American Energy Production 10Q Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2008

333-52812

(Commission File Number)

American Energy Production, Inc.

(Exact name of registrant as specified in its charter)

Delaware		74-2945581
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

6073 Hwy 281 South, Mineral Wells, TX 76067

(Address of principal executive offices including zip code)

(210) 410-8158

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No _____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ____ No X

As of August 1, 2008, the Registrant had 20,360,389 shares outstanding of its $0.001 par value common stock.

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American Energy Production, Inc. and Subsidiaries

Form 10-Q Index

June 30, 2008

	Page
Part I-Financial Information

Item 1. Financial Statements	3

Consolidated Balance Sheets at June 30, 2008 (Unaudited) and
December 31, 2007 (Audited)	3

Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2008 and 2007 (Unaudited)	5

Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2008 and 2007 (Unaudited)	6

Notes to Consolidated Financial Statements (Unaudited)	7

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations	12

Item 4T. Controls and Procedures	17

Part II-Other Information

Item 5. Other Information	19

Item 6. Exhibits	19

Signatures	20

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PART I

FINANCIAL INFORMATION

Item 1-Consolidated Financial Statements (Unaudited)

American Energy Production, Inc. and Subsidiaries

Consolidated Balance Sheets

ASSETS
	(Unaudited)
	6/30/2008		12/31/2007

Current Assets
Cash	$	139,877	$	133,220
Accounts receivable		1,205		1,205
Other current assets		316		316
Total Current Assets		141,397		134,740

Property and equipment, net		4,307,308		4,365,765

Other Assets
Development programs - related party		119,077		104,392
Other		246,810		168,379
Total Other Assets		365,887		272,771

Total Assets		4,814,591		4,773,277

LIABILITIES

Current Liabilities
Accounts payable	$	327,153	$	373,403
Other current liabilities		254,071		175,548
Due to related parties		2,327,395		1,707,759
Notes payable		2,114,321		2,023,714
Accrued interest payable		861,795		778,486
Accrued payroll taxes and penalties		81,159		80,346
Lease payable		16,131		16,131
Total Current Liabilities		5,982,025		5,155,387

Asset Retirement Obligations		536,276		524,488

Total Liabilities	$	6,518,301	$	5,679,875

See accompanying notes to unaudited consolidated financial statements.

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American Energy Production, Inc. and Subsidiaries Consolidated Balance Sheets (Continued)

Commitments and Contingencies (Note 8)

Stockholders' Deficit
	(Unaudited)
	6/30/2008			12/31/2007

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, 20,360,389 and 19,767,055 shares, respectively		2,036			1,977
Common stock issuable, $0.0001 par value, zero and 596,000 shares respectively		-			60
Additional paid in capital		24,067,655			24,067,655
Accumulated deficit		(24,871,750	)		(24,074,640	)
		(801,709	)		(4,599	)
Less: Subscription Receivable		(902,000	)		(902,000	)

Total Stockholders' Deficit		(1,703,709	)		(906,599	)

Total Liabilities and Stockholders' Deficit	$	4,814,591		$	4,773,277

See accompanying notes to unaudited consolidated financial statements.

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American Energy Production, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Revenues:
Oil sales, net	$	553,445		$	347,638		$	991,664		$	739,086

Operating Expenses
Compensation		46,242			45,645			92,484			91,887
Consulting		-			-			-			3,260
Depreciation, depletion and accretion		151,550			158,285			292,851			291,092
Rent		10,452			9,505			22,262			16,167
General and administrative		55,204			118,282			103,015			200,444
Production		618,264			587,801			1,050,401			1,265,734
Professional		26,334			86,228			77,100			110,645
Taxes		37,731			14,594			62,076			47,703
Website		1,080			-			1,080			-
Total Operating Expenses		946,855			1,016,473			1,701,268			2,026,933

Operating Loss		(393,411	)		(668,835	)		(709,604	)		(1,287,847	)

Other Income (Expense)
Other income		303			-			303			-
Interest expense		(42,443	)		(42,807	)		(84,807	)		(85,973	)
Payroll tax expense and penalties		(1,501	)		(1,501	)		(3,002	)		(3,002	)
Total Other Income (Expense)		(43,641	)		(44,308	)		(87,507	)		(88,975	)

Net Loss	$	(437,052	)	$	(713,143	)	$	(797,111	)	$	(1,376,822	)

Net Loss Per Share - Basic and Diluted	$	(0.02	)	$	(0.04	)	$	(0.04	)	$	(0.07	)

Weighted average Shares Outstanding		20,363,356			19,770,055			20,363,371			19,770,055

See accompanying notes to unaudited consolidated financial statements.

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American Energy Production, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2008			2007
Cash Flows From Operating Activities:
Net loss	$	(797,111	)	$	(1,376,822	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		241,261			238,691
Depletion expense		39,802			40,727
Accretion expense		11,788			11,675
Changes in operating assets and liabilities:
Accounts receivable		-			122
Other current assets		-			3,880
Other assets		(78,431	)		16,070
Accounts payable		(46,250	)		45,819
Other current liabilities		78,522			17,218
Due from related party		-			88,229
Due to related party		619,636			986,295
Accrued interest payable		83,309			85,019
Accrued payroll taxes payable		813			3,120
Net Cash Provided By Operating Activities		153,339			160,042

Cash Flows From Investing Activities:
Investment in property and equipment		(222,605	)		(129,983	)
Payments for development programs - related party		(14,685	)		(18,653	)
Net Cash Used In Investing Activities	$	(237,289	)	$	(148,635	)

Cash Flows From Financing Activities:
Proceeds from note payable		90,607			-
Repayment of note payable		-			(10,557	)
Net Cash Provided By (Used In) Financing Activities		90,607			(10,557	)

Net Increase in Cash		6,657			850
Cash at Beginning of Period		133,220			106,902
Cash at End of Period		139,877			107,752

Cash interest paid	$	-		$	-

Supplemental disclosure of non-cash transactions
Capitalized asset retirement obligation	$	-		$	3,841
Write off of common stock issuable – 3,000 shares		0			-

See accompanying notes to unaudited consolidated financial statements.

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1. HISTORY AND NATURE OF BUSINESS

Basis of Presentation and Concentration

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements at December 31, 2007 included in the Company's Form 10-KSB/A (“2007 10-KSB”) filed with the Securities and Exchange Commission (“SEC”) on July 24, 2008. The interim consolidated unaudited financial statements should be read in conjunction with those consolidated financial statements included in the 2007 10-KSB.

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 three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

2. HISTORY AND NATURE OF BUSINESS

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

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.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

As reflected in the accompanying financial statements, the Company has a net loss of $437,052 and $797,111 for the three and six months ended June 30, 2008, respectively. Additionally, at June 30, 2008, the Company has minimal cash, has a negative working capital balance of $5,840,628, a stockholders’ deficit of $1,703,709 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.

Principles of Consolidation

The accompanying consolidated financial statements as of June 30, 2008 include the general accounts of American Energy and its wholly-owned subsidiaries Bend Arch Petroleum, Inc., Production Resources, Inc., Oil America Group, Inc. and AMEP Strategic Investments, Inc. All significant intercompany transactions, accounts and balances have been eliminated.

Net Loss per Common Share

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

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.

Reclassifications

Certain amounts in the June 30, 2007 consolidated financial statements have been reclassified to conform to the June 30, 2008 presentation.

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4. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

	June 30,		December 31,
	2008		2007
Oil and gas properties, successful efforts method	$	4,320,602	$	4,320,602
Other property and equipment		1,742,867		1,520,262
		6,063,469		5,840,864
Less: Accumulated depreciation and depletion		1,756,161		1,475,099
Property and equipment, net	$	4,307,308	$	4,365,765

5. DEBT

Significant changes in our debt for the six months ended June 30, 2008 were as follows:

Effective March 15, 2008, Bent Arch Petroleum, Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company executed a Third Modification and Extension Agreement (the “Third Extension”) in relation to a $2,000,000 promissory note accruing interest at 8% (“Note”) that was to become due and payable on March 31, 2008. The Third Extension modifies the maturity date of the Note to December 31, 2008. All other terms and conditions of the Note, the First Extension and the Second Extension remain the same.

The Note is with Proco Operating Co., (“Proco”) a company controlled by the brother of the Company’s Chief Executive Officer. 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. As of June 30, 2008, the Company has accrued $718,027 of accrued interest on the Note and is included as a component of accrued interest payable in the accompanying unaudited consolidated financial statements.

In March 2008, the Company purchased oilfield property and equipment for a price of $150,000. The terms included a cash payment of $47,000 and a note payable for the balance of $103,000. During the three months ended June 30, 2008, the Company paid down $12,000 of principal and the balance is $91,000 as of June 30, 2008 and classified as a component of Note Payable in the accompanying consolidated financial statements. As of June 30, 2008, no formal agreement of the terms of the note payable had been finalized and the Company has a verbal agreement to pay the principal back at a rate of $10,000 monthly. It is anticipated that a formal agreement will be negotiated and finalized in the future.

6. ASSET RETIREMENT OBLIGATIONS

The following represents a reconciliation of the asset retirement obligations for the period from January 1, 2007 to June 30, 2008:

Asset retirement obligations at beginning of period	$	524,488
Accretion of discount		11,788
Asset retirement obligations at end of period	$	536,276

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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 20,360,389 were issued and outstanding as of June 30, 2008.

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 June 30, 2008. All of the preferred stock is held by the Chief Executive Officer of the Company.

Except for the issuance of common stock that was classified as issuable at December 31, 2007 (see below), there were no changes in the common stock, common stock issuable or preferred stock outstanding balances for the six months ended June 30, 2008.

Common Stock Issuable:

On December 13, 2007, the Company received $89,000 of proceeds from the sale of 593,334 shares of its $0.0001 par value common stock at $.15 per share and was classified as common stock issuable at December 31, 2007. In January 2008, the shares of common stock were issued by the transfer agent and have been reflected as common stock in the accompanying unaudited consolidated financial statements.

In June 2008, the Company made the decision to write off 3,000 shares of common stock classified as issuable since 2003. The original amount was 75,000 shares and was adjusted to 3,000 shares after giving effect for the one-for-twenty five reverse stock split in 2007. The shares 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 has paid for the full subscription, and as such, no amounts are due to the Company and the Company has not been able to contact the investor.

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, 2008.

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. The Company filed all of those required past due reports. However, the State of Texas franchise tax reports for the year ended December 31, 2007 were not filed on or before the required May 15, 2008 deadline. The Company is in the process of completing these reports. As a result, as of June 30, 2008, the Company and certain wholly-owned subsidiaries are not in good standing and the Company and certain of its wholly-owned subsidiaries may face certain penalties and interest due to the delinquent status of the reports.

On March 20, 2008, the Company submitted an offer of settlement to the SEC staff, pursuant to which it would consent, without admitting or denying the findings, to the entry of an order by the SEC instituting public administrative and cease-and-desist proceedings and imposing sanctions (the “Order”).

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In summary, the Order finds that since electing to be regulated as a business development company (“BDC”) in January 2004, the Company has, among other things, issued senior securities without the required asset coverage, issued warrants without approval of its shareholders, issued prohibited non-voting stock, issued securities for services, failed to make and keep required records, and failed to establish a majority of non-interested directors on its board of directors. As a result, the Company violated certain provisions of the Investment Act of 1940 (the “1940 Act”). In addition, the Company failed to obtain a fidelity bond and implement a compliance program as required under the 1940 Act. Finally, the Company failed to comply with certain provisions for exemption from registration under the 1933 Act as related to Rule 609 of Regulation E because it did not file required offering status reports in connection with a securities offering commenced in January 2004.

In determining the Order, the SEC considered remedial acts promptly undertaken by the Company and cooperation afforded the SEC staff. The Order would require:

o	The Company cease and desist from committing or causing any violations and any future violations of the 1940 Act. The 1940 Act is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

o	The Regulation E exemption of the Company is permanently suspended. Regulation E is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

The Company has reached an agreement in principle with the staff of the SEC regarding its offer of settlement, subject to approval by the Commission. Although the ultimate outcome of the settlement negotiations cannot be predicted with certainty, under the settlement as currently proposed, the Company would not incur any fines or other penalties, and no action would be taken against any individuals.

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.

Due to Related Parties:
	June 30,		December 31,
	2008		2007
Due to Chief Executive Officer from salary and rental agreement with Company.	$	430,925	$	306,425

Due to Chief Executive Officer from advances and rental agreement with Bend Arch		807,323		704,703

Due to Operator of oil and gas properties		1,089,267		696,631

Total Due To Related Parties	$	2,327,395	$	1,707,759

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, 2007, the Company owed the Chief Executive Officer $306,425 for unpaid amounts under the agreement. During the six months ended June 30, 2008, the Company accrued but did not pay $60,000 for compensation due to the CEO, the CEO personally advanced $73,000 of funds on behalf of the Company and the Company paid back $8,500 to the CEO. As a result, the accrued balance as of June 30, 2008 is $430,925 and is classified as a component of Due To Related Parties in the accompanying unaudited consolidated financial statements.

As of December 31, 2007, the Chief Executive Officer of the Company was owed $704,703 for advances and unpaid equipment rental charges made on behalf of Bend Arch, the Company’s wholly-owned subsidiary. During the six months ended June 30, 2008, the Chief Executive Officer personally advanced $94,000 of funds to Bend Arch; the Company recorded $27,000 for equipment rental charges and repaid $18,500 to the Chief Executive Officer. As a result, the accrued balance as of June 30, 2008 is $807,203 and is classified as a component of Due To Related Parties in the accompanying unaudited consolidated financial statements.

As of December 31, 2007, the operator of the Company’s oil and gas properties was owed $696,631 by the Company. The operator is Proco and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer. During the six months ended June 30, 2008, the Company increased the amount by $616,128 due to Proco for incurred operator expenses, decreased the amount owed by $650,342 for accrued and unpaid oil and gas sales, offset by $426,850 of cash payments from Proco for accrued oil and gas sales. As a result, the accrued balance as of June 30, 2008 is $1,089,267 and is classified as a component of Due To Related Parties in the accompanying unaudited consolidated financial statements.

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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 consolidated financial statements and related notes and schedules thereto included in our annual report on Form 10-KSB/A for the year ended December 31, 2007 filed with the SEC on July 24, 2008.

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.

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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 $437,052 and $797,111 for the three and six months ended June 30, 2008, respectively. Additionally, the Company has a negative working capital balance of $5,840,628 and a stockholders’ deficit of $1,703,709 at June 30, 2008 and is subject to certain contingencies as discussed in Notes 1 and 7 to the accompanying unaudited 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.

RECENT DEVELOPMENTS

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In determining the Order, the SEC considered remedial acts promptly undertaken by the Company and cooperation afforded the SEC staff. The Order would require:

o	The Company cease and desist from committing or causing any violations and any future violations of the 1940 Act. The 1940 Act is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

o	The Regulation E exemption of the Company is permanently suspended. Regulation E is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

RESULTS OF OPERATIONS

The following discussion of the results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the periods presented included in this Form 10-Q.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Revenues:
Oil sales, net	$	553,445		$	347,638		$	991,664		$	739,086

Operating Expenses
Compensation		46,242			45,645			92,484			91,887
Consulting		-			-			-			3,260
Depreciation, depletion and accretion		151,550			158,285			292,851			291,092
Rent		10,452			9,505			22,262			16,167
General and administrative		55,204			118,088			103,015			200,444
Production		618,264			584,127			1,050,401			1,265,734
Professional		26,334			86,228			77,100			110,645
Taxes		37,731			14,594			62,076			47,703
Total Operating Expenses		946,855			1,016,473			1,701,268			2,026,933

Operating Loss		(393,411	)		(668,835	)		(709,604	)		(1,287,847	)

Other Income (Expense)
Other income		303			-			303			-
Interest expense		(42,443	)		(42,807	)		(84,807	)		(85,973	)
Payroll tax expense and penalties		(1,501	)		(1,501	)		(3,002	)		(3,002	)
Total Other Income (Expense)		(43,641	)		(44,308	)		(87,507	)		(88,975	)

Net Loss	$	(437,052	)	$	(713,143	)	$	(797,111	)	$	(1,376,822	)

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Three Months ended June 30, 2008 compared to Three Months Ended June 30, 2007.

Revenues:

Revenues increased $205,807 or 59%, to $553,445 for 2008 from $347,638 for 2007. Revenues for 2008 were comprised of $341,573 of oil sales (2,975 barrels of oil), $211,209 of natural gas sales (18,818 MCF) and $663 of royalties. Revenues for 2007 were comprised of $195,704 of oil sales (3,262 barrels of oil), $150,191 of natural gas sales (19,590 MCF) and $1,743 of royalties. Although production volume decreased, revenues increased due to increased market pricing for oil and gas products.

Operating Expenses:

Operating expenses decreased $69,617, or 7%, to $946,855 for 2008 from $1,016,473 for 2007. The decrease was primarily for general and administrative and professional expenses. The decrease in general and administrative and professional expense was related to the Company no longer incurring the substantial costs of being a BDC and to exit the business plan of being a BDC.

Other Income (Expense):

Other income (expense) increased $667 of expense, or 2% to $43,641 of expense for 2008 from $44,308 of expense for 2007. The decrease was primarily for $303 of interest income in 2008 for Bend Arch bank account versus zero in 2007 and a $364 decrease in interest expense related to notes payable.

Six Months ended June 30, 2008 compared to Six Months Ended June 30, 2007.

Revenues:

Revenues increased $252,578 or 34%, to $991,664 for 2008 from $739,086 for 2007. Revenues for 2008 were comprised of $621,613 of oil sales (6,138 barrels of oil), $369,388 of natural gas sales (35,809 MCF) and $663 of royalties. Revenues for 2007 were comprised of $437,125 of oil sales (7,281 barrels of oil), $300,218 of natural gas sales (41,378 MCF) and $1,743 of royalties. Although production volume decreased, revenues increased due to increased market pricing for oil and gas products.

Operating Expenses:

Operating expenses decreased $325,664, or 16%, to $1,701,268 for 2008 from $2,026,933 for 2007. The decrease was primarily the result of a $215,332 decrease in production expense and a $97,430 decrease in general and administrative expense. The decrease in production expense was primarily from the Company not being able to focus on its oil and gas operations because of insufficient operating cash. The decrease in general and administrative expense was related to the Company no longer incurring the substantial costs of being a BDC and to exit the business plan of being a BDC.

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Other Income (Expense):

Other income (expense) decreased $1,469 of expense, or 2% to $87,507 of expense for 2008 from $88,975 of expense for 2007. The decrease was primarily for $303 of interest income in 2008 for Bend Arch bank account versus zero in 2007 and a $1,166 decrease in interest expense related to notes payable.

Liquidity and Capital Resources

Cash and cash equivalents were $139,877 at June 30, 2008 as compared to $133,220 at December 31, 2007, and working capital deficit was $5,840,628 at June 30, 2008 as compared to a working capital deficit of $5,020,647 at December 31, 2007. The increase in the working capital deficit was primarily from a $619,636 increase in due to related parties.

Operating Activities

Cash provided by operating activities was $153,339 for the six months ended June 30, 2008 compared to cash provided of $160,042 for the six months ended June 30, 2007. The decrease in cash provided by operations from 2007 to 2008 was primarily from a decrease of the net loss, offset by an increase in due to related parties.

Investing Activities

Cash used in investing activities was $237,289 for the six months ended June 30, 2008 compared to cash used of $148,635 for the six months ended June 30, 2007. The increase in cash used resulted primarily from an increase in the investment in property and equipment.

Financing Activities

Cash used in financing activities was $90,607 for the six months ended June 30, 2008 compared to $10,557 of cash used in financing activities for the six months ended June 30, 2007. The 2008 amount is from the issuance of a note payable for the purchase of property and equipment and the 2007 amount is from the repayment of a note payable.

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.

Debt

Significant changes in our debt for the six months ended June 30, 2008 were as follows:

The Note is with Proco Operating Co., (“Proco”) a company controlled by the brother of the Company’s Chief Executive Officer. 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. As of June 30, 2008, the Company has accrued $718,027 of accrued interest on the Promissory Note and is included as a component of accrued interest payable in the accompanying unaudited consolidated financial statements.

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Equity Financing

There was no equity financing for the six months ended June 30, 2008 and 2007, 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 2008. 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.

Item 4T. Controls and Procedures

Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the "Evaluation Date"). Based on that evaluation, the Company’s management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures are not effective to ensure that the information relating to us required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Management's Quarterly Report on Internal Control Over Financial Reporting. (a) The Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting and that our financial reporting controls were not effective. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness(s) identified are:

The Company does not have a full time Accounting Controller or Chief Financial Officer and utilizes part time consultants to perform these critical responsibilities. This lack of full time accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.

Additionally, management determined during its internal control assessment the following weakness(s), while not considered material, are items that should be considered by the Board of Directors for resolution in the near future:

The management of oil and gas leases including a schedule of oil and gas lease agreements and related documents to ensure that the Company has rights to Oil and Gas, expiration and renewal dates, contractual payments regarding royalties, taxes, improvements, etc. This ensures correct oil and gas capital accounts, revenues and related expenses are calculated correctly by Accounting. Additionally, the CFO should review all Oil and gas lease agreements.

The Company should take steps to require that oil and gas expenditures are properly classified into the proper categories such as acquisition costs and intangible and tangible drilling costs. Without this, the Company cannot properly determine the proper recording and disclosure of oil and gas expenditures.

The Company should take steps to enhance the security for bank wire transfers. Currently, the Subsidiary President’s and CEO provide instruction to the bookkeepers to initiate a wire transfer. As a security enhancement, the Bank should be required to obtain approval from the CEO or CFO to make the wire transfer.

The Company IT process should be strengthened as there is no disaster recovery plan, no server, and the company accounting records are maintained through a consultant accountant. The Company should consider the purchase and implementation of a server and proper backups off site to ensure that accounting information is safeguarded.

5.	The Company should take steps to implement a policies and procedures manual.

In order to mitigate all of the above weaknesses(s), to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer as well as the Board of Directors for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. The Company has retained a third-party accounting and financial consulting firm to assist with the complex technical oil and gas issues and as soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures as described above.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report.

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting

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PART II - Other Information

Item 5. Other Information

In determining the Order, the SEC considered remedial acts promptly undertaken by the Company and cooperation afforded the SEC staff. The Order would require:

o	The Company cease and desist from committing or causing any violations and any future violations of the 1940 Act. The 1940 Act is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

o	The Regulation E exemption of the Company is permanently suspended. Regulation E is only available to BDC companies and does not apply to the Company in its current structure as an oil and gas operating company.

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

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

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

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

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

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

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

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

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

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

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

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

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

14.1		Code of Ethics (1)

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

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

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

32.1		Certification of the Chief Executive and Chief Financial Officer of American Energy Production, Inc. pursuant to Section 906 of the Sarbanes- Act of 2002.*

* Filed herewith

(1)

Incorporated by reference.

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SIGNATURES

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

Signature	Title	Date

/s/ Charles Bitters Charles Bitters	Chief Executive Officer, Principal Executive and Financial Officer, Director	August 14, 2008

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

American Energy Production (AENP) Inactive 10-QQuarterly report

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