American Energy Production 10Q 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 September 30, 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 November 1, 2007, there were approximately 19,766,840 shares

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

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American Energy Production, Inc.

Form 10-Q Index

September 30, 2007

	Page
Part I-Financial Information

Item 1. Financial Statements	3

Consolidated Balance Sheets at September 30, 2007 and
December 31, 2006 (Unaudited)	3

Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2007 and 2006 (Unaudited)	5

Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2007 and 2006 (Unaudited)	6

Notes to Consolidated Financial Statements (Unaudited)	8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About
Market Risk	24

Item 4. Controls and Procedures	24

Part II-Other Information

Item 1. Legal Proceedings	25

Item 1A. Risk Factors	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3. Defaults upon Senior Securities	25

Item 4. Submission of Matters to a Vote of Security Holders	25

Item 5. Other Information	26

Item 6. Exhibits	26

Signatures	26

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PART I

FINANCIAL INFORMATION

Item 1-Consolidated Financial Statements (Unaudited)

American Energy Production, Inc.

Consolidated Balance Sheets

(Unaudited)

ASSETS

	9/30/2007		12/31/2006

Current Assets
Cash	$	114,944	$	106,902
Accounts receivable		9,275		1,327
Due from related parties		79,353		88,229
Other current assets		316		4,196
Total Current Assets		203,888		200,654

Property and equipment, net		4,953,918		5,167,793

Other Assets
Development programs - related party		88,890		78,626
Other		169,588		126,733
Total Other Assets		258,479		205,358

Total Assets		5,416,285		5,573,805

LIABILITIES

Current Liabilities
Accounts payable	$	371,809	$	327,191
Other current liabilities		170,854		165,303
Due to related parties		1,585,305		181,732
Note payable		2,043,366		2,059,902
Accrued interest payable		744,650		616,622
Accrued payroll taxes and penalties		77,198		72,576
Lease payable		16,131		16,131
Total Current Liabilities		5,009,313		3,439,458

Asset Retirement Obligations		538,919		517,526

Total Liabilities	$	5,548,232	$	3,956,984

See accompanying notes to unaudited consolidated financial statements.

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American Energy Production, Inc.

Consolidated Balance Sheets (Continued)

(Unaudited)

Commitments and Contingencies (Note 7)

Stockholders' Equity (Deficit)

	9/30/2007			12/31/2006

Convertible preferred stock, Series A, $0.001 par value,
5,000,000 shares authorized, 3,500,000 shares	$	350		$	350
Common stock, $0.001 par value,
500,000,000 shares authorized, 19,766,840 shares		1,977			1,977
Common stock issuable, $0.001 par value, 3,000 shares		0			0
Additional paid in capital		23,978,714			23,978,714
Accumulated deficit		(23,210,988	)		(21,462,220	)
		770,053			2,518,821
Less: Subscription Receivable		(902,000	)		(902,000	)

Total Stockholders' Equity (Deficit)		(131,947	)		1,616,821

Total Liabilities and Stockholders' Equity (Deficit)	$	5,416,285		$	5,573,805

See accompanying notes to unaudited consolidated financial statements.

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American Energy Production, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Revenues:
Oil sales, net	$	361,456		$	368,293		$	1,056,068		$	1,199,988
Total Revenues

Operating Expenses
Compensation		49,942			30,000			138,429			90,000
Consulting		-			-			3,260			146,190
Depreciation, depletion and accretion		(5,552	)		71,649			377,956			453,137
Rent		7,734			3,362			23,901			8,965
General and administrative		91,028			74,899			291,575			217,066
Production		324,490			1,012,115			1,667,559			2,540,315
Professional		26,235			79,647			136,880			199,117
Taxes		11,846			53,352			49,499			177,623
Total Operating Expenses		505,723			1,325,025			2,689,059			3,832,412

Operating Loss		(144,267	)		(956,731	)		(1,632,991	)		(2,632,424	)

Other Income (Expense)
Other income		-			-			16,753			209,908
Interest expense		(43,009	)		(42,277	)		(128,028	)		(126,489	)
Payroll tax expense and penalties		(1,501	)		(1,501	)		(4,503	)		(4,503	)
Total Other Income (Expense)		(44,510	)		(43,778	)		(115,778	)		78,915

Net Loss	$	(188,777	)	$	(1,000,509	)	$	(1,748,769	)	$	(2,553,509	)

Net Loss Per Share - Basic and Diluted	$	(0.01	)	$	(0.05	)	$	(0.09	)	$	(0.13	)

Weighted average Shares Outstanding		19,769,840			19,357,925			19,769,840			19,357,925

See accompanying notes to unaudited consolidated financial statements

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American Energy Production, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash Flows From Operating Activities:
Net loss	$	(1,748,769	)	$	(2,553,509	)
Adjustments to reconcile net loss to
net cash provided by (used in) operations:
Depreciation expense		298,221			3,914
Depletion expense		62,340			60,717
Accretion expense		17,395			16,017
Changes in operating assets and liabilities:
Accounts receivable		(7,948	)		18,367
Other current assets		3,880			19,927
Other assets		(42,856	)		(143,566	)
Accounts payable		44,617			(5,672	)
Other current liabilities		5,551			86,496
Due from related party		8,876			182,240
Due to related party		1,403,573			(87,215	)
Accrued interest payable		128,028			126,489
Accrued payroll taxes payable		4,621			4,503
Net Cash Provided By (Used In) Operating Activities		177,530			(2,271,291	)

Cash Flows From Investing Activities:
Investment in oil and gas properties		(142,688	)		(239,951	)
Payments for development programs - related party		(10,265	)		(32,075	)
Net Cash Used In Investing Activities	$	(152,953	)	$	(272,026	)

Cash Flows From Financing Activities:
Proceeds from note payable		-			13,638
Proceeds from common stock issuable, net of
offering costs of $86,660 and $0		-			2,335,245
Proceeds from repayment of subscription receivable		-			32,500
Repayment of note payable		(16,535	)		-
Net Cash Provided By (Used In) Financing Activities		(16,535	)		2,381,383

Net Increase in Cash		8,042			(161,934	)
Cash at Beginning of Period		106,902			526,132
Cash at End of Period		114,944			364,198

See accompanying notes to unaudited consolidated financial statements

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American Energy Production, Inc.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Nine Months Ended
	September 30,
	2007		2006

Cash interest paid	$	-	$	-

Supplemental disclosure of non-cash transactions
Capitalized asset retirement obligation	$	3,841	$	14,038
Conversion of preferred stock to common stock		-		150
Common stock issued for subscription receivable		-		250

See accompanying notes to unaudited consolidated financial statements

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

1. HISTORY AND NATURE OF BUSINESS

American Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) is a publicly traded oil and gas company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. The Company traditionally has acquired oil and gas companies that have the potential for increased oil and natural gas production utilizing new technologies, well workovers and fracture stimulation systems. Additionally, the Company has expanded its scope of business to include the drilling of new wells with its own equipment through its wholly-owned subsidiary companies.

The Company’s wholly-owned subsidiaries are primarily involved in three areas of oil and gas operations.

1. Leasing programs.

2. Production acquisitions

3. Drilling and producing with proven and emerging technologies.

The Company believes that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world. As a result, the Company believes that oil and natural gas will remain a key yet volatile component of the world energy future and furthermore, with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America’s future then it already has to date.

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”).

In May 2006, the SEC Staff issued a comment letter to the Company (the “Comment Letter”) raising a number of questions relating to the Company’s BDC operations. In response to the Comment Letter, the Company undertook a review of its compliance with the 1940 Act and subsequently determined that it was not in compliance with several important provisions of the 1940 Act. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the Board determined that continuation as a BDC was not in the best interests of the Company and its shareholders

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. The Company is no longer a BDC with unconsolidated majority-owned portfolio companies but rather be an oil and gas operating company with consolidated subsidiaries. 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

At a meeting held on May 16, 2007, the Board of Directors reviewed the Company’s current business and financial performance, the recent trading range of its Common Stock and inability to obtain additional capital from the investment community with 494,170,082 shares of Common Stock issued and outstanding and 500,000,000 shares of Common Stock authorized. As a result, the Board determined that a reverse stock split was desirable and in the best interest of the Company. On July 5, 2007, the Company filed a Definitive 14A Proxy Statement with the SEC giving notice of a special shareholders meeting to be held on August 17, 2007 for the purpose of approving a one-for-twenty five reverse stock split. On September 14, 2007, the Company announced that all of the required steps had been completed for the one-for-twenty five reverse stock split of its common stock. In connection with the reverse stock split, the Company was assigned a new stock symbol. The Company's shares were previously quoted on the OTC Bulletin Board under the stock symbol AMEP and are now reported on the OTC Bulletin Board under the new stock symbol AENP. The new stock symbol and the reverse stock split were effective at the beginning of trading on September 14, 2007.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

2. GOING CONCERN

As reflected in the accompanying financial statements, the Company has a net loss of $1,748,769 for the nine months ended September 30, 2007. Additionally, the Company is also in default on certain notes to banks, has a negative working capital balance of $4,805,425, a stockholders’ deficit of $131,947 at September 30, 2007 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 generate sufficient revenues and cash flow from its business plan as an oil and gas operating company. The financial statements included in this report do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

Management believes that as a result of the one-for-twenty five reverse stock split recently approved by the shareholders of the Company, the Company will have several options available to obtain financing from third parties in order to carry out the business plan of the Company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Concentration

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Except as discussed below under BDC Conversion and disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company's Form December 31, 2006 10-K (“2006 10-K”) filed with the SEC. However, the 10-K was not on a consolidated basis due to the Company’s BDC reporting status and the September 30, 2007 10-Q is on a consolidated basis as the Company is no longer a reporting BDC. As discussed under BDC Conversion below, the December 31, 2006 amounts disclosed in this form 10-Q have been retrospectively applied to be comparable with the September 30, 2007 amounts. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The Company's wholly-owned subsidiary 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. .

Principles of Consolidation

The accompanying consolidated financial statements as of September 30, 2007 include the general accounts of American Energy and its wholly-owned subsidiaries Bend Arch Petroleum, Inc., Production Resources, Inc., Oil America Group, Inc. and AMEP Strategic Investments, Inc. All significant intercompany transactions, accounts and balances have been eliminated.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

Cash and Cash Equivalents

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

Oil and Gas Properties

The Company uses the successful efforts method of accounting for its oil and gas properties. Costs incurred by the Company related to the acquisition of oil and gas properties and the cost of drilling successful wells are capitalized. Costs to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Gains and losses arising from sales of properties are included in income. Unproved properties are assessed periodically for possible impairment.

Property and Equipment

The Company’s oil and gas rig is depreciated over its estimated useful life of ten years, using the straight line method. Vehicles and field equipment are depreciated over their estimated useful life of three years and five years, respectively, using the straight line method. Maintenance, repairs and minor replacements are charged to operations in the year incurred.

Asset Retirement Obligations

The Company accounts for asset retirement obligations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset’s inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of operations.

The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company’s wells may vary significantly from prior estimates.

Accounting for the Impairment of Long-Lived Assets

We account for the impairment of long-lived assets in accordance SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying amount of the property, if any, exceeds its fair market value. Based upon the Company’s evaluation, no impairment was determined for the nine months ended September 30, 2007.

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 September 30, 2007.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

Revenue Recognition

The Company sells crude oil under short-term agreements at prevailing market rates. Revenue from oil sales is recognized at the point of sale, that is, when oil is extracted from the tanks. Generally this is the point where the customer has taken title and has assumed the risks and rewards of ownership, the sales price is fixed or determinable and collectibility is reasonably assured.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payments, and recognizes compensation expense for all stock-based payments based on the grant-date fair value.

The Company accounts for stock options or warrants issued to non-employees for goods or services in accordance with the fair value method of SFAS 123(R) and Emerging Issues Task Force 96-18, Accounting for Equity Instruments that Are issued to Other Than Employees For Acquiring in Conjunction with Selling Goods or Services. Under this method, the Company records an expense equal to the fair value of the options or warrants issued. The fair value is computed using an options pricing model.

Concentration of Risk

Our financial instruments that are potentially exposed to credit risk consist primarily of cash, trade receivable and other receivables for which the carrying amounts approximate fair value. At certain times during the period, our demand deposits held in banks exceeded the federally insured limit of $100,000. The Company has not experienced any losses related to these deposits.

Income Taxes

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

Net Loss per Common Share

Basic loss per share is computed only on the weighted average number of common shares outstanding during the respective periods.

Recent Accounting Developments

In July 2006, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109. FIN 48 prescribes guidance to address inconsistencies among entities with the measurement and recognition in accounting for income tax positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the recognition of income tax benefits. FIN 48 requires the financial statement recognition of an income tax benefit when the entity determines that it is more-likely-than-not that the tax position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this standard did not have a material impact on the Company’s results of operations and financial position.

BDC Conversion

As a result of the Company’s conversion from a BDC company to an oil and gas operating company, the change in accounting 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 are 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 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.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

Reclassifications

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

4.	PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following at September 30, 2007:

Oil and gas properties, successful efforts method	$	4,273,545
Other property and equipment		1,518,847
Total		5,792,392
Less: Accumulated depreciation and depletion		838,474
Property and equipment, net	$	4,953,918

5. DEBT

Our debt at September 30, 2007 consisted of the following:

Lease Payable

		Sept. 30. 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 the Chief Executive Officer 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 September 30, 2007, the Company has recorded a total of $15,955 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 4,000 shares (100,000 shares prior to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s president and director occurs. The Chief Executive Officer of the Company transferred these shares on September 15, 2003. As of September 30, 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 – (see Note 7 – Commitments and Contingencies and Note 8 – Related Party Transactions).

As of September 30, 2007, the Company has recorded $130,777 of accrued interest for previously issued convertible debentures. Several convertible debenture holders previously elected to convert all or a portion of the convertible debentures into common stock. However, the conversion has not included accrued interest and although the Company believes that no further common stock will be issued for these conversions, the accrued interest balance for these converted debentures is included in the accrued interest balance as of September 30, 2007.

Notes Payable

	Sept. 30		Dec. 31.
	2007		2006
$2,000,000 Promissory Note, dated February 20, 2003, bearing interest at 8% per annum and due on July 25, 2007	$	2,000,000	$	2,000,000

On June 15, 2004, Bend Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company executed a $2,000,000 promissory note accruing interest at 8% with Proco Operating Co., Inc., a company controlled by the brother of the Company’s Chief Executive Officer (See Note 9 – Related Party Transactions and Note 10 – Operator Agreement) with a maturity date of July 25, 2007. The purpose of the Note is to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

The terms of the Note included (i) the payment of interest at a rate of eight percent (8%) per annum (ii) principal and interest due and payable on July 25, 2007 (iii) no prepayment penalty (iv) payment made in excess of sixty (60) days after the due date of July 25, 2007 is a default of the Note and Bend Arch will forfeit all ownership of the related leases and wells and relinquish operations on the lease and wells to Proco, and (v) upon a default of the Note, Bend Arch will vacate the leases with no rights of ownership and execute the necessary documents to transfer the leases and wells to Proco or its assigns.

Effective July 25, 2007, Bent Arch executed a Modification and Extension Agreement (the “First Extension”) in relation to the Note that became due and payable on the same date.

The First Extension modifies the terms of the Note as follows:

The maturity date of the Note was extended to September 25, 2007.

Bend Arch covenants that as long as the Note is outstanding and unpaid, no transfer, assignment or sale of the underlying leases and wells securing the payment of the Note will be allowed without the written approval of Proco.

Effective September 25, 2007, Bent Arch executed a Second Modification and Extension Agreement (the “Second Extension”) in relation to the Note that became due and payable on the same date. The Second Extension modifies the terms of the Note as follows:

The maturity date of the Note was extended to March 31, 2008.

As of September 30, 2007, the Company has accrued $597,918 of accrued interest on the Promissory Note and is included as a component of Accrued Interest payable in the accompanying financial statements.

Other Notes Payable

	Sept. 30.		Dec. 31.
	2007		2006
Vehicle Note – Production Resources, Inc.	$	27,967	$	40,367
Vehicle Note – Bend Arch Petroleum, Inc.		15,399		19,535
		43,366		59,902

6. ASSET RETIREMENT OBLIGATIONS

The following represents a reconciliation of the asset retirement obligations for the period from January 1, 1, 2006 to September 30, 2007:

Asset retirement obligations at beginning of period	$	517,526
Revision to estimate and additions		3,841
Other adjustments		157
Liabilities settled during the period		-
Accretion of discount		17,395
Asset retirement obligations at end of period	$	538,919

-13-

American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

7. 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 19,766,840 were issued and outstanding as of September 30, 2007. Additionally, as of September 30, 2007, 3,000 shares were issuable as discussed below.

Effective September 14, 2007, the Company announced that all of the required steps had been completed for a one-for-twenty five reverse stock split of its common stock. In connection with the reverse stock split, the shares outstanding prior to the reverse split were 494,170,082 and after the stock split there are 19,766,840, giving effect to rounding adjustments. In accordance with FAS 128, all share and per share amounts have been retroactively adjusted to the beginning of the period to reflect the amendment to our Articles of Incorporation for the reverse stock split.

We are authorized to issue up to 5,000,000 shares of our preferred stock, $0.0001 par value per share, of which 3,500,000 were issued and outstanding as of September 30, 2007. All of the preferred stock is held by the Chief Executive Officer of the Company. 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.

There were no changes in the common stock, common stock issuable or preferred stock outstanding balances for the nine months ended September 30, 2007, except for the one-for-twenty five reverse stock split discussed previously.

Common Stock Issuable:

As of September 30, 2007 and since December 31, 2005, 3,000 shares (75,000 shares adjusted for the one-for-twenty five reverse stock split) remained issuable to an overseas investor who had subscribed for an amount exceeding the shares that were actually issued under the terms of an offering in fiscal 2003. The investor had paid for the full subscription, and as such, no amounts are due to the Company.

8. COMMITMENTS AND CONTINGENCIES

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

The Company is subject to various lawsuits and unasserted claims from vendors for non-payment of accounts payable plus related legal fees. Excluding legal fees, which cannot be estimated, the Company has included all amounts in its accounts payable and accrued expenses as of June 30, 2007.

Prior to September 30, 2007, the Company and certain of its wholly-owned subsidiaries were delinquent in the filing of franchise tax reports with the State of Texas and the State of Delaware and as a result, the Company and certain of its wholly-owned subsidiaries were not in good standing. During the three months ended September 30, 2007, the Company and its wholly-owned subsidiaries have filed the required reports and as a result, management anticipates that the Company and all of its wholly-owned subsidiaries will be declared in good standing in the near future. However, the Company may face certain penalties and interest due to the delinquent status of the reports before they were filed.

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 4,000 shares (100,000 shares prior to the one-for-twenty five reverse stock split) personally held by the Company’s Chief Executive Officer occurs (see Note 5 – Debt and Note 8 – Related Party Transactions). As of September 30, 2007 the transaction has not been finalized as the lessor has not agreed to the settlement. However, the 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.

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American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

The Company has included $77,198 of unpaid federal payroll taxes and employee withholdings and related penalties and interest in its accrued expenses as of September 30, 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 $371,809 of accounts payable as of September 30, 2007 and the majority 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.

In December 2005 and January 2006, the Company determined that certain issuances of common stock had not been properly disclosed in reports made by the Company’s transfer agent. The Company discussed these items with the transfer agent and the transactions have been reconciled and recorded properly in the Company records. However, the Company believes that two of these transactions, an unauthorized issuance by the transfer agent of 600,000 shares (15,000,000 shares prior to the one-for-twenty five reverse stock split) and an additional unauthorized issuance of 100,000 shares (2,500,000 shares prior to the one-for-twenty five reverse stock split), should be reimbursed to the Company by either the third party who received the shares or the transfer agent. The Company has recorded the fair market valuation of the two transactions in the amount of $875,000 as a subscription receivable as of September 30, 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. 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. 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.

9. RELATED PARTY TRANSACTIONS

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

Effective July 1, 2003, the Company entered into a salary and equipment rental agreement with its Chief Executive Officer. As of January 1, 2005, the $3,500 per month equipment rental agreement with the Chief Executive Officer was terminated. As of December 31, 2006, the Company owed the Chief Executive Officer $98,225 for unpaid amounts under the agreement. During the nine months ended September 30, 2007, the Company accrued but did not pay $90,000 for compensation, reduced the balance $3,000 as a correction of a deposit incorrectly recorded in fiscal 2006, increased the balance $10,000 as a correction for advances made by the Chief Executive Officer previously and the Chief Executive Officer advanced $125,200 of funds on behalf of the Company. As a result, the accrued balance as of September 30, 2007 is $310,425 and is classified as a component of Due To Related Parties in the accompanying financial statements.

Additionally, as of September 30, 2007, the Chief Executive Officer of the Company is owed $720,403 for advances and unpaid equipment rental charges made on behalf of Bend Arch Petroleum, Inc. (“Bend Arch”), the Company’s wholly-owed subsidiary. As of December 31, 2006, Bend Arch owed the Chief Executive Officer $81,222 for previous advances and equipment rental charges at $4,500 per month. During the nine months ended September 30, 2007, the Chief Executive Officer advanced $725,181 of funds to Bend Arch, the Company recorded $40,500 for equipment rental charges (including a $6,000 correction) and repaid $126,500 to the Chief Executive Officer resulting in the $720,403 balance at September 30, 2007 classified as a component of Due to Related Parties in the accompanying financial statements.

At September 30, 2007, the net amount due to the operator of the Company’s oil and gas production activities was $552,192 and is classified as a component of Due to Related Parties in the accompanying financial statements. The operator is Proco Operating Co., Inc. (“Proco”) and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer (See Note 10 – Operating Agreement).

At September 30, 2007, Production Resources, Inc. (“PRI”), a wholly-owned subsidiary of the Company owes $2,285 to the President of PRI and this amount is classified as a component of Due to Related Parties in the accompanying financial statements.

-15-

American Energy Production, Inc.

Notes to Financial Statements

September 30, 2007

(Unaudited)

10. OPERATING AGREEMENT

On November 1, 2003, the Company entered into an operating agreement for its oil and gas production activities with Proco, a company controlled by the brother of the Company’s Chief Executive Officer (See Note 9 – Related Party Transactions).

The term of the operating agreement is equal to the term of the oil and gas leases held by the Company. In general, the operator incurs costs which are billed to the Company, and the operator markets and sells oil and collects payments from customers. Such payments are then remitted to the Company.

The operator has a first and preferred lien on the leasehold interests of the Company against any sums due to the Operator by the Company.

11. SUBSEQUENT EVENTS

Effective October 24, 2007, Larry P. Horner resigned his position as a director of the Company due to time constraints as a result of a new full time employment position with another company. There were no disagreements with the Company on any matter related to the Company’s operations, policies or practices.

-16-

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.

OVERVIEW

American Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our”) is a publicly traded oil and gas company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. The Company traditionally has acquired oil and gas companies that have the potential for increased oil and natural gas production utilizing new technologies, well workovers and fracture stimulation systems. We have expanded our scope of business to include the drilling of new wells with its own equipment through our wholly-owned subsidiary companies.

Our subsidiaries are primarily involved in three areas of oil and gas operations.

1. Leasing Programs.

2. Production Acquisitions

3. Drilling and Producing with Proven and Emerging Technologies.

We believe that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world. We believe that oil and natural gas will remain a key yet volatile component of the world energy future and furthermore, that with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America’s future then it already has to date.

As reflected in the accompanying consolidated financial statements, the Company has a net loss of $1,748,769 for the nine months ended September 30, 2007. Additionally, the Company is also in default on certain notes to banks, has a negative working capital balance of $4,805,425, a stockholders’ deficit of $131,947 at September 30, 2007 and is subject to certain contingencies as discussed in Notes 1 and 7 to the accompanying consolidated financial statements, 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 generate sufficient revenues and cash flow from its business plan as an oil and gas operating company. The financial statements included in this report do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

-17-

RECENT DEVELOPMENTS

On June 15, 2004, Bend Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company executed a $2,000,000 promissory note accruing interest at 8% with Proco Operating Co., Inc., a company controlled by the brother of the Company’s Chief Executive Officer with a maturity date of July 25, 2007. The purpose of the Note is to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004.

Effective July 25, 2007, Bent Arch executed a Modification and Extension Agreement (the “First Extension”) in relation to the Note that became due and payable on the same date.

The First Extension modifies the terms of the Note as follows:

The maturity date of the Note was extended to September 25, 2007.

The maturity date of the Note was extended to March 31, 2008.

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, depreciable and depletable useful lives of property and equipment, the evaluation of whether our assets are impaired, 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 September 30, 2007 quarterly report on Form 10-Q. 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 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.

-18-

BDC CONVERSION

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 nine months ended September 30, 2007.

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.

OIL AND GAS PROPERTIES

PROPERTY AND EQUIPMENT

ASSET RETIREMENT OBLIGATIONS

-19-

RESULTS OF OPERATIONS

Three and Nine Months ended September 30, 2007 compared to Three and Nine Months Ended September 30, 2006.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Revenues:
Oil sales, net	$	361,456		$	368,293		$	1,056,068		$	1,199,988
Total Revenues

Operating Expenses
Compensation		49,942			30,000			138,429			90,000
Consulting		-			-			3,260			146,190
Depreciation, depletion and accretion		(5,552	)		71,649			377,956			453,137
Rent		7,734			3,362			23,901			8,965
General and administrative		91,028			74,899			291,575			217,066
Production		324,490			1,012,115			1,667,559			2,540,315
Professional		26,235			79,647			136,880			199,117
Taxes		11,846			53,352			49,499			177,623
Total Operating Expenses		505,723			1,325,025			2,689,059			3,832,412

Operating Loss		(144,267	)		(956,731	)		(1,632,991	)		(2,632,424	)

Other Income (Expense)
Other income		-			-			16,753			209,908
Interest expense		(43,009	)		(42,277	)		(128,028	)		(126,489	)
Payroll tax expense and penalties		(1,501	)		(1,501	)		(4,503	)		(4,503	)
Total Other Income (Expense)		(44,510	)		(43,778	)		(115,778	)		78,915

Net Loss	$	(188,777	)	$	(1,000,509	)	$	(1,748,769	)	$	(2,553,509	)

Nine Months Ended September 30, 2007 compared to September 30, 2006

Revenues:

Revenues decreased $143,920 or 12%, to $1,056,068 for 2007 from $1,199,988 for 2006. The decrease was due to the Company not being able to focus on its oil and gas operations because of insufficient operating cash.

Operating Expenses:

Operating expenses decreased $1,143,353, or 30%, to $2,689,059 for 2007 from $3,832,412 for 2006. The decrease was primarily the result of an $872,756 decrease in production, a $142,930 decrease in consulting and a $128,124 decrease in taxes. The decrease in consulting was primarily for a financial advisory consulting agreement in 2006 with no comparable amount in 2007. The decrease in production expense and taxes was primarily from the Company not being able to focus on its oil and gas operations because of insufficient operating cash.

Other Income (Expense):

Other income (expense) increased $194,653 of expense, or 247% to $115,778 of expense for 2007 from $78,915 of income for 2006. In 2006, the Company’s wholly-owned subsidiary Bend Arch Petroleum, Inc. had other income of $189,908 with no comparable amount for 2007.

-20-

Three Months Ended September 30, 2007 compared to September 30, 2006

Revenues:

Revenues decreased $6,837 or 2%, to $361,456 for 2007 from $368,293 for 2006. The decrease was due to the Company not being able to focus on its oil and gas operations because of insufficient operating cash.

Operating Expenses:

Operating expenses increased $819,302, or 62%, to $505,723 for 2007 from $1,325,025 2006. The decrease was primarily the result of a $687,626 decrease in production, a $77,201 decrease in consulting and a $41,507 decrease in taxes. The decrease in consulting was primarily for a financial advisory consulting agreement in 2006 with no comparable amount in 2007. The decrease in production expense and taxes was primarily from the Company not being able to focus on its oil and gas operations because of insufficient operating cash.

Other Income (Expense):

Other income (expense) increased $732 of expense, or 2% to $44,510 of expense for 2007 from $43,778 of expense for 2006. The increase was for interest expense.

Liquidity and Capital Resources

Cash and cash equivalents were $114,944 at September 30, 2007 as compared to $106,902 at December 31, 2006, and working capital deficit was $4,805,425 at September 30, 2007 as compared to a working capital deficit of $3,238,804 at December 31, 2006. The increase in the working capital deficit was primarily from a $1,403,573 increase in due to related parties and $128,028 increase in accrued interest payable.

Operating Activities

Cash provided by operating activities was $177,530 for the nine months ended September 30, 2007 compared to cash used of $2,271,291 for the nine months ended September 30, 2006. The decrease in cash used in operations from 2006 to 2007 was primarily from an increase in the due to related parties and accrued interest payable balances in 2007 as compared to 2006.

Investing Activities

Cash used in investing activities was $152,953 for the nine months ended September 30, 2007 compared to cash used of $272,026 for the nine months ended September 30, 2006. The decrease in cash used resulted primarily from a decrease in the investment in oil and gas properties due to the Company not being able to focus on its oil and gas operations because of insufficient operating cash

Financing Activities

Cash used in financing activities was $16,535 for the nine months ended September 30, 2007 compared to $2,381,383 of cash provided for the nine months ended September 30, 2006. In 2006, the Company had $2,335,245 of net cash proceeds from the issuance of common stock and $32,500 of cash proceeds from the repayment of a subscription receivable with no comparable amount for 2007.

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.

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Debt:

The following summarizes our debt obligations at September 30, 2007:

Our debt consisted of the following:

Lease Payable

	Sept. 30.		Dec. 31.
	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 March 31, 2006, the balance of principal was $16,131. The amount is personally guaranteed by a former officer/director and the Chief Executive Officer 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 June 30, 2007, the Company has recorded a total of $15,955 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 4,000 shares (100,000 shares prior to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s Chief Executive Officer 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.

As of September 30, 2007, the Company has recorded $130,777 of accrued interest for previously issued convertible debentures. 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 interest balance for these converted debentures is included in the accrued interest balance as of September 30, 2007.

Notes Payable

	Sept. 30		Dec. 31.
	2007		2006
$2,000,000 Promissory Note, dated February 20, 2003, bearing interest at 8% per annum and due on July 25, 2007	$	2,000,000	$	2,000,000

On June 15, 2004, Bend Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company executed a $2,000,000 promissory note accruing interest at 8% with Proco Operating Co., Inc., a company controlled by the brother of the Company’s President (See Note 9 – Related Party Transactions and Note 10 – Operator Agreement) with a maturity date of July 25, 2007. The purpose of the Note is to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004.

The terms of the Note include (i) the payment of interest at a rate of eight percent (8%) per annum (ii) principal and interest due and payable on July 25, 2007 (iii) no prepayment penalty (iv) payment made in excess of sixty (60) days after the due date of July 25, 2007 is a default of the Note and Bend Arch will forfeit all ownership of the related leases and wells and relinquish operations on the lease and wells to Proco, and (v) upon a default of the Note, Bend Arch will vacate the leases with no rights of ownership and execute the necessary documents to transfer the leases and wells to Proco or its assigns.

Effective July 25, 2007, Bent Arch executed a Modification and Extension Agreement (the “First Extension”) in relation to the Note that became due and payable on the same date.

The First Extension modifies the terms of the Note as follows:

The maturity date of the Note was extended to September 25, 2007.

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The maturity date of the Note was extended to March 31, 2008.

Other Notes Payable

��

	Sept. 30.		Dec. 31.
	2007		2006
Vehicle Note – Production Resources, Inc.	$	27,967	$	40,367
Vehicle Note – Bend Arch Petroleum, Inc.		15,399		19,535
		43,366		59,902

Equity Financing

For the nine months ended September 30, 2007 and 2006, the Company received zero and $2,335,245 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 to fund our operating activities through the end of fiscal 2007. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise capital and generate revenues and cash flow from its business plan as an oil and gas operating company.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table highlights, as of September 30, 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	$	-	$	-	$	-
Notes Payable		2,043,366		2,043,366		-		-		-
Accrued Interest Payable		744,650		744,650		-		-		-

Total Debt	$	2,804,147	$	2,804,147	$	-	$	-	$	-

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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.

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 September 30, 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.

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 -

her Information

Item 1. Legal Proceedings

The Company has included $77,198 of unpaid Federal payroll taxes and employee withholdings and related penalties and interest in its accrued expenses as of September 30, 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.

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

None

Item 3. Defaults Upon Senior Securities

None

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

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Item 5. Other Information

None

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.
22.1				Schedule 14A - Definitive Proxy Statement filed July 5, 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: November 14, 2007	By:	/s/ Charles Bitters
		Charles Bitters
		Chief Executive Officer and Chief Financial Officer

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Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

American Energy Production (AENP) Inactive 10-QQuarterly report

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