UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10 - Q
 
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934.
 
 For the quarterly period ended June 30, 2009
 
 333-52812
 (Commission File Number)
 American Energy Production, Inc.
 (Exact name of registrant as specified in its charter)
 
 Delaware

74-2945581(State or other jurisdiction of incorporation)

(IRS Employer Identification Number)
  6073 Hwy 281 South, Mineral Wells, TX 76067
 (Address of principal executive offices including zip code)
 
 (940) 445-0698
 (Registrant’s telephone number, 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  o
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer   o
Accelerated filer      oNon-accelerated filer     o
Smaller reporting company   x(Do not check if a smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x
 
 As of August 7, 2009, the Registrant had 59,261,066 shares outstanding and issuable of its $0.001 par value common stock.
 -1-
 
 American Energy Production, Inc. and Subsidiaries
 Form 10-Q Index
 June 30, 2009
  PagePart I-Financial InformationItem 1. Financial Statements
3Consolidated Balance Sheets at June 30, 2009 (Unaudited) and December 31, 2008 (Audited)
3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)
4Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)
5Notes to Consolidated Financial Statements (Unaudited)
6Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
14Item 4T. Controls and Procedures
20Part II-Other InformationItem 6. Exhibits
22Signatures
23
 
 -2-
 PARTI
 FINANCIAL INFORMATION
 
 Item 1-Consolidated Financial Statements (Unaudited)
 American Energy Production, Inc. and Subsidiaries
 Consolidated Balance Sheets
 
 ASSETSUnaudited6/30/2009


12/31/2008Current AssetsCash

$
73,298


$
88,937Accounts receivable


28,990



-Other current assets


-



146Total Current Assets


102,288



89,083Property and equipment, net


3,759,630



4,011,903Other AssetsDevelopment programs - related party


135,826



134,092Other


484



1,188Total Other Assets


136,310



135,280Total Assets


3,998,228



4,236,266LIABILITIESCurrent LiabilitiesAccounts payable

$
16,217


$
312,903Other current liabilities


12,970



11,855Due to related parties


-



3,295,763Notes payable


114,073



2,115,062Accrued interest payable


-



946,385Accrued payroll taxes and penalties


17,368



84,161Lease payable


-



16,131Total Current Liabilities


160,628



6,782,260Long-Term LiabilitiesDeferred other income


484,455



-Asset retirement obligations


520,600



509,155Total Long-Term Liabilities


1,005,054



509,155Total Liabilities

$
1,165,683


$
7,291,415Commitments and Contingencies (Note 9)STOCKHOLDERS' EQUITY (DEFICIT)Convertible preferred stock, Series A, $0.0001 par value, 5,000,000shares authorized, none and 3,500,000 shares outstanding, respectively

$
-


$
350Common stock, $0.0001 par value, 500,000,000 sharesauthorized, 20,360,389 shares outstanding


2,036



2,036Common stock issuable, $0.0001 par value, 38,900,677 shares and none


3,890



-Subscription payable


5,834,634



-Additional paid in capital


24,265,886



24,067,655Accumulated deficit


(26,371,901
)


(26,223,191
)3,734,545



(2,153,150
)Less:  Subscription receivable


(902,000
)


(902,000
)Total Stockholders' Equity (Deficit)


2,832,545



(3,055,150
)Total Liabilities and Stockholders' Equity (Deficit)

$
3,998,228


$
4,236,266
 See accompanying notes to unaudited consolidated financial statements.
 -3-
 American Energy Production, Inc. and Subsidiaries
 Consolidated Statements of Operations
 (Unaudited)
 
 Three Months Ended


Six Months EndedJune 30,


June 30,2009


2008


2009


2008Revenues:Oil sales, net

$
264,908


$
553,445


$
495,844


$
991,664Operating ExpensesCompensation


151,232



46,242



192,061



92,484Consulting


41,996



-



43,496



-Depreciation, depletion and accretion


129,303



151,550



263,718



292,851Rent


1,660



10,452



3,400



22,262General and administrative


44,047



62,775



71,492



118,406Production


300,444



611,871



591,100



1,036,217Professional


42,323



26,334



71,613



77,100Taxes


12,536



37,731



42,593



62,076Total Operating Expenses


723,541



946,954



1,279,473



1,701,396Operating Loss


(458,633
)


(393,509
)


(783,628
)


(709,732
)Other Income (Expense)Other income


640,467



303



640,567



303Interest expense


(2,940
)


(42,345
)


(5,648
)


(84,680
)Payroll tax expense and penalties


-



(1,501
)


-



(3,002
)Total Other Income (Expense)


637,527



(43,543
)


634,918



(87,379
)Net Income (Loss)

$
178,894


$
(437,052
)

$
(148,710
)

$
(797,111
)Net Income (Loss) Per Share - Basic and Diluted

$
0.01


$
(0.02
)

$
(0.01
)

$
(0.04
)Weighted average Shares Outstanding


23,090,067



20,363,386



21,732,768



20,363,371
  See accompanying notes to unaudited consolidated financial statements
 -4-
 American Energy Production, Inc. and Subsidiaries
 Consolidated Statementsof Cash Flows
 (Unaudited)
 
 Six Months EndedJune 30,2009


2008Cash Flows From Operating Activities:Net loss

$
(148,710
)

$
(797,111
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation expense


214,486



241,261Depletion expense


37,787



39,802Accretion expense


11,445



11,788Stock options issued for compensation


104,990



-Stock options issued for consulting


41,996



-Write off of payroll taxes and penalties


(69,851
)


-Forgiveness of accrued compensation - due to related party


(292,500
)


-Non-cash write off of accrued interest on notes payable


(378,027
)


-Common stock issued for oil and gas equipment


1,750



-Changes in operating assets and liabilities:Accounts receivable


(28,990
)


-Other current assets


146



-Other assets


704



(78,431
)Accounts payable


19,603



(46,250
)Other current liabilities


1,115



78,522Due to related party


334,407



619,636Accrued interest payable


83,677



83,309Accrued payroll taxes payable


3,058



813Net Cash Provided By (Used In) Operating Activities


(62,916
)


153,339Cash Flows From Investing Activities:Investment in property and equipment


-



(222,605
)Payments for development programs - related party


(1,735
)


(14,685
)Purchase of oil lease


-



-Net Cash Used In Investing Activities

$
(1,735
)

$
(237,289
)Cash Flows From Financing Activities:Proceeds from sale of common stock


50,000



90,607Repayment of note payable


(989
)


-Net Cash Provided By Financing Activities


49,011



90,607Net (Decrease) Increase in Cash


(15,639
)


6,657Cash at Beginning of Period


88,937



133,220Cash at End of Period


73,298



139,877Cash interest paid

$
-


$
-Supplemental disclosure of  non-cash transactionsConversion of note payable and accrued interest to common stock

$
2,500,000


$
-Conversion of debt and accrued interest to common stock


3,337,669



-
 
 See accompanying notes to unaudited consolidated financial statements
 -5-
 1.  HISTORY AND NATURE OF BUSINESS
 
 Basis of Presentation and Concentration
 
 The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q of Regulation S-K.  They do not include all information and footnotes required
by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements at December 31, 2008 included in the Company's Form 10-K (“2008 10-K”) filed with the Securities and Exchange Commission (“SEC”) on May 6, 2009. The interim consolidated unaudited financial statements should be read in conjunction
with those consolidated financial statements included in the 2008 10-K.
  In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made.  Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
  2.  HISTORY AND NATURE OF BUSINESS
 
 American Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our” “its”) is a publicly traded oil and gas company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. The Company traditionally
has acquired oil and gas companies that have the potential for increased oil and natural gas production utilizing new technologies, well workovers and fracture stimulation systems. Additionally, the Company has expanded its scope of business to include the drilling of new wells with its own equipment through its wholly-owned subsidiary companies.  See Note 12 – Subsequent Events.
  The Company’s wholly-owned subsidiaries are primarily involved in three areas of oil and gas operations.
  1. Leasing programs.
 2. Production acquisitions
 3. Drilling and producing with proven and emerging technologies.
  The Company believes that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world.  As a result, the Company believes
that oil and natural gas will remain a key yet volatile component of the world energy future and furthermore, with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America’s future then it already has to date.
  3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Going Concern
 
 As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $148,710 for the six months ended June 30, 2009 as compared to a net loss of $797,111 for the six months ended June 30, 2008.  The decrease in the net loss from 2008 to 2009 was primarily from non recurring non-cash
write-offs for the forgiveness of accrued payroll related to an officer of the Company, the forgiveness of accrued interest related to a note payable that was converted to common stock and payroll taxes and penalties related to a predecessor company.  Additionally, at June 30, 2009, the Company has minimal cash and has a negative working capital balance of $58,341, which could have a material impact on the Company’s financial condition and operations. The negative working capital balance was significantly
reduced from a balance of $6,950,142 at March 31, 2009 to the June 30, 2009 balance by the write off of the obligations discussed below along with the conversion of notes payable, accrued interest and due to related parties to common stock during the three months ended June 30, 2009.  As a result, the Company has stockholder’s equity of $2,832,545 at June 20, 2009 as compared to a stockholders’ deficit of $3,439,956 at March 31, 2009.   However, the ability of the Company
to continue as a going concern is dependent on the Company’s ability to raise capital and generate sufficient revenues and cash flow from its business plan as an oil and gas operating company.  The financial statements included in this report do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 -6-
 
 On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company  and certain of its wholly-owned subsidiaries (the “Company”) eliminated certain debt obligations by converting them into $0.0001 par value common stock (“Stock”) of the Company.  Additionally, the
Company successfully negotiated and eliminated a substantial amount of obligations that were incurred from a predecessor company and converted an existing preferred stock agreement to Stock.
  As a result of the above restructuring of the Company’s consolidated balance sheet, the Company has eliminated the majority of its debt and will issue 33,850,678 shares of Stock, 23,350,678 from the conversion of debt obligations and 10,500,000 from the conversion of preferred stock.
  Additionally, on May 11, 2009, the Company granted 9,800,000 non-qualified stock options to purchase the Company’s $0.0001 par value common to stock to employees and consultants of the Company.  These stock options were previously registered in 2008 by the Company on Form S-8 with the Securities and Exchange Commission.  The
stock options were issued with an exercise price of $0.015 per share, the closing price of the Company’s traded stock on the date of grant.
  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.  Management believes that as a result of restructuring of the balance sheet as discussed above, the Company will have several options available to obtain financing from third parties in
order to carry out the business plan of the Company.
 
 Principles of Consolidation
 
 The accompanying unaudited consolidated financial statements as of June 30, 2009 include the general accounts of American Energy and its wholly-owned subsidiaries Bend Arch Petroleum, Inc., Production Resources, Inc., Oil America Group, Inc. and AMEP Strategic Investments, Inc.  All significant intercompany transactions,
accounts and balances have been eliminated.
 
 Net Income (Loss) per Common Share
  Basic income (loss) per share is computed only on the weighted average number of common shares outstanding during the respective periods.
 
 4.
PROPERTY AND EQUIPMENT
  Property and equipment is comprised of the following:
 
 Jun. 30,


Dec. 31,2009


2008Oil and gas properties, successful efforts method

$
4,283,365


$
4,283,365Other property and equipment


1,744,067



1,744,0676,027,431



6,027,431Less: Accumulated depreciation and depletion


2,267,801



2,015,528Property and equipment, net

$
3,759,630


$
4,011,903
  -7-
 5.
DEBT
 
 On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company and certain of its wholly-owned subsidiaries eliminated certain debt obligations by converting them into $0.0001 par value common stock as follows:
  Bent Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company, had a $2,000,000 Promissory Note (Note”) that was due and payable on December 31, 2009.  The Note was issued to Proco Operating Co., Inc. (“Proco”), a company controlled by the brother of the Company’s Chief
Executive Officer and a director.  The purpose of the Note was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004.  The Note replaced a $2,000,000 convertible debenture dated January 5, 2004. As of the Effective Date, the Note has been converted into 8,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.
  Additionally, the Note included the payment of interest at a rate of eight percent (8%) per annum and as of the Effective Date, accrued interest was $878,027.  An agreement was reached whereby Proco forgave $378,027 of the accrued interest and the remaining $500,000 has been converted into 2,000,000 shares of Stock based
upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  As a result of the transaction, the $378,027 of accrued interest forgiven was adjusted as a $79,342 credit against interest expense for interest recorded in the current year through June 30, 2009 and a $298,685 credit to Other Income for interest expense recorded in prior years.
  As a result of the conversions discussed above, the Company will issue 10,000,000 shares of Stock and as of June 30, 2009, these have been recorded as issuable in the unaudited consolidated financial statements.
  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.  The lease was secured by the computer equipment and perfected by a financing statement; however, the Company liquidated the equipment in 2006 (with the lessor approval) and paid
the resulting $4,000 of proceeds to the lessor.  As a result of the computer liquidation other payments, the remaining unpaid balance of principal has been $16,131 since March 31, 2006.  The payable is personally guaranteed by the Chief Executive Officer of the Company.  In November 2003, a settlement was negotiated with the lessor discussed above to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 4,000 shares (100,000 shares prior
to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s Chief Executive office occurs.  The Chief Executive Officer of the Company transferred these shares on September 15, 2003.
  However, as of the Effective Date, the transaction has not been finalized as the lessor had not formerly executed the settlement agreement. The Company has researched the matter and believes that consideration was provided by the Company and accepted by the Lessor for the settlement and that no further consideration or action is required
by the Company.  Accordingly, the $16,131 debt obligation and $25,029 of accrued interest have been re-classed to Deferred Other Income, a component of Long-Term Liabilities in the unaudited consolidated financial statements.  The Company intends to write this amount off by December 31, 2009 in relation to the annual audit of its consolidated financial statements (See Note 8 – Deferred Other Income).
  As a result of the above transactions, the Company has the remaining debt as of June 30, 2009:
  $25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6%per annum and due on February 28, 2008.

$
23,073$103,000 Note, dated March, 2008, not formalized and not bearing interest


91,000$
114,073
  On October 28, 2005, Bend Arch entered into a $25,000 line of credit facility with a financial institution for working capital purposes. The line of credit is secured by a certificate of deposit held by the financial institution and bears simple interest per annum at a variable rate which is six percent (6%) as of June 30, 2009. As
of June 30, 2009, the outstanding balance is $23,073 and is included in the Note Payable balance in the accompanying unaudited consolidated financial statements.
 -8-
  In March 2008, the Company purchased oilfield property and equipment for a price of $150,000.  The terms included a cash payment of $47,000 and a note payable for the balance of $103,000.  During the nine months ended September 30, 2008, the Company paid down $12,000 of principal and the balance is $91,000 as of
June 30, 2009 and classified as a component of Note Payable in the accompanying unaudited consolidated financial statements.  As of June 30, 2009, no formal agreement of the terms of the note payable had been finalized and the Company has a verbal agreement to pay the principal back at a rate of $10,000 monthly.  It is anticipated that a formal agreement will be negotiated and finalized in the future.
  6.  DUE TO RELATED PARTIES
  Effective July 1, 2003, the Company entered into a salary and equipment rental agreement with its Chief Executive Officer.  As of January 1, 2005, the $3,500 per month equipment rental agreement with the Chief Executive Officer was terminated. As of the Effective Date, the Company owed the Chief Executive Officer $593,735 for
unpaid amounts under the agreement and has been converted into 2,374,940 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.
  As of the Effective Date, Bend Arch, the Company’s wholly-owned subsidiary, owed the Chief Executive Officer $1,007,715 for previous advances and equipment rental charges at $4,500 per month.  This amount has been converted into 4,030,860 shares of Stock based upon a conversion price of $0.25 per share, a significant premium
to the market price of the Stock.
  As of the Effective Date, the operator of the Company’s oil and gas properties was owed $1,736,219 for services as the operator of the Company’s oil and gas production activities.  The operator is Proco and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer.  This
amount has been converted into 6,944,877 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.
  As of the Effective Date, the President of Oil America Group, Inc. was owed $292,500 for unpaid salary per an agreement effective January 1, 2005.  The agreement is for annual compensation of $65,000 and none of this amount has been paid since the inception of the agreement.  The unpaid salary of $292,500 has been
forgiven by the President of Oil America Group, Inc as of the Effective Date.  As a result, the Company has reversed the current year compensation expense recorded through June 30, 2009 of $32,500 and the remainder of $260,000 representing compensation expensed recorded in previous years has been recorded as Other Income in the unaudited consolidated financial statements at June 30, 2009.
  As a result of the above conversions and forgiveness of obligations, there is no balance outstanding for Due to Related Parties at June 30, 2009.
  7.  ASSET RETIREMENT OBLIGATIONS
  The following represents a reconciliation of the asset retirement obligations for the six months ended June 30, 2009:
 
 Asset retirement obligations at December 31, 2008

$
509,155Revision to estimate and additions


-Other adjustments


-Liabilities settled during the period


-Accretion of discount


11,445Asset retirement obligation at end of period

$
520,000
  -9-
 8.  DEFERRED OTHER INCOME
  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.  The lease was secured by the computer equipment and perfected by a financing statement; however, the Company liquidated the equipment in 2006 (with the lessor approval)
and paid the resulting $4,000 of proceeds to the lessor.  As a result of the computer liquidation other payments, the remaining unpaid balance of principal has been $16,131 since March 31, 2006.  The payable is personally guaranteed by the Chief Executive Officer of the Company.  In November 2003, a settlement was negotiated with the lessor discussed above to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 4,000 shares (100,000 shares
prior to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s Chief Executive office occurs.  The Chief Executive Officer of the Company transferred these shares on September 15, 2003.
  However, as of the Effective Date, the transaction has not been finalized as the lessor had not formerly executed the settlement agreement. The Company has researched the matter and believes that consideration was provided by the Company and accepted by the Lessor for the settlement and that no further consideration or action is required
by the Company.  Accordingly, the $16,131 debt obligation and $25,029 of accrued interest have been re-classed to Deferred Other Income, a component of Long-Term Liabilities in the unaudited consolidated financial statements.  The Company intends to write this amount off by December 31, 2009 in relation to the annual audit of its consolidated financial statements (See Note 5 – Debt).
  As of the Effective Date, the Company has recorded $122,671 of accrued interest for previously issued convertible debentures.  Several convertible debenture holders previously elected to convert all or a portion of the convertible debentures into common stock.  However, the conversion did not include accrued interest
that was specified in the convertible debenture documentation.  The Company has researched the matter and believes that no further common stock will be issued for these conversions.  Accordingly, the $122,671 of accrued interest has been re-classed to Deferred Other Income, a component of Long-Term Liabilities in the unaudited consolidated financial statements.  The Company intends to write this amount off by December 31, 2009 in relation to the annual audit of its consolidated financial
statements.
  As of the Effective Date, the Company had recorded approximately $262,000 of accounts payable from the predecessor company, Communicate Now.com, Inc.  Since these trade accounts payable have been outstanding for an extended period of time with no communication between the Company and any of the vendors, the Company commenced the
process of eliminating the liabilities from its records.  As of the Effective Date, these accounts payable have been removed from the Company’s unaudited consolidated financial statements.  Additionally, the Company determined additional accounts payable in the amount of approximately $54,000 were not valid and should be eliminated.  According, as of the Effective Date, accounts payable has been reduced by $316,289 and has been re-classed to Deferred Other Income, a component
of Long-Term Liabilities in the unaudited consolidated financial statements.  The Company intends to write this amount off by December 31, 2009 in relation to the annual audit of its consolidated financial statements.
  9.  STOCKHOLDERS’ EQUITY
  Capital Structure
  The Company is authorized to issue up to 500,000,000 shares of common stock, $0.0001 par value per share, of which 20,360,389 were issued and outstanding as of June 30, 2009.  Additionally, the Company has 38,900,677 shares issuable as of June 30, 2009 as discussed below.  In total, the Company has 59,261,066 shares
outstanding and issuable at June 30, 2009.
  The Company is authorized to issue up to 5,000,000 shares of preferred stock, $0.0001 par value per share, of which none were issued and outstanding as of June 30, 2009.
  The Company is authorized to issue up to 10,000,000 shares of common stock under the 2008 Non-Qualified Stock Option Plan (the “Plan”).  The Plan is to assist the Company in securing and retaining Key Participants of outstanding ability by making it possible to offer them an increased incentive to join or continue
in the service of the Company and to increase their efforts for its welfare through participation in the ownership and growth of the Company.  As of June 30, 2009, 9,800,000 stock options have been granted under the Plan and issued by the Company.
 -10-
  Common Stock:
  There were no changes in common stock outstanding during the six months ended June 30, 2009.
  Common Stock Issuable:
  On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company and certain of its wholly-owned subsidiaries eliminated certain debt obligations by converting them into $0.0001 par value common stock (“Stock”) of the Company.
  Bent Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company, had a $2,000,000 Promissory Note (Note”) that was due and payable on December 31, 2009.  The Note was issued to Proco, a company controlled by the brother of the Company’s Chief Executive Officer and a director.  The
purpose of the Note was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004.  The Note replaced a $2,000,000 convertible debenture dated January 5, 2004. As of the Effective Date, the Note has been converted into 8,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  These shares are recorded as issuable at
June 30, 2009
  Additionally, the Note included the payment of interest at a rate of eight percent (8%) per annum and as of the Effective Date, accrued interest was $878,027.  An agreement was reached whereby Proco forgave $378,027 of the accrued interest and the remaining $500,000 has been converted into 2,000,000 shares of Stock based
upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  These shares have been recorded as issuable at June 30, 2009.
  Effective July 1, 2003, the Company entered into a salary and equipment rental agreement with its Chief Executive Officer.  As of January 1, 2005, the $3,500 per month equipment rental agreement with the Chief Executive Officer was terminated. As of the Effective Date, the Company owed the Chief Executive Officer $593,735
for unpaid amounts under the agreement and has been converted into 2,374,940 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  These shares have been recorded as issuable at June 30, 2009.
  As of the Effective Date, Bend Arch, the Company’s wholly-owned subsidiary, owed the Chief Executive Officer $1,007,715 for previous advances and equipment rental charges at $4,500 per month.  This amount has been converted into 4,030,860 shares of Stock based upon a conversion price of $0.25 per share, a significant
premium to the market price of the Stock.  These shares have been recorded as issuable at June 30, 2009.
  As of the Effective Date, the operator of the Company’s oil and gas properties was owed $1,736,219 for services as the operator of the Company’s oil and gas production activities.  The operator is Proco and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer.  This
amount has been converted into 6,944,877 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  These shares have been recorded as issuable at June 30, 2009.
  Effective May 11, 2009, the Company received $50,000 of proceeds from the sale of 5,000,000 shares of Stock at $.01 per share.  The $.01 per share price was determined based upon a 33% discount to the closing market price of $.015 per share on the sale date of May 11, 2009.  The discount reflects there is no active
market for the Stock because it is thinly traded and that the $.01 per share is a more reflective value of the fair market value on the sales date.  These shares are recorded as issuable at June 30, 2009.
  -11-
 Effective April 1, 2009, the Company issued 50,000 shares of Stock to an unrelated third party for oil and gas related equipment.  The Stock was valued at $1,750 or $0.035 per share, the closing trading price of the Stock on April 1, 2009.  These shares are recorded as issuable at June 30, 2009.
  As a result of the above, the Company has 38,900,977 shares classified as issuable at June 30, 2009.  These represent 23,350,677 from the conversion of debt, 10,500,000 from the conversion of preferred stock, 5,000,000 from the sale of Stock and 50,000 from the issuance of Stock for oil and gas equipment.
  Preferred Stock:
  The Company is authorized to issue up to 5,000,000 shares of preferred stock, $0.0001 par value per share, of which 3,500,000 were issued and outstanding as of the Effective Date.  All of the preferred stock outstanding was held by the Chief Executive Officer of the Company. Under the terms of the designation, these Series
A shares are not entitled to dividends and are convertible, at the option of the holder, at any time, into three times as many common shares as Series A, preferred that are held.  There are no liquidation rights or preferences to Series A, preferred stock holders as compared to any other class of stock.  These shares are non-voting, however, the holders, as a class may elect two directors.
  As of the Effective Date, the holder elected to convert the preferred stock and the Company will issue 10,500,000 shares of Stock and these have been classified as issuable in the unaudited consolidated financial statements at June 30, 2009.
  Stock Options:
  On May 11, 2009, the Company granted 9,800,000 non-qualified stock options to employees and consultants under the Plan as described above.  Of the 9,800,000 stock options granted, 7,000,000 were issued to employees and 2,800,000 were issued to consultants.
  The Company evaluated the stock options in accordance with SFAS 123R and utilized the Black Scholes method to determine valuation.  As a result of our analysis, the total value for the stock option issuance was $146,986 recorded as $104,990 of compensation expense and $41,996 as consulting expense.
  The Company used the following in the calculation:
 
 Stock Price (grant date)

$
0.015Exercise Price

$
0.015Expected Life (between vesting period and term of warrants)


5.00Volatility


348
%Annual Rate of Quarterly Dividends


0.00
%Risk Free Interest Rate (10 year T-bill rate)


3.17
%
  10.     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.
 -12-
 
 Prior to December 31, 2007, the Company and certain of its wholly-owned subsidiaries were delinquent in the filing of franchise tax reports with the State of Texas and the State of Delaware and as a result, the Company and certain of its wholly-owned subsidiaries were not in good standing.  The Company and its wholly-owned
subsidiaries have filed the required reports for both 12-31-07 and 12-31-08 and as a result, management anticipates that the Company and all of its wholly-owned subsidiaries will be declared in good standing in the near future.  However, the Company has not received notice that all of the filings have been accepted and as a result, may face certain penalties and interest due to the delinquent status of the reports before they were filed.
  As of the Effective Date, the Company had recorded $83,812 of unpaid federal payroll taxes and employee withholdings and related penalties and interest.  These unpaid federal taxes are entirely from CommunicateNow.com, the predecessor company.  The previous Chief Executive Officer of Communicate Now.com, Inc. structured
a settlement payment agreement with the Internal Revenue Service and has paid the balance of the obligation down to $13,961 as of the Effective Date.  Accordingly, the Company has reduced the balance recorded to $13,961 as of the Effective Date and the difference of $69,851 has been recorded to Other Income in the unaudited consolidated financial statements at June 30, 2009.  The remaining balance of $13,961 is included in the Company’s unaudited consolidated financial statements because
of potential federal tax liens for the Company until the balance is paid in full.
  In December 2005 and January 2006, the Company determined that certain issuances of common stock had not been properly disclosed in reports made by the Company’s transfer agent. The Company discussed these items with the transfer agent and the transactions have been reconciled and recorded properly in the Company records. However,
the Company believes that two of these transactions, an unauthorized issuance by the transfer agent of 600,000 shares (15,000,000 shares prior to the one-for-twenty five reverse stock split) and an additional unauthorized issuance of 100,000 shares (2,500,000 shares prior to the one-for-twenty five reverse stock split), should be reimbursed to the Company by either the third party who received the shares or the transfer agent. The Company has recorded the fair market valuation of the two transactions in the amount
of $875,000 as a subscription receivable as of June 30, 2009 and is in discussions with both the third party and the transfer agent to resolve the issue. As of the date of these financial statements, no resolution of the matter has been completed.
 
 11.  RELATED PARTY TRANSACTIONS
  We currently do not have a lease and we are not paying rent on our space. It is being provided to the Company by the Chief Executive Officer free of charge.
  On November 1, 2003, the Company entered into an operating agreement for its oil and gas production activities with Proco, a company controlled by the brother of the Company’s Chief Executive Officer (See Note 6 – Due to 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.
  See Note 6 – Due to Related Parties for additional related party transactions.
  12.  SUBSEQUENT EVENTS
  On August 6, 2009, the Company announced that it has executed a non-binding Letter of Intent ("LOI") for acquisition of Dorado Gold, LLC and Master Petroleum, LLC, both California limited liability companies (together "Dorado"). Dorado owns 100% of certain placer gold mining claims, land and equipment (the "Joint Properties") 25 miles
north of Weaverville, California. Additionally, AENP and Dorado executed a 120-day Operating Agreement to jointly participate in the exploration, evaluation, development and mining of gold and other minerals within the Joint Properties ("Joint Venture"). AENP will bear 100% of all expenses during operations of the Joint Venture and AENP and Dorado will each receive fifty percent (50%) of product or revenues after expenses. AENP will manage the Joint Venture. The acquisition of Dorado by AENP is subject to AENP's
sole evaluation of the results after the 120-day Joint Venture period is completed.
  On August 7, 2009, Board of Directors dismissed Moore & Associates Chartered (“Moore”), its independent registered public account firm.  The reason for the dismissal was that Michael Moore is retiring.   On the same date, the accounting firm of Seale and Beers (“Seale”), CPAs was
engaged as the Company’s new independent registered public account firm. The Board of Directors of the Company approved of the dismissal of Moore and the engagement of Seale, CPAs as its independent auditor. None of the reports of Moore on the Company's financial statements for either of the past two years or subsequent interim period contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the Company’s
audited consolidated financial statements contained in its Form 10-K for the fiscal year ended December 31, 2008 included a going concern qualification.
 
 During the Company’s two most recent fiscal years and the subsequent interim periods thereto, there were no disagreements with Moore whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Moore’s satisfaction,
would have caused it to make reference to the subject matter of the disagreement in connection with its report on the Company’s consolidated financial statements.
 -13-
  Item 2. Management's Discussion and Analysis of FinancialCondition and Results of Operations.
 
 The following analysis of our financial condition and results of operations contained in this section should be read in conjunction with our financial statements and related notes and schedules thereto appearing elsewhere in this Quarterly Report, as well as the sections entitled "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes and schedules thereto included in our annual report on Form 10-K for the year ended December 31, 2008 filed with the SEC on May 6, 2009.
 
 This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections
about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements, including without limitation:
 •
economic downturns or recessions may impair our portfolio companies' performance;
 •
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
 •
the risks associated with the possible disruption in the Company's operations due to terrorism;
 •
future changes in laws or regulations and conditions in our operating areas; and•
the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks.
 
 Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection
or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We undertake no obligation to update such statements to reflect subsequent events.
 
 OVERVIEW
 
 American Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”)  is a publicly traded oil and gas company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. The Company traditionally
has acquired oil and gas companies that have the potential for increased oil and natural gas production utilizing new technologies, well workovers and fracture stimulation systems.  We have expanded our scope of business to include the drilling of new wells with its own equipment through our wholly-owned subsidiary companies.
  Our subsidiaries are primarily involved in three areas of oil and gas operations.
  1. Leasing Programs.
 2. Production Acquisitions
 3. Drilling and Producing with Proven and Emerging Technologies.
 -14-
  We believe that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world.  We believe that oil and natural gas will remain
a key yet volatile component of the world energy future and furthermore, that with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America’s future then it already has to date.
  As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $148,710 for the six months ended June 30, 2009 as compared to a net loss of $797,111 for the six months ended June 30, 2008.  The decrease in the net loss from 2008 to 2009 was primarily from non recurring non-cash
write-offs for the forgiveness of accrued payroll related to an officer of the Company, the forgiveness of accrued interest related to a note payable that was converted to common stock and payroll taxes and penalties related to a predecessor company.  Additionally, at June 30, 2009, the Company has minimal cash and has a negative working capital balance of $58,341, which could have a material impact on the Company’s financial condition and operations. The negative working capital balance was significantly
reduced from a balance of $6,950,142 at March 31, 2009 to the June 30, 2009 balance by the write off of the obligations discussed below along with the conversion of notes payable, accrued interest and due to related parties to common stock during the three months ended June 30, 2009.  As a result, the Company has stockholder’s equity of $2,832,545 at June 20, 2009 as compared to a stockholders’ deficit of $3,439,956 at March 31, 2009.   However, the ability of the Company
to continue as a going concern is dependent on the Company’s ability to raise capital and generate sufficient revenues and cash flow from its business plan as an oil and gas operating company.  The financial statements included in this report do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
 The time required for us to become profitable is highly uncertain, and we cannot assure you that we will achieve or sustain profitability or generate sufficient cash flow from operations to meet our planned capital expenditures, working capital and debt service requirements. If required, our ability to obtain additional financing from
other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.
 
 RECENT DEVELOPMENTS
 
 On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company  and certain of its wholly-owned subsidiaries (the “Company”) eliminated certain debt obligations by converting them into $0.0001 par value common stock (“Stock”) of the Company.  Additionally, the
Company successfully negotiated and eliminated a substantial amount of obligations that were incurred from a predecessor company and converted an existing preferred stock agreement to Stock.
  As a result of the above restructuring of the Company’s consolidated balance sheet, the Company has eliminated the majority of its debt and will issue 33,850,678 shares of Stock, 23,350,678 from the conversion of debt obligations and 10,500,000 from the conversion of preferred stock.  Management believes that as a result
of restructuring of the balance sheet as discussed above, the Company will have several options available to obtain financing from third parties in order to carry out the business plan of the Company.
  Additionally, on May 11, 2009, the Company granted 9,800,000 non-qualified stock options to purchase the Company’s $0.0001 par value common to stock to employees and consultants of the Company.  These stock options were previously registered in 2008 by the Company on Form S-8 with the Securities and Exchange Commission.  The
stock options were issued with an exercise price of $0.015 per share, the closing price of the Company’s traded stock on the date of grant.
  On August 6, 2009, the Company announced that it has executed a non-binding Letter of Intent ("LOI") for acquisition of Dorado Gold, LLC and Master Petroleum, LLC, both California limited liability companies (together "Dorado"). Dorado owns 100% of certain placer gold mining claims, land and equipment (the "Joint Properties") 25 miles
north of Weaverville, California. Additionally, AENP and Dorado executed a 120-day Operating Agreement to jointly participate in the exploration, evaluation, development and mining of gold and other minerals within the Joint Properties ("Joint Venture"). AENP will bear 100% of all expenses during operations of the Joint Venture and AENP and Dorado will each receive fifty percent (50%) of product or revenues after expenses. AENP will manage the Joint Venture. The acquisition of Dorado by AENP is subject to AENP's
sole evaluation of the results after the 120-day Joint Venture period is completed.
 -15-
  On August 7, 2009, Board of Directors dismissed Moore & Associates Chartered (“Moore”), its independent registered public account firm.  The reason for the dismissal was that Michael Moore is retiring.   On the same date, the accounting firm of Seale and Beers (“Seale”), CPAs was
engaged as the Company’s new independent registered public account firm. The Board of Directors of the Company approved of the dismissal of Moore and the engagement of Seale, CPAs as its independent auditor. None of the reports of Moore on the Company's financial statements for either of the past two years or subsequent interim period contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the Company’s
audited consolidated financial statements contained in its Form 10-K for the fiscal year ended December 31, 2008 included a going concern qualification.
 
 During the Company’s two most recent fiscal years and the subsequent interim periods thereto, there were no disagreements with Moore whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Moore’s satisfaction,
would have caused it to make reference to the subject matter of the disagreement in connection with its report on the Company’s consolidated financial statements.
  RESULTS OF OPERATIONS
 
 The following discussion of the results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the periods presented included in this Form 10-Q.
  Three Months ended June 30, 2009 compared to 2008.
 
 Revenues:
 
 Revenues decreased $288,537 or 52%, to $264,908 for 2009 from $553,445 for 2008.  Revenues for 2009 were comprised of $164,559 of oil sales (3,276 barrels of oil at an average price of $50.24 per barrel), $91,060 of natural gas sales (20,588 MCF at an average price of $4.42 per MCF), $507 of royalties and $8,782 of management
fees.   Revenues for 2008 were comprised of $341,573 of oil (2,975 barrels of oil at an average price of $114.81), $211,209 of natural gas sales (18,818 MCF at an average price of $11.22 per MCF) and $663 of royalties.  Although production volume increased (oil by 10% and natural gas by 9%), revenues decreased due to significantly reduced market pricing for oil and gas products.
 
 Operating Expenses:
 
 Operating expenses decreased $223,413, or 24%, to $723,541 for 2009 from $946,954 for 2008.  The decrease was primarily related to a reduction in production expense and tax expense related to the downturn in the oil and gas market as well as the entire economy.  Additionally, the Company made a concerted effort
 to reduce expenses everywhere and this resulted in a significant decrease in general and administrative expense.  These were offset by an increase in compensation and consulting expense primarily related to a non-cash expense from a Black-Scholes calculation for the issuance of non-qualified stock options in 2009 with no
comparable amount in 2008.
 
 Other Income (Expense):
 
 Other income (expense) increased $681,070 of income, or 1564% to $637,527 of income for 2009 from $43,543 of expense for 2008.  The increase in income was primarily from 1) $260,000 from the forgiveness of accrued payroll for the President of Oil America Group, Inc., 2) $66,849 for the write off of payroll taxes and penalties
from a predecessor company determined to not be payable by the Company and 3) $298,685 for the forgiveness of a portion of accrued interest on the conversion of a note payable and accrued interest.
 -16-
 
 Six Months ended June 30, 2009 compared to 2008.
 
 Revenues:
 
 Revenues decreased $495,820 or 50%, to $495,844 for 2009 from $991,664 for 2008.  Revenues for 2009 were comprised of $305,339 of oil sales (7,407 barrels of oil at an average price of $41.23 per barrel), $177,716 of natural gas sales (41,582 MCF at an average price of $4.27 per MCF), $507 of royalties and $12,282 of management
fees.   Revenues for 2008 were comprised of $621,613 of oil sales (6,138 barrels of oil at an average price of $101.27 per barrel), $369,388 of natural gas sales (35,809 MCF at an average price of $10.32 per MCF) and $663 of royalties.  Although production volume increased (21% for oil and 16% for natural gas, revenues decreased due to significantly reduced market pricing for oil and gas products.
 
 Operating Expenses:
 
 Operating expenses decreased $421,923, or 25%, to $1,279,473 for 2009 from $1,701,396 for 2008.  The decrease was primarily related to a reduction in production expense and taxes expense related to the downturn in the oil and gas market as well as the entire economy.  Additionally, the Company made a concerted effort
 to reduce expenses everywhere and this resulted in a significant decrease in general and administrative expense.  These were offset by an increase in compensation and consulting expense primarily related to a non-cash expense from a Black-Scholes calculation for the issuance of non-qualified stock options in 2009 with no
comparable amount in 2008.
 
 Other Income (Expense):
 
 Other income (expense) increased $722,297 of income, or 827% to $634,918 of income for 2009 from $87,379 of expense for 2008.  The increase in income was primarily from 1) $260,000 from the forgiveness of accrued payroll for the President of Oil America Group, Inc., 2) $66,849 for the write off of payroll taxes and penalties
from a predecessor company determined to not be payable by the Company and 3) $298,685 for the forgiveness of a portion of accrued interest on the conversion of a note payable and accrued interest.
 
 Liquidity and Capital Resources
 Cash and cash equivalents were $73,298 at June 30, 2009 as compared to $88,937 at December 31, 2008, and working capital deficit was $58,341 at June 30, 2009 as compared to a working capital deficit of $6,693,177 at December 31, 2008.  The decrease in the working capital deficit was primarily from the specific items discussed
previously under Other Income (Expense).
 
 Operating Activities
 
 Cash used in operating activities was $62,916 for the six months ended June 30, 2009 compared to cash provided of $153,339 for the six months ended June 30, 2008.  The decrease in cash provided by operations to cash used in operations from 2008 to 2009 was primarily from a decrease in the change for due to related parties
and a decrease in other assets for 2009 as compared to an increase in 2008.
 
 Investing Activities
 
 Cash used in investing activities was $1,735 for the six months ended June 30, 2009 compared to cash used of $237,289 for the three months ended June 30, 2008.  The decrease in cash used resulted primarily from a decrease in the investment in property and equipment in 2008 to zero in 2009.
 -17-
 
 Financing Activities
 
 Cash provided by financing activities was $49,011 for the six months ended June 30, 2009 compared to $90,607 cash provided by financing activities for the six months ended June 30, 2008. The reduction from 2008 to 2009 is primarily from the sale of common stock.
  Our principal uses of cash to date have been for operating activities and we have funded our operations previously primarily by incurring indebtedness in the form of convertible debentures, notes payable and issuing common stock.  During the three months ended June 30, 2009, the Company significantly reduced its debt obligations
through the conversion to common stock and or the write off of balances not determined to be payable.
 
 Debt
 
 On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company and certain of its wholly-owned subsidiaries eliminated certain debt obligations by converting them into $0.0001 par value common stock as follows:
 
 Bent Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company, had a $2,000,000 Promissory Note (Note”) that was due and payable on December 31, 2009.  The Note was issued to Proco Operating Co., Inc. (“Proco”), a company controlled by the brother of the Company’s Chief
Executive Officer and a director.  The purpose of the Note was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004.  The Note replaced a $2,000,000 convertible debenture dated January 5, 2004. As of the Effective Date, the Note has been converted into 8,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.
 
 Additionally, the Note included the payment of interest at a rate of eight percent (8%) per annum and as of the Effective Date, accrued interest was $878,027.  An agreement was reached whereby Proco forgave $378,027 of the accrued interest and the remaining $500,000 has been converted into 2,000,000 shares of Stock based
upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.  As a result of the transaction, the $378,027 of accrued interest forgiven was adjusted as a $79,342 credit against interest expense for interest recorded in the current year through June 30, 2009 and a $298,685 credit to Other Income for interest expense recorded in prior years.
  As a result of the conversions discussed above, the Company will issue 10,000,000 shares of Stock and as of June 30, 2009, these have been recorded as issuable in the unaudited consolidated financial statements.
  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.  The lease was secured by the computer equipment and perfected by a financing statement; however, the Company liquidated the equipment in 2006 (with the lessor approval) and paid
the resulting $4,000 of proceeds to the lessor.  As a result of the computer liquidation other payments, the remaining unpaid balance of principal has been $16,131 since March 31, 2006.  The payable is personally guaranteed by the Chief Executive Officer of the Company.  In November 2003, a settlement was negotiated with the lessor discussed above to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 4,000 shares (100,000 shares prior
to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s Chief Executive office occurs.  The Chief Executive Officer of the Company transferred these shares on September 15, 2003.
  However, as of the Effective Date, the transaction has not been finalized as the lessor had not formerly executed the settlement agreement. The Company has researched the matter and believes that consideration was provided by the Company and accepted by the Lessor for the settlement and that no further consideration or action is required
by the Company.  Accordingly, the $16,131 debt obligation and $25,029 of accrued interest has been re-classed to Deferred Other Income, a component of Long-Term Liabilities in the unaudited consolidated financial statements.  The Company intends to write this amount off by December 31, 2009 in relation to the annual audit of its consolidated financial statements.
  -18-
 As a result of the above transactions, the Company has the remaining debt as of June 30, 2009:
  $25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6% per annum and due on February 28, 2008.

$
23,073$103,000 Note, dated March, 2008, not formalized and not bearing interest


91,000$
114,073
  On October 28, 2005, Bend Arch entered into a $25,000 line of credit facility with a financial institution for working capital purposes. The line of credit is secured by a certificate of deposit held by the financial institution and bears simple interest per annum at a variable rate which is six percent (6%) as of June 30, 2009. As
of June 30, 2009, the outstanding balance is $23,073 and is included in the Note Payable balance in the accompanying unaudited consolidated financial statements.
  In March 2008, the Company purchased oilfield property and equipment for a price of $150,000.  The terms included a cash payment of $47,000 and a note payable for the balance of $103,000.  During the nine months ended September 30, 2008, the Company paid down $12,000 of principal and the balance is $91,000 as of
June 30, 2009 and classified as a component of Note Payable in the accompanying unaudited consolidated financial statements.  As of June 30, 2009, no formal agreement of the terms of the note payable had been finalized and the Company has a verbal agreement to pay the principal back at a rate of $10,000 monthly.  It is anticipated that a formal agreement will be negotiated and finalized in the future.
  Equity Financing
  Effective May 11, 2009, the Company received $50,000 of proceeds from the sale of 5,000,000 shares of Stock at $.01 per share.  The $.01 per share price was determined based upon a 33% discount to the closing market price of $.015 per share on the sale date of May 11, 2009.  The discount reflects there is no active
market for the Stock because it is thinly traded and that the $.01 per share is a more reflective value of the fair market value on the sales date.  These shares are recorded as issuable at June 30, 2009.
  Effective April 1, 2009, the Company issued 50,000 shares of Stock to an unrelated third party for oil and gas related equipment.  The Stock was valued at $1,750 or $0.035 per share, the closing trading price of the Stock on April 1, 2009.  These shares are recorded as issuable at June 30, 2009.
  Additionally, the Company will issue 33,850,678 shares of Stock, 23,350,678 from the conversion of debt obligations and 10,500,000 from the conversion of preferred stock as previously discussed.
  Liquidity
  To continue with our business plan, we will require additional working capital as we have not been generating sufficient cash from operations to fund our operating activities through the end of fiscal 2009.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise capital
and generate revenues and cash flow from its business plan as an oil and gas operating company.
 
 Our ability to obtain additional financing depends on many factors beyond our control, including the state of the capital markets, the market price of our common stock and the prospects for our business.  Additionally, any necessary additional financing may not be available to us or may be available only on terms that would
result in further dilution to the current owners of our common stock. Failure to obtain commitments for interim financing and subsequent project financing would have a material adverse effect on our business, results of operations and financial condition. If the financing we require to sustain our working capital needs is unavailable or insufficient or we do not receive the necessary financing, we may be unable to continue as a going concern.
 -19-
 
 Management believes that as a result of restructuring of the balance sheet as discussed above, the Company will have several options available to obtain financing from third parties in order to carry out the business plan of the Company.
 
 Off-Balance Sheet Arrangements
 
 We have no off-balance sheet arrangements.
 
 Item 4T.  Controls and Procedures
  Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, as of the end of the period covered by this report (the "Evaluation Date").  Based on that evaluation, the Company’s management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures are not effective to ensure that the information relating to us required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
 Management's Quarterly Report on Internal Control Over Financial Reporting. (a) The Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).  Our
management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.  Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting and that our financial reporting
controls were not effective.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
 The material weakness(s) identified are:
 
 1.
The Company does not have a full time Accounting Controller or Chief Financial Officer and utilizes part time consultants to perform these critical responsibilities.  This lack of full time accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.
 
 Additionally, management determined during its internal control assessment the following weakness(s), while not considered material, are items that should be considered by the Board of Directors for resolution in the near future:
 
 1.
The management of oil and gas leases including a schedule of oil and gas lease agreements and related documents to ensure that the Company has rights to Oil and Gas, expiration and renewal dates, contractual payments regarding royalties, taxes, improvements, etc.   This ensures correct oil and gas capital accounts, revenues and related expenses
are calculated correctly by Accounting.  Additionally, the CFO should review all Oil and gas lease agreements.
 2.
The Company should take steps to require that oil and gas expenditures are properly classified into the proper categories such as acquisition costs and intangible and tangible drilling costs.  Without this, the Company cannot properly determine the proper recording and disclosure of oil and gas expenditures.
 3.
The Company should take steps to enhance the security for bank wire transfers.  Currently, the Subsidiary President’s and CEO provide instruction to the bookkeepers to initiate a wire transfer.  As a security enhancement, the Bank should be required to obtain approval from the CEO or CFO to make the wire transfer.
 4.
The Company IT process should be strengthened as there is no disaster recovery plan, no server, and the company accounting records are maintained through a consultant accountant.  The Company should consider the purchase and implementation of a server and proper backups off site to ensure that accounting information is safeguarded.
 5.
The Company should take steps to implement a policies and procedures manual.
 
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 In order to mitigate all of the above weaknesses(s), to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer as well as the Board of Directors for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such
weaknesses, it is immediately implemented. The Company has retained a third-party accounting and financial consulting firm to assist with the complex technical oil and gas issues and as soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures as described above.
 
 This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit
the Company to provide only management's report in this quarterly report.
 
 (b)  Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
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 PART II - Other Information
 
  Item 6.  Exhibits
 
 The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the Securities Exchange Act of 1934.
 
 
 
 
 Exhibit No.

Description of Exhibit2.1

Certificate of Amendment to Articles of Incorporation of American Energy Production, Inc. filed with the Delaware Secretary of State  (1)3.1

Form S-8 Registration Statement under the Securities Act of 1933 filed January 31, 2003. (1)3.2

Form 8-A12G for Registration of Certain Classes of Securities Pursuant to Section 12 (b) or (g) of the Securities Act of 1934 filed October 10, 2003. (1)3.3

Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934 filed November 19, 2003. (1)3.4

Form N-54 Notification of Election as a Business Development Company dated January 12, 2004. (1)3.5

Form 1-E Notification under Regulation E dated January 14, 2004. (1)3.6

Form 1-E/A Notification under Regulation E dated June 24, 2005. (1)3.7

Form 2-E Notification under Regulation E dated June 27, 2006. (1)3.8

Form 2-E Notification under Regulation E dated December 11, 2006. (1)3.9

Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934 filed February 8, 2007. (1)3.10

Form N-54C Notification of Withdrawal of Business Development Companies dated April 23, 2007. (1)3.11

Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934 filed July 5, 2007. (1)3.12

Form S-8 Registration Statement under the Securities Act of 1933 filed September 25, 2008. (1)14.1

Code of Ethics (1)20.1

Oil and Gas property valuation by Blue Ridge Enterprises as of December 31, 2007 (1)20.2

Oil and Gas property valuation by Blue Ridge Enterprises as of December 31, 2008 (1)21.1

Subsidiaries of American Energy Production, Inc. (1)31.1

Certification of the Chief Executive and Chief Financial Officer of American Energy Production, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1

Certification of the Chief Executive and Chief Financial Officer of American Energy Production, Inc. pursuant to Section 906 of the Sarbanes- Act of 2002.*
 *           Filed herewith
 
 (1)
Incorporated by reference.
 
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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.
  
 Signature
Title
Date/s/ Charles BittersCharles Bitters
Chief Executive Officer, Principal Executive and Financial Officer, Director
August 19, 2009
 
 
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