common
      stock is minimal and is a serious impediment to the Company’s ability to provide
      liquidity during the time frame that the Company is commencing its business
      plan
      as an oil and gas operating company. The financial statements included in this
      report do not include any adjustments that might be necessary if the Company
      is
      unable to continue as a going concern.




Going
      forward, as an oil and gas operating company, the Company is highly dependent
      on
      the success of its wholly-owned subsidiaries. There is no assurance that
      additional equity or debt financing will be available on terms acceptable to
      Management or that the Company’s wholly-owned subsidiaries will be
      successful.





**Item
      3. Quantitative and Qualitative Disclosures About Market Risk**





We
      are
      exposed to market risks related to changes in interest rates. Our debt is at
      fixed rates of interest from 8% to a default 18% per annum rate as the result
      of
      being in default of certain debt as of March 31, 2007. There is a risk that
      additional debt may be declared in default in the future and the higher default
      rate of 18% may have a negative affect on our operations.





We
      have
      accrued payroll taxes and penalties related to prior operations and are
      estimating and accruing penalties and interest. However, there is a risk that
      the actual penalties and interest to be paid, if any, could be significantly
      higher and have a negative affect on our operations.





Currently,
      we consider our principal market risk to be the fluctuations of the valuations
      of the investment portfolio.




Our
      investments are carried at fair value, as determined by the Board of Directors.
      We expect to value publicly traded shares at the closing price on the valuation
      date. We expect to value debt and equity securities that are not publicly
      traded, or that we are restricted from trading, at fair value as determined
      in
      good faith by our Board of Directors. In making such determination, we expect
      that the Board of Directors will value non-convertible debt securities at cost
      plus amortized original issue discount, if any, unless adverse factors lead
      to a
      determination of a lesser valuation. In valuing convertible debt, equity, or
      other securities, we expect that the Board of Directors will determine the
      fair
      value based on the collateral, the issuer's ability to make payments, the
      current and forecasted earnings of the issuer, sales to third parties of similar
      securities, the comparison to publicly traded securities, and other pertinent
      factors. Due to the uncertainty inherent in the valuation process, such
      estimates of fair value may differ significantly from the values that would
      have
      been used had a ready market for the securities existed, and the differences
      could be material. Additionally, changes in the market environment and other
      events that may occur over the life of the investments may cause the gains
      or
      losses ultimately realized on these investments to be different than the
      valuations assigned at other times.




-54-


**Item
      4. Controls and Procedures.**





**Evaluation
      of Disclosure Controls and Procedures**





(a)
            At
                the end of the period covered by the report, we carried out an evaluation,
                under the supervision and with the participation of our management,
                including our Chief Executive Officer, Chief Financial Officer, of
                the
                effectiveness of the design and operation of our disclosure controls
                and
                procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities
                Exchange Act of 1934). Based on that evaluation, our Chief Executive
                Officer, Chief Financial Officer has concluded that our current disclosure
                controls and procedures are effective to allow timely decisions regarding
                required disclosure of any material information relating to us that
                is
                required to be disclosed by us in the reports we file or submit under
                the
                Securities Act of 1934. On May 25, 2006, the Company received a letter
                of
                inquiry from the SEC related to, among other things, the Company’s
                disclosure controls and procedures. In that letter, the SEC noted
                the
                Company’s repeated requests for extensions of time to file its required
                reports. Subsequently, the Company has conducted a review of its
                disclosure controls and procedures designed to ensure that all future
                filings and submissions to the SEC are consistent with the requirements
                of
                federal securities laws and are not otherwise misleading. The review
                resulted in the implementation of additional controls to ensure that
                future filings are complete, accurate and made on a timely basis.
                The
                Company has engaged corporate and BDC counsel to assist the Company
                in its
                discussions with the SEC and with the filing process. Additionally,
                the
                Company has engaged an accounting consultant to ensure that its financial
                records are maintained and recorded in a timely manner. Finally,
                the
                Company has identified and appointed - subject to shareholder election
                -
                new members to the Board of Directors, such that the Company’s management
                has significant experience relating to its primary business. The
                implementation of these additional controls and procedures allowed
                the
                Company’s Chief Executive Officer and Chief Financial Officer to conclude
                that the current disclosure controls and procedures are effective,
                as
                required.





(b)
            There
                have been no changes in the Company’s internal controls over financial
                disclosure and reporting that occurred during the most recent fiscal
                quarter that has materially affected, or is reasonable likely to
                affect,
                the company’s internal control over financial
                reporting.


-55-


**PART
      II - Other Information**





**Item
      1. Legal Proceedings**





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 September 30, 2006.





The
      Company and certain of its majority-owned portfolio companies are delinquent
      in
      the filing of franchise tax reports with the State of Texas and the State of
      Delaware and as a result, the Company and certain of its majority-owned
      portfolio companies are not in good standing. The Company and its majority-owned
      portfolio companies are in the process of filing the required reports and may
      face certain penalties and interest due to the delinquent status of the reports.





In
      November 2003, an agreement was negotiated 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 March 31, 2007 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 $70,303 of unpaid Federal payroll taxes and employee
      withholdings and related penalties and interest in its accrued expenses as
      of
      March 31, 2007. Although the unpaid Federal taxes are from the predecessor
      company, Communicate Now.com, Inc., such amounts are subject to potential
      federal tax liens for the Company.





The
      Company has $330,346 of accounts payable as of March 31, 2007 and almost all
      of
      this balance is from the predecessor company, Communicate Now.com, Inc. Since
      these trade accounts payable have been outstanding for an extended period of
      time with no communication between the Company and any of the vendors, the
      Company is commencing the process of eliminating the liabilities from its
      records. However, there can be no assurance that the Company will be successful
      in its efforts to eliminate the liabilities.





**Item
      1A. Risk Factors**




Our
      business, financial condition, operating results and cash flows can be impacted
      by a number of factors, any one of which could cause our actual results to
      vary
      materially from recent results or from our anticipated future results. For
      a
      discussion identifying additional risk factors and important factors that could
      cause actual results to differ materially from those anticipated, see the
      discussions in “Risk Factors, “ “Forward-Looking Statements,” “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” and
“Notes to Financial Statements” in our Form 10-K for December 31, 2006 and in
      this Form 10-Q.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





***Issuances
      of Preferred Stock:***





None





-56-


***Retirement
      of Preferred Stock***





None





***Issuances
      of Common Stock:***





None





***Common
      Stock Issuable:***





As
      of
      March 31, 2007, 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 offering conducted pursuant to Regulation S in 2003. The
      investor had paid for the full subscription, and as such, no amounts are due
      to
      the Company.





**Item
      3. Defaults Upon Senior Securities**





None





**Item
      4. Submission of matters to a Vote of Securities Holders**





On
      March
      13, 2007, at a Special Meeting of Shareholders, the Shareholders approved and
      authorized the Board to withdraw the Company’s election to be treated as a BDC
      under the 1940 Act and the election of three directors to the Board.





**Item
      5. Other Information**





None





-57-


**Item
      6. Exhibits**





The
      following exhibits are filed with this report or are incorporated herein by
      reference to a prior filing, in accordance with Rule 12b-32 under the Securities
      Exchange Act of 1934.





Exhibit
                No.
            
            Description
                of Exhibit20.1
            
            Form
                N-54C - Notification
                of withdrawal of election to be subject to sections 55 through 65
                of the
                Investment Company Act of 1940 filed pursuant to section 54(c) of
                the
                Investment Company Act of 1940 -Incorporated
                by Reference.22.1
            
            Schedule
                14A - Definitive Proxy Statement filed February 8, 2007 - Incorporated
                by
                Reference.31.1*
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Rule
                13a-14 of the Securities Exchange Act of 1934, as
                amended.*32.1*
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                section
                906 of The Sarbanes-Oxley Act of 2002.*


*
      Filed herewith




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.


AMERICAN
                ENERGY PRODUCTION, INC.
              (Registrant)Date:
              May 10, 2007
            By:
            /s/ Charles
              BittersCharles
              BittersChief
              Executive Officer and Chief Financial
              Officer


-58-