American Energy Production (AENP) 10-Q Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission File number: 333-52812

American Energy Production, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all

reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter

period that the registrant was required to file such reports), and (2)

has been subject to such filing requirements for the past 90 days.

Yes [X]  No [ ]

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

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

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

Indicate by check mark whether the registrant is a shell company

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

Yes [ ]  No [X]

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

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

American Energy Production, Inc.

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Form 10-Q Index

March 31, 2007

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

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PART I

FINANCIAL INFORMATION

Item 1-Financial Statements

American Energy Production, Inc.

(A Development Stage Company)

Balance Sheets

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

See accompanying notes to unaudited financial statements.

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American Energy Production, Inc.

(A Development Stage Company)

Balance Sheets (Continued)

Commitments and Contingencies (Note 7)
Stockholders' Equity	(Unaudited)
	3/31/2007			12/31/2006
Convertible preferred stock, Series A, $0.0001 par value,
5,000,000 shares authorized, 3,500,000 shares	$	350		$	350
Common stock, $0.0001 par value,
500,000,000 shares authorized, 494,170,082 shares		49,417			49,417
Common stock issuable, $0.0001 par value, 75,000 shares		8			8
Additional paid in capital		23,998,250			23,998,250
Accumulated deficit		(9,360,491	)		(9,360,491	)
Retained earnings during development stage		7,116,972			7,194,223
		21,804,505			21,881,756
Less: Subscription Receivable		(902,000	)		(902,000	)
Total Stockholders' Equity		20,902,505			20,979,756
Total Liabilities and Stockholders' Equity	$	21,675,897		$	21,687,027
Net Asset Value Per Share	$	0.04		$	0.04

See accompanying notes to unaudited financial statements.

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American Energy Production, Inc.

(A Development Stage Company)

Statements of Operations

(Unaudited) 

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

See accompanying notes to unaudited financial statements

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American Energy Production, Inc.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

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

See accompanying notes to unaudited financial statements

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American Energy Production, Inc.

(A Development Stage Company)

Statements of Cash Flows (Continued)

(Unaudited)

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

See accompanying notes to unaudited financial statements

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American Energy Production, Inc.

(A Development Stage Company)

Schedule of Changes in Net Assets

(Unaudited)

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

See accompanying notes to unaudited financial statements

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American Energy Production, Inc. (A Development Stage Company) Schedule of Investments March 31, 2007 (Unaudited)
			Percentage of
		Title of	Class Held on
Portfolio		Securities Held	a Fully Diluted	At March 31, 2007
Company	Industry	By The Company	Basis (2)	Cost	Fair Value
Control Investments - Majority Owned (1)
Production Resources, Inc.	Oil and Gas Production	Common Stock	100%	$ 984,565	$ 4,735,505
Oil America Group, Inc.	Oil and Gas Production	Common Stock	100%	257,000	257,000
Bend Arch Petroleum, Inc.	Oil and Gas Production	Common Stock	100%	4,956,688	16,651,551
Total Control Investments - Majority Owned				$ 6,198,253	$ 21,644,056
Total Investments				6,198,253	21,644,056
Unearned Income				-	-
Total Investments, net of Unearned Income				$ 6,198,253	$ 21,644,056
(1) Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more than 50% of the voting securities of the company. If we own 100% of a company, it is presented as majority-owned.
(2) All common stock is in private companies, non-income producing and restricted at the relevant period end.

See accompanying notes to unaudited financial statements

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American Energy Production, Inc.

(A Development Stage Company)

Notes to Financial Statements

March 31, 2007

(Unaudited)

1.HISTORY AND NATURE OF BUSINESS

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

The Company was f/k/a Communicate Now.com, Inc. and was incorporated on January 31, 2000 under the laws of the State of Delaware. On July 15, 2002, the Company changed its corporate name to American Energy Production, Inc.

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

On January 12, 2004, the Company filed a Form N-54A with the Securities and Exchange Commission (“SEC”) to be regulated as a BDC under the Investment Company Act of 1940, as amended (“Act”). Accordingly, the Company is presently regulated as a BDC under the Act. BDC’s report to stockholders like traditional operating companies and file regular quarterly and annual reports with the SEC. A BDC is required to make available significant managerial assistance to its portfolio companies. At the time of its election, the Company had determined that its operating model best approximated that of a BDC and intended to make investments into developing businesses in the oil and gas and other industries.

At the time it became a BDC, in January 2004, the Company determined that it was necessary to raise additional capital to carry out the Company’s business plan. Accordingly, the Company filed a Form 1-E with the SEC, notifying it of the Company’s intent to sell up to $4,000,000 of the Company’s common stock at prices between $0.01 and $0.10 per share, or 400,000,000 and 40,000,000 shares, respectively. On February 22, 2005, the Board determined that it was in the best interests of the Company to discontinue the offering and to investigate other financing alternatives. Accordingly, the Company filed a Form 2-E notifying the SEC of the Company’s termination of the offering. However, the Form 2-E filing was not received by the SEC and the Company re-filed the Form 2-E with the SEC, effective June 30, 2005. As disclosed in the Form 2-E, the Company received $1,820,000 of proceeds from the offering, net of $30,000 of expenses, through the sale of 171,000,000 shares of the Company’s $0.001 par value common stock.

On July 24, 2005, the Company filed a second Form 1-E with the SEC notifying the SEC of the Company’s intent to sell up to $5,000,000 of the Company’s common stock at prices between $0.015 and $0.10 per share, or 333,333,333 and 50,000,000 shares, respectively (the “July 2005 Offering”). As a result of the July 2005 Offering, through March 31, 2006, the Company received $2,434,553 of proceeds from the offering, net of $193,967 of expenses, through the sale of 131,930,758 shares of the Company’s $0.001 par value common stock.

-10-

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

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

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

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

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

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

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

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

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

2. GOING CONCERN

As reflected in the accompanying financial statements, the Company has a net decrease in net assets of $77,251 and net cash used in operations of $25,618 for the three months ended March 31, 2007. Additionally, the Company is also in default on certain notes to banks, is in the development stage with no investment income as a BDC, and is subject to certain contingencies as discussed in Notes 1 and 7, which could have a material impact on the Company’s financial condition and operations. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise capital and going forward, generate revenues and cash flow from its business plan as an oil and gas operating company. The Company is authorized to issue 500,000,000 shares of its $0.0001 par value common stock and as of the date of this report, there are 494,074,082 shares outstanding. As a result, the ability of the Company to raise capital from the sale of common stock is minimal and is a serious impediment to the Company’s ability to provide liquidity during the time frame that the Company is commencing its business plan as an oil and gas operating company. The financial statements included in this report do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Concentration

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

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

-12-

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

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

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

The Company's majority-owned portfolio companies have a concentration in the oil and gas business in the State of Texas, USA.

Accounting Estimates

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

Cash and Cash Equivalents

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

Value of Investments

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

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

-13-

As a BDC, for financial statement purposes, investments are recorded at their value in our financial statements. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value as determined in good faith by the board of directors. Effective June 15, 2004, the Company acquired a privately held oil company; effective April 1, 2004, the Company formed a new controlled entity to transfer its assets and certain liabilities into for purposes of holding this entity as an investment and effective November 2004, the Company acquired Oil America Group (See Note 4 - Investments in and Advances to Majority-Owned Portfolio Companies).

Because there is typically no readily available market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by our board of directors pursuant to a valuation policy and consistent valuation process. Due to the inherent uncertainty of these valuations, the determined fair values may differ significantly from the values that would have been used had a ready market for the investments existed and the differences may be material. Our valuation methodology includes the examination of, among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation. Realized gains (losses) from the sale of investments and unrealized gains (losses) from the valuation of investments are reflected in operations during the period incurred.

Beneficial Conversion Feature in Convertible Debentures

In accordance with EITF Issue 98-5, as amended by EITF 00-27, we must evaluate the potential effect of any beneficial conversion terms related to convertible instruments such as convertible debt or convertible preferred stock. The Company has issued convertible debentures. A beneficial conversion may exist if the holder, upon conversion, may receive instruments that exceed the value of the convertible instrument.

Valuation of the benefit is determined based upon various factors including the valuation of equity instruments, such as warrants, that may have been issued with the convertible instruments, conversion terms, value of the instruments to which the convertible instrument is convertible, etc. Accordingly, the ultimate value of the beneficial feature is considered an estimate due to the partially subjective nature of valuation techniques.

Fair Value of Financial Instruments

We define the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying value of accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short maturity of those instruments. The estimated fair value of our other obligations is estimated based on the current rates offered to us for similar maturities. Based on prevailing interest rates and the short-term maturity of all of our indebtedness, management believes that the fair value of our obligations approximates book value at March 31, 2007.

Revenue Recognition

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

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

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Income Taxes

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

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

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

Accumulated Other Comprehensive Income

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

Recent Accounting Developments

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

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

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

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In December 2004, the FASB issued SFAS No. 123 (Revised), entitled Share-Based Payment. This revised Statement eliminates the alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. For public companies that file as a small business issuer, this Statement is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company’s first interim period applicable to SFAS 123 (Revised) is for the three months ended March 31, 2006. However, the adoption of SFAS 123 (Revised) does not have an impact to the financial statements since the Company, as a BDC, may no longer issue stock based compensation under the 1940 Act. However, since the Company intends to withdraw its election as a BDC, SFAS 123 (Revised) may have an impact to future financial statements of the Company.

Reclassifications

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

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

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

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

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

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

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

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As of March 31, 2007, the total investment and advance to majority-owned portfolio company for PRI reflected in the accompanying financial statements is $4,735,505, comprised of $984,565 of historical cost and a cumulative unrealized gain on investments of $3,750,940 that is included as a component of realized and unrealized gain (loss) from investments and Other Income (Expenses) in the Statement of Operations for the period from February 20, 2003 (Inception of Development) to March 31, 2007 (see detailed schedule of the investment in and advance to below). The $984,565 of historical cost is net of a $342,033 reduction of the $400,000 convertible debenture discussed above for advances made by the Company on behalf of PRI. The fair value of this investment was determined in good faith by the Company’s Board of Directors and due to the inherent uncertainty of these valuations, the estimates may differ significantly from the values that would have been used had a ready market for the investments existed and that difference may be material.

As of March 31, 2007, the Company had made $4,956,688 of net advances on behalf of its majority-owned portfolio company, Bend Arch Petroleum, Inc., (“Bend Arch”). As of March 31, 2007, the total investment in and advance to majority-owned portfolio company for Bend Arch reflected in the accompanying financial statements is $16,651,551, comprised of $4,956,688 of historical cost and a cumulative unrealized gain on investments of $11,694,863 that is included as a component of realized and unrealized gain (loss) from investments and Other Income (Expenses) in the Statement of Operations for the period from February 20, 2003 (Inception of Development) to March 31, 2007 (see detailed schedule of the investment in and advance to below). The fair value of this investment was determined in good faith by the Company’s Board of Directors and due to the inherent uncertainty of these valuations, the estimates may differ significantly from the values that would have been used had a ready market for the investments existed and that difference may be material.

On February 20, 2003 (the “Acquisition Date”), the Company acquired from a certain related party assignor, who is controlled by the brother (see Note 5 - Debt and Note 9 - Related Party Transactions) of the Company’s President, an interest in certain oil and gas leases, oil and gas wells located on those leases, surface and underground equipment, pipelines and other property and fixtures in or on the leases, rights of way, leases, contracts and agreements for pipeline compressor stations or boosters utilized in the operations of the facilities by the assignors. The above properties are located in Comanche and Eastland Counties, Texas, in the United States of America. The Company planned to extract and sell oil and gas from existing wells. The consideration paid was a convertible promissory note for $2,000,000 at 6% interest, maturing July 25, 2007. All the leases and wells are collateral for the promissory note.

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

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

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

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

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On November 9, 2004, the Company signed a definitive agreement to purchase all of the outstanding shares of Oil American Group Inc. (“OAG”) in a stock for stock trade. The purchase price was 4,000,000 shares of restricted 144 Company stock and was valued at $72,000, or $0.018 per share, the fair market value on November 9, 2004. In accordance with the rules of a BDC, the $72,000 purchase price for the capital stock of OAG was recorded as an investment in majority-owned portfolio company. Additionally, the Company has made $185,000 of advances to OAG and including the advances, the total of $257,000 has been recorded as investment in and advances to majority-owned portfolio companies in the accompanying balance sheet as of March 31, 2007 (see detailed schedule of the investment in and advance to below.) OAG is now a majority-owned portfolio company of the Company, specializing in oil and gas acquisitions, drilling prospective properties and managing oil and gas partnerships.

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

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

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

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

5. DEBT

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

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

On April 16, 2001, the Company leased computer equipment under a 36-month lease that was accounted for as a capital lease in the amount of $21,238 and at March 31, 2006, the balance of principal was $16,131. The amount is personally guaranteed by a former officer/director and a current officer/director of the Company. The lease was secured by all leased equipment and perfected by a financing statement; however, the Company liquidated the equipment and paid the office space lessor the $4,000 proceeds. As of March 31, 2007, the Company has recorded a total of $13,034 in accrued interest for this lease payable in the accompanying Balance Sheet.

In November 2003, a settlement was negotiated with the lessor to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 100,000 shares of the Company’s common stock personally held by the Company’s president and director occurs. The president of the Company transferred these shares on September 15, 2003. As of September 30, 2006, the transaction has not been finalized as the lessor has not agreed to the settlement. The Company expects to fully resolve this matter in the future at which time the value of the shares exchanged and any related gain or loss will be determined and recognized - (see Note 7 - Commitments and Contingencies and Note 8 - Related Party Transactions).

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Notes payable - Banks

On March 12, 2001, we obtained a revolving bank line of credit in the amount of $70,000, of which $17,464 was outstanding at June 30, 2005. The interest rate was originally at 11.5% but has converted to the default rate of 18% per annum as the line of credit was due March 11, 2002 and was in default. This line of credit was secured by all equipment, which had been repossessed as of December 31, 2001 and $23,075 was applied to the balance. In August 2005, the entire balance was paid in full resulting in zero outstanding.

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

In July 2004, we obtained a bank automobile loan in the amount of $19,396 (including accrued interest of 6.99% per annum). Monthly principal and interest payments of $1,077 are due with final payment in February 2006 and the loan is secured by the automobile. In August 2005, the entire balance was paid in full resulting in zero outstanding.

Loans and Note Payable Settlement with Related Party

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

On January 5, 2004, the entire $52,510 amount outstanding was exchanged for designated Series A preferred stock. (See Note Payable - Related Party below, Note 6 - Stockholders’ Equity and Note 8 - Related Party Transactions.)

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

On January 5, 2004, the Board of Directors approved the issuance of 3,500,000 designated Series A preferred stock in exchange for the conversion of the total $464,005 of indebtedness owed to the Company’s president. The $464,005 indebtedness comprised the entire $52,510 of loan payable - related party (see above) and $411,495 of Note Payable - related party. In connection with the forgiveness of the note principal, the Company’s president forgave the related accrued interest totaling $64,527 in a separate transaction on the same date. As a result, the Company has treated the $64,527 as a contribution of capital at the date of debt forgiveness by recording additional paid in capital. The Company recognized a compensation expense of $480,995 based on the estimated $945,000 value of the 3,500,000 common shares, which was based on the quoted trade price per share of $0.09 on the settlement date (See Note 6 - Stockholders Equity).

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

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

In May 2004, the Company received $250,000 in gross proceeds from the issuance of a convertible debenture. The terms of the convertible debenture include an interest rate of 8% per annum, convertible at any time at the option of the holder or the Company into common shares of the Company at a price equal to fifty percent (50%) of the closing bid price of the common stock on the date written notice is received by the Company of the election to convert and is due December 1, 2005. On May 17, 2004, the convertible debenture holder elected to convert $30,000 of the balance into common shares of the Company and as a result of the conversion, 3,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On June 10, 2004, the convertible debenture holder elected to convert $85,000 of the balance into common shares of the Company and as a result of the conversion, 8,500,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On July 19, 2004, the convertible debenture holder elected to convert $65,000 of the balance into common shares of the Company and as a result of the conversion, 6,500,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). The remaining $70,000 of the $250,000 convertible debenture was shown as outstanding even though the convertible debenture holder informed the Company that an election was made June 1, 2004 to convert the balance into common shares of the Company. Subsequently, the Company’s transfer agent determined that the conversion did occur and the common shares were issued to the convertible debenture holder even though the transfer agent report erroneously excluded the common share issuance. As of December 31, 2005, the transfer agent corrected their report and the 7,000,000 shares of common stock were issued to the convertible debenture holder at a price of $0.01 per share (50% of the closing share price on June 1, 2004, the effective conversion price.

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

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

Effective June 15, 2004, the Company issued a $400,000 convertible debenture to PRI in accordance with the acquisition agreement between PRI and the Company. The terms of the convertible debenture includes an interest rate of 8% per annum and convertible at any time at the option of the holder or the Company into common shares of the Company at a price equal to fifty percent (50%) of the closing bid price of the common stock on the date written notice is received by the Company of the election to convert and is due December 1, 2005. An agreement was reached whereby $342,033 of advances made by the Company to PRI during 2005, were used to reduce the convertible debenture balance to $57,967 as of September 30, 2006. The Company anticipates that an agreement will be structured whereby additional advances made by the Company will be utilized to eliminate the remaining balance. However, no agreement has been reached as of the date of these Financial Statements and the $57,967 balance is in default as the due date was December 1, 2005.

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In accordance with EITF Issue 98-5, as amended by EITF Issue 00-027, the Company has evaluated that the convertible debenture discussed above has a beneficial conversion feature as the exercise price is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by recording a debt discount as a contra account to the convertible debenture for $400,000 and $400,000 to additional paid-in capital. The debt discount was amortized over the debt term of 17.5 months or through the due date of December 5, 2005. The entire $400,000 of debt discount has been amortized to interest expense.

In August 2004, the Company received $1,000,000 in gross proceeds from the issuance of a convertible debenture. The terms of the convertible debenture includes an interest rate of 8% per annum and convertible at any time at the option of the holder or the Company into common shares of the Company at a price equal to fifty percent (50%) of the closing bid price of the common stock on the date written notice is received by the Company of the election to convert and is due December 1, 2005. On September 14, 2004, the convertible debenture holder elected to convert $100,000 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On September 22, 2004, the convertible debenture holder elected to convert $100,000 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On October 8, 2004, the convertible debenture holder elected to convert $100,000 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On October 12, 2004, the convertible debenture holder elected to convert $100,000 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On November 4, 2004, the convertible debenture holder elected to convert $200,000 of the balance into common shares of the Company and as a result of the conversion, 20,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On January 18, 2005, the convertible debenture holder elected to convert $38,462 of the balance into common shares of the Company and as a result of the conversion, 2,500,000 shares of common stock were issued at $0.015386 per share. On January 31, 2005, the convertible debenture holder elected to convert $38,462 of the balance into common shares of the Company and as a result of the conversion, 2,500,000 shares of common stock were issued at $0.015386 per share. On February 2, 2005, the convertible debenture holder elected to convert $153,846 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.015386 per share. On February 14, 2005, the convertible debenture holder elected to convert $169,231 of the balance into common shares of the Company and as a result of the conversion, 11,000,000 shares of common stock were issued at $0.015386 per share.

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

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

On February 20, 2003, the Company executed a $2,000,000 convertible note payable accruing interest at 6% with a company controlled by the brother of the Company’s sole officer and director (See Note 8 - Related Party Transactions). The maturity date was July 25, 2007. The note was payable at maturity in preferred stock of the Company at $1.00 per share and. the preferred stock was convertible into common stock at $1.00 per share. Additionally, at the option of the holder, the debt may be settled for cash. The note is secured by a deed of trust and a lien against the leases and the wells and other liens against the same leases and wells of $25,000.

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

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In accordance with EITF Issue 98-5 and 00-27, the Company has evaluated that the convertible debenture has a beneficial conversion feature as the exercise price is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by charging the statement of operations $2,000,000 for interest expense and $2,000,000 for additional paid-in capital. The conversion feature inherent in the convertible debenture was fully recognized as of June 30, 2004 since it was disposed of through assignment to Bend Arch, the Company’s majority owned portfolio company (see below).

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

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

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

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

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

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

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

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

As of March 31, 2007, the Company has recorded $128,452 of accrued interest for the convertible debentures outstanding. As discussed previously, several convertible debenture holders have elected to convert all or a portion of the convertible debentures into common stock. However, the conversion has not included accrued interest and although the Company believes that no further common stock will be issued for these conversions, the accrued balance for these converted debentures is included in the accrued interest balance as of March 31, 2007.

6. STOCKHOLDERS’ EQUITY

Capital Structure

We are authorized to issue up to 500,000,000 shares of our common stock, $0.0001 par value per share, of which 494,170,082 were issued and outstanding as of March 31, 2007. Additionally, as of March 31, 2007, 75,000 shares were issuable as discussed below.

On December 18, 2003, the Company’s shareholders approved an increase in authorized common shares from 100,000,000 to 500,000,000 and the authorization of 5,000,000 shares of preferred stock, $0.0001 par value per share. Under the terms of the designation, these Series A shares are not entitled to dividends. The shares are convertible, at the option of the holder, at any time, into three times as many common shares as Series A, preferred that are held. There are no liquidation rights or preferences to Series A, preferred stock holders as compared to any other class of stock. These shares are non-voting, however, the holders, as a class may elect two directors. As of March 31, 2007, 3,500,000 preferred shares were issued and outstanding.

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

Issuances (Retirements) of Preferred Stock:

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

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

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

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

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

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

Issuances of Common Stock:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

During 2004, 131,333,333 shares of common stock were issued from the conversion of $1,410,000 of convertible debentures discussed above (see Note 5 - Debt).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In June 2005, the Company issued 4,000,000 shares of common stock that was issuable at March 31, 2005. On November 9, 2004, the Company signed a definitive agreement to purchase all of the outstanding shares of Oil American Group Inc. (“OAG”) in a stock for stock trade. The purchase price was 4,000,000 shares of restricted 144 Company stock and was valued at $72,000, or $0.018 per share, the fair market value on November 9, 2004.

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

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

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In December 2005, the Company’s transfer agent determined that 15,000,000 shares that were actually issued to a third party in June 2004 had been erroneously excluded by the transfer agent from the reports provided the Company. Additionally, it was determined that the shares should not have been issued at all as the Company did not give authority to the transfer agent for the issuance of the shares. The transfer agent corrected their report and now show the 15,000,000 shares of common stock issued to the third party at a price of $0.05 per share (the fair market value closing share price in December 2005). Accordingly, the Company recorded the fair value amount of $750,000 as a subscription receivable and is still outstanding as of March 31, 2007. The Company is in discussions with both the third party and the transfer agent as to the settlement of this amount. As of the date of these financial statements, no settlement has been completed.

In January 2006, the Company’s transfer agent determined that an additional 2,500,000 shares that were actually issued to a third party in January 2005 had been erroneously excluded by the transfer agent from the reports provided the Company. Additionally, it was determined that the shares should not have been issued at all as the Company did not give authority to the transfer agent for the issuance of the shares. The transfer agent corrected their report and now show the 2,500,000 shares of common stock issued to the third party at a price of $0.05 per share (the fair market value closing share price in January 2006). Accordingly, the Company recorded the fair value amount of $125,000 as a subscription receivable and is still outstanding as of March 31, 2007. The Company is in discussions with both the third party and the transfer agent as to the settlement of this amount. As of the date of these financial statements, no settlement has been completed.

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

On July 24, 2005, the Company filed a Form 1-E pursuant to the Securities Act notifying the SEC of the Company’s intent to sell up to $5,000,000 of the Company’s common stock at prices between $0.015 and $0.10 per share, or 50,000,000 and 333,333,333 shares, respectively. In December 2006, the Company’s Board of Directors determined that it was in the best interest of the Company to discontinue the offering discussed above. Accordingly, the Company filed a Form 2-E notifying the SEC of the Company’s termination of the offering. As disclosed in the Form 2-E, the Company received $4,575,879 of proceeds from the offering, net of $280,627 of expenses, through the sale of 165,230,758 shares of the Company’s $0.001 par value common stock.

Common Stock Issuable:

As of December 31, 2005, 75,000 shares remained issuable to an overseas investor who had subscribed for an amount exceeding the shares that were actually issued under the terms of the Regulation “S” offering in 2003. The investor had paid for the full subscription, and as such, no amounts are due to the Company.

In July 2004, the Company entered into a consulting agreement with a third party for services during a six-month period through December 2004. In consideration of service performed, the Company will pay the consultant $5,000 monthly, comprised of $3,000 in cash and $2,000 in common stock. As of December 31, 2004, $30,000 of consulting fees were due under the agreement but the Company had paid only $18,000 of this amount, leaving a balance due of $12,000, comprised of $12,000 in common stock due. Accordingly, the Company has recorded $12,000 as accounts payable in the accompanying Financial Statements as of March 31, 2007.

Common Stock Cancelled:

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

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

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

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

7. COMMITMENTS AND CONTINGENCIES

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

The Company is subject to various lawsuits and unasserted claims from vendors for non-payment of accounts payable plus related legal fees. Excluding legal fees, which cannot be estimated, the Company has included all amounts in its accounts payable as of March 31, 2007.

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

In November 2003, a settlement was negotiated with a lessor to forgive the outstanding principal and interest on the related note payable resulting from leased computers once the transfer of 100,000 shares personally held by the Company’s President occurs (see Note 5 - Debt and Note 8 - Related Party Transactions). As of March 31, 2007 the transaction has not been finalized as the lessor has not agreed to the settlement. However, the 100,000 shares were transferred to the lessor in September 2003. The Company expects to fully resolve this matter in the future at which time the value of the shares exchanged and any related gain or loss will be determined and recognized.

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

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

We had intended to make an election to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code. Had we so elected, we would have been required to (i) distribute at least 90% of our investment company taxable income and 90% of any ordinary pre-RIC built in gains we recognized between January 1, 2004 and December 31, 2013, less any taxes due on those gains to avoid corporate level taxes on the amount distributed to stockholders (other than any built in gain recognized between January 1, 2004 and December 31, 2013) and (ii) distribute (actually or on a deemed basis) at least 98% of our income (both ordinary income and net capital gains) to avoid an excise tax. We intended to make distributions on a quarterly basis to our stockholders of all of our income, except for certain net capital gains and adjustments for long-term incentive compensation expense. We intended to make deemed distributions to our stockholders of any retained net capital gains. However, as previously discussed, the Company has withdrawn its election to be a BDC, will no longer be subject to the 1940 Act and, will not have the option of being taxed as a regulated investment company under Subchapter M if the Internal Revenue Code.

In December 2005 and January 2006, the Company determined that certain issuances of common stock had not been properly disclosed in reports made by the Company’s transfer agent. The Company discussed these items with the transfer agent and the transactions have been reconciled and recorded properly in the Company records. However, the Company believes that two of these transactions, an unauthorized issuance by the transfer agent of 15,000,000 shares and an additional unauthorized issuance of 2,500,000 shares, should be reimbursed to the Company by either the third party who received the shares or the transfer agent. The Company has recorded the fair market valuation of the two transactions in the amount of $875,000 as a subscription receivable as of March 31, 2007 and is in discussions with both the third party and the transfer agent to resolve the issue. As of the date of these financial statements, no resolution of the matter has been completed.

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

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

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

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

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

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

Because the Company will be considered an “oil and gas operating company”, the Company will use the “successful efforts” method of accounting for acquisition, exploration, development and production of oil and gas properties, whereby only the direct costs of acquiring or drilling successful (proved reserves) are capitalized. Costs of acquisition, development, and exploration activities that are not known to have resulted in the discovery of reserves (unproved) will be charged to operations. All capitalized costs of oil and gas properties will be depleted using the units-of-production method based on total proved reserves.

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

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

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

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

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8. RELATED PARTY AND AFFILIATE TRANSACTIONS

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

On February 20, 2003, the Company acquired certain oil and gas properties for $2,000,000 from a company controlled by the brother of the Company's President in exchange for a market rate promissory note. The promissory note was subsequently exchanged for a convertible debenture and transferred to a majority-owned portfolio company (See Note 5 - Debt). The oil and gas properties were also transferred to that same majority-owned portfolio company (See Note 4 - Investments).

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

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

In November 2003, a settlement was negotiated with a lessor to forgive the outstanding principal and interest on the related note payable resulting from leased computers once the transfer of 100,000 shares personally held by the Company’s President occurs (See Note 5 - Debt and Note 8 - Commitments and Contingencies). The Company’s President has personally guaranteed the obligation. As of June 30, 2005, the transaction has not been finalized as the lessor has not agreed to the settlement. However, the 100,000 shares were transferred to the lessor in September 2003. The Company expects to fully resolve this matter during 2005 at which time the value of the shares exchanged and any related gain or loss will be determined and recognized.

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

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

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

Effective July 1, 2003, the Company entered into a salary and equipment rental agreement with its President. Under the terms of the agreement, the Company would pay a salary of $10,000 per month and $3,500 in equipment rental per month for the use of the Company’s President’s personal pickup truck, car, pulling unit, winch truck, backhoe and water truck used in the field operations. Additionally, the President of the Company has, from time to time, advanced expenses of the Company from his personal funds. At December 31, 2003, the accrued balance owed to the President was $220,455. During the year ended December 31, 2004, the Company accrued $162,000 of expense related to the salary and rental agreement, composed of $120,000 for compensation and $42,000 for equipment rental fee. As of January 1, 2005, the $3,500 per month equipment rental agreement with the President was terminated. During the year ended December 31, 2005, the Company accrued $120,000 for compensation. Additionally, the President advanced $26,270 of funds on behalf of the Company and the Company repaid $355,000 resulting in an accrual balance of $102,725 as of December 31, 2005. During the year ended December 31, 2006, the Company accrued $120,000 for compensation, repaid $137,500 and the President advanced $10,000 of funds on behalf of the Company resulting in an accrual balance of $98,225. During the three months ended March 31, 2007, the Company accrued $30,000 for compensation, reduced the balance $3,000 as a correction of a deposit incorrectly recorded in fiscal 2006 and the President advanced $15,500 of funds on behalf of the Company. As a result, the accrued balance as of March 31, 2007 is $140,725 and is classified as a component of Due To Related Parties in the accompanying Financial Statements.

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

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

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

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

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10. UNAUDITED SUPPLEMENTAL INFORMATION

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

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

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American Energy Production, Inc.
(A Development Stage Company)
March 31, 2007
Pro-Forma Balance Sheet
(Unaudited)
Commitments and Contingencies (Note 7)
Stockholders' Equity
		3/31/2007			Pro-Forma
		Unaudited			3/31/2007
Convertible preferred stock, Series A, $0.0001 par value,
5,000,000 shares authorized, 3,500,000 issued and outstanding	$	350		$	350
Common stock, $0.0001 par value, 500,000,000 shares authorized
494,170,082 shares issued and outstanding		49,417			49,417
Common stock issuable, $0.0001 par value, 75,000 shares		8			8
Additional paid in capital		23,998,250			23,534,053
Accumulated deficit		(9,360,491	)		(9,360,491	)
Retained earnings during development stage		7,116,972			(11,994,839	)
		21,804,505			2,228,496
Less: Subscription Receivable		(902,000	)		(902,000	)
Total Stockholders' Equity		20,902,505			1,326,496
Total Liabilities and Stockholders' Equity	$	21,675,898		$	4,662,410

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

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11. SUBSEQUENT EVENTS

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

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

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

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

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

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

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

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

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

• future changes in laws or regulations and conditions in our operating areas; and

•  the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks.

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

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OVERVIEW

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

The Company was f/k/a Communicate Now.com, Inc. and was incorporated on January 31, 2000 under the laws of the State of Delaware. On July 15, 2002, the Company changed its corporate name to American Energy Production, Inc.

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

On January 12, 2004, the Company filed a Form N-54A with the Securities and Exchange Commission (“SEC”) to be regulated as a BDC under the Investment Company Act of 1940, as amended (“Act”). Accordingly, the Company is presently regulated as a BDC under the Act. BDC’s report to stockholders like traditional operating companies and file regular quarterly and annual reports with the SEC. A BDC is required to make available significant managerial assistance to its portfolio companies. At the time of its election, the Company had determined that its operating model best approximated that of a BDC and intended to make investments into developing businesses in the oil and gas and other industries.

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

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

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

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

As reflected in the accompanying financial statements, the Company had a net loss of $77,251 and net cash used in operations of $25,618 for the three months ended March 31, 2007. Additionally, the Company is also in default on certain notes to banks and is in the development stage with no revenues as a BDC. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise capital and generate revenues as an oil and gas operating company.

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

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

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

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

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

In accordance with BDC regulations, our majority-owned portfolio companies are not consolidated and accordingly, their financial information is not included in our accompanying audited Financial Statements. However, a significant portion of the proceeds received by the Company from the issuance of convertible debentures and the sale of common stock has been utilized as advances to our majority owned portfolio companies.

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

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

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

RECENT DEVELOPMENTS

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

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

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

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The methods, estimates and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates include going concern, the valuation of stock based compensation, the allocation of the purchase price to certain oil and gas related assets acquired, depreciable and depletable useful lives of property and equipment, the evaluation of whether our assets are impaired, the valuation of our investments, the valuation allowance for deferred tax assets and the estimate of reserves of oil and gas that are used to develop projected income whereby an appropriate discount rate has been used. We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 3 “Summary of Significant Accounting Policies” in the notes to our unaudited financial statements contained in our annual report on Form 10-Q for the three months ended March 31, 2007. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates.

GOING CONCERN

The independent registered public accounting firms’ reports to our financial statements at December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004, include an explanatory paragraph in addition to their audit opinion stating that our recurring losses from operations, net cash used in operations, stockholders’ (deficiency) equity, working capital deficiency, being in default on certain notes payable to banks and being in the development stage with no revenues as a business development company raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK

The Company issued common stock to several parties in non-cash transactions from February 20, 2003 (Inception of Development) to March 31, 2007. For the majority of these issuances, valuation was determined based upon the stock closing price on the date of grant.

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

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

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DEPRECIABLE AND DEPLETABLE USEFUL LIVES OF PROPERTY AND EQUIPMENT

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

EVALUATION OF ASSET IMPAIRMENT

We account for the impairment of long-lived assets including proved properties in accordance with Financial Accounting Standards, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying amount of the property if any, exceeds its fair market value. Based on our impairment analysis of property and equipment, no impairment charge has been recorded for the three months ended March 31, 2007.

VALUATION OF INVESTMENTS

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

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

As a BDC, for financial statement purposes, investments are recorded at their value in our financial statements. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value as determined in good faith by the board of directors. Effective June 15, 2004, the Company acquired a privately held oil company; effective April 1, 2004, the Company formed a new controlled entity to transfer its assets and certain liabilities into for purposes of holding this entity as an investment and effective November 2004, the Company acquired Oil America Group.

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Because there is typically no readily available market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by our board of directors pursuant to a valuation policy and consistent valuation process. Due to the inherent uncertainty of these valuations, the estimates may differ significantly from the values that would have been used had a ready market for the investments existed and the differences may be material. Our valuation methodology includes the examination of, among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation. Realized gains (losses) from the sale of investments and unrealized gains (losses) from the valuation of investments are reflected in operations during the period incurred.

VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The valuation allowance at December 31, 2005 was $2,074,898 and increased by $189,786 in 2006 to $2,264,684 at December 31, 2006. Net operating loss carry-forwards aggregate approximately $6,660,833 and expire in the years through 2026.

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

ESTIMATE OF RESERVES OF OIL AND GAS

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

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

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RESULTS OF OPERATIONS

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

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

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

Investment Income:

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

Operating Expenses:

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

Other Income (Expense):

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

Liquidity and Capital Resources

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

Operating Activities

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

Investing Activities

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

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Financing Activities

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

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

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

The following summarizes our debt obligations at March 31, 2007:

DEBT

Our debt consisted of the following:

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

On April 16, 2001, the Company leased computer equipment under a 36-month lease that was accounted for as a capital lease in the amount of $21,238 and at June 30, 2006, the balance of principal was $16,131. The amount is personally guaranteed by a former officer/director and a current officer/director of the Company. The lease was secured by all leased equipment and perfected by a financing statement; however, the Company liquidated the equipment and paid the office space lessor the $4,000 proceeds. As of March 31, 2007, the Company has recorded a total of $13,034 in accrued interest for this lease payable in the accompanying Financial Statements.

In November 2003, an agreement was reached with the lessor to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 100,000 shares of the Company’s common stock personally held by the Company’s president and director occurs. The president of the Company transferred these shares on September 15, 2003. As of March 31, 2007, the transaction has not been finalized as the lessor has not agreed to the settlement. The Company expects to fully resolve this matter in the future at which time the value of the shares exchanged and any related gain or loss will be determined and recognized.

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Notes payable - Banks

On March 12, 2001, we obtained a revolving bank line of credit in the amount of $70,000, of which $17,464 was outstanding at June 30, 2005. The interest rate was originally at 11.5% but has converted to the default rate of 18% per annum as the line of credit was due March 11, 2002 and was in default. This line of credit was secured by all equipment, which had been repossessed as of December 31, 2001 and $23,075 was applied to the balance. In August 2005, the entire balance was paid in full resulting in zero outstanding.

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

In July 2004, we obtained a bank automobile loan in the amount of $19,396 (including accrued interest of 6.99% per annum). Monthly principal and interest payments of $1,077 are due with final payment in February 2006 and the loan is secured by the automobile. In August 2005, the entire balance was paid in full resulting in zero outstanding.

Loans and Note Payable Settlement with Related Party

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

On January 5, 2004, the entire $52,510 amount outstanding was exchanged for designated Series A preferred stock.

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

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

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

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

In May 2004, the Company received $250,000 in gross proceeds from the issuance of a convertible debenture. The terms of the convertible debenture include an interest rate of 8% per annum, convertible at any time at the option of the holder or the Company into common shares of the Company at a price equal to fifty percent (50%) of the closing bid price of the common stock on the date written notice is received by the Company of the election to convert and is due December 1, 2005. On May 17, 2004, the convertible debenture holder elected to convert $30,000 of the balance into common shares of the Company and as a result of the conversion, 3,000,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On June 10, 2004, the convertible debenture holder elected to convert $85,000 of the balance into common shares of the Company and as a result of the conversion, 8,500,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). On July 19, 2004, the convertible debenture holder elected to convert $65,000 of the balance into common shares of the Company and as a result of the conversion, 6,500,000 shares of common stock were issued at $0.01 per share (50% of the closing share price). The remaining $70,000 of the $250,000 convertible debenture was shown as outstanding even though the convertible debenture holder informed the Company that an election was made June 1, 2004 to convert the balance into common shares of the Company. Subsequently, the Company’s transfer agent determined that the conversion did occur and the common shares were issued to the convertible debenture holder even though the transfer agent report erroneously excluded the common share issuance. As of December 31, 2005, the transfer agent corrected their report and the 7,000,000 shares of common stock were issued to the convertible debenture holder at a price of $0.01 per share (50% of the closing share price on June 1, 2004, the effective conversion price.

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

In accordance with EITF Issue 98-5 as amended by EITF Issue 00-27, the Company has evaluated that the $250,000 convertible debenture discussed above has a beneficial conversion feature as the exercise price for is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by recording a debt discount as a contra account to the convertible debenture for $250,000 and $250,000 to additional paid-in capital. During 2004 and 2005, the entire $250,000 of debt discount was amortized to interest expense relating to the $250,000 convertible debenture that was fully converted as of December 31, 2005.

Effective June 15, 2004, the Company issued a $400,000 convertible debenture to PRI in accordance with the acquisition agreement between PRI and the Company. The terms of the convertible debenture includes an interest rate of 8% per annum and convertible at any time at the option of the holder or the Company into common shares of the Company at a price equal to fifty percent (50%) of the closing bid price of the common stock on the date written notice is received by the Company of the election to convert and is due December 1, 2005. An agreement was reached whereby $342,033 of advances made by the Company to PRI during 2005, were used to reduce the convertible debenture balance to $57,967 as of March 31, 2007. The Company anticipates that an agreement will be structured whereby additional advances made by the Company will be utilized to eliminate the remaining balance. However, no agreement has been reached as of the date of these Financial Statements and the $57,967 balance is in default as the due date was December 1, 2005.

In accordance with EITF Issue 98-5, as amended by EITF Issue 00-027, the Company has evaluated that the convertible debenture discussed above has a beneficial conversion feature as the exercise price is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by recording a debt discount as a contra account to the convertible debenture for $400,000 and $400,000 to additional paid-in capital. The debt discount was amortized over the debt term of 17.5 months or through the due date of December 5, 2005. During 2004 and 2005, the entire $400,000 of debt discount was amortized to interest expense related to the $400,000 convertible debenture being fully converted as of December 31, 2005.

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

On January 18, 2005, the convertible debenture holder elected to convert $38,462 of the balance into common shares of the Company and as a result of the conversion, 2,500,000 shares of common stock were issued at $0.015386 per share. On January 31, 2005, the convertible debenture holder elected to convert $38,462 of the balance into common shares of the Company and as a result of the conversion, 2,500,000 shares of common stock were issued at $0.015386 per share. On February 2, 2005, the convertible debenture holder elected to convert $153,846 of the balance into common shares of the Company and as a result of the conversion, 10,000,000 shares of common stock were issued at $0.015386 per share. On February 14, 2005, the convertible debenture holder elected to convert $169,231 of the balance into common shares of the Company and as a result of the conversion, 11,000,000 shares of common stock were issued at $0.015386 per share.

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

In accordance with EITF Issue 98-5 as amended by EITF Issue 00-27, the Company has evaluated that the $1,000,000 convertible debenture discussed above has a beneficial conversion feature as the exercise price for is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by recording a debt discount as a contra account to the convertible debenture for $1,000,000 and $1,000,000 to additional paid-in capital. During 2004 and 2005, the entire $1,000,000 of debt discount was amortized to interest expense related to the $1,000,000 convertible debenture being fully converted as of December 31, 2005.

On February 20, 2003, the Company executed a $2,000,000 convertible note payable accruing interest at 6% with a company controlled by the brother of the Company’s sole officer and director (See Note 8 - Related Party Transactions). The maturity date was July 25, 2007. The note was payable at maturity in preferred stock of the Company at $1.00 per share and. the preferred stock was convertible into common stock at $1.00 per share. Additionally, at the option of the holder, the debt may be settled for cash. The note is secured by a deed of trust and a lien against the leases and the wells and other liens against the same leases and wells of $25,000.

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

In accordance with EITF Issue 98-5 and 00-27, the Company has evaluated that the convertible debenture has a beneficial conversion feature as the exercise price is less than the fair value of the Company’s common stock on the measurement date. Accordingly, the Company has recognized this beneficial conversion feature by charging the statement of operations $2,000,000 for interest expense and $2,000,000 for additional paid-in capital. The conversion feature inherent in the convertible debenture was fully recognized as of June 30, 2004 since it was disposed of through assignment to Bend Arch, the Company’s majority owned portfolio company (see below).

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

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

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

In accordance with EITF Issue 98-5 and 00-27, the Company has evaluated that the convertible debentures discussed above have a beneficial conversion feature as the exercise price is less than the fair value of the Company’s common stock on the measurement date. In 2004, the Company recognized a beneficial conversion feature by charging the statement of operations $600,000 for interest expense and the balance sheet $600,000 for additional paid-in capital related to the $600,000 convertible debenture issued and subsequently converted in 2004.

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

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

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

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

As of March 31, 2007, the Company has recorded $128,452 of accrued interest for the convertible debentures outstanding. As discussed previously, several convertible debenture holders have elected to convert all or a portion of the convertible debentures into common stock. However, the conversion has not included accrued interest and although the Company believes that no further common stock will be issued for these conversions, the accrued balance for these converted debentures is included in the accrued interest balance as of March 31, 2007.

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Equity Financing

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

Liquidity

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

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table highlights, as of March 31, 2007, our contractual obligations and commitments by type and period:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Debt:
Lease Payable	$	16,131	$	16,131	$	-	$	-	$	-
Convertible Debentures		57,967		57,967		-		-		-
Accrued Interest Payable		141,486		141,486		-		-		-
Total Debt	$	215,584	$	215,584	$	-	$	-	$	-

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2007 OUTLOOK

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

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

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

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PART II - Other Information

Item 1. Legal Proceedings

The Company is subject to various lawsuits and unasserted claims from vendors for non-payment of accounts payable plus related legal fees. Excluding legal fees, which cannot be estimated, the Company has included all amounts in its accounts payable as of September 30, 2006.

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

In November 2003, an agreement was negotiated with a lessor to forgive the outstanding principal and interest on the related note payable resulting from leased computers once the transfer of 100,000 shares personally held by the Company’s president and previous sole director. As of March 31, 2007 the transaction has not been finalized as the lessor has not agreed to the settlement. However, the 100,000 shares were transferred to the lessor in September 2003. The Company expects to fully resolve this matter in the future at which time the value of the shares exchanged and any related gain or loss will be determined and recognized.

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

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

Item 1A. Risk Factors

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

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

Issuances of Preferred Stock:

None

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Retirement of Preferred Stock

None

Issuances of Common Stock:

None

Common Stock Issuable:

As of March 31, 2007, 75,000 shares remained issuable to an overseas investor who had subscribed for an amount exceeding the shares that were actually issued under the terms of the offering conducted pursuant to Regulation S in 2003. The investor had paid for the full subscription, and as such, no amounts are due to the Company.

Item 3. Defaults Upon Senior Securities

None

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

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

Item 5. Other Information

None

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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 Exhibit
20.1	Form N-54C - Notification of withdrawal of election to be subject to sections 55 through 65 of the Investment Company Act of 1940 filed pursuant to section 54(c) of the Investment Company Act of 1940 - Incorporated by Reference.
22.1	Schedule 14A - Definitive Proxy Statement filed February 8, 2007 - Incorporated by Reference.
31.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.*

* Filed herewith

SIGNATURES

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

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

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