SECURITIES
AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM
10-Q

QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THESECURITIES EXCHANGE ACT OF 1934FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2004

Commission
File #333-52812

# AMERICAN ENERGY
PRODUCTION, INC.(Exact name of small business issuer as specified in its charter)

TEXAS(State
or other jurisdiction of incorporation or organization)

74-2945581
(IRS Employer Identification Number)

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

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

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 [ ]

The number of shares outstanding of
the Companys common stock outstanding on March 31, 2004: 130,884,782

-1-

AMERICAN
ENERGY PRODUCTION, INC.FORM 10-Q

Table of Contents

PART  I  -  FINANCIAL  INFORMATION

Item 1  Financial
Statements

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

Item 3  Controls
and Procedures

PART II  -  OTHER INFORMATION

Item 1  Legal
Proceedings

Item 2  Changes in
Securities

Item 3  Defaults
upon Senior Securities

Item  4 -    Submission of Matters to a Vote of Security Holders

Item 5  Other
Information

Item 6  Exhibits
and Reports on Form 8-K

SIGNATURES

-2-

# PART
I  FINANCIAL INFORMATION

# Item 1. Financial
Statements

Filed herewith are our following
unaudited financial statements:

Balance Sheet at March
31, 2004

Statements of Operations for the
three months ended March 31, 2004 and 2003

Statements of Changes in
Stockholders Deficiency for the three months ended March 31, 2004

Statements of Cash Flows for the three months ended March  31, 2004 and 2003

Notes to Financial
Statements

F-1

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

# ASSETS

|                                          | March 31, 2004
|----------------------------------------- | --------------
|Current Assets                            |               
|Cash                                      |               
|                                          |               
|Total Current Assets                      |               
|                                          |               
|Oil and gas properties and equipment, net |               
|                                          |               
|Other Assets                              |               
|Prepaid acquisition cost                  |               
|                                          |               
|Total Other Assets                        |               
|                                          |               
|Total Assets                              |               
|                                          |               
|                                          |               

# LIABILITIES

|                                     | 
|------------------------------------ | 
|Current Liabilities                  | 
|Cash overdraft                       | 
|Accounts payable                     | 
|Due to  related party                | 
|Accrued interest payable - current   | 
|Accrued payroll taxes and penalties  | 
|Lease payable                        | 
|Notes payable - banks                | 
|                                     | 
|Total Current Liabilities            | 
|                                     | 
|Convertible debentures               | 
|Accrued interest payable - long term | 
|                                     | 
|Total Long Term Liabilities          | 
|                                     | 
|Total Liabilities                    | 
|                                     | 

See accompanying notes to financial statements

F-2

American Energy
Production, Inc. (A Development Stage
Company) Balance Sheet
(Continued)(Unaudited) Stockholders
Deficiency

|                                                               | March 31, 2004
|-------------------------------------------------------------- | --------------
|Convertible preferred stock, Series B, $0.0001 par value,      |               
|5,000,000 shares authorized, 4,000,000 issued and outstanding  |               
|Common stock, $0.0001 par value, 500,000,000 shares authorized |               
|130,884,782 shares issued and outstanding                      |               
|Common stock issuable, $0.0001 par value, 4,620,454 shares     |               
|Additional paid in capital                                     |               
|Accumulated deficit                                            |               
|Deficit accumulated during development stage                   |               
|                                                               |               
|                                                               |               
|Less: Subscription Receivable, 1,818,181 shares                |               
|                                                               |               
|Total Stockholders' Deficiency                                 |               
|                                                               |               
|Total Liabilities and Stockholders' Deficiency                 |               
|                                                               |               
|                                                               |               

See accompanying notes to financial statements

F-3

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

|                                       | Three Months Ended March 31,
2004 2003 | Period from
February 20, 2003
(Inception of
Development Stage)
to March 31, 2004
|-------------------------------------- | -------------------------------------- | --------------------------------------------------------------------------------
|Oil sales, net                         |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Operating Expenses                     |                                        |                                                                                 
|Compensation                           |                                        |                                                                                 
|Consulting                             |                                        |                                                                                 
|Depletion                              |                                        |                                                                                 
|Depreciation                           |                                        |                                                                                 
|Equipment rental                       |                                        |                                                                                 
|General and administrative             |                                        |                                                                                 
|Production                             |                                        |                                                                                 
|Professional                           |                                        |                                                                                 
|Website                                |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Total Operating Expenses               |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Loss from Operations                   |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Other Expense                          |                                        |                                                                                 
|Interest expense                       |                                        |                                                                                 
|Payroll tax interest and penalties     |                                        |                                                                                 
|Loss on settlement                     |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Total Other Expense                    |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Net Loss                               |                                        |                                                                                 
|                                       |                                        |                                                                                 
|Net Loss Per Share - Basic and Diluted |                                        |                                                                                 
|                                       |                                        |                                                                                 

See accompanying notes to financial statements

F-4

# American Energy
Production, Inc. (A Development Stage
Company) Statement of Changes in
Stockholders Deficiency(Unaudited)Three Months ended
March 31, 2004

|                                                                                 | Preferred Stock | Common Stock | Common Stock
Issuable | Subscription | Additional
Paid-In | Accumulated | Deficit
Accumulated
During
Development | Deferred | Total
Stockholders' |            
|-------------------------------------------------------------------------------- | --------------- | ------------ | --------------------- | ------------ | ------------------ | ----------- | -------------------------------------- | -------- | ------------------- | -----------
|
|BALANCE AT  DECEMBER 31, 2003                                                    |                 |              |                       | --           |                    | $           | --                                     |          |                     | 93,051,449 
|Common stock issued for conversion of convertible debentures                     |                 |              |                       | --           |                    |             | --                                     |          |                     | 23,333,333 
|Common stock subscribed                                                          |                 |              |                       | --           |                    |             | --                                     |          |                     | --         
|Interest expense related to convertible debentures beneficial conversion feature |                 |              |                       | --           |                    |             | --                                     |          |                     | --         
|Common stock issued and issuable for cash,net of offering costs of $50,000       |                 |              |                       | --           |                    |             | --                                     |          |                     | 5,000,000  
|Common stock that was issuable at 12-31-03                                       |                 |              |                       | --           |                    |             | --                                     |          |                     | 8,500,000  
|Common stock issued upon conversion of debentures for services                   |                 |              |                       | 1,000,000    |                    |             | 100                                    |          |                     | --         
|Preferred stock issued for conversion 3,500,000                                  |                 |              |                       | 350          |                    |             | --                                     |          |                     | --         
|Preferred stock issued for services                                              |                 |              |                       | 500,000      |                    |             | 50                                     |          |                     | --         
|Amortization of deferred services                                                |                 |              |                       | --           |                    |             | --                                     |          |                     | --         
|Net loss, three months ended March 31, 2004                                      |                 |              |                       | --           |                    |             | --                                     |          |                     | --         
|                                                                                 |                 |              |                       |              |                    |             |                                        |          |                     |            
|BALANCE AT MARCH 31, 2004                                                        |                 |              |                       | 4,000,000    |                    | $           | 400                                    |          |                     | 130,884,782
|                                                                                 |                 |              |                       |              |                    |             |                                        |          |                     |            

See accompanying notes to financial statements

F-5

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

|                                                | Three Months Ended March 31, | Period from
February 20, 2003
(Inception of
Development Stage) |  
|----------------------------------------------- | ---------------------------- | -------------------------------------------------------------- | -
|
|Cash Flows From Operating Activities:           |                              |                                                                |  
|Net loss                                        |                              |                                                                | $
|Adjustments to reconcile net loss to net cash   |                              |                                                               
|used in operations:                             |                              |                                                               
|Stock issued for services                       |                              |                                                                |  
|Stock issued for chemical                       |                              |                                                                |  
|Stock issued in settlement                      |                              |                                                                |  
|Loss on settlement                              |                              |                                                                |  
|Interest expense related to convertible         |                              |                                                               
|debentures beneficial conversion feature        |                              |                                                                |  
|Amortization of deferred services               |                              |                                                                |  
|Depreciation                                    |                              |                                                                |  
|Depletion                                       |                              |                                                                |  
|Changes in operating assets and liabilities:    |                              |                                                               
|Decrease in accounts receivable - related party |                              |                                                                |  
|Increase in accounts payable                    |                              |                                                                |  
|(Decrease) increase in due to related           |                              |                                                                |  
|Increase in accrued interest payable            |                              |                                                                |  
|Increase in accrued payroll taxes payable       |                              |                                                                |  
|                                                |                              |                                                                |  
|Net Cash Used In Operating Activities           |                              |                                                                |  
|                                                |                              |                                                                |  
|Cash Flows From Investing Activities:           |                              |                                                               
|Prepaid acquisition cost disbursement           |                              |                                                                |  
|Purchase of equipment                           |                              |                                                                |  
|Purchase of oil lease                           |                              |                                                                |  
|                                                |                              |                                                                |  
|Net Cash Used In Investing Activities           |                              |                                                                | $
|                                                |                              |                                                                |  

See accompanying notes to financial statements

F-6

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

|                                                 | Three Months Ended March 31, | Period from
February 20, 2003
(Inception of
Development Stage) |   |        
|------------------------------------------------ | ---------------------------- | -------------------------------------------------------------- | - | -------
|
|Cash Flows From Financing Activities:            |                              |                                                                |   |        
|Officer loan proceeds                            |                              |                                                                |   | --     
|Repayment of officer loan                        |                              |                                                                |   | --     
|Loan proceeds - other                            |                              |                                                                |   | --     
|Repayment of loan proceeds - other               |                              |                                                                |   | --     
|Proceeds from issuance of convertible debentures |                              |                                                                |   | 600,000
|Proceeds from issuance of  common stock,         |                              |                                                               
|net of offering costs of $50,000                 |                              |                                                                |   | 300,000
|Repayment of lease payable                       |                              |                                                                |   | --     
|                                                 |                              |                                                                |  
|Net Cash Provided By Financing Activities        |                              |                                                                |   | 900,000
|                                                 |                              |                                                                |  
|Net Increase in Cash                             |                              |                                                                |   | 281,182
|                                                 |                              |                                                                |  
|Cash at Beginning of Period                      |                              |                                                                |   | 432    
|Cash at End of Period                            |                              |                                                                | $ | 281,614
|                                                 |                              |                                                                |  
|Cash interest paid                               |                              |                                                                | $ | 45,750 
|                                                 |                              |                                                                |  

|Supplemental disclosure of non-cash transactions     |  |  |  
|---------------------------------------------------- |  |  | -
|Asset acquisition paid with convertible note payable |  |  | $
|Conversion of note payable to convertible debenture  |  |  | $
|Conversion of indebtedeness to preferred stock       |  |  | $
|Conversion of convertible debentures to common stock |  |  | $

See accompanying notes to financial statements

F-7

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

# March 31, 2004(Unaudited)

# Note 1 Basis of
Presentation

The accompanying unaudited
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America of America and the rules and
regulations of the United States of America Securities and Exchange Commission for interim
consolidated financial information. Accordingly, they do not include all the information
and footnotes necessary for a comprehensive presentation of consolidated financial
position and results of operations.

It is managements opinion,
however, that all material adjustments (consisting of normal 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,
2003 included in the Companys Form 10-KSB. Beginning with this quarter ended March
31, 2004 the accompanying financial statements are prepared in accordance with the
guidance in the AICPAs Audit and Accounting Guide, Audits of Investment
Companies since the Company elected to be regulated as a Business Development
Company effective January 29, 2004 (see Note 2).

# Note 2 Nature of
Operations and Summary of Significant Accounting Policies

# Nature of Operations

American Energy Production, Inc.
(American Energy, the Company, we, us) is
a publicly traded business development company (see below) that is engaged primarily in
the investment in other companies that acquire, develop, produce, explore and sell oil and
gas. The Company anticipates that its investees will be able to sell all oil that it can
produce to petroleum refiners and marketers under the terms of short-term purchase
contracts and at prices in accordance with arrangements that are customary in the oil
industry. Prior to becoming a business development company effective in January 2004, the
Company was engaged directly in the above activities since February 20, 2003 when it
acquired certain oil assets and began its new development stage. (See below) Prior to
that, the Company was f/k/a Communicate Now.com, Inc. and was incorporated on January 31,
2000 under the laws of the State of Texas. 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 (see Note 5  Property and Equipment and
Note 7  Long-Term Debt), 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 (See Note 12  Subsequent Events).

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

# Significant Accounting
Policies

# 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) controlled
companies if the holdings, directly or indirectly, represent over 25% of the issuers
voting common stock and (ii) other affiliates if the holdings, directly or
indirectly, represent 5% to 25% of the issuers voting common stock. Investments
 other than securities represent all investments other than in securities of the
issuer.

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

For financial statement purposes,
investments are recorded at their fair value. Through March 31, 2004 the Company has an
agreement to acquire a privately held oil company. The closing had not occurred as of
March 31, 2004 since the full consideration was not paid and therefore all funds advanced
to this entity are included in prepaid acquisition costs on the accompanying balance
sheet. The Company also formed a new controlled entity to transfer its assets and certain
liabilities into for purposes of holding this entity as an investment. As of March 31,,
2004 none of the Companys assets or liabilities had been transferred and therefore
the investment in this entity is recorded at its fair market value of zero. Once these
investments are made or net assets transferred, the Company will be holding investments in
privately held entities for which readily determinable fair values will not exist. The
fair value of these investments will be determined in good faith by the Companys
Board of Directors. Due to the inherent uncertainty of these valuations, these estimates
may differ significantly from the values that would have been used had a ready market for
the investments existed.

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.

# Accounts Receivable
 Related Party

Accountsreceivable result
from the sale of the Companys products and is reported at net of any allowance for
doubtful accounts. The Company estimates its allowance for doubtful accounts based on a
specific identification basis and additional allowances as needed based upon historical
collections experience. Payment is due upon delivery of the product, unless other
arrangements are made. Management reviews the customer accounts on a routine basis to
determine if an account should be charged off. Payments from oil sales are remitted by
customers, to the operator, who is a related party (See Concentrations of Risk below and
Note 10  Related Party Transactions). The operator then remits these payments to the
Company. See Note 11  Operating Agreement. During the three months ended March 31,
2004, the previous accounts receivable balance of $6,648 had been offset against the
amount due to operator for costs and expenses associated with the production and
processing of oil and gas. Total due to related party operator at March 31, 2004 was
$9,305.

F-8

# Inventories

Inventories consisting of oil in the
lease tanks are anticipated to be carried at lower of cost or market, determined by the
average cost method. In the fiscal year ended December 31, 2004, the Company will make a
decision on the inventory policy to be used.

# Oil and Gas Properties

For oil and gas properties held
directly by the Company, the Company uses 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 are depleted using the
units-of-production method based on total proved reserves.

# Property and Equipment

The capitalized cost of support
equipment, fixtures and other property and equipment held directly by the Company are
depreciated on the straight line basis over a period of five years once they are
placed into service.

# Environmental Matters

Our operations are subject to
evolving federal, state and local environmental laws and regulations related to the
discharge of materials into the environment. Our process is not expected to produce
harmful levels of emissions or waste by-products. However, these laws and regulations
would require us to remove or mitigate the environmental effects of the disposal or
release of substances at our site should they occur. Compliance with such laws and
regulations can be costly. Additionally, governmental authorities may enforce the laws and
regulations with a variety of civil and criminal enforcement measures, including monetary
penalties and remediation requirements. We are not aware of any area of non-compliance
with federal, state or local environmental laws and regulations.

# Revenue Recognition

The Company sells 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 future activities
as a business development company which may include investment income such as interest
income and dividends, and realized or unrealized gains and losses on investments will be
recognized in accordance with the AICPAs Audit and Accounting Guide, Audits of
Investment Companies.

# Reclassifications

Certain amounts in the three months
ended March 31, 2003 financial statements have been reclassified to conform to the 2004
presentation.

F-9

# 3. GOING CONCERN

As reflected in the accompanying
financial statements, the Company has a net loss of $3,011,680 and net cash used in
operations of $215,696 for the three months ended March 31, 2004 and a working capital
deficiency of $336,687, deficit accumulated during the development stage of $4,722,074 and
a stockholders deficiency of $350,914 at March 31, 2004. The Company is also in
default on certain notes to banks and is in the development stage with minimal revenues.
The ability of the Company to continue as a going concern is dependent on the
Companys ability to further implement its business plan, raise capital, and generate
revenues. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern

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

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

We expect continued revenues from our
oil and gas property development throughout the remainder of 2004 or until such time that
we do not hold any direct oil and gas properties. We expect that future revenues in the
near term will consist of any potential unrealized gains on our investment properties and
in the long term any potential interest or dividends if the Companies we invest in become
profitable. Accordingly, the Company determined that it would be necessary to raise
additional capital to carry out the companys business plan and in January 2004,
filed a Form 1-E pursuant to the Securities Act of 1933 notifying the SEC of the
Companys intent to sell up to $4,000,000 of the Companys common stock. In
January and February of 2004, the Company received $600,000 of proceeds from the issuance
of convertible debentures authorized by the Form 1-E filing (See Note 7  Long-Term
Debt and Note 8  Stockholders Deficiency). In January 2004, the Company
secured a $5,000,000 commitment for financing and received an initial $500,000 under the
commitment from an unrelated third party. Additionally, in April 2004, the Company secured
an additional $10,000,000 commitment for financing from the same unrelated third party
discussed above. (See Note 12  Subsequent Events).

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

-4-

# 4. PREPAID ACQUISITION
COSTS

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). Subsequently, in
December 2003, the Company closed the acquisition of PRI and under the terms of the
acquisition, the Company acquired substantially all of the assets of PRI in a stock and
note exchange, effective January 5, 2004 (See below). The assets include over 1,500
producing acres and 193 existing oil wells fully equipped and capable of producing oil.
The purchase price would be $800,000, comprised of $400,000 worth of Company restricted
common stock plus $400,000 cash. The cash portion of the purchase price would be
subsequently exchanged for a $400,000 two year convertible debenture at an annual interest
rate of 8%.

However, as of March 31, 2004, the
full consideration had not been paid by the Company and the Companys attorneys
have advised management that the acquisition had not been consummated and as such, all
expenditures made by the Company on behalf of PRI have been recorded as prepaid
acquisition costs. At March 31, 2004, $266,945 of such advances are recorded as prepaid
acquisition costs in the accompanying balance sheet. Of this amount, $8,000 was paid from
personal funds of the Companys president and sole director (See Note 10 
Related Party Transactions) and the remaining balance was incurred and paid by the
Company.

In connection with the PRI
acquisition discussed above, the Company will employ PRIs former president at a
salary equal to $5,000 per month, net of payroll taxes, effective with the finalization of
the transaction.

The Company anticipates that the
transaction will be finalized in June 2004 and the acquisition will be accounted by PRI
under the purchase method of accounting pursuant to SFAS No. 141 Business
Combinations and valued at fair market value at the effective date of acquisition.
The purchase price including prepaid acquisitions costs discussed above will be allocated
to various assets. The Company will hold the capital stock of PRI as an investment in
accordance with the rules of a business development company.

In February 2004, the Company
announced the acquisition of twelve oil and gas wells in North Central Texas on more than
1,400 productive acres of developed oil and gas reserves. The Company intends to acquire
the net assets in a newly formed wholly controlled affiliate, Bend Arch Petroleum, Inc.,
(Bend Arch) and hold the capital stock of that affiliate as an investment in
accordance with the rules of a business development company. A definitive purchase price
has not yet been established and the Company and Bend Arch plan to establish the purchase
price by June 2004. At March 31, 2004, the Company had advanced $157,618 of expenditures
on behalf of Bend Arch and such expenditures are recorded as prepaid acquisition costs in
the accompanying balance sheet.

# 5. OIL AND GAS
PROPERTIES AND PROPERTY AND EQUIPMENT

On February 20, 2003 (the
Acquisition Date), the Company acquired from a certain related party assignor,
who is the brother (see Note 7  Long-term Debt and Note 10  Related Party
Transactions) of the Companys president and sole director, an interest in certain
oil and gas leases, oil and gas wells located on those leases, surface and underground
equipment, pipelines and other property and fixtures in or on the leases, rights of way,
leases, contracts and agreements for pipeline compressor stations or boosters utilized in
the operations of the facilities by the assignors. The above properties are located in
Comanche and Eastland Counties, Texas, in the United States of America. The Company plans
to extract and sell oil and gas from existing wells. The consideration paid was a
convertible 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 accounted for the
purchase as an asset acquisition at its fair market value of $2,000,000 under the purchase
method of accounting discussed in Statement of Financial Accounting Standards No. 141
Business Combinations. The purchase price was allocated to the various assets
as discussed below. The results of any operations relating to the acquired assets are
included in the Companys financial statements from the Acquisition Date.

-5-

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

On January 5, 2004, the $2,000,000
convertible promissory note (See Note 7  Long-Term Debt) was exchanged for a
convertible debenture for the same amount and due January 1, 2007. The terms of the
convertible debentures include an interest rate of 8% per annum and 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, 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 recognized at the commitment
date since it was immediately convertible.

(A) Oil and Gas
Properties:

Oil and Gas Properties Acquisition
costs of proved property consists of oil and gas lease acquisition costs relating to
proved, developed, non-producing properties. The cost allocated to the lease was
$1,651,000 on the Acquisition Date.

Oil and gas properties were as
follows at March 31, 2004:

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

Amortization of these costs into
production costs (depletion expense), using the units-of-production method, began when
production commenced during 2003. The Company extracted approximately 100 test barrels of
saleable oil during the year ended December 31, 2003 and the cost of these barrels was
expensed as production costs as they were test barrels. During the three months ended
March 31, 2004, the Company extracted 2,605 barrels and sold these to a third party
recognizing $22,462 of revenue that is recorded in the accompanying Statement of
Operations. Depletion expense for the three months ended March 31, 2004 and March 31, 2003
was $1,926 and $0, respectively.

-6-

Payments from oil sales are remitted
by customers, to the operator, who is a related party (See Note 10  Related Party
Transactions). The operator then remits these payments to the Company. See Note 11 
Operating Agreement.

(B) Property and
Equipment:

Capitalized Costs
Relating to Oil and Gas Properties

Certain support equipment and
fixtures were acquired as part of the asset acquisition. The portion of the aggregate
$2,000,000 purchase price allocated to support equipment and fixtures, based upon the fair
market values of such support equipment and fixtures, was $357,500. During the year ended
December 31, 2003, the Company acquired $33,900 in additional support equipment and
fixtures and for the three months ended March 31, 2004, the Company acquired $16,600 in
additional support equipment and fixtures.

Property and equipment were as
follows at March 31, 2004:

|                               | 
|------------------------------ | 
|Support equipment and fixtures | 
|Accumulated depreciation       | 
|                               | 
|                               | 
|                               | 

The Company began depreciation of the
acquired support equipment and fixtures when development commenced during the year ended
December 31, 2003. Depreciation expense for the three months ended March 31, 2004 and
March 31, 2003 was $19,923 and $0, respectively.

# Supplementary Oil and
Gas information as of March 31, 2004 (Unaudited):

|                  | 
|----------------- | 
|Proved properties | 
|                  | 

Estimated Gross Reserves and Income
Data as of March 31, 2004 for United States Properties:

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

-7-

# 6. SHORT-TERM DEBT

Our short-term debt at
March 31, 2004 consisted of the following:

Lease Payable

$21,238 computer equipment lease, bearing
interest at 10% per annum          $  18,153

On April 16, 2001, the Company leased
computer equipment under a 36 month lease that was accounted for as a capital lease in the
amount of $21,238 and at March 31, 2004, the balance of principal and related accrued
interest outstanding was $18,153. The amount is personally guaranteed by a former
officer/director and a current officer/director of the Company. The lease was secured by
all leased equipment and perfected by a financing statement; however, the Company
liquidated the equipment and paid the office space lessor the $4,000 proceeds. At March
31, 2004, the Company has recorded a total of $4,093 in accrued interest for this lease
payable in the accompanying Balance Sheet.

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

|Notes payable - Banks                                                            | 
|-------------------------------------------------------------------------------- | 
|$42,000 bank line of credit, dated December 31, 2001, bearing interest at prime  | 
|plus 2% (6% at March 31, 2004), due on demand.  In Default at March 31, 2004     | 
|                                                                                 | 
|$70,000 bank revolving line of credit, dated March 12, 2001, bearing interest at | 
|default rate of 18% per annum, due March 11, 2002                                | 
|In Default at March 31, 2004                                                     | 
|                                                                                 | 
|                                                                                 | 
|                                                                                 | 

On December 31, 2001, we obtained a
bank line of credit for $42,000, of which $41,799 is outstanding at March 31, 2004. The
interest rate is at prime plus 2% per annum (6% at March 31, 2004) and is due on demand.
This line of credit is secured by all present and future equipment of the Company, right
of offset against the Companys bank account and guaranteed by the principal
stockholder. At March 31, 2004, the Company has recorded a total of $6,565 in accrued
interest for this line of credit in the accompanying Balance Sheet. The line of credit is
in default at March 31, 2004.

-8-

On March 12, 2001, we obtained a
revolving bank line of credit in the amount of $70,000, of which $17,463 is outstanding at
March 31, 2004. The interest rate was originally at 11.5% but has converted to the default
rate of 18% per annum as the line of credit was due March 11, 2002 and was in default.
This line of credit is secured by all equipment which had been repossessed as of December
31, 2001 and $23,075 was applied to the balance. At March 31, 2004, the Company has
recorded a total of $8,062 in accrued interest for this line of credit in the accompanying
Balance Sheet. The line of credit is in default at March 31, 2004.

Loan Payable 
Related party

Beginning in January of 2002 and
through December 2003, the Companys sole officer/director has 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 is non-interest bearing,
unsecured and due on demand.

On January 5, 2004, the entire
$52,510 amount outstanding was exchanged for designated Series A preferred stock. (See
Note Payable  Related Party below, Note 10  Related Party Transactions and
Note 8  Stockholders Deficiency).

Note Payable 
Related Party

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

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 of the Company. The $464,005 indebtedness comprised the entire $52,510 of loan
payable  related party (see above) 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.

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.

-9-

# 7. LONG-TERM DEBT

Our long-term debt at
March 31, 2004 consisted of the following:

|Convertible Debentures:                                                         | 
|------------------------------------------------------------------------------- | 
|$2,000,000 Convertible Debenture, dated January 5, 2004, bearing interest at 8% | 
|per annum and due on January 1, 2007                                            | 
|$300,000 Convertible Debentures, dated February 6, 2004, bearing interest at 8% | 
|per annum and due on December 31, 2005                                          | 
|                                                                                | 
|                                                                                | 
|                                                                                | 

On February 20, 2003, the Company
executed a $2,000,000 convertible promissory note accruing interest at 6% with a company
controlled by the brother of the Companys sole officer and director (See Note 5
 Property and Equipment and Note 10  Related Party Transactions). The maturity
date is 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. Accrued interest related to the
convertible promissory note at march 31, 2004 was $104,877.

On January 5, 2004, the $2,000,000
convertible promissory note was exchanged for a convertible debenture for the same amount
and due January 1, 2007. The terms of the convertible debentures include an interest rate
of 8% per annum and convertible at any time at the option of the holder or the Company
into common shares of the Company at a price equal to fifty percent (50%) of the closing
bid price of the common stock on the date written notice is received by the Company of the
election to convert. In accordance with EITF Issue 98-5, 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
recognized at the commitment date it was immediately convertible. Accrued interest under
the convertible debenture was $37,699 at March 31, 2004.

In January 2004, the Company received
$600,000 in gross proceeds from the issuance of two convertible debentures, one for
$100,000 and the other for $500,000. The terms of the convertible debentures include an
interest rate of 8% per annum and convertible at any time at the option of the holder or
the Company into common shares of the Company at a price equal to fifty percent (50%) of
the closing bid price of the common stock on the date written notice is received by the
Company of the election to convert. $100,000 of the convertible debentures was due and
payable on March 14, 2004 and $500,000 was due and payable on December 31, 2005. On
February 5, 2004, the $100,000 convertible debenture holder elected to convert the entire
balance into common shares of the Company and as a result of the conversion, 3,333,333
shares of common stock were issued at $0.03 per share (50% of the closing share price on
February 5, 2004). In March, 2004, $200,000 of the $500,000 convertible debenture was
converted into 20,000,000 shares of common stock at $0.01 (50% of the closing price). The
remaining $300,000 of the $500,000 convertible debenture remains outstanding at March 31,
2004. This convertible debenture is secured by certain oil leases and properties acquired
from PRI on January 5, 2004. In total, 23,333,333 shares of common stock were issued from
the conversion of the convertible debentures discussed above.

In accordance with EITF Issue 98-5,
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 recognized at
the commitment date since they were immediately convertible.

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).

-10-

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 recognized at the commitment date since
they were immediately convertible.

At March 31, 2004, the Company has
recorded $148,030 of accrued interest for the convertible debentures outstanding.

# 8. STOCKHOLDERS
DEFICIENCY

# Capital Structure

We were previously authorized to
issue up to 100,000,000 shares of our common stock, $0.0001 par value per share, of which
93,051,449 were issued and outstanding at December 31, 2003. However, in December 2003,
8,500,000 of previously issued shares were cancelled as the Company had exceeded the
100,000,000 authorized share limit. These 8,500,000 shares were reissued in January 2004
with an approved vote to increase the authorized shares (See below). At March 31, 2004,
75,000 shares were issuable to a party from an error related to a Regulation S
offering in 2003 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, into
three times as many common shares as Series A, preferred that are held. There are no
liquidation rights or preferences to Series A, preferred stock holders as compared to any
other class of stock. These shares are non-voting, however, the holders, as a class may
elect two directors. At March 31, 2004, 2003, 4,000,000 preferred shares were issued and
outstanding.

Issuances of Preferred
Stock:

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

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 of the 4,000,000 designated Series A
preferred stock in exchange for the conversion of $464,005 of indebtedness owed to the
Companys president of the Company. The $464,005 indebtedness comprised the entire
$52,510 of loan payable  related party and $411,495 of Note Payable  related
party balances as recorded at December 31, 2003 (See Note 7  Long-Term Debt). The
$411,495 note indebtedness had been acquired by the president in a private transaction
from a former officer. In connection with the forgiveness of the note principal, the
Companys president forgave the related accrued interest totaling $64,527 in a
separate transaction on the same date. As a result, the Company will treat this as a
contribution of capital at the date of debt forgiveness by charging additional paid in
capital.

-11-

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 $5,000 of services rendered, 200,000 shares
to one consultant for $18,000 of services rendered and 100,000 shares to one attorney for
$2,500 of legal services rendered and charged to operations as of March 31, 2004.

Issuances of Common Stock:

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

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. 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). The remaining $300,000 of the $500,000 convertible
debenture remains outstanding at March 31, 2004.

In total, 23,333,333 shares of common
stock were issued from the conversion of the convertible debentures discussed above.

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. 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 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.

Common Stock Issuable:

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

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.

# 9. COMMITMENTS AND
CONTINGENCIES

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

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

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director occurs (see Note 6
 Short-Term Debt and Note 10  Related Party Transactions). As of March 31,
2004 the transaction has not been finalized as the lessor has not agreed to the
settlement. However, the 100,000 shares were transferred to the lessor in September 2003.
The Company expects to fully resolve this matter in 2004 at which time the value of the
shares exchanged and any related gain or loss will be determined and recognized.

-12-

The Company has included $52,290 of
unpaid Federal payroll taxes and employee withholdings and related penalties and interest
in its accrued expenses as of March 31, 2004. Such amounts are subject to potential
federal tax liens.

# 10. RELATED PARTY
TRANSACTIONS

On February 20, 2003, the Company
acquired certain oil and gas properties for $2,000,000 from a company controlled by the
brother of the Companys president and sole director in exchange for a market rate
promissory note. (See Note 5  Property and Equipment and Note 7  Long-Term
Debt) During the year ended December 31, 2003, the Companys president and sole
director paid $8,000 in prepaid acquisition costs. The loan is non-interest bearing,
unsecured and due on demand (See Note 4  Prepaid Acquisition Costs).

Effective July 1, 2003, the Company
entered into a salary and equipment rental agreement with its president and sole director.
Under the terms of the agreement, the Company will pay a salary of $10,000 per month and
$3,500 in equipment rental per month for the use of the Companys presidents
personal pickup truck, car, pulling unit, winch truck, backhoe and water truck used in the
field operations. At December 31, 2003, the accrued balance was $20,000. During the three
months ended March 31, 2004, the Company accrued $40,500 of expense related to this
agreement, composed of $30,000 for compensation and $10,500 for equipment rental fee
resulting in an accrual balance of $60,500 at March 31, 2004, classified as a component of
Due To Related Party in the accompanying Financial Statements.

In November 2003, a settlement was
reached with a lessor to forgive the outstanding principal and interest on the related
note payable resulting from leased computers once the transfer of 100,000 shares
personally held by the Companys president and sole director occurs (See Note 6
 Short-Term Debt and Note 9  Commitments and Contingencies). The
Companys president and sole director has personally guaranteed the obligation. As of
March 31, 2004, the transaction has not been finalized as the lessor has not agreed to the
settlement. However, the 100,000 shares were transferred to the lessor in September 2003.
The Company expects to fully resolve this matter in 2004 at which time the value of the
shares exchanged and any related gain or loss will be determined and recognized.

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.

On November 1, 2003, the Company
entered into an operating agreement for its oil and gas production activities. The
operator is a company controlled by the brother of the Companys president and sole
director.

# 11. OPERATING AGREEMENT

On November 1, 2003, the Company
entered into an operating agreement for its oil and gas production activities. The
operator is a company controlled by the brother of the Companys president and sole
director (See Note 10  Related Parties).

The
term of the operating agreement is equal to the term of the oil and gas leases held by the
Company. In general, the operator incurs costs which are billed to the Company and the
operator markets and sells oil and collects payments from customers. Such payments are
then remitted to the Company. The operator has a first and preferred lien on the leasehold
interests of the Company against any sums due to the Operator by the Company.

# 12. SUBSEQUENT EVENTS

In April 2004, the Company announced
a financing arrangement with an unrelated third party for a an additional commitment of up
to $10,000,000 from Yanzu, Inc. (Yanzu) for new oil and gas exploration and
secondary oil recovery operations on existing Company owned properties and to continue the
Companys strategy of acquiring oil and gas income properties. The terms of the
financing involve restricted shares to be purchased at a price between $.10 and $.18 per
share depending on the current share price of the Companys stock. The stock will be
Rule 144 shares with a one-year restriction and no registration rights. When Yanzu has
purchased $1 million of the 144 restricted Company stock, they will be granted a seat on
the Companys Board of Directors acquisition committee.

-13-

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

# SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

The following is a discussion of our
financial condition, results of operations, liquidity and capital resources. This
discussion should be read in conjunction with our audited financial statements and the
notes thereto included elsewhere in this Form 10-Q and with our annual report on Form
10-KSB for the year ended December 31, 2003.

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

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

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

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

# GENERAL

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

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

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

# OVERVIEW OF COMPANY.

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

-14-

We have continually incurred net
losses and this has resulted in a significant accumulated deficit and stockholders
deficiency at March 31, 2004. We had a net loss of $3,011,680 and net cash used in
operations of $215,696 for the three months ended March 31, 2004 and a working capital
deficiency of $336,687, deficit accumulated during the development stage of $4,722,074 and
a stockholders deficiency of $350,914 at March 31, 2004. The Company is also in
default on certain notes to banks and is in the development stage with minimal revenues.
The ability of the Company to continue as a going concern is dependent on the
Companys ability to further implement its business plan, raise capital, and generate
revenues. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern

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

The Companys long-term
viability as a going concern is dependent on certain key factors, as follows:  The
Companys ability to continue to obtain sources of outside financing to support near
term operations and to allow the Company to continue to make investments 
The Companys ability to increase profitability and sustain a cash flow level that
will ensure support for continuing operations.

# RECENT DEVELOPMENTS

In April 2004, we announced a
financing arrangement with an unrelated third party for a an additional commitment of up
to $10,000,000 from Yanzu, Inc. (Yanzu) for new oil and gas exploration and
secondary oil recovery operations on existing Company owned properties and to continue the
Companys strategy of acquiring oil and gas income properties. The terms of the
financing involve restricted shares to be purchased at a price between $.10 and $.18 per
share depending on the current share price of the Companys stock. The stock will be
Rule 144 shares with a one-year restriction and no registration rights. When Yanzu has
purchased $1 million of the 144 restricted Company stock, they will be granted a seat on
the Companys Board of Directors acquisition committee.

# 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 evaluation
of the beneficial conversion feature in convertible debentures, the valuation of 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 estimate of reserves of oil and gas that are used to
develop projected income whereby an appropriate discount rate has been used and
investments. 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 quarterly report on Form 10-QSB for
the three months ended March 31, 2004. Although we believe that our estimates and
assumptions are reasonable, they are based upon information presently available. Actual
results may differ significantly from these estimates.

# GOING CONCERN

The independent auditors
reports to our financial statements for the year ended December 31, 2003 and December 31,
2002, include an emphasis paragraph in addition to their audit opinion stating that our
recurring losses from operations, working capital deficiency and default on our
convertible debentures 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 in
non-cash transactions during the three months ended March 31, 2004. For these issuances,
valuation was determined based upon the stock closing price on the date of grant.

-15-

# EVALUATION OF BENEFICIAL
CONVERSION FEATURE IN CONVERTIBLE DEBENTURES

In accordance with EITF Issue 98-5,
the Company has evaluated that the issuance of several convertible debentures during the
three months ended March 31, 2004 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 $2,630,000 for interest expense and
$2,630,000 for additional paid-in capital. The conversion feature inherent in the
convertible debentures was recognized at the commitment date since they were immediately
convertible.

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

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

# DEPRECIABLE AND
DEPLETABLE USEFUL LIVES OF PROPERTY AND EQUIPMENT

The Company uses 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 are depleted
using the units-of-production method based on total proved reserves. The capitalized cost
of support equipment and fixtures will be depreciated over their estimated useful
life once they are placed into service.

# EVALUATION OF ASSET
IMPAIRMENT

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

# ESTIMATE OF RESERVES OF
OIL AND GAS

Gross future net revenue of the
non-producing oil and natural gas reserves after deductions and discounted future net
income (FNI) were determined by utilizing an oil and natural gas reserve
report by an independent petroleum engineer with deductions and a discounted FNI value of
10%.

# 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) controlled
companies if the holdings, directly or indirectly, represent over 25% of the issuers
voting common stock and (ii) other affiliates if the holdings, directly or
indirectly, represent 5% to 25% of the issuers voting common stock. Investments
 other than securities represent all investments other than in securities of the
issuer.

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

For financial statement purposes,
investments are recorded at their fair value. Through March 31, 2004 the Company has an
agreement to acquire a privately held oil company. The closing had not occurred as of
March 31, 2004 since the full consideration was not paid and therefore all funds advanced
to this entity are included in prepaid acquisition costs on the accompanying balance
sheet. The Company also formed a new controlled entity to transfer its assets and certain
liabilities into for purposes of holding this entity as an investment. As of March 31,,
2004 none of the Companys assets or liabilities had been transferred and therefore
the investment in this entity is recorded at its fair market value of zero. Once these
investments are made or net assets transferred, the Company will be holding investments in
privately held entities for which readily determinable fair values will not exist. The
fair value of these investments will be determined in good faith by the Companys
Board of Directors. Due to the inherent uncertainty of these valuations, these estimates
may differ significantly from the values that would have been used had a ready market for
the investments existed.

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.

-16-

# RESULTS OF OPERATIONS

Financial Analysis of the
Three Months Ended March 31, 2004 and 2003

|                                   | Three Months Ended March 31, | 
|---------------------------------- | ---------------------------- | 
|
|Oil sales, net                     |                              | 
|Operating Expenses                 |                              | 
|Compensation                       |                              | 
|Consulting                         |                              | 
|Depletion                          |                              | 
|Depreciation                       |                              | 
|Equipment rental                   |                              | 
|General and administrative         |                              | 
|Production                         |                              | 
|Professional                       |                              | 
|Website                            |                              | 
|Total Operating Expenses           |                              | 
|                                   |                              | 
|Loss from Operations               |                              | 
|                                   |                              | 
|Other Expense                      |                              | 
|Interest expense                   |                              | 
|Payroll tax interest and penalties |                              | 
|Loss on settlement                 |                              | 
|                                   |                              | 
|Total Other Expense                |                              | 
|Net Loss                           |                              | 
|                                   |                              | 

Revenue:

Operating revenue increased $22,462,
or 100%, to $2,462 for the three months ended March 31, 2004 from zero for the three
months ended March 31, 2003. The increase was primarily the result of the fact that the
Company entered a new development stage on February 20, 2003, as the result of the
acquisition of certain oil and gas assets. Until February 20, 2003, the Company was
actively seeking oil and gas leases for acquisition and operation and had no sales.

Operating Expenses:

Operating expenses decreased $23,130,
or 6.1% to $356,891 for the three months ended March 31, 2004 from $380,021 for the three
months ended March 31, 2003. The decrease was primarily the result of a $191,371 decrease
in consulting offset by increases in production expenses, general and administration,
depletion and depreciation. The decrease consulting was primarily that in 2003, the
company issued significantly more common stock for consulting services than in 2004. The
increase in production expenses, general and administrative, depletion and depreciation
reflects the fact that the Company has entered a new development stage with the
acquisition of certain oil and gas assets.

Other Expense:

Other expense increased $2,653,289,
or 11,311% to $2,677,251 for the three months ended March 31, 2004 from $23,463 for the
three months ended March 31, 2003. In accordance with EITF Issue 98-5, the Company has
evaluated that the issuance of several convertible debentures during the three months
ended March 31, 2004 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 $2,630,000 for interest expense and $2,630,000 for additional
paid-in capital. The conversion feature inherent in the convertible debentures was
recognized at the commitment date since they were immediately convertible.

-17-

# Liquidity and Capital
Resources

Cash and cash equivalents were
$281,614 at March 31, 2004 as compared to $432 at December 31, 2003, and working capital
deficit was $336,687 at March 31, 2004 as compared to $1,147,830 at December 31, 2003. The
increase in cash was primarily the result of the Company receiving $600,000 of proceeds
from the issuance of convertible debentures during the three months ended March 31, 2004.
The reduction in the working capital deficit from December 31, 2003 was primarily the
result of the conversion of $528,532 of indebtedness into preferred stock.

Operating
Activities: Net cash used in operating activities was $215,696 for the
three months ended March 31, 2004 while cash that was used in operating activities was
$200 for the three months ended March 31, 2003. The increase in cash used in operations
resulted primarily due to the fact of increases in accrued interest, accounts payable and
accrued payroll taxes.

Investing
Activities: Cash used in investing activities was $403,122 for the three
months ended March 31, 2004 and there were no investing cash flow activities during the
three months ended March 31, 2003. The increase in cash used in investing activities was
from $386,522 of prepaid acquisition costs and $16,600 of purchase for equipment.

Financing
Activities Cash flows provided by financing activities was $900,000 for the
three months ended March 31, 2004 while cash provided by financing activities was $200 for
the three months ended March 31, 2003. The increase in cash provided by financing
activities was primarily due to $600,000 of cash proceeds received by the Company from the
issuance of convertible debentures and $300,000 of cash proceeds, net of $50,000 of
offering costs, from the sale of common stock.

Short-Term Debt

Our short-term debt at
March 31, 2004 consisted of the following:

Lease Payable

$21,238 computer equipment lease, bearing
interest at 10% per annum          $  18,153

On April 16, 2001, the Company leased
computer equipment under a 36 month lease that was accounted for as a capital lease in the
amount of $21,238 and at March 31, 2004, the balance of principal and related accrued
interest outstanding was $18,153. The amount is personally guaranteed by a former
officer/director and a current officer/director of the Company. The lease was secured by
all leased equipment and perfected by a financing statement; however, the Company
liquidated the equipment and paid the office space lessor the $4,000 proceeds. At March
31, 2004, the Company has recorded a total of $4,093 in accrued interest for this lease
payable in the accompanying Balance Sheet.

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

-18-

|Notes payable  Banks                                                            | 
|-------------------------------------------------------------------------------- | 
|$42,000 bank line of credit, dated December 31, 2001, bearing interest at prime  | 
|plus 2% (6% at March 31, 2004), due on demand.  In Default at March 31, 2004     | 
|                                                                                 | 
|$70,000 bank revolving line of credit, dated March 12, 2001, bearing interest at | 
|default rate of 18% per annum, due March 11, 2002                                | 
|In Default at March 31, 2004                                                     | 
|                                                                                 | 

On December 31, 2001, we obtained a
bank line of credit for $42,000, of which $41,799 is outstanding at March 31, 2004. The
interest rate is at prime plus 2% per annum (6% at March 31, 2004) and is due on demand.
This line of credit is secured by all present and future equipment of the Company, right
of offset against the Companys bank account and guaranteed by the principal
stockholder. At March 31, 2004, the Company has recorded a total of $6,565 in accrued
interest for this line of credit in the accompanying Balance Sheet. The line of credit is
in default at March 31, 2004.

On March 12, 2001, we obtained a
revolving bank line of credit in the amount of $70,000, of which $17,463 is outstanding at
March 31, 2004. The interest rate was originally at 11.5% but has converted to the default
rate of 18% per annum as the line of credit was due March 11, 2002 and was in default.
This line of credit is secured by all equipment which had been repossessed as of December
31, 2001 and $23,075 was applied to the balance. At March 31, 2004, the Company has
recorded a total of $8,062 in accrued interest for this line of credit in the accompanying
Balance Sheet. The line of credit is in default at March 31, 2004.

Loan Payable 
Related party

Beginning in January of 2002 and
through December 2003, the Companys sole officer/director has 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 is non-interest bearing,
unsecured and due on demand.

On January 5, 2004, the entire
$52,510 amount outstanding was exchanged for designated Series A preferred stock. (See
Note Payable  Related Party below, Note 10  Related Party Transactions and
Note 8  Stockholders Deficiency).

Note Payable 
Related Party

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

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 of the Company. The $464,005 indebtedness comprised the entire $52,510 of loan
payable  related party (see above) 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.

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.

-19-

# LONG-TERM DEBT

Our long-term debt at
March 31, 2004 consisted of the following:

|Convertible Debentures:                                                         | 
|------------------------------------------------------------------------------- | 
|$2,000,000 Convertible Debenture, dated January 5, 2004, bearing interest at 8% | 
|per annum and due on January 1, 2007                                            | 
|$300,000 Convertible Debentures, dated February 6, 2004, bearing interest at 8% | 
|per annum and due on December 31, 2005                                          | 
|                                                                                | 
|                                                                                | 
|                                                                                | 

On February 20, 2003, the Company
executed a $2,000,000 convertible promissory note accruing interest at 6% with a company
controlled by the brother of the Companys sole officer and director (See Note 5
 Property and Equipment and Note 10  Related Party Transactions). The maturity
date is 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. Accrued interest related to the
convertible promissory note at march 31, 2004 was $104,877.

On January 5, 2004, the $2,000,000
convertible promissory note was exchanged for a convertible debenture for the same amount
and due January 1, 2007. The terms of the convertible debentures include an interest rate
of 8% per annum and convertible at any time at the option of the holder or the Company
into common shares of the Company at a price equal to fifty percent (50%) of the closing
bid price of the common stock on the date written notice is received by the Company of the
election to convert. In accordance with EITF Issue 98-5, 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
recognized at the commitment date it was immediately convertible. Accrued interest under
the convertible debenture was $37,699 at March 31, 2004.

In January 2004, the Company received
$600,000 in gross proceeds from the issuance of two convertible debentures, one for
$100,000 and the other for $500,000. The terms of the convertible debentures include an
interest rate of 8% per annum and convertible at any time at the option of the holder or
the Company into common shares of the Company at a price equal to fifty percent (50%) of
the closing bid price of the common stock on the date written notice is received by the
Company of the election to convert. $100,000 of the convertible debentures was due and
payable on March 14, 2004 and $500,000 was due and payable on December 31, 2005. On
February 5, 2004, the $100,000 convertible debenture holder elected to convert the entire
balance into common shares of the Company and as a result of the conversion, 3,333,333
shares of common stock were issued at $0.03 per share (50% of the closing share price on
February 5, 2004). In March, 2004, $200,000 of the $500,000 convertible debenture was
converted into 20,000,000 shares of common stock at $0.01 (50% of the closing price). The
remaining $300,000 of the $500,000 convertible debenture remains outstanding at March 31,
2004. This convertible debenture is secured by certain oil leases and properties acquired
from PRI on January 5, 2004. In total, 23,333,333 shares of common stock were issued from
the conversion of the convertible debentures discussed above.

In accordance with EITF Issue 98-5,
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 recognized at
the commitment date since they were immediately convertible.

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 recognized at the commitment date since
they were immediately convertible.

At March 31, 2004, the Company has
recorded $148,030 of accrued interest for the convertible debentures outstanding.

Equity Financing

Effective March 29, 2004, the Company
received a $500,000 commitment to purchase 4,545,464 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.

Liquidity

To continue with our business plan,
we will require additional short-term working capital and we have not had generating
sufficient cash from operations to fund our operating activities through the end of fiscal
2004. Presently, we have no source of revenues and have moved into a new business concept
as a consultant and advisor to customers. We cannot assure you that the new business
concept will provide sufficient proceeds, if any, and borrowings under any interim
financing we are able to secure will be sufficient to meet our projected cash flow needs.

Our ability to obtain additional
financing depends on many factors beyond our control, including the state of the capital
markets, the market price of our common stock, the prospects for our business and the
approval by our stockholders of an amendment to our certificate of incorporation
increasing the number of shares of common stock we are authorized to issue. 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. Failure to
obtain commitments for 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.

# Contractual Obligations
and Commercial Commitments

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

Payments
Due by Period

|                           |  |  |   |           | 
|-------------------------- |  |  | - | --------- | 
|Contractual Obligations    |  |  |   | Total     | 
|                           |  | 
|Short-Term Debt:           |  |  |   | --        | 
|Bank Loans                 |  |  | $ | 18,353    | 
|Loan Payable-Related Party |  |  |   | 59,262    | 
|                           |  | 
|Total Short-Term Debt      |  |  | $ | 77,615    | 
|                           |  | 
|Long-Term Debt:            |  | 
|Convertible Debentures     |  |  | $ | 2,300,000 | 
|Accrued Interest Payable   |  |  |   | 147,397   | 
|                           |  | 
|Total Long-Term Debt       |  |  | $ | 2,447,397 | 
|                           |  | 
|Total Debt                 |  |  | $ | 2,525,012 | 
|                           |  | 

-20-

# Recent Accounting
Developments

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51, which as an interpretation defines when and
who consolidates a variable interest entity, or VIE.  This
new consolidation model applies to entities (i) where the equity investors (if any)
do not have a controlling financial interest, or (ii) whose equity investment at risk
is insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties and requires additional disclosures for
all enterprises involved with the VIE.  FIN 46 is effective during 2003 depending on
when the VIE is created.  We do not believe that the adoption of FIN 46 will have a
significant impact on our financial position and results of operations.

In May 2003, the FASB issued SFAS No.
149; Amendment of Statement 133 on Derivative Instruments and Hedging Activities(SFAS 149) which provides for certain changes in the accounting treatment
of derivative contracts. SFAS 149 is effective for contracts entered into or modified
after June 30, 2003, except for certain provisions that relate to SFAS No. 133
Implementation Issues that have been effective for fiscal quarters that began prior to
June 15, 2003, which should continue to be applied in accordance with their respective
effective dates. The guidance should be applied prospectively. The adoption of SFAS 149
did not have a material impact on the Companys financial position, results of
operations or liquidity.

In May 2003, the Financial Accounting
Standards Board issued SFAS No. 150 (SFAS 150), Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. It establishes
standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. This standard is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The adoption of FAS
150 did not have a significant impact on our financial position and results of operations.

# 2004 OUTLOOK

The ability to invest further will be
heavily dependent on securing additional capital from investors or debt. There is no
assurance that additional equity or debt financing will be available on terms acceptable
to Management.

# Item 3. Evaluation of
Disclosure Controls and Procedures.

Charles Bitters, our Chief Executive
Officer and Chief Financial Officer, has concluded that our disclosure controls and
procedures are appropriate and effective. He has evaluated these controls and procedures
as of a date within 90 days of the filing date of this report on Form 10-Q. There were no
significant changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

PART
II

Pursuant to the Instructions on Part
II of the Form 10-Q, Items 1, 3, and 5 are omitted.

# 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 March 31, 2004.

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

The Company has included $52,290 of
unpaid Federal payroll taxes and employee withholdings and related penalties and interest
in its accrued expenses as of March 31, 2004. Such amounts are subject to potential
federal tax liens.

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# Item 2. Changes in
Securities

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

On January 5, 2004, the Board of
Directors approved the issuance of 3,500,000 of the 4,000,000 designated Series A
preferred stock in exchange for the conversion of $464,005 of indebtedness owed to the
Companys president of the Company. The $464,005 indebtedness comprised the entire
$52,510 of loan payable  related party and $411,495 of Note Payable  related
party balances as recorded at December 31, 2003 (See Note 7  Long-Term Debt). The
$411,495 note indebtedness had been acquired by the president in a private transaction
from a former officer. In connection with the forgiveness of the note principal, the
Companys president forgave the related accrued interest totaling $64,527 in a
separate transaction on the same date. As a result, the Company will treat this as a
contribution of capital at the date of debt forgiveness by charging additional paid in
capital.

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 $5,000 of services rendered, 200,000 shares
to one consultant for $18,000 of services rendered and 100,000 shares to one attorney for
$2,500 of legal services rendered and charged to operations as of March 31, 2004.

Issuances of Common Stock:

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

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. 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). The remaining $300,000 of the $500,000 convertible
debenture remains outstanding at March 31, 2004.

In total, 23,333,333 shares of common
stock were issued from the conversion of the convertible debentures discussed above.

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. 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 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.

Common Stock Issuable:

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

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.

# Item 3. Defaults Upon
Senior Securities

None

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

None

# Item 5. Other Information

None

# Item 6. Exhibits and Reports
on Form 8-K

(a)    
          Exhibits

| | 10.1 | Asset
and Stock Purchase Agreement dates as of January 1, 2003, by and among
               American Energy Production, Inc., Earl R. Walker and Production Resources,
Inc.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | 8%
Convertible Debenture agreement due January 1, 2007, by and among American
               Energy Production, Inc. and Proco Operating Company, Inc.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | 8%
Convertible Debenture agreement due March 14, 2004, by and among American
               Energy Production, Inc. and Kentan, Ltd.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | 8%
Convertible Debenture agreement due December 31, 2005, by and among American
               Energy Production, Inc. and Kentan, Ltd.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | 8%
Convertible Debenture agreement due December 31, 2005, by and among American
               Energy Production, Inc. and Production Resources, Inc.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | 8%
Convertible Debenture agreement due December 31, 2004, by and among American
               Energy Production, Inc. and Javelin Holdings, Inc.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 | Certification
by Principal Executive Officer
| | ---- | --------------------------------------------

| | 31.2 | Certification
of Principal Financial Officer
| | ---- | --------------------------------------------

| | 32 | Certifications
of Principal Executive and Financial Officer Pursuant to 906
| | -- | ---------------------------------------------------------------------------

(b)    
          Reports on Form 8-K.

None

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, this report has been signed by the following
persons on behalf of American Energy Production, Inc., in the capacities and on the dates
indicated.

|                                                                                                                                                                                                                                                |                                                                                                                                   |                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | -----------------
|NAME AND SIGNATURE                         
                                           
                                           
/s/______________________________________  
                                           
    Charles Bitters | TITLE                       
                            
Principal Executive Officer,
Principal Financial Officer,
Sole Director | DATE
May 28, 2004

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