UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

o[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~2009

o[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 0-054306

~~American~~ _American Energy Production, Inc.

(Exact name of registrant as specified in its charter)

Delaware		74-2945581
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6073 Hwy 281 South, Mineral Wells, TX		76067
(Address of principal executive offices)		(Zip Code)

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

Registrant’s telephone number, including area code (940) 445-0698

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
None		None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $0.0001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o _ No xX

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ~~Yeso~~Yes _ No xX

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. ~~Yesx~~Yes X ~~Noo~~No_

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o[ ]

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

Large accelerated filer o [ ] Accelerated filer o [ ]

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

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o_ ~~Nox~~No X

As of the last business day of the Company’s most recently completed second fiscal quarter (June 30, 2009), the aggregate market value of voting and non-voting common equity held by non-affiliates* was $~~_________~~2,246,920.

As of ~~April~~ 15May 14, ~~2009~~2010, the registrant had 2062,~~363~~616,~~389~~748 common shares outstanding, including 23,350,677 classified as issuable.

* Without asserting that any of the issuer’s directors or executive officers, or the entities that own shares of common stock are affiliates, the shares of which they are beneficial owners have been deemed to be owned by affiliates solely for this calculation.

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TABLE OF CONTENTS
		Page
PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	13
ITEM 2.	PROPERTIES	2224
ITEM 3.	LEGAL PROCEEDINGS	2224
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	2325
ITEM 6.	SELECTED FINACIAL DATA	2426
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2527
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	3133
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	3233
ITEM 9A.	CONTROLS AND PROCEDURES	3234
ITEM 9B.	OTHER INFORMATION	3335
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	3436
ITEM 11.	EXECUTIVE COMPENSATION	3638
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	3840
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	3942
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	4043
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	4145
SIGNATURES		4246

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FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our research and development activities, distributor channels, compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A, Risk Factors.”

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PART I

ITEM 1.

DESCRIPTION OF BUSINESS

American Energy Production, Inc. (“American Energy”, “the Company”, “we”, “us”, “our” “its”) is a publicly traded ~~oil~~energy ~~and gas~~ company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. Additionally, the Company is a joint venture partner in the exploration, evaluation, development and mining of gold and other minerals. 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 website is www.americanenergyproduction.com.

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’s ~~energy~~ future ~~and~~energy ~~furthermore~~requirements. Additionally, 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 determined in 2009 to diversify from only its oil and gas operations into a working gold mine operation. On August 6, 2009, the Company announced that it has executed a non-binding Letter of Intent (“LOI”) for the acquisition of Dorado Gold, LLC and Master Petroleum, LLC, both California limited liability companies (together “Dorado”). Dorado owns 100% of certain placer gold mining claims, land and equipment (the “Joint Properties”) 25 miles north of Weaverville, California. Additionally, AENP and Dorado executed a 120 day Operating Agreement to jointly participate in the exploration, evaluation, development and mining of gold and other minerals within the Joint Properties (“Gold Venture”). AENP will bear 100% of all expenses during operations of the Gold Venture and AENP and Dorado will each receive fifty percent (50%) of product or revenues after expenses and AENP will manage the Gold Venture. The acquisition of Dorado by AENP is subject to AENP’s sole evaluation of the results after the 120 day Gold Venture period is completed. As of the date of this report, no decision has been made by the Company in relation to the acquisition. In December 2009, the Gold Venture was extended through December 31, 2010 as the Company believes this working gold mining operation will be a hedge against inflation and will also help offset the depressed price of oil and natural gas until these commodities recover in the near future.

History of Company Development

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~~included the acquisition of assets, obtaining geological reports, developing an implementation plan to extract oil and gas, completing initial sales of oil and seeking capital. Accordingly, the Company and its wholly-owned subsidiaries are a consolidated energy company with an emphasis in oil and natural gas exploration and production.

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

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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 adiscussed ~~result~~above, ~~the Board determined that a reverse stock split was desirable and~~ in ~~the~~March ~~best interest of the Company. On July 5~~2010, ~~2007,~~ the Company ~~filed~~determined ~~a Definitive 14A Proxy Statement with the SEC giving notice of a special shareholders meeting~~ to ~~be held~~diversify 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~~energy ~~stock.~~operations Infrom ~~connection~~only ~~with~~oil ~~the~~and ~~reverse~~natural ~~stock split,~~gas ~~the~~into ~~Company was assigned~~ a ~~new~~working ~~stock~~gold ~~symbol.~~mine ~~The~~operation ~~Company's shares were previously quoted on the OTC Bulletin Board under the stock symbol AMEP~~ and ~~are now~~is ~~reported~~a onpartner ~~the~~through ~~OTC~~an ~~Bulletin~~operating ~~Board under the new stock symbol AENP~~agreement. ~~The new stock symbol and the reverse stock split were effective at the beginning of trading on September 14, 2007.~~

On September 30, 2008, the Company announced the issuance of an SEC Order Instituting Cease-and-Desist and Exemption Suspension Proceedings, Making Findings, Imposing a Cease-and-Desist Order, and Permanently Suspending the Regulation E Exemption Pursuant to Section 9(f) of the Investment Company Act of 1940 and Rule 610(c) of Regulation E (Order) against the Company. The Order finds that the Company had, among other things, issued senior securities without the required asset coverage, issued rights to purchase securities without expiration to non-security holders, issued prohibited non-voting stock, issued securities for services, failed to make and keep required records; and failed to establish a majority of disinterested directors on its board. As a result, the Company violated Sections 18(a), 18(d), 18(i), 23(a), 31(a)(1), and 56(a) respectively, of the Investment Company Act and Investment Company Act Rule 31a-1. In addition, the Company failed to obtain a fidelity bond as required under Section 17(g) of the Investment Company Act and Rule 17g-1 thereunder, and failed to implement a compliance program as required under Investment Company Act Rule 38a-1. Finally, the Company failed to comply with Rule 609 of Regulation E because it did not file offering status reports on Form 2-E in connection with a securities offering under Regulation E commenced in January 2004.

Based on the above, the Order permanently suspends the Regulation E exemption and orders the Company to cease and desist from committing or causing any violations and any future violations of Sections 17(g), 18(a), 18(d), 18(i), 23(a), 31(a)(1) and 56(a) of the Investment Company Act and Rules 17g-1, 31a-1, and Rule 38a-1 thereunder. The Company consented to the issuance of the Order without admitting or denying any of the findings.

In determining the Order, the SEC considered remedial acts promptly undertaken by the Company and cooperation afforded the SEC staff and as a result, the Company did not incur any fines or other penalties, and no action was taken against any individuals.

Our Strategy

Management believes that:

·	Natural gas is an environmentally friendly fuel that will be increasingly valued in the United States;

·	There are a number of natural gas and/or oil and development projects that we are pursuing which will require significant capitalization to complete, explore and develop;

· We have the ability to assemble the technical and commercial ~~and~~ resources needed to pursue these potential projects; and

·	Our successful development of one or more large potential natural gas or oil projects will create substantial shareholder value.

~~-5-~~· We believe that the Gold Venture has the potential to provide the Company with the ability to diversify its energy operations from only oil and natural gas in this very tough economic climate.

·	Our Gold Venture will be a hedge against the economy if significant inflation occurs in the future as many energy experts are predicting.

The principal elements of our strategy to maximize shareholder value are:

Generate growth through drilling. We expect to generate long-term reserve and production growth ~~predominantly~~ through our drilling activities. We anticipate ~~the~~that ~~substantial~~a ~~majority~~significant amount of our future capital expenditures will be directed toward the drilling of wells, although we expect to continue to acquire additional leasehold interests. Initially, we anticipate reserve growth will be our primary focus with a more balanced reserve and production growth profile as we continue to execute our growth strategy.

Manage costs by maximizing operational control. We seek to exert control over our exploration, exploitation and development activities. As the operator of our projects, we have greater control over the amount and timing of the expenditures associated with those activities. As we manage our growth, we are focused on reducing lease operating expenses, general and administrative costs, and finding and development costs on a per mcfe basis. As of December 31, ~~2008~~2009, we operated 100% of our wells, although we may not be able to be operator of all our future projects.

Pursue complementary leasehold interest and property acquisitions. We intend to attempt to supplement our drilling strategy with complementary leasehold interest and property acquisitions.

Generate growth through our Gold Venture. We expect to generate long-term growth and value through our Gold Venture. We have made a strategic decision to diversify our energy operations from only oil and natural gas to include gold and believe this will reduce the ultimate risk of our energy operations.

Current Natural Gas and Oil Projects

We are in the process of building our portfolio of exploration and exploitation projects targeting both oil and natural gas. We believe that there is potential for commercial development in areas where historical drilling attempts resulted in indications of oil and gas but ultimate development was not pursued, and we intend to continue to focus our activities in areas having this profile. We believe that the application of advanced drilling, completion and stimulation technologies combined with a strong commodity pricing environment could make development of our project areas economically viable.

Through Production Resources, Inc. (“PRI”), our wholly owned subsidiary, we own leases covering approximately 1,600 gross acres of land in Medina County, Texas. The leases have 173 gross and net wells drilled to shallow saturated sand called the Olmos. There is an additional zone similar to the Olmos called the Escondido that has been commercially productive in this area but it has not been tested on these leases. Additional wells can be drilled on these leases to the Olmos formation under the current spacing rules. This is a heavy oil field has had produced for a number of years. Initially the field had enough pressure to flow but over time pumping and advanced recovery methods were necessary. Previously, the field had been ignored for a number of years due to the high operating costs, low oil prices and low daily production.-5-

Through Production Resources, Inc. (“PRI”), our wholly owned subsidiary, we own leases covering approximately 1,600 gross acres of land in Medina County, Texas. The leases have 173 gross and net wells drilled to shallow saturated sand called the Olmos. There is an additional zone similar to the Olmos called the Escondido that has been commercially productive in this area but it has not been tested on these leases. Additional wells can be drilled on these leases to the Olmos formation under the current spacing rules. This is a heavy oil field and has produced for a number of years. Initially the field had enough pressure to flow but over time pumping and advanced recovery methods were necessary. Previously, the field had been ignored for a number of years due to the high operating costs, low oil prices and low daily production. See discussion below under Natural Gas and Oil Reserves in relation to the sale of PRI in March 2010.

Additionally, through Bend Arch Petroleum, Inc. (“Bend Arch”), our wholly owned subsidiary, we own leases covering approximately 6,100 gross acres of land primarily in the counties of Palo Pinto, Eastland and Comanche, Texas. The leases have 34 gross wells (31 net wells) drilled to the shallower Bend Conglomerate and the deeper Strawn formation. Most of these wells need to be re-worked and re-stimulated to achieve maximum productive potential.

Natural Gas and Oil Reserves

The following table presents information as of December 31, ~~2008~~2009 with respect to our estimated proved reserves:. As discussed previously, in March 2010, the Company made the decision to diversify its energy operations and effective March 8, 2010, our wholly-owned subsidiary PRI was sold to a third party. As a result, the amounts disclosed below for reserves include PRI and going forward, these reserves will not be a component of the Company’s operations. Accordingly, in order to provide sufficient information for all parties, the Company has provided estimated proved reserve information below at December 31, 2009 (with PRI) and at December 31, 2009 (without PRI).

Net Proved Reserve Summary and PV-10 Forecast from December 31, 2008

Net Proved Reserve Summary and PV-10 Forecast from December 31, 2009 (INCLUDING PRI)

Reserve Categories

Oil (MBBL)

Gas (BCF)

Cash Flow ($)

PV-10 ($) (e)

PDP (b)

.~~303~~291

5.~~927~~740

3611,~~542~~891,~~066~~432

63,~~884~~945,~~536~~862

PDBP (c)

.~~230~~237

72.~~500~~764

4517,~~733~~589,~~971~~414

127,~~201~~191,~~860~~067

PUD (d)

7.~~195~~118

2722.~~095~~033

~~396~~418,~~669~~803,~~564~~618

~~127~~135,~~959~~217,~~348~~286

Total Proved (a)

7.~~728~~646

4025.~~522~~537

~~479~~448,~~330~~284,~~566~~464

~~147~~146,~~045~~354,~~744~~215

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Net Proved Reserve Summary and PV-10 Forecast from December 31, 2009 (EXCLUDING PRI)
Reserve Categories	Oil (MBBL)		Gas (BCF)		Cash Flow ($)		PV-10 ($) (e)
PDP (b)		.063		.740	$	4,020,747	$	2,250,597
PDBP (c)		-		2.764		9,383,493		5,192,963
PUD (d)		6.889		22.033		410,277,516		133,340,006
Total Proved (a)		6.952		25.537	$	423,681,756	$	140,783,566

(a)	Proved reserves are those quantities of gas that, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under current economic conditions, operating methods and government regulations.

(b)	PDP is Proved Producing Reserves and represents reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

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(c)	PDBP is Proved Behind Pipe Reserves and represents reserves that are expected to be recovered from existing wells where a relatively major expenditure is required for recompletion.

(d)	PUD is Proved Undeveloped Reserves and represents undeveloped reserves that are expected to be recovered from new wells on un-drilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(e) PV-10 represents the present value, discounted at 10% per annum, of estimated future net revenue before income tax of our estimated proved reserves. The estimated future net revenues were determined by using reserve quantities of proved reserves and the periods in which they are expected to be developed and produced based on economic conditions prevailing at December 31, ~~2008~~2009. PV-10 is a non-GAAP financial measure because it excludes income tax effects. Management believes that the presentation of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. PV-10 is not a measure of financial or operating performance under GAAP. PV-10 should not be considered as an alternative to the standardized measure as defined under GAAP. We have included a reconciliation of PV-10 to the most directly comparable GAAP measure — standardized measure of discounted future net cash flow — in the following table:

		December 31, 2008
		December 31, 2009
Standardized measure of discounted future net cash flows (d)		$	95,579,734
Standardized measure of discounted future net cash flows (f)	$	95,130,240
Add: Present value of future income tax discounted at 10%		51,223,975	~~51,466,010~~
PV-10	$	$146,354,215	~~147,045,744~~

(df) The standardized measure represents the present value of estimated future cash inflows from proved oil and natural gas reserves, less future development, abandonment, production and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculate PV-10. Standardized measure differs from PV-10 because standardized measure includes the effect of future income taxes.

Acreage

The following table sets forth as of December 31, ~~2008~~2009 the gross and net acres of both developed and undeveloped oil and gas leases that we hold. “Gross” acres are the total number of acres in which we own a working interest. “Net” acres refer to gross acres multiplied by our fractional working interest. Acreage numbers do not include our options to acquire additional leaseholds which have not been exercised.

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December 31, 2009

Developed(a)

Undeveloped(b)

Total

Play/Trend

Gross

Net

Gross

Net

Gross

Net

Texas

7,701

7,393

7,701

7,393

December 31, 2008

Developed(a)

Undeveloped(b)

Total

Play/Trend

Gross

Net

Gross

Net

Gross

Net

Texas

7,701

7,393

7,701

7,393

(a)	Developed refers to acres that are allocated or assignable to producing wells or wells capable of production. Developed acreage includes acreage having wells shut-in awaiting the addition of infrastructure.

(b)	Undeveloped refers to lease acreage on which wells have not been developed or completed to a point that would permit the production of commercial quantities of oil or natural gas regardless of whether such acreage contains proved reserves.

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Production and Price Information

The following tables summarize sales volumes, sales prices, and production cost information for the periods indicated:

	Year Ended December 31,
	2008
	2009
Production
Oil (bbls)		1114,~~501~~249
Natural gas (mcf)		8872,~~711~~855
Natural gas equivalent (mcfe)		1412,~~785~~143
Total equivalent (bbls)		26,~~286~~392
Oil and natural gas sales
Oil sales	$	1741,~~072,005~~632
Natural gas sales		~~768~~349,~~538~~590
Total (A)	$	1,~~840~~091,~~543~~222
Average sales price
Oil ($ per bbl)	$	9352.2105
Natural gas ($ per mcf)		84.6680
Natural gas equivalent ($ per mcfe)		5128.9879
Average production cost
Total equivalent ($ bbls)	$	8645.1800

(A) Excludes ~~$1,516~~management offees and oil and gas royalty income included in Total Revenue for consolidated financial statements.

The following table sets forth information at December 31, ~~2008~~2009, relating to the productive wells in which we owned a working interest as of that date. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. Gross wells are the total number of productive wells in which we have an interest, and net wells are the sum of our fractional working interests owned in gross wells.

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December 31, 2008
December 31, 2009
Play/Trend	Gross Wells	~~Gross~~Net Wells		~~Net Wells~~
Texas	207	204	~~207~~		~~204~~

Drilling Activities

~~The following~~For ~~table~~the ~~sets~~years ~~forth~~ended ~~information~~December ~~with~~31, ~~respect~~2009 ~~to wells drilled~~ and ~~completed~~ ~~during~~2008, the ~~periods~~Company ~~indicated. The~~did ~~information should~~ not ~~be considered~~drill ~~indicative~~or ofcomplete ~~future performance, nor should it be assumed that there is necessarily~~ any ~~correlation between the number of productive~~ wells ~~drilled, quantities of reserves found or economic value~~. ~~Productive~~This ~~wells~~should ~~are those~~not ~~that~~be ~~produce~~considered ~~commercial~~indicative ~~quantities~~ of ~~hydrocarbons,~~future ~~regardless of whether they produce a reasonable rate of return~~performance.

		Gross Wells						Net Wells
Period	Type of Well	Productive(b)		Dry(c)		Total		Productive(b)		Dry(c)		Total
Year ended December 31, 2008	Exploratory(a)		0		0		0		0		0		0
	Texas
	Development(a)		0		0		0		0		0		0
	Texas

Current Gold Projects

(The Company is a) Anparticipant ~~exploratory~~in ~~well~~an isoperating agreement for a ~~well~~gold ~~drilled~~mine ~~either~~operation inlocated ~~search~~approximately 25 miles north of aWeaverville, ~~new~~California. The other participant is Dorado Gold, asLLC ~~yet~~and ~~undiscovered~~Master Petroleum, ~~oil~~LLC, orboth ~~natural~~California ~~gas~~limited ~~reservoir~~liability orcompanies to(together ~~greatly~~“Dorado”). Dorado ~~extend~~owns 100% of certain placer gold mining claims, land and equipment (the ~~known~~“Joint ~~limits~~Properties”) that form the basis of athe ~~previously~~Gold ~~discovered~~Venture ~~reservoir~~operation in California. The AGold Venture is for the exploration, evaluation, development ~~well~~and ismining aof ~~well~~gold ~~drilled~~and other minerals within the ~~presently~~Joint ~~proved~~Properties. The ~~productive~~Company ~~area~~will bear 100% of anall ~~oil~~expenses orduring ~~natural~~operations ~~gas~~of ~~reservoir,~~the asGold ~~indicated~~Venture byand ~~reasonable~~both ~~interpretation~~the Company and Dorado will each receive fifty percent (50%) of ~~available~~product ~~data~~or revenues after expenses and the Company is responsible for managing the Gold Venture. Additionally, ~~with~~the Company has an option to acquire Dorado based upon the ~~objective~~success of ~~being~~the ~~completed~~Gold Venture but has made no decision in ~~that~~relation ~~reservoir~~to the acquisition as of the date of this filing. In December 2009, the operating agreement was extended through December 31, 2010.

(b) A productive well is an exploratory or development well found to be capable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well.

(c) A dry well is an exploratory or development well that is not a producing well or a well that has either been plugged or has been converted to another use.

Markets and Customers

The success of our operations is dependent upon prevailing prices for natural gas ~~and~~, oil and gold. The markets for natural gas, oil and ~~oil~~gold have historically been volatile and may continue to be volatile in the future. Natural gas ~~and~~, oil and gold prices are beyond our control. However, rising demand for natural gas to fuel power generation and meet increasing environmental requirements has led some industry observers to indicate that long term demand for natural gas is increasing. Additionally, gold is a limited resource and recent pricing increases reflect this.

We may use different strategies for gas sales depending on the location of the field and the local markets. In some locations, we may use proprietary CO2 reduction units to process our own gas and sell it to nearby local markets. In other cases, we may connect to nearby high pressure transmission pipelines. We are not currently aware of any restraints with respect to pipeline availability. However, because of the nature of natural gas development, there may be periods of time when pipeline capacity is inadequate to meet our transportation needs. It is often the case that as new development comes on-line, pipelines are near or at capacity before new pipelines are built.

We have no firm delivery contract for the delivery of our natural gas , oil and gold sales.

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To the extent that we bring new wells on-line and our production volume increases, of which there is no assurance, we will sell the new production in the spot markets or under new monthly base contracts. We expect that we will usually sell in this fashion, partly through firm gas delivery contracts and partly in the spot markets.

Prices for oil, ~~and~~ natural gas and gold fluctuate fairly widely based on supply and demand. Supply and demand are influenced by weather, foreign policy and industry practices. For example, demand for natural gas has increased in recent years due to a trend in the power plant industry to move away from using oil and coal as a fuel source to using natural gas, because natural gas is a cleaner fuel. Additionally, market prices of gold have been on a continual rise since 2003, when gold traded for around $320 per ounce, to prices approaching $1,100 per ounce in 2010. Nonetheless, in light of historical fluctuations in prices, there can be no assurance at what price we will be able to sell our oil, ~~and~~ natural gas and gold. It is possible that prices will be low at the time periods in which the wells are most productive, thereby reducing overall returns.

-9-

Competition

The natural gas and oil industry is intensely competitive and speculative in all of its phases. We encounter competition from other natural gas and oil companies in all areas of our operations. In seeking suitable natural gas and oil properties for acquisition, we compete with other companies operating in our areas of interest, including medium and large natural gas and oil companies and other independent operators, which have greater financial resources and have been engaged in the exploration and production business for a much longer time than we have. Many of our competitors also have substantially larger operating staffs than we do. Many of these competitors not only explore for and produce natural gas and oil but also market natural gas and oil and other products on a regional, national or worldwide basis. These competitors may be able to pay more for productive natural gas and oil properties and exploratory prospects, and define, evaluate, bid for and purchase a greater number of properties and prospects than we are able to. In addition, these competitors may have a greater ability to continue exploration activities during periods of low market prices. Our ability to acquire additional properties and to discover reserves in the future will depend on our ability to evaluate and select suitable properties and to finance and consummate transactions in a highly competitive environment.

The prices of our natural gas and oil production will be controlled by market forces. However, competition in the natural gas and oil exploration industry also exists in the form of competition to acquire leases and obtain favorable transportation prices. We are extremely small, with limited financial resources and may have difficulty acquiring additional acreage and/or projects and may have difficulty arranging for the transportation of our production. We also face competition in obtaining natural gas and oil drilling rigs and in sourcing the manpower to run them and provide related services.

There is intense competition in the gold mining industry. The Company’s Gold Venture is competing with larger mining companies, many of which have substantially greater financial strengths, and capital, marketing and personnel resources than those possessed by the Gold Venture.

Government Regulation of the Oil and Gas Industry

General.

Our business is affected by numerous laws and regulations, including energy, environmental, conservation, tax and other laws and regulations relating to the energy industry. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.

We believe that operations where we own interests comply in all material respects with applicable laws and regulations and that the existence and enforcement of these laws and regulations have no more restrictive an effect on our operations than on other similar companies in the energy industry.

The following discussion contains summaries of certain laws and regulations and is qualified in its entirety by the foregoing and by reference to the full text of the laws and regulations described.

Federal Regulation of the Sale and Transportation of Oil and Gas.

Various aspects of our oil and gas operations are or will be regulated by agencies of the federal government. The Federal Energy Regulatory Commission, or FERC, regulates the transportation and sale for resale of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938, or NGA, and the Natural Gas Policy Act of 1978, or NGPA. In the past, the federal government has regulated the prices at which oil and gas could be sold. While ”first sales” by producers of natural gas, and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act.

-10-

The Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993, and resulted in a series of Orders being issued by FERC requiring interstate pipelines to provide transportation services separately, or ”unbundled,” from the pipelines’ sales of gas and to provide open access transportation on a nondiscriminatory basis that is equal for all natural gas shippers.

We do not believe that we will be affected by these or any other FERC rules or orders materially differently than other natural gas producers and marketers with which we compete.

The FERC also has issued numerous orders confirming the sale and abandonment of natural gas gathering facilities previously owned by interstate pipelines and acknowledging that if the FERC does not have jurisdiction over services provided on those facilities, then those facilities and services may be subject to regulation by state authorities in accordance with state law. A number of states have either enacted new laws or are considering the adequacy of existing laws affecting gathering rates and/or services. Other state regulation of gathering facilities generally includes various safety, environmental, and in some circumstances, nondiscriminatory ~~take~~ requirements, but does not generally entail rate regulation. Thus, natural gas gathering may receive greater regulatory scrutiny of state agencies in the future. Our anticipated gathering operations could be adversely affected should they be subject in the future to increased state regulation of rates or services, although we do not believe that we would be affected by such regulation any differently than other natural gas producers or gatherers. In addition, the FERC’s approval of transfers of previously-regulated gathering systems to independent or pipeline affiliated gathering companies that are not subject to FERC regulation may affect competition for gathering or natural gas marketing services in areas served by those systems and thus may affect both the costs and the nature of gathering services that will be available to interested producers or shippers in the future.

We conduct certain operations on federal oil and gas leases, which are administered by the Minerals Management Service, or MMS. Federal leases contain relatively standard terms and require compliance with detailed MMS regulations and orders, which are subject to change. Among other restrictions, the MMS has regulations restricting the flaring or venting of natural gas, and has proposed to amend those regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Under certain circumstances, the MMS may require any of our operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect our financial condition, cash flows and operations. The MMS issued a final rule that amended its regulations governing the valuation of crude oil produced from federal leases. This rule, which became effective June 1, 2000, provides that the MMS will collect royalties based on the market value of oil produced from federal leases, and was further modified by amendments to the June 2000 MMS rules, effective July 1, 2004. Also, the MMS promulgated new Federal Gas Valuation rules, effective June 1, 2005 (70FR 11869, March 10, 2005) concerning calculation of transportation costs, including the allowed rate of return in the calculation of actual transportation costs in non-arm’s length arrangements and addresses various other related matters. We cannot predict whether this new gas rule will become effective, nor can we predict whether the MMS will take further action on oil and gas valuation matters. However, we do not believe that any such rules will affect us any differently than other producers and marketers of crude oil with which we will compete.

Additional proposals and proceedings that might affect the oil and gas industry are pending before Congress, the FERC, the MMS, state commissions and the courts. We cannot predict when or whether any such proposals may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely. Notwithstanding the foregoing, we do not anticipate that compliance with existing federal, state and local laws, rules and regulations will have a material or significantly adverse effect upon our capital expenditures, earnings or competitive position. No material portion of our business is subject to re-negotiation of profits or termination of contracts or subcontracts at the election of the federal government.

State Regulation.

Our operations also are subject to regulation at the state and, in some cases, county, municipal and local governmental levels. This regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandonment of wells and the disposal of fluids used and produced in connection with operations. Our operations also are or will be subject to various conservation laws and regulations. These include (1) the size of drilling and spacing units or proration units, (2) the density of wells that may be drilled, and (3) the unitization or pooling of oil and gas properties. In addition, state conservation laws, which frequently establish maximum rates of production from oil and gas wells, generally prohibit the venting or flaring of gas and impose certain requirements regarding the ratability of production. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements, but (except as noted above) does not generally entail rate regulation. These regulatory burdens may affect profitability, but we are unable to predict the future cost or impact of complying with such regulations.

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Environmental Matters.

Operations on properties in which we have an interest are subject to extensive federal, state and local environmental laws that regulate the discharge or disposal of materials or substances into the environment and otherwise are intended to protect the environment. Numerous governmental agencies issue rules and regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial administrative, civil and criminal penalties and in some cases injunctive relief for failure to comply. Some laws, rules and regulations relating to the protection of the environment may, in certain circumstances, impose ”“strict liability” for environmental contamination. These laws render a person or company liable for environmental and natural resource damages, cleanup costs and, in the case of oil spills in certain states, consequential damages without regard to negligence or fault. Other laws, rules and regulations may require the rate of oil and gas production to be below the economically optimal rate or may even prohibit exploration or production activities in environmentally sensitive areas. In addition, state laws often require some form of remedial action, such as closure of inactive pits and plugging of abandoned wells, to prevent pollution from former or suspended operations. Legislation has been proposed in the past and continues to be evaluated in Congress from time to time that would reclassify certain oil and gas exploration and production wastes as ”hazardous wastes.” This reclassification would make these wastes subject to much more stringent storage, treatment, disposal and clean-up requirements, which could have a significant adverse impact on operating costs. Initiatives to further regulate the disposal of oil and gas wastes are also proposed in certain states from time to time and may include initiatives at the county, municipal and local government levels. These various initiatives could have a similar adverse impact on operating costs. The regulatory burden of environmental laws and regulations increases our cost and risk of doing business and consequently affects our profitability.

The federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the ”Superfund” law, imposes liability, without regard to fault, on certain classes of persons with respect to the release of a ”hazardous substance” into the environment. These persons include the current or prior owner or operator of the disposal site or sites where the release occurred and companies that transported, disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for the federal or state government to pursue such claims. It is also not uncommon for neighboring landowners and other third parties to file claims for personal injury or property or natural resource damages allegedly caused by the hazardous substances released into the environment. Under CERCLA, certain oil and gas materials and products are, by definition, excluded from the term ”hazardous substances.” At least two federal courts have held that certain wastes associated with the production of crude oil may be classified as hazardous substances under CERCLA. Similarly, under the federal Resource, Conservation and Recovery Act, or RCRA, which governs the generation, treatment, storage and disposal of ”solid wastes” and ”hazardous wastes,” certain oil and gas materials and wastes are exempt from the definition of ”hazardous wastes.” This exemption continues to be subject to judicial interpretation and increasingly stringent state interpretation. During the normal course of operations on properties in which we have an interest, exempt and non-exempt wastes, including hazardous wastes, that are subject to RCRA and comparable state statutes and implementing regulations are generated or have been generated in the past. The federal Environmental Protection Agency and various state agencies continue to promulgate regulations that limit the disposal and permitting options for certain hazardous and non-hazardous wastes.

Our operations ~~will~~ involve the use of gas fired compressors to transport collected gas. These compressors are subject to federal and state regulations for the control of air emissions. Title V status for a facility results in significant increased testing, monitoring and administrative and compliance costs. To date, other compressor facilities have not triggered Title V requirements due to the design of the facility and the use of state-of-the-art engines and pollution control equipment that serve to reduce air emissions. However, in the future, additional facilities could become subject to Title V requirements as compressor facilities are expanded or if regulatory interpretations of Title V applicability change. Stack testing and emissions monitoring costs will grow as these facilities are expanded and if they trigger Title V. The U.S. Environmental Protection Agency and some other state environmental agencies have increased their focus on control of minor gas emission leaks from pipelines, compressors, tanks, and related oil and gas production and storage equipment in response to ozone non-attainment requirements increasing the costs and complexity of our operations. We believe that the operator of the properties in which we have an interest is in substantial compliance with applicable laws, rules and regulations relating to the control of air emissions at all facilities on those properties.

Although we maintain insurance against some, but not all, of the risks described above, including insuring the costs of clean-up operations, public liability and physical damage, there is no assurance that our insurance will be adequate to cover all such costs, that the insurance will continue to be available in the future or that the insurance will be available at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could have a material adverse effect on our financial condition and operations.

Compliance with environmental requirements, including financial assurance requirements and the costs associated with the cleanup of any spill, could have a material adverse effect on our capital expenditures, earnings or competitive position. We do believe, however, that our operators are in substantial compliance with current applicable environmental laws and regulations. Nevertheless, changes in environmental laws have the potential to adversely affect operations. At this time, we have no plans to make any material capital expenditures for environmental control facilities.

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The Company's gold mine operating agreement is subject to a variety of potential engineering, seismic and other risks, some of which cannot be predicted and which may not be covered by insurance. There are risks inherent in the exploration for, and development of, mineral deposits and the business of mining by its nature involves significant risks and hazards, including environmental hazards, industrial incidents, labor disputes, discharge of toxic chemicals, fire, cave ins, drought, flooding and other acts of God. The occurrence of any of these can delay or interrupt exploration and production, increase exploration and production costs and result in liability to the owner or operator of the mine. The Company may become subject to liability for pollution or other hazards against which it has not insured or cannot insure, including those in respect of past mining activities for which it was not responsible.

Our Employees

As of December 31, ~~2008~~2009, we have 109 full time ~~employee~~employees and no part-time employees. We are not a party to any collective bargaining agreements. We believe that our relations with our employees are good.

ITEM 1A.

RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information provided in this Annual Report. The risks described below are those we currently believe may materially affect us. An investment in our Common Stock involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment.

Any investment in our common stock involves a high degree of risk. In addition to the other information contained in this report, including risks and uncertainties described elsewhere, you should carefully consider the following risk factors and all of the information contained in this Annual Report in evaluating us or deciding whether to purchase our common stock. The risks and uncertainties described below or elsewhere in this Annual Report are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business and operations. The following list of risk factors should not be considered as all inclusive. If any of the following risks were to occur, our business, financial condition, operating results and cash flows could be materially affected, all of which might cause the trading price of our common stock to decline, and you could lose all or part of any investment you may make in our common stock.

Our actual results may differ materially from those anticipated in our forward-looking statements. We operate in a market environment that is difficult to predict and that involves significant risks and uncertainties, many of which will be beyond our control. Refer also to “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS” at the beginning of this Annual Report.

Risks related to our industry, business and strategy.

Going Concern Risk

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

As reflected in the accompanying financial statements, the Company had a net loss of $2,148,551 for the year ended December 31, 2008. Additionally, the Company has a negative working capital balance of $6,693,177, a stockholders’ deficit of $3,055,149 at December 31, 2008 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.

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.

We have substantial current obligations and at December 31, 2008, we had $6,782,260 of current liabilities as compared to only $89,0838 of current assets. Accordingly, the Company does not have sufficient cash resources or current assets to pay these obligations.

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As reflected in the accompanying consolidated financial statements, the Company had a net loss of $1,009,328 for the year ended December 31, 2009. Additionally, at December 31, 2009, the Company has minimal cash and has a working capital deficit of $481,566, which could have a material impact on the Company’s financial condition and operations. The working capital deficit was significantly reduced from a deficit of $6,693,175 at December 31, 2008 to the December 31, 2009 balance by the write off of the obligations discussed below along with the conversion of notes payable, accrued interest and due to related parties to common stock on June 30, 2009. As a result, the Company has stockholder’s equity of $2,759,459 at December 31, 2009 as compared to a stockholders’ deficit of $3,055,149 at December 31, 2008.

At December 31, 2009, we had $561,373 of current liabilities as compared to only $79,807 of current assets. Accordingly, the Company does not have sufficient cash resources or current assets to pay these obligations.

Our substantial debt obligations pose risks to our business and stockholders by:

·	making it more difficult for us to satisfy our obligations;

· 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;

·	impeding us from obtaining additional financing in the future for working capital, capital expenditures and general corporate purposes; and

·	making us more vulnerable to a downturn in our business and limit our flexibility to plan for, or react to, changes in our business.

On July 29, 2009, but effective June 30, 2009 (the “Effective Date”), the Company and certain of its wholly-owned subsidiaries eliminated certain debt obligations by converting them into $0.0001 par value common stock (“Stock”) of the Company. Additionally, the Company successfully negotiated and eliminated a substantial amount of obligations that were incurred from a predecessor company and converted an existing preferred stock agreement to Stock.

As a result of the above restructuring of the Company’s consolidated balance sheet, the Company eliminated the majority of its debt as of the Effective Date and will issue or has issued 33,850,677 shares of Stock, 23,350,677 from the conversion of debt obligations and 10,500,000 from the conversion of preferred stock.

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. If we fail to make any required payment under the agreements and related documents governing our indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default.

We have significant financial and operational covenant.

Our wholly owned subsidiary, Bend Arch, has a $2,000,000 amended promissory note (“Note”) accruing interest at 8% with Proco Operating Co., Inc. (“Proco”), a company controlled by the brother of the Company’s Chief Executive Officer with a maturity date of December 31, 2009. 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 December 31, 2009 (iii) no prepayment penalty (iv) payment made in excess of sixty (60) days after the due date of December 31, 2009 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. Bend Arch also has a covenant 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.

If we are determined to be in default of the covenants provided for in the Note, the impact on our business could be materially detrimental.

Our operations require large amounts of capital and we may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a loss of properties and a decline in our natural gas and oil reserves.

Our current plans require us to make large capital expenditures for the exploration and development of our existing acreage, ~~and~~to wefurther ~~also~~develop ~~anticipate~~our ~~that~~gold wemine ~~will~~joint ~~need substantial~~venture ~~additional~~and ~~capital~~ to pursue other potential projects. Historically, we have funded our capital expenditures through the issuance of equity.

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There are no commitments from any source to provide any equity or debt financing. Even if we are able to obtain equity or debt financing, of which there is no assurance, issuing equity securities to satisfy our financing requirements could cause substantial dilution to our existing stockholders. Debt financing, if obtained, could lead to:

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·	a substantial portion of our operating cash flow being dedicated to the payment of principal and interest,

·	our being more vulnerable to competitive pressures and economic downturns, and

·	restrictions on our operations.

If we are not able to obtain capital through an equity or debt financing or otherwise, our ability to execute our business plans could be greatly limited. Moreover, we will need to increase our sources of revenue, funding or both to sustain operations for the long run. There is no assurance that this will occur.

We may not discover commercially productive oil and gas reserves, which will impact our ability to meet our business goals.

Our ability to locate reserves is dependent upon a number of factors, including our participation in multiple exploration projects and our technological capability to locate oil and gas in commercial quantities. We cannot predict that we will have the opportunity to participate in projects that economically produce commercial quantities of oil and gas in amounts necessary to create a positive cash flow for the Company or that the projects in which we elect to participate will be successful. There can be no assurance that our planned projects will result in significant reserves or that we will have future success in drilling productive wells at economical reserve replacement costs.

~~Oil and~~We ~~gas~~may ~~prices~~not ~~are~~discover ~~volatile~~commercially ~~and~~productive angold ~~extended~~reserves, ~~decline~~which inwill ~~prices~~impact ~~can significantly affect~~ our ~~financial~~ability ~~results,~~to ~~impede~~meet our ~~growth and hurt our~~ business ~~prospects~~ goals.

~~Our future~~The ~~profitability~~Company ~~and~~has ~~rate~~not ofgenerated ~~growth~~any ~~and~~revenues ~~the~~from ~~anticipated~~its ~~carrying~~Gold ~~value~~Venture ~~of our~~to ~~oil~~date and ~~gas~~has ~~properties~~not ~~could~~established beproven ~~affected~~and byprobable ~~the~~reserves, ~~then~~in ~~prevailing~~accordance ~~market prices~~per ~~for~~SEC ~~oil~~Industry ~~and~~Guide ~~gas~~7, on the Joint Properties. WeThe ~~expect~~Company ~~the~~may ~~markets~~encounter ~~for~~problems, ~~oil~~delays, expenses and ~~gas~~difficulties ~~to continue~~typically toencountered in the development stage, many of which may be ~~volatile~~outside of the Company's control. IfThese weproblems ~~are~~include ~~successful~~but inare ~~continuing~~not limited to ~~establish~~ ~~production,~~issues ~~any~~interpreting ~~substantial~~and orproving ~~extended~~historical ~~decline~~mining indata, ~~the~~obtaining ~~price~~and ofmaintaining ~~oil~~quality ~~or gas~~equipment, ~~could:~~licensing difficulties, and financing problems.

Oil, natural gas and gold prices are volatile and an extended decline in prices can significantly affect our financial results, impede our growth and hurt our business prospects

Our future profitability and rate of growth and the anticipated carrying value of our oil and gas properties and our gold joint venture could be affected by the then prevailing market prices for oil, gas and gold. We expect the markets for oil, gas and gold to continue to be volatile and any substantial or extended decline in the price of oil, gas or gold could:

·	have a material adverse effect on our results of operations,

·	limit our ability to attract capital,

·	make the formations we are targeting significantly less economically attractive,

·	reduce our cash flow and borrowing capacity, and

·	reduce the value and the amount of any future reserves.

~~Various factors beyond our control will affect prices of oil and gas, including:~~-15-

Various factors beyond our control will affect prices of oil, gas and gold, including:

· worldwide and domestic supplies of oil, gas and ~~gas~~gold,

·	the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls,

·	political instability or armed conflict in oil or gas producing regions,

·	the price and level of foreign imports,

·	worldwide economic conditions,

·	marketability of production,

·	the level of consumer demand,

·	the price, availability and acceptance of alternative fuels,

·	the availability of processing and pipeline capacity,

·	weather conditions, and

·	actions of federal, state, local and foreign authorities.

~~-15-~~These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil, gas and gold. In addition, sales of oil and gas are seasonal in nature, leading to substantial differences in cash flow at various times throughout the year.

These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and gas. In addition, sales of oil and gas are seasonal in nature, leading to substantial differences in cash flow at various times throughout the year.

Our exploration and development activities are subject to reservoir and operational risks which may lead to increased costs and decreased production.

The marketability of our oil, gas and ~~gas~~gold production, if any, will depend in part upon the availability, proximity and capacity of ~~gas~~ gathering systems, pipelines and processing facilities. Federal and state regulation of oil, gas and ~~gas~~ gold production and transportation, general economic conditions, changes in supply and changes in demand all could adversely affect our ability to produce and market our oil, gas and ~~natural gas~~gold. If market factors were to change dramatically, the financial impact could be substantial because we would incur expenses without receiving revenues from the sale of production. The availability of markets is beyond our control.

Even when oil, gas and ~~gas~~gold is found in what is believed to be commercial quantities, reservoir risks, which may be heightened in new discoveries, may lead to increased costs and decreased production. These risks include the inability to sustain deliverability at commercially productive levels as a result of decreased reservoir pressures, large amounts of water, or other factors that might be encountered. As a result of these types of risks, most lenders will not loan funds secured by reserves from newly discovered reservoirs, which would have a negative impact on our future liquidity. Operational risks include hazards such as fires, explosions, craterings, blowouts (such as the blowout experienced at our initial exploratory well), uncontrollable flows of oil, gas or well fluids, pollution, releases of toxic gas and encountering formations with abnormal pressures. In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial liabilities to third parties or governmental entities, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur substantial losses. The occurrence of any one of these significant events, if it is not fully insured against, could have a material adverse effect on our financial condition and results of operations.

We face risks related to title to the leases we enter into that may result in additional costs and affect our operating results.

It is customary in the oil and gas industry to acquire a leasehold interest in a property based upon a preliminary title investigation. If the title to the leases acquired is defective, we could lose the money already spent on acquisition and development, or incur substantial costs to cure the title defect, including any necessary litigation. If a title defect cannot be cured, we will not have the right to participate in the development of or production from the leased properties. In addition, it is possible that the terms of our oil and gas leases may be interpreted differently depending on the state in which the property is located. For instance, royalty calculations can be substantially different from state to state, depending on each state’s interpretation of lease language concerning the costs of production. We cannot guarantee that there will be no litigation concerning the proper interpretation of the terms of our leases. Adverse decisions in any litigation of this kind could result in material costs or the loss of one or more leases.

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The Company's Gold Venture is highly dependent upon the grant of appropriate licenses, concessions, leases, permits and regulatory consents which may be withdrawn or made subject to limitations. Although the Company believes that the licenses, concessions, leases, permits and consents the gold mine joint venture has will be renewed, if required, when they expire, there can be no assurance that they will be renewed or as to the terms of any such renewal.

To the extent that we undertake exploratory drilling, it is a high risk activity with many uncertainties that could adversely affect our business, financial condition or results of operations.

Exploratory drilling involves numerous risks, including the risk that we will not find any commercially productive oil or gas reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including:

·	unexpected drilling conditions,

·	pressure or irregularities in formations,

·	equipment failures or accidents,

·	adverse weather conditions,

·	compliance with governmental requirements,

·	shortages or delays in the availability of drilling rigs and the delivery of equipment, and

·	shortages of trained oilfield service personnel.

-16-

Our future drilling activities may not be successful, nor can we be sure that our overall drilling success rate or our drilling success rate for activities within a particular area will not decline. Unsuccessful drilling activities could have a material adverse effect on our results of operations and financial condition. Also, we may not be able to obtain any options or lease rights in potential drilling locations that we identify. Although we have identified a number of potential exploration projects, we cannot be sure that we will ever drill them or that we will produce oil or gas from them or any other potential exploration projects.

Gold exploration is speculative in nature, involves many risks and frequently is unsuccessful. There can be no assurance that any gold discovered will result in an increase in the proven reserves of the Company. If reserves are developed, it can take a number of years from the initial phases of drilling and identification of mineralization until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish reserves through drilling, to determine metallurgical processes to extract gold and, in the cases of new properties, to construct mining and processing facilities. As a result of these uncertainties, no assurance can be given that the exploration programs undertaken by the Company’s Gold Venture will result in any new commercial gold mining operations being brought into operation.

Accounting rules may require write-downs, which may result in a charge to earnings.

We follow the successful efforts method of accounting, capitalizing costs of successful exploratory wells and expensing costs of unsuccessful exploratory wells. All developmental costs are capitalized. We are predominately engaged in exploration and production activities.

Depreciation and depletion of producing properties is computed on the units-of-production method based on estimated proved oil and natural gas reserves. Depreciation of non-oil and gas properties is over their estimated useful life of three years, using the straight line method. Repairs and maintenance are expensed, while renewals and betterments are generally capitalized. Expenditures less than $1,000, including contract labor, are expensed to operations in the year incurred.

At least quarterly, or more frequently if conditions indicate that long-term assets may be impaired, the carrying value of property is compared to management’s future estimated pre-tax cash flow from the properties. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal Of Long-Lived Assets, if impairment is necessary, the asset carrying value is written down to fair value. Cash flow pricing estimates are based on existing proved reserve and production information and pricing assumptions that management believes are reasonable. Impairment of individually significant unproved properties is assessed and amortized on an aggregate basis. We had no significant unproved properties at December 31, 2008 and no impairment was necessary at December 31, 2008.

The oil and gas exploration and production industry is highly competitive and many of our competitors have more resources than we do.

We compete in oil and gas exploration with a number of other companies. Many of these competitors have financial and technological resources vastly exceeding those available to us. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition. In addition, from time to time, there may be competition for, and shortage of, exploration, drilling and production equipment. These shortages could lead to an increase in costs and delays in operations that could have a material adverse effect on our business and our ability to develop our properties. Problems of this nature also could prevent us from producing any oil and gas we discover at the rate we desire to do so.

The oil and gas industry is heavily regulated and costs associated with such regulation could reduce our profitability.

Federal, state and local authorities extensively regulate the oil and gas industry. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may affect, among other things, the pricing or marketing of oil and gas production. State and local authorities regulate various aspects of oil and gas drilling and production activities, including the drilling of wells (through permit and bonding requirements), the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration. The overall regulatory burden on the industry increases the cost of doing business, which, in turn, decreases profitability.

Our oil and gas operations must comply with complex environmental regulations and such compliance is costly.

Our oil and gas operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local governmental authorities. New laws or regulations, or changes to current requirements, could have a material adverse effect on our business. We will continue to be subject to uncertainty associated with new regulatory interpretations and inconsistent interpretations between state and federal agencies. We could face significant liabilities to the government and third parties for discharges of oil, natural gas, produced water or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation. We cannot be sure that existing environmental laws or regulations, as currently interpreted or enforced, or as they may be interpreted, enforced or altered in the future, will not have a material adverse effect on our results of operations and financial condition.

-17-

At least quarterly, or more frequently if conditions indicate that long-term assets may be impaired, the carrying value of property is compared to management’s future estimated pre-tax cash flow from the properties. In accordance with ASC 360-10 (Statement of Financial Accounting Standards No. 144), “Property, Plant and Equipment”, if impairment is necessary, the asset carrying value is written down to fair value. Cash flow pricing estimates are based on existing proved reserve and production information and pricing assumptions that management believes are reasonable. Impairment of individually significant unproved properties is assessed and amortized on an aggregate basis. We had no significant unproved properties at December 31, 2009 and no impairment was necessary at December 31, 2009.

The oil, gas and gold exploration and production industry is highly competitive and many of our competitors have more resources than we do.

We compete in oil, gas and gold exploration with a number of other companies. Many of these competitors have financial and technological resources vastly exceeding those available to us. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition. In addition, from time to time, there may be competition for, and shortage of, exploration, drilling and production equipment. These shortages could lead to an increase in costs and delays in operations that could have a material adverse effect on our business and our ability to develop our properties. Problems of this nature also could prevent us from producing any oil, gas or gold we discover at the rate we desire to do so.

The oil, gas and gold industries are heavily regulated and costs associated with such regulation could reduce our profitability.

Federal, state and local authorities extensively regulate the oil, gas and gold industry. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may affect, among other things, the pricing or marketing of oil, gas and gold production. State and local authorities regulate various aspects of oil, gas and gold drilling and production activities, including the drilling of wells (through permit and bonding requirements), the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration. The overall regulatory burden on the industry increases the cost of doing business, which, in turn, decreases profitability.

Our oil and gas operations and our gold mine joint venture must comply with complex environmental regulations and such compliance is costly.

Our oil and gas operations and our gold mine joint venture are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local governmental authorities. New laws or regulations, or changes to current requirements, could have a material adverse effect on our business. We will continue to be subject to uncertainty associated with new regulatory interpretations and inconsistent interpretations between state and federal agencies. We could face significant liabilities to the government and third parties for discharges of oil, natural gas, produced water or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation. We cannot be sure that existing environmental laws or regulations, as currently interpreted or enforced, or as they may be interpreted, enforced or altered in the future, will not have a material adverse effect on our results of operations and financial condition.

Technological changes could put us at a competitive disadvantage.

The oil and gas industry isand the gold mining industry are characterized by rapid and significant technological advancements and introductions of new products and services using new technologies. As new technologies develop, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement those new technologies at a substantial cost. If other ~~oil and gas~~ exploration and development companies implement new technologies before we do, those companies may be able to provide enhanced capabilities and superior quality compared with what we are able to provide. We may not be able to respond to these competitive pressures and implement new technologies on a timely basis or at an acceptable cost. If we are unable to utilize the most advanced commercially available technologies, our business could be materially and adversely affected.

-18-

Oil and gas sales are seasonal leading to varying cash flow during the year.

Sales of oil and natural gas are seasonal in nature, leading to substantial differences in cash flow at various times throughout the year. The marketability of our oil and gas production, if any, will depend in part upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities. Federal and state regulation of oil and gas production and transportation, general economic conditions, changes in supply and changes in demand all could negatively affect our ability to produce and market oil and natural gas. If market factors were to change dramatically, the financial impact could be substantial because we would incur expenses without receiving revenues from sales of production. The availability of markets and the volatility of product prices are beyond our control and represent a significant risk to us.

Our oil and gas business depends on transportation facilities owned by others.

The marketability of our potential oil and gas production depends in part on the availability, proximity and capacity of pipeline systems owned or operated by third parties. Federal and state regulation of oil and gas production and transportation, tax and energy policies, changes in supply and demand and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

Oil ~~and~~, gas and gold reserve estimates may not be accurate.

There are numerous uncertainties inherent in estimating quantities of proved oil, ~~and~~ natural gas and gold reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond our control. Reserve engineering is a subjective process of estimating underground accumulations of oil, ~~and~~ natural gas and gold that cannot be measured in any exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates made by different engineers often vary from one another. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revisions of such estimates, and such revisions, if significant, would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different, and often materially so, from the quantities of oil, ~~and~~ natural gas and gold that are ultimately recovered. Furthermore, estimates of quantities of proved reserves and their PV-10 value may be affected by changes in crude oil, gas prices and ~~gas~~gold prices because the Company’s quantity estimates are based on prevailing prices at the time of their determination.

Attempts to grow our business could have an adverse effect

Because of our small size, we desire to grow rapidly in order to achieve certain economies of scale. Although there is no assurance that this rapid growth will occur, to the extent that it does occur, it will place a significant strain on our financial, technical, operational and administrative resources. As we increase our services and enlarge the number of projects we are evaluating or in which we are participating, there will be additional demands on our financial, technical and administrative resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of geoscientists and engineers, could have a material adverse effect on our business, financial condition and results of operations.

The failure to complete future property acquisitions successfully could reduce earnings and slow growth.

We may not be able to identify properties for acquisition or may not be able to make acquisitions on terms that we consider economically acceptable. There is intense competition for acquisition opportunities in the oil and gas industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Our strategy of completing acquisitions is dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Our ability to pursue its growth strategy may be hindered if we are not able to obtain financing or regulatory approvals.

-18-

Shortages of supplies, equipment and personnel may adversely affect our operations.

Our ability to conduct operations in a timely and cost effective manner depends on the availability of supplies, equipment and personnel. The oil and gas industry is cyclical and experiences periodic shortages of drilling rigs, supplies and experienced personnel. Shortages can delay operations and materially increase operating and capital costs.

~~Our ability to market the oil and gas that we produce will be essential to our business.~~-19-

~~Several factors~~Our ~~beyond our control may adversely affect our~~ ability to market the oil ~~and~~ ~~gas that we discover. These factors include the proximity, capacity~~ and ~~availability of oil and~~ gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted, but any one or a combination of these factors may result in our inability to sell our oil and gas at prices that ~~would result in an adequate return on our invested capital. We currently distribute the oil that~~ we produce ~~through~~and ~~a single pipeline. If this pipeline were to become unavailable, we would incur additional costs to secure a substitute facility in order to deliver~~ the ~~gas~~gold ~~that we produce. In addition, although we currently have access to firm transportation for the majority of~~ our ~~current~~Gold ~~gas~~Venture ~~production,~~produces ~~there is no assurance that we~~ will be ~~able~~ toessential ~~procure additional transportation on terms satisfactory~~ to ~~us, or at all, to the extent we increase and expand the area or areas of~~ our ~~production~~ business.

Several factors beyond our control may adversely affect our ability to market the oil and gas we discover and the gold our joint venture discovers. These factors include the proximity, capacity and availability of oil and gas pipelines, processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted, but any one or a combination of these factors may result in our inability to sell our oil and gas and the joint venture gold at prices that would result in an adequate return on our invested capital. We currently distribute the oil that we produce through a single pipeline. If this pipeline were to become unavailable, we would incur additional costs to secure a substitute facility in order to deliver the gas that we produce. In addition, although we currently have access to firm transportation for the majority of our current gas production, there is no assurance that we will be able to procure additional transportation on terms satisfactory to us, or at all, to the extent we increase and expand the area or areas of our production.

We will have limited control over the activities on properties we do not operate.

We currently have one operator over the oil and gas activities on our properties, but in the future other companies may operate some or many of the properties in which we have an interest. We currently are the operator of the Gold Venture. We will have limited ability to influence or control the operation or future development of these non-operated properties. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence or control the operation and future development of these properties could materially adversely affect the realization of our targeted returns on capital in these drilling or acquisition activities.

Hedging our production may result in losses.

We currently have no hedging agreements in place. However, we may in the future enter into arrangements to reduce our exposure to fluctuations in the market prices of oil, ~~and~~ natural gas and gold. We may enter into oil and gas hedging contracts and our joint venture may enter into gold hedging contracts in order to increase credit availability. Hedging will expose us to risk of financial loss in some circumstances, including if:

·	production is less than expected,

·	the other party to the contract defaults on its obligations, or

·	there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received.

In addition, hedging may limit the benefit we would otherwise receive from increases in the prices of oil, gas and ~~gas~~gold. Further, if we do not engage in hedging, we may be more adversely affected by changes in oil, gas and ~~gas~~gold prices than our competitors who engage in hedging.

We have limited senior management resources, and we need to attract and retain highly skilled personnel; we may be unable to effectively manage growth with our limited resources.

Our senior management currently consists of Charles Bitters, Chief Executive Officer, Chief Financial Officer and sole Director, and Joe Christopher, President of Oil America Group, Inc., our wholly-owned subsidiary ~~and Renny Walker, President of Production Resources, Inc,~~.~~, our wholly-owned subsidiary.~~ Our limited senior management requires them to handle an increasingly large and more diverse amount of responsibility. Expansion of our business would place a significant additional strain on our limited managerial, operational, and financial resources. In such event, we will be required to expand our operational and financial systems and to expand, train, and manage our work force in order to manage the expansion of our operations. Our failure to fully integrate our new employees into our operations could have a material adverse effect on our business, prospects, financial condition, and results of operations. Our ability to attract and retain highly skilled personnel is critical to our operations and expansion. We face competition for these types of personnel from other oil and gas companies and more established organizations, many of which have significantly larger operations and greater financial, marketing, human, and other resources than we have. We may not be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these personnel, our business, prospects, financial condition, and results of operations will be materially adversely affected. Our future success will be dependent on our ability to attract and retain key personnel

-1920-

We do not have a full time Chief Financial Officer or Controller

We currently do not have a full time Chief Financial Officer or Controller. Rather, we utilize external consultants for recording our accounting information and for preparing our required SEC reporting requirements including this Form 10-K. Charles Bitters, our Chief Executive Officer is not a trained accountant and relies on the external consultants to prepare the required information and disclosures. In addition, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 has and will continue to place additional strain on our limited managerial, operational, and financial resources which we believe will be very significant and could have a material adverse effect on our business, prospects, financial condition and results of operations. Our future success will be dependent on our ability to attract and retain key personnel.

We may incur substantial costs in order to comply with the requirements of the Sarbanes-Oxley act of 2002.

The Sarbanes-Oxley Act of 2002 has introduced many new requirements applicable to us regarding corporate governance and financial reporting. Among many other requirements is the requirement under Section 404(a) of the Sarbanes-Oxley Act for management to report on our internal controls over financial reporting and the requirement under Section 404(b) of the Sarbanes-Oxley Act for our registered independent public accountant to attest to this report.

We were required to comply with Section 404(a) effective for this year ended December 31, ~~2008~~2009. Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, ~~2008~~2009 and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted a material weakness. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.

To the best of our ability, we may devote substantial time and incur substantial costs during fiscal ~~2009~~2010 to improve our controls and procedures with the goal of compliance. We cannot, however, be certain that we will remediate the material weaknesses discovered, if any, in complying with Section 404.

Risks related to our common stock.

We have a limited market for our common stock, and our stock price is volatile

Our common stock is not listed on a national securities exchange or quoted on the Nasdaq Global Market or Nasdaq Small Capital Market. Instead, our common stock is currently quoted on the ~~OTC~~Pink ~~Bulletin~~Sheets ~~Board~~ under the symbol “AENP.OBPK.” Trading on the ~~OTC~~Pink ~~Bulletin~~Sheets ~~Board~~ is sporadic and highly volatile. The market price for our common stock has fluctuated in the past and may continue to fluctuate in the future. The market price of our common stock is subject to, and will continue to be subject to, a variety of factors, including without limitation:

·	the business environment;

·	the operating results of companies in the industries we serve;

·	future announcements concerning our business or that of our competitors or customers;

·	the introduction of new products or changes in product pricing policies by us or our competitors;

·	litigation matters;

·	changes in analysts’ earnings statements or performance estimates;

·	developments in the financial markets;

·	quarterly operating results;

·	perceived dilution from stock issuances for acquisitions and other transactions; and

· market conditions of securities traded on the ~~OTC~~Pink ~~Bulletin Board~~Sheets.

-2021-

Furthermore, stock prices for many companies fluctuate for reasons that may be unrelated to their operating results. Those fluctuations and general economic, political and market conditions, such as recessions, international currency fluctuations or terrorist or military actions, as well as public perception of equity values of publicly traded companies, may adversely affect the market price of our common stock.

There is no assurance of an established public trading market for our common stock

~~Although our~~Our ~~common~~ stock trades on the ~~OTC~~Pink ~~Bulletin~~Sheets ~~Board,~~and is not a ~~regular~~stock ~~trading~~exchange. Rather, ~~market~~it ~~for our~~is ~~common~~an ~~stock~~electronic ~~may~~quotation ~~not~~system beoperated ~~sustained~~by inPink OTC Markets that displays quotes from broker-dealers for over-the-counter ~~future~~(OTC) securities. ~~The~~These ~~NASD~~securities ~~(National Association~~tend ofto ~~Stock~~be ~~Dealers)~~inactively ~~has~~traded ~~enacted~~stocks, ~~recent~~including ~~changes~~penny ~~that~~stocks ~~limit~~and ~~quotations on~~those ~~the~~with ~~OTC~~a ~~Bulletin~~narrow ~~Board~~geographic tointerest ~~securities~~where ofmarket ~~issuers~~makers ~~that~~and ~~are~~other ~~current~~brokers incan publish their ~~reports~~ ~~filed~~bid ~~with~~and ~~the~~ask ~~SEC~~quotation prices. The ~~OTC~~term ~~Bulletin~~Pink ~~Board~~Sheets is ~~an inter-dealer,~~also ~~over-the-counter~~used ~~market~~to ~~that~~refer ~~provides~~to ~~significantly~~a ~~less~~market ~~liquidity than~~tier within the ~~NASD’s~~current ~~automated~~Pink ~~quotation~~Quote system ~~(the “Nasdaq Stock Market”)~~. Quotes for stocks included on the ~~OTC~~Pink ~~Bulletin~~Sheets ~~Board~~ are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market. Therefore, prices for securities traded solely on the ~~OTC~~ ~~Bulletin~~Pink ~~Board~~Sheets may be difficult to obtain and holders of our common stock may be unable to resell their securities at or near their original offering price, or at any price.

Our common stock trades on the Pink Sheets and we may not file financial statements with the SEC

Our stock trades on the Pink Sheets, an over the counter quotation service and we are not required to file financial statements with the SEC and do not meet or seek the listing requirements to trade on the OTCBB, AMEX, NASDAQ, or NYSE. The Pink Sheets is not a stock exchange. To be quoted in the Pink Sheets, companies do not need to fulfill any requirements (e.g. filing financial statements with the SEC). Although the Company intends to file financial statements with the SEC, if we do not file periodic reports or audited financial statements with the SEC, it will be very difficult for investors to find reliable, unbiased information about us. For these reasons the SEC views companies listed on Pink Sheets as "among the most risky investments" and advises potential investors to heavily research the companies in which they plan to invest.

Our common stock is considered a “penny stock” and may be difficult to sell

Our common stock is considered to be a “penny stock” since it meets one or more of the definitions in Rule 3(a)(51-1) promulgated under the Exchange Act. These include but are not limited to the following: (i) the stock trades at a price less than $5 per share; (ii) we are NOT traded on a “recognized” national securities exchange; (iii) we are NOT quoted on the Nasdaq Stock Market; (iv) we are NOT have a market value of listed securities of $50 million; or (v) it does NOT have a minimum bid price of $4 per share. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis. Section 15(g) of the Exchange Act, and Rule 15g-2 promulgated thereunder by the SEC, require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Our common stock will not be considered a “penny stock” if our net tangible assets exceed $2,000,000 or our average revenue is at least $6,000,000 for the previous three years.

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in clause (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected

We have identified certain material weaknesses in our internal controls over financial reporting per the assessment required pursuant to rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002. This may have an adverse impact on investor confidence and the price of our common stock. Failure to establish and maintain appropriate internal controls over financial reporting, or any failure of those controls once established, could have a material adverse effect on our business, financial condition or results of operations or raise concerns for investors. Any actual or perceived weaknesses or conditions in our internal controls over financial reporting that need to be addressed may have a material adverse effect on the price of our common stock.

-22-

Loss of Control by Present Management and Shareholders

The Company may consider an acquisition in which the Company would issue as consideration for the business opportunity to be acquired an amount of the Company's authorized but unissued Common Stock that could, upon issuance, constitute as much as 51% of the voting power and equity of the Company. The result of such an acquisition would be that the acquired company's stockholders and management would control the Company, and the Company's management could be replaced by persons unknown at this time. Such a merger could leave investors in the securities of the Company with a greatly reduced percentage of ownership of the Company. Management could sell its control block of stock at a premium price to the acquired company's stockholders, although management has no plans to do so.

-21-

Dilutive Effects of Issuing Additional Common Stock

In order to pursue our business plans, we will need to raise additional capital. If we are able to obtain additional funding through the sale of common stock, the financing would dilute the equity ownership of existing stockholders.

The necessary financing could be obtained through one or more transactions that could effectively dilute the ownership interests of our then-current stockholders. Further, there can be no assurances that we will be able to secure such additional financing. The board of directors of the Company has authority to issue such unissued shares without the consent or vote of the shareholders of the Company. We are authorized to issue up to 500,000,000 shares of our common stock and 5,000,000 shares of preferred stock, $0.~~001~~0001 par value per share.

Our Board of Directors can issue preferred stock with terms that are preferential to our common stock.

Our Board of Directors may issue up to 5,000,000 shares of preferred stock without action by our stockholders. Rights or preferences could include, among other things:

·	the establishment of dividends which must be paid prior to declaring or paying dividends or other distributions to our common stockholders;

·	greater or preferential liquidation rights which could negatively affect the rights of common stockholders; and

·	the right to convert the preferred stock at a rate or price which would have a dilutive effect on the outstanding shares of common stock.

See “Description of Securities—Preferred Stock”.

In addition, any preferred stock that is issued may have rights, including as to dividends, liquidation preferences and voting, that are superior to those of holders of Common Stock.

We have not and do not anticipate paying dividends on our Common Stock.

We have not paid any cash dividends to date with respect to our common stock. We do not anticipate paying dividends on our common stock in the foreseeable future since we will use all of our earnings, if any, to finance expansion of our operations. However, we are authorized to issue preferred stock and may in the future pay dividends on our preferred stock that may be issued.

-23-

ITEM 2.

PROPERTIES

We do not own any real estate or other physical properties materially important to our operation. Our administrative and principal executive offices are located at 6073 Hwy 281 South, Mineral Wells, TX 76067. We currently do not have a lease and we are not paying rent for our office space. It is being provided to the Company by our Chief Executive Officer and sole director free of charge. Usage of this office space and the related value is de minimis. Therefore, no expense has been recorded in the accompanying financial statements. We expect we will have to lease more substantial corporate office space in the near future and that the cost of the space may be material to our operations. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

ITEM 3.

LEGAL PROCEEDINGS

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.

During the period covered by this Annual Report, and as of the present date, we were not and are not a party to any material legal proceedings, nor were or are we aware of any threatened litigation of a material nature against us.

-2224-

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

As of ~~April~~ 15May 14, ~~2009~~2010, the Company had 2062,~~360~~616,~~389~~748 common shares ofoutstanding, ~~common~~including ~~stock~~23,350,677 ~~issued~~classified ~~and outstanding~~as issuable. The Company’s common stock, par value $0.0001 per share (the "Common Stock"), is traded on the ~~Over~~Pink ~~the~~Sheets ~~Counter Bulletin Board ("OTCBB")~~ under the symbol "AENP.PK".

The following table sets forth certain information as to the high and low bid quotations ~~quoted on the OTCBB~~ for our ~~2008~~2009 and ~~2007~~2008 fiscal years. Information with respect to over-the-counter bid quotations represents prices between dealers, does not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

	High		Low
Fiscal Year Ending 2009
First Quarter	$	0.05	$	0.02
Second Quarter	$	0.11	$	0.02
Third Quarter	$	0.12	$	0.05
Fourth Quarter	$	0.12	$	0.05
Fiscal Year Ending 2008
First Quarter	$	0.47	$	0.27
Second Quarter	$	0.44	$	0.23
Third Quarter	$	0.25	$	0.15
Fourth Quarter	$	0.21	$	0.01
Fiscal Year Ending 2007
First Quarter	$	2.25	$	1.50
Second Quarter	$	1.75	$	0.75
Third Quarter	$	1.00	$	0.25
Fourth Quarter	$	0.49	$	0.22

On ~~April 15~~May 14, ~~2009~~2010, the closing ~~bid~~ price for a share of our common stock, ~~as reported by the OTCBB~~ was $0.~~038~~04.

Holders

As of ~~April~~ 15May 14, ~~2009~~2010, there were approximately ~~415~~413 stockholders of record of our common stock, which does not include shareholders whose shares are held in street or nominee names, and no shares of our preferred stock were issued or outstanding.

Dividends

No cash dividends have been declared or paid on our common stock since our inception. No restrictions limit our ability to pay dividends on our common stock. We do not expect to pay any dividends in the near future.

-2325-

Securities Authorized For Issuance Under Equity Compensation Plans

In September 2008, the Company’s Board of Directors approved the issuance of up to 10,000,000 shares of common stock under the 2008 Non-Qualified Stock Option Plan (the “Plan”). The Plan is to assist the Company in securing and retaining Key Participants of outstanding ability by making it possible to offer them an increased incentive to join or continue in the service of the Company and to increase their efforts for its welfare through participation in the ownership and growth of the Company. On September 25, 2008, the Company filed a Form S-8 with the SEC for the registration of the underlying shares of stock from the plan. ~~As of April 15, 2009, no grants under the Plan had been issued by the Company.~~

On May 11, 2009, the Company granted 9,800,000 non-qualified stock options to employees and consultants under the Plan as described above. Of the 9,800,000 stock options granted, 7,000,000 were issued to employees and 2,800,000 were issued to consultants. All of the options were vested 100% upon the grant date of May 11, 2009.

Effective October 27, 2009, the Company received $15,000 from the exercise of 1,000,000 non-qualified stock options by the President of PRI at the exercise price of $0.015 per share.

As of May 1, 2010, 8,800,000 non-qualified stock options granted under the Plan are outstanding.

Recent Sales of Unregistered Securities

None

ITEM 6.

SELECTED FINANCIAL DATA

	Years Ended
	December 31,
	2008			2007
	2009			2008
Revenues	$	1,~~842~~107,~~059~~940		$	1,~~581~~842,~~661~~059
Total Operating Expenses		32,~~617~~572,~~895~~821			3,~~743~~617,~~656~~904
Operating Loss		(1,~~775~~464,~~836~~881	)		(21,~~161~~775,~~995~~845	)
Total Other Income (Expense)		~~(372~~455,~~716~~553	)		(~~121~~372,~~982~~706	)
Net Loss	$	(21,~~148~~009,~~551~~328	)	$	(2,~~283~~148,~~978~~551	)
Net Cash Provided by Operating Activities	$	117,874		$	122,368
Net Cash Provided by (Used In) Operating Activities	$	(330,208	)	$	117,873
Per Share and Share Data
Weighted average Shares Outstanding		2041,~~361~~384,~~880~~640			1920,~~770~~301,~~055~~880
Shares Outstanding at Year-End		20,360,389			19,767,055
Shares Outstanding and Issuable at Year-End		62,616,748			20,360,389
Net Loss Per Share - Basic and Diluted	$	(0.1102	)	$	(0.1211	)
Book Value Per Share	$	(0.1504	)	$	(0.0515	)
Market Price:
High	$	0.4712		$	20.2547
Low	$	0.0102		$	0.2201
Year-End Close	$	0.0305		$	0.4503
Assets
Current Assets	$	8979,~~083~~807		$	~~134~~89,~~740~~083
Property and equipment, net	$	43,~~011~~773,~~903~~071		$	4,~~365~~011,~~765~~903
Other Assets	$	~~135,280~~-		$	~~272~~135,~~771~~280
Total Assets	$	43,~~236~~852,~~266~~878		$	4,~~773~~236,~~277~~266
Liabilities
Total Current Liabilities	$	6561,~~782,260~~373		$	56,~~155~~782,~~387~~259
Asset Retirement Obligations	$	~~509~~532,~~155~~046		$	~~524~~509,~~488~~155
Total Liabilities	$	71,~~291~~093,~~415~~419		$	57,~~679~~291,~~875~~414
Stockholders' Deficit	$	(3,055,149	)	$	(906,599	)
Stockholders' Equity (Deficit)	$	2,759,459		$	(3,055,149	)
Total Liabilities and Stockholders' Deficit	$	43,~~236~~852,~~266~~878		$	4,~~773~~236,~~277~~266
Number of Employees		109			1110
Oil and Gas Wells
Gross		207			~~220~~207
Net		204			~~215~~204
Acreage
Gross		7,701			7,~~811~~701
Net		7,393			7,~~394~~393
Reserves
Proved Oil (MBBL)		7.~~728~~646			67.~~934~~728
Proved Natural Gas (BCF)		4025.~~522~~537			140.58522
Production
Oil (bbls)		1114,~~501~~249			1411,~~144~~501
Natural Gas (mcf)		8872,~~711~~855			8188,~~928~~711
Total Equivalent (bbls)		26,~~286~~392			2726,~~799~~286
Average Sales Price
Oil (bbls)	$	9352.2105		$	6893.7421
Natural Gas (mcf)	$	84.6680		$	78.4266
Natural Gas Equivalent (mcfe)	$	5128.9879		$	4451.5298

-2426-

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements included in this Annual Report (the “Financial Statements”), and the accompanying notes thereto, and the other financial information appearing elsewhere in this Annual Report. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events. Our actual results may differ materially from those anticipated in our forward-looking statements. Please also refer to “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS” beginning on page 4 of this Annual Report and “RISK FACTORS” beginning on page 8 of this Annual Report.

OVERVIEW

For a description of the historical development of our business, please refer to “Item 1. Description of Business – History of Company Development” beginning on page 6 of this Annual Report.

RECENT DEVELOPMENTS

On March 6, ~~2009 but effective December 31~~30, ~~2008~~2010, ~~Bent Arch executed~~ a ~~Fourth Modification~~$10,000 ~~and~~note ~~Extension~~payable ~~Agreement~~that ~~(the~~was ~~“Fourth~~in ~~Extension”)~~default inas ~~relation~~of toDecember ~~the Note~~31, ~~that~~2009 was torepaid ~~become~~in ~~due~~full ~~and~~including ~~payable~~accrued oninterest ~~December~~in ~~31, 2008. The Third Extension modified~~ the ~~terms~~amount of ~~the Note as follows;~~$10,900.

·Effective March 1, 2010, the Company executed a definitive agreement (the “Transaction”) with Emerald Bay Energy, Inc., a publicly traded Calgary based Energy Company and a private third party (together the “Purchasers”) for the purchase of its wholly owned subsidiary PRI. The ~~maturity~~purchase ~~date~~price is $850,000 USD comprised of a combination of $425,000 USD value of Emerald Bay Energy (“EBY”) restricted stock and $425,000 USD cash from a private third party. Additionally, the ~~Note~~Company would retain a 1% overriding royalty on any oil or natural gas formation below 1,200 feet deep. The Transaction was ~~extended~~subject to ~~December~~the ~~31,~~final ~~2009~~approval of the TSX Venture Exchange (“TSX”).

The USD $425,000.00 worth of EBY restricted common stock to be issued to the Company was set at $0.08 per share CDN based upon the exchange rate between Canadian and United States Dollars as of the date of Closing when the TSX gave final approval. However, the Transaction specified that in the event that the EBY restricted stock amount to be issued resulted in ownership by the Company of ten percent (10%) or more of the outstanding shares of EBY, then the EBY Stock amount would be reduced to an amount of EBY shares which does not exceed 9.97% of the total outstanding common shares of EBY and the resulting shortfall in the $425,000 USD value of the EBY Stock amount of the purchase price would be paid to the Registrant in cash as consulting services fees under an eighteen (18) month consulting agreement.

Effective March 8, 2010, the TSX approved the Transaction and under the terms of the definitive agreement, 5.0 million shares of EBY restricted common stock were issued to the Company, along with an eighteen (18) month consulting agreement totaling USD$36,800. Additionally, the Company will also retain a 1% gross overriding royalty on any oil or natural gas formation below 1,200 feet.

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~~valuation ~~concern,~~of ~~BDC conversion,~~ oil and gas properties, valuation and depreciation periods of property and equipment, the evaluation of whether our assets are impaired, asset retirement obligations, ~~revenue~~valuation ~~recognition~~of non-cash stock based grants, ~~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 "Nature of Operations and Summary of Significant Accounting Policies" in the notes to our audited consolidated financial statements contained in this Annual Report. 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~~-27-

~~The independent~~OIL ~~registered~~AND ~~public~~GAS ~~accounting~~PROPERTIES ~~firms’~~AND reports to our financial statements at December 31, 2008 and 2007 and for the years ended December 31, 2008 and 2007, include an explanatory paragraph in addition to their audit opinion stating that our recurring losses from operations, net cash used in operations, stockholders’ deficit and working capital deficiency 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.EQUIPMENT

The Company uses the successful efforts method of accounting for its oil and gas properties. Unproved properties are assessed periodically for possible impairment. Costs incurred by the Company related to the acquisition of proved and unproved oil and gas properties and the cost of drilling only successful wells are capitalized. Costs to maintain wells and related equipment and lease and well operating costs on proved properties are charged to expense as incurred. Gains and losses arising from sales of properties are included in other income (expense). Proved oil and gas properties are depleted using the units-25of-production method based on total proved reserves.

~~BDC CONVERSION~~The Company’s oil and gas rig is depreciated over its estimated useful life of ten years, using the straight line method. Vehicles are depreciated over their estimated useful life of three years, using the straight line method. Repairs and maintenance are expensed in the year incurred, while renewals and betterments are generally capitalized. Expenditures less than $1,000, including contract labor, are expensed to operations in the year incurred.

AsACCOUNTING ~~a result~~FOR ofTHE ~~the~~IMPAIRMENT ~~Company’s~~OF ~~conversion~~LONG-LIVED 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.ASSETS

~~OIL~~We ~~AND~~account ~~GAS PROPERTIES~~for the impairment of long-lived assets in accordance ASC 360-10 (SFAS No. 144), “Property, Plant and Equipment, 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.

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.

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 years ended December 31, 2008 or 2007.

ASSET RETIREMENT OBLIGATIONS

The Company accounts for asset retirement obligations in accordance with ~~Statement of~~ASC ~~Financial~~410 ~~Accounting Standards~~ (“SFAS”) No. 143), ~~Accounting for~~ “Asset Retirement and Environmental 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 ofat the asset’s inception, with an offsetting increase to the producing properties asset. ~~Periodic~~Accretion ~~accretion~~expense ofis ~~the~~recognized ~~discount related~~over totime as the ~~estimated~~discounted liability is ~~recorded~~accreted to its expected settlement value and is classified as an expense in the consolidated 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.~~ discounted liability. 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.

STOCK-~~26-~~BASED COMPENSATION

~~REVENUE RECOGNITION~~The Company adopted ASC 718 (SFAS No. 123R), Compensation – Share Based Compensation, as of January 1, 2006, using the modified prospective application method. This statement requires the recognition of compensation expense measured at fair value when we obtain employee services in stock-based payment transactions.

Revenues from sales of crude oil and natural gas products are recorded when deliveries have occurred and legal ownership of the commodity transfers to the customer. Revenues from the production of oil and natural gas properties in which the Company shares an undivided interest with other producers are recognized based on the actual volumes sold by the Company during the period.

VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS

~~In assessing~~Income taxes are accounted for under the ~~recoverability~~asset and liability method of ASC 740 (SFAS No. 109), “Income Taxes. Under ASC 740, deferred tax assets, ~~management~~and ~~considers whether~~liabilities itare isrecognized ~~more~~for ~~likely~~the ~~than~~future ~~not~~tax ~~that~~consequences ~~some~~attributable ~~portion~~to ordifferences ~~all~~between of the ~~deferred~~financial ~~tax~~ statement carrying amounts of existing assets ~~will~~and beliabilities ~~realized~~and their respective tax bases. ~~The~~Deferred ~~valuation~~tax ~~allowance~~assets atand ~~December~~liabilities ~~31,~~are ~~2008 was~~measured ~~$1,548,597~~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. ~~Net~~Under ~~operating~~ASC ~~loss~~740, ~~carry-forwards~~the ~~aggregate approximately~~effect ~~$4,424,563~~on deferred tax assets and ~~expire~~liabilities of a change in tax rates is recognized in income in the ~~years~~period ~~through~~that ~~2029~~includes the enactment date.

~~As discussed previously, 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~~28-owned portfolio companies but rather 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 has utilized April 1, 2007 as the inception date for the new business as an oil and gas operating company. As a result of this change, and IRS Section 382 rules, the net operating loss carry-forwards from previous years to April 1, 2007 will not be allowable and are not included.

Results of Operations

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

	Years Ended
	Year Ended
	December 31,
	2008			2007
	2009			2008
Revenues:
Oil sales, net	$	1,~~842~~107,~~059~~940		$	1,~~581~~842,~~661~~059
Operating Expenses
Compensation		~~255~~350,~~384~~120			~~213~~255,~~419~~384
Consulting		-44,696			~~3,260~~-
Depreciation, depletion and accretion		~~562~~294,~~334~~561			~~540~~562,~~677~~334
Rent		896,~~161~~617			3689,~~527~~161
General and administrative		~~225~~208,~~836~~385			~~389~~260,~~746~~063
Production		21,~~265~~191,~~456~~029			2,~~300~~232,~~198~~318
Professional		~~126~~176,~~748~~733			~~173~~126,~~393~~748
Taxes		91,896			86,436
Research and development		215,434			-
Website		1,080			-
Business taxes		85,246			91,896
Total Operating Expenses		32,~~617~~572,~~895~~821			3,~~743~~617,~~656~~904
Operating Loss		(1,~~775~~464,~~836~~881	)		2(1,~~161~~775,~~995~~845	)
Other Income (Expense)
Other income (expense)		~~(195~~543,~~942~~110	)		19(198,~~097~~516	)
Gain on sale of properties		-			29,309
Interest expense		(87,557	)		(170,760	)
Interest expense		(170,769	)		(164,383	)
Payroll tax expense and penalties		-			(6,004	)
Payroll tax expense and penalties		(6,004	)		(6,004	)
Gain on Sale of Property		-			2,574
Total Other Income (Expense)		~~(372~~455,~~716~~553	)		(~~121~~372,~~982~~706	)
Net Loss	$	(21,~~148~~009,~~551~~328	)	$	(2,~~283~~148,~~978~~551	)

~~-27-~~Year Ended December 31, 2009 compared to December 31, 2008

Year Ended December 31, 2008 compared to December 31, 2007

Revenues:

Revenues ~~increased~~ decreased $~~260~~734,~~399~~119 or 1640%, to $1,~~842~~107,~~059~~940 for ~~2008~~2009 from $1,~~581~~842,~~661~~059 for ~~2007~~ 2008. The ~~increase~~decrease was due primarily to ~~increased~~decreased market pricing from the sale of the Company’s oil and gas production..

-29-

Operating Expenses:

Operating expenses decreased $~~125~~1,~~761~~045,083, or 329%, to $32,~~617~~572,~~895~~821 for ~~2008~~2009 from $3,~~743~~617,~~656~~904 for ~~2007~~ 2008. The decrease was primarily the result of a $~~163~~1,~~910 decrease in general and administrative expense~~041,289 ~~a $34,742~~ decrease in production expense and a $46,645 decrease in professional expense, offset by a $52,633 increase in rent expense, a $41,966 increase in compensation expense and a $21,658 increase in depreciation, depletion and accretion 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 change in general and administrative and professional expense was from an effort made by the Company to reduce expenses.~~

Other Income (Expense):

Other income (expense) increased $~~250~~828,~~733~~260 of ~~expense~~income, or approximately ~~100~~222% to $~~372~~455,~~716~~553 of ~~expense~~income for ~~2008~~2009 from $~~121~~372,~~982~~706 of expense for ~~2007~~2008. The change was primarily composed of a $~~215~~741,~~039~~626 increase in other ~~expense~~income, of which ~~$195,000~~ ~~was~~the ~~related~~majority towas anfor ~~adjustment~~the write-off of accounts payable, accrued ~~compensation~~interest ~~not~~and ~~properly recorded~~debt inthat ~~the~~had ~~prior~~been ~~periods. Additionally,~~outstanding ~~the~~for ~~change~~a ~~was~~significant ~~comprised~~ amount of ~~$29,309~~time ~~gain~~without onany ~~sale~~contact offrom ~~properties~~the inparties ~~2007~~and ~~with~~past nothe ~~corresponding~~statute ~~amount~~of ~~in 2008~~limitations for collection.

Liquidity and Capital Resources:

Cash and cash equivalents were $8847,~~937~~284 at December 31, ~~2008~~2009 as compared to $~~133~~88,~~220~~937 at December 31, ~~2007~~2008, and working capital deficit was $6481,~~693,177~~566 at December 31, ~~2008~~ 2009 as compared to a working capital deficit of $56,~~020~~693,~~647~~175 at December 31, ~~2007~~ 2008. The ~~increase~~decrease in the working capital deficit was primarily from a $1the June 30,~~531,027~~ ~~increase~~2009 inelimination ~~due~~of tocertain ~~related~~debt ~~parties~~obligations ~~and~~by converting them into $~~161~~0.0001 par value common stock (“Stock”) of the Company. Additionally,~~864~~ ~~increase~~the inCompany ~~accrued interest~~successfully ~~payable~~negotiated and eliminated a substantial amount of obligations as discussed above under Other Income (Expense).

Historical Trends:

Operating Activities

Cash ~~provided~~ byused in operating activities was $~~117~~330,~~874~~208 for the year ended December 31, ~~2007~~ 2009 compared to cash provided of $~~122~~117,~~638~~873 for the year ended December 31, ~~2007~~ 2008.

Investing Activities

Cash used in investing activities was $~~253~~102,~~504~~442 for the year ended December 31, ~~2008~~ 2009 compared to cash used of $~~144~~253,~~178~~504 for the year ended December 31, ~~2007~~ 2008. The ~~increase~~decrease in cash used resulted primarily from ana ~~increase~~ decrease in the investment in property and equipment.

Financing Activities

Cash provided by financing activities was $91186,~~348~~114 for the year ended December 31, ~~2008~~ 2009 compared to $4891,~~127~~348 of cash provided for the year ended December 31, ~~2007~~ 2008. The change was primarily from aan ~~reduction~~increase in the ~~repayment~~proceeds from the sale of common stock and notes payable ~~from~~along ~~2007~~with tothe ~~2008~~write byoff ~~$29,221~~of an uncollectible subscription receivable.

-28-

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 existing 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.

-30-

Debt:

Our debt at December 31, 2008 and 2007 consisted of the following:

Lease Payable

	December 31,
	2008		2007
	2009		2008
$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. The lease was secured by the computer equipment and perfected by a UCC financing statement; however, the Company liquidated the equipment in 2006, (with the lessor approval) , and paid the resulting $45,~~000~~107 of net proceeds to the lessor. As a result ~~of the computer liquidation other payments~~, the remaining unpaid balance of principal ~~has~~had been $16,131 since March 31, 2006. The payable is was personally guaranteed by a former officer/ and director of the Company and the current Chief Executive Officer of the Company. As of December 31, 2008, the Company ~~has~~ had recorded a total of $25,029 in accrued interest for this payable in the accompanying Balance Sheet.

In November 2003, a settlement was negotiated with the lessor ~~discussed above~~ to forgive the outstanding principal and accrued interest on the lease payable once the transfer of 4,000 shares (100,000 shares prior to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s current Chief Executive ~~office~~Officer to the lessor occurs. The Chief Executive Officer of the Company transferred these shares on September 15, 2003~~. However,~~ asbut ~~of December 31, 2008,~~ the ~~transaction has not been finalized as the~~ lessor ~~has~~did not ~~agreed~~sign 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.~~

AsThe ~~of December~~Company ~~31,~~researched ~~2008,~~ the ~~Company~~matter ~~has~~and ~~recorded~~believes ~~$122,671~~that ofconsideration ~~accrued~~was ~~interest~~provided ~~for previously~~by ~~issued~~the ~~convertible~~Company ~~debentures. Several~~and ~~convertible debenture~~accepted ~~holders~~by ~~previously~~the ~~elected~~Lessor tofor ~~convert~~the ~~all~~settlement orand athat ~~portion~~no offurther ~~the convertible~~consideration ~~debentures~~or ~~into~~action ~~common~~is ~~stock~~required by the Company. ~~However~~Additionally, ~~the~~under ~~conversion~~Delaware ~~did not~~corporation ~~include~~law, ~~accrued~~statute ~~interest~~of ~~that~~limitations ~~was~~for ~~specified~~claims inis ~~the~~three ~~convertible~~years ~~debenture documentation. Although~~and since the ~~Company~~settlement ~~believes~~was ~~that~~completed in November 2003, no further ~~common stock~~obligation ~~will~~of bethe ~~issued~~Company ~~for~~is ~~these conversions~~warranted. Accordingly, during 2009 the ~~accrued~~$16,131 ~~interest~~debt ~~balance~~obligation ~~for these~~and ~~converted~~$25,029 ~~debentures~~of isaccrued ~~included~~interest inhave ~~the~~been ~~accrued~~written ~~interest~~off ~~balance~~to asOther ~~of December~~Income ~~31,~~in ~~2008~~the consolidated financial statements.

Notes Payable

	December 31,
	2008		2007
	2009		2008
$2,000,000 Promissory Note, dated February 20, 2003, bearing interest at 8% per annum and due on December 31, 2008	$	2,000,000	$	2,000,000
$25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6.75% per annum and due on January 25, 2010.	$	23,684	$	24,062
$25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6% per annum and due on February 28, 2008.		24,062		23,714
$124,487 Note, dated March 27, 2008, not formalized and not bearing interest		100,487		91,000
$103,000 Note, dated March, 2008, not formalized and not bearing interest		91,000		-
$10,000 Note, dated June 30, 2009, bearing interest at 18% per annum and due December 31, 2009.		10,000		-
	$	2134,~~115,062~~171	$	2115,~~023,714~~062

~~-29-~~On October 28, 2005, Bend Arch entered into a $25,000 line of credit facility with a financial institution for working capital purposes. The line of credit is secured by a certificate of deposit held by the financial institution and bears simple interest per annum at a variable rate which was 3.25% as of December 31, 2009. As of December 31, 2009, the outstanding balance is $23,684 and is classified as a component of Note Payable in the accompanying consolidated financial statements.

~~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, 2004.31-

~~The~~On ~~terms of~~March ~~the~~27, ~~Note~~2008, ~~included~~the ~~(i)~~Company ~~the~~purchased ~~payment~~oilfield ofproperty ~~interest~~and atequipment for a ~~rate~~price of ~~eight~~$159,487. The ~~percent~~terms ~~(8%) per~~included ~~annum~~a ~~(ii)~~cash ~~principal~~payment ~~and~~of ~~interest~~$35,000 ~~due~~ and ~~payable~~a onnote ~~July~~payable ~~25,~~for ~~2007~~the ~~(iii)~~balance ~~no prepayment~~of ~~penalty~~$124,487. In ~~(iv)~~2008, ~~payment~~the ~~made~~Company inpaid ~~excess~~down $24,000 of ~~sixty~~principal ~~(60)~~and ~~days after~~ the ~~due date~~balance ofis ~~July 25~~$100,487 ~~2007~~as ~~is a default~~ of ~~the~~December ~~Note~~31, 2009 and ~~Bend~~classified ~~Arch~~as ~~will~~a ~~forfeit~~component ~~all ownership~~ of ~~the~~Note ~~related~~Payable ~~leases~~in ~~and~~the ~~wells~~accompanying ~~and~~consolidated ~~relinquish~~financial ~~operations~~statements. As onof ~~the~~December ~~lease and~~31, ~~wells to Proco~~2009, ~~and~~no ~~(v)~~formal ~~upon~~agreement aof ~~default~~the terms of the ~~Note,~~note ~~Bend~~payable ~~Arch~~had ~~will~~been ~~vacate the~~finalized ~~leases~~and ~~with~~the noCompany ~~rights~~has ofa ~~ownership~~verbal ~~and~~agreement ~~execute~~to pay the ~~necessary~~principal ~~documents~~back ~~to transfer~~at ~~the~~a ~~leases~~rate ~~and~~of ~~wells~~$10,000 tomonthly ~~Proco~~when orsufficient ~~its~~cash ~~assigns~~flow is available.

~~Effective July~~On 25June 30, ~~2007~~2009, ~~Bent~~the ~~Arch~~Company ~~executed~~received $10,000 of proceeds from a ~~Modification~~short-term note from an unrelated third party. The terms included interest at a rate of 18% per annum, a December 31, 2009 maturity date a late payment charge equal to 5% of the unpaid balance and ~~Extension~~interest ~~Agreement~~at (the ~~“First~~ ~~Extension”~~lesser of a) in18% ~~relation~~or tob) as permitted by law. As of December 31, 2009, the ~~Note~~Company ~~that~~had ~~became~~accrued ~~due~~$900 ~~and~~of accrued interest related to the note payable onand the ~~same~~ ~~date~~note payable had not been repaid and was considered in default.

~~The~~As ~~First Extension~~of ~~modified~~December 31, 2008, the ~~terms~~Company had recorded $122,671 of accrued interest for previously issued convertible debentures. All of the ~~Note~~convertible debenture holders previously elected to convert all or a portion of the convertible debentures into common stock. However, the conversion agreement did not include accrued interest that was specified in the convertible debenture. The Company has researched the matter and believes that no further consideration is warranted for these conversions as ~~follows:~~a result of the executed conversion agreements. Additionally, since the Company is subject to Delaware corporation law, the Delaware statute of limitations for claims is three years, and the last conversion was in 2005, no further obligation of the Company is warranted. Accordingly, at December 31, 2009, the $122,671 of accrued interest has been written off to Other Income in the accompanying consolidated financial statements.

·Notes ~~The~~Payable ~~maturity~~– ~~date~~Related ~~of the Note was extended to September 25, 2007.~~Party

· 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.

	December 31,
	2009		2008
$2,000,000 Promissory Note, dated June 15, 2004, bearing interest at 8% per annum and due on December 31, 2008	$	-	$	2,000,000
	$	-	$	2,000,000

~~Effective September~~Bend ~~25,~~Arch ~~2007~~Petroleum, ~~Bent~~Inc. (“Bend Arch”), ~~executed~~ a ~~Second~~wholly-owned ~~Modification~~subsidiary ~~and~~of ~~Extension Agreement (~~the ~~“Second~~Company, ~~Extension”)~~had ina ~~relation~~$2,000,000 toPromissory ~~the~~Note (Note”) that ~~became~~was due and payable on ~~the~~December ~~same~~31, ~~date~~2009. The ~~Second~~Note ~~Extension~~was ~~modifies~~issued to Proco Operating Co., Inc. (“Proco”), a company controlled by the ~~terms~~brother of the Company’s Chief Executive Officer and a director. The purpose of the Note ~~as follows:~~was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004.

·On ~~The~~July ~~maturity~~29, ~~date~~2009, ofbut effective June 30, 2009 (the “Effective Date”), the Note was ~~extended~~converted into 8,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to ~~March~~the 31market price of the Stock. Additionally, ~~2008~~the Note accrued interest at a rate of eight percent (8%) per annum and as of the Effective Date, accrued interest was $878,027. An agreement was reached whereby Proco forgave $378,027 of the accrued interest and the remaining $500,000 has been converted into 2,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock.

AsThe ~~of December~~Company ~~31,~~evaluated ~~2008,~~the conversion of the ~~Company~~Note ~~has~~and the accrued interest in accordance with ASC 470-50-40 (Paragraph 20 of APB 26), “Debt — Modifications and Extinguishments — Derecognition” and recorded a $~~798~~1,~~685~~965,000 ofgain ~~accrued~~representing ~~interest~~the ondifference between the ~~Promissory~~ ~~Note~~reacquisition price and isthe ~~included~~net ascarrying amount of the extinguished debt and since the gain was from a ~~component~~transaction ofwith ~~accrued~~a ~~interest~~related ~~payable~~party, in the ~~accompanying~~$1,965,000 ~~financial~~was ~~statements~~recorded to additional paid in capital as a component of Stockholders’ Equity (Deficit).

OnAs ~~March 6,~~a ~~2009~~result ~~but~~of ~~effective~~the ~~December~~conversions ~~31,~~discussed ~~2008~~above, ~~Bent Arch executed a Fourth Modification and Extension Agreement (~~the ~~“Fourth~~Company ~~Extension”)~~will inissue ~~relation~~10,000,000 toshares ~~the Note~~of ~~that~~Stock ~~was to become due~~ and ~~payable~~as onof December 31, ~~2008. The Fourth~~2009, ~~Extension~~these ~~modified~~have ~~the~~been ~~terms~~recorded ofas issuable in the ~~Note~~accompanying asconsolidated ~~follows;~~financial statements.

~~· The maturity date of the Note was extended to December 31, 2009.~~-32-

On October 28, 2005, Bend Arch entered into a $25,000 line of credit facility with a financial institution for working capital purposes. The line of credit is secured by a certificate of deposit held by the financial institution and bears simple interest per annum at a variable rate which is six percent (6%) as of December 31, 2008. As of December 31, 2008, the outstanding balance is $24,062 and is included in the Note Payable balance in the accompanying consolidated financial statements.

In March 2008, the Company purchased oilfield property and equipment for a price of $150,000. The terms included a cash payment of $47,000 and a note payable for the balance of $103,000. During the nine months ended September 30, 2008, the Company paid down $12,000 of principal and the balance is $91,000 as of December 31, 2008 and classified as a component of Note Payable in the accompanying consolidated financial statements. As of December 31, 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.

-30-

Equity Financing

For the year ended December 31, ~~2007~~2009 and ~~2006~~2008, the Company received $89140,~~000~~005 and $2103,~~335,245~~000 of proceeds, net of offering costs, from the issuance of common stock, respectively.

Contractual Obligations and Commercial Commitments

The following table highlights, as of December 31, 2008, our contractual obligations and commitments by type and period:

Contractual Obligations	Total		Less than 1 year
Debt:
Lease Payable	$	16,131	$	16,131
Notes Payable		2,115,062		2,115,062
Accrued Interest Payable		946,385		946,385
Total Debt	$	3,077,578	$	3,077,578

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

~~2009~~ 2010 OUTLOOK

Our ability to have a successful oil and gas company is heavily dependent on securing additional capital to supplement the anticipated timeframe required for the oil and gas revenues and cash flows to be sufficient to cover our operating expenses. As a result, we are searching for an alternative means of securing additional capital, which may include the sale of additional shares of our common stock or the issuance of additional debt securities. Additionally, we require additional funds for working capital and for growth opportunities. However, there is no assurance that additional equity or debt financing will be available on terms acceptable to our management or that the additional financing will be available when we require the funds.

If we are unable to obtain additional capital or successfully implement our business strategy, this will have a significant impact on our ability to continue as a going concern.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and schedules that constitute Item 8 are attached at the end of this Annual Report on Form 10-K. An index to these Financial Statements and schedules is also included on page F-1 of this Annual Report on Form 10-K.

-31-

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

~~There have~~On ~~been~~August no7, ~~disagreements~~2009, orBoard ~~transactions~~of orDirectors ~~events~~of ~~similar~~the toCompany ~~those~~(“Board”) ~~which involved~~dismissed ~~such~~Moore ~~disagreements~~& orAssociates ~~reportable~~Chartered ~~events~~(“Moore”), ~~with~~its ~~former~~independent ~~accountants~~registered onpublic ~~any matter~~accounting offirm. ~~accounting~~On ~~principles~~the orsame ~~practices~~date, ~~financial~~August ~~statement disclosure or auditing scope or procedure~~7, ~~which disagreements~~2009, ifthe ~~not~~accounting ~~resolved~~firm ~~to the satisfaction~~ of ~~the~~Seale ~~former~~and ~~accountant~~Beers, ~~would~~CPAs ~~have~~was ~~caused~~engaged itas ~~to make reference to~~ the ~~subject~~Registrant's ~~matter~~new ~~disagreements~~independent inregistered ~~connection~~public ~~with~~accounting ~~any of its reports~~firm.

On September 11, 2009, Board dismissed Seale and Beers, CPAs (“Seale”), its independent registered public accounting firm. On the same date, September 11, 2009, the accounting firm of Salberg & Company, P.A. (“Salberg”) was engaged as the Company’s new independent registered public accounting firm. The Board approved the dismissal of Seale and the engagement of Salberg as its independent registered public accounting firm. None of the reports of Seale on the registrant's consolidated financial statements for either of the past two years or subsequent interim periods contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. Seale never issued an opinion on the Company’s consolidated financial statements as the only period they were engaged by the Company was the interim period for the three and six months ended June 30, 2009.

-33-

For the interim period that Seale was engaged by the Company, there were no disagreements with Seale whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Seal’s satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report on the Company's consolidated financial statements, nor were there any up to and including the time of dismissal on September 11, 2009.

On August 27, 2009, the Public Company Accounting Oversight Board (“PCAOB”) revoked the registration of Moore, the Company’s previous independent registered public accounting firm. This action was because of violations of PCAOB rules and auditing standards in auditing the financial statements, PCAOB rules and quality controls standards, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and noncooperation with a PCAOB investigation. As a result, our new independent registered public accounting firm, Salberg has re-audited the Company’s December 31, 2008 consolidated financial statements that were audited by Moore due to the revocation of Moore's registration and are included in the accompanying audited consolidated financial statements for the years ended December 31, 2009 and 2008, respectively.

Other than discussed above, there have been no disagreements, or transactions or events similar to those which involved such disagreements or reportable events, with former accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter disagreements in connection with any of its reports.

ITEM 9A.

CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, ~~2008~~2009 and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted a material weakness as discussed below. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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. 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.

-34-

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.

-32-

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 CEO (since there is no 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 back-ups 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. As soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures as described above.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, ~~2008~~2009 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

Not applicable.

~~Not applicable.~~-35-

-33-

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The principal occupations of each of our executive officers and directors for at least the past five years are as follows:

Name	Age	Positions Held With The Company	Director Since
Charles Bitters	6364	Chief Executive Officer, President and Director	2002
Joe Christopher	6061	President of Oil America Group, Inc. and Director	2008
Renny Walker	56	President of Production Resources, Inc.	N/A

There are no family relationships among any of our directors or executive officers. Each executive officer is elected or appointed by, and serves at the discretion of, our board of directors.

Charles Bitters has been Chief Executive Officer and director of the Company since 2002 and President since 2001. Mr. Bitters has over 25 years experience in all phases of the petroleum industry including drilling of oil and gas wells and the stimulation, production and operation of oil and gas wells. From 1997 to 2000, he was the Managing Member of Trinity Group, LLC, an oil and gas lease production company. Mr. Bitters holds a Bachelor of Science degree from Tarleton State University.

Joe Christopher has been President of Oil America Group, Inc., a wholly-owned subsidiary of the Company, since 2005 and was elected as a director of the Company in 2008. Mr. Christopher has a background in banking, securities, construction and manufacturing and is a graduate of the University of Texas at Arlington, Texas with a degree in Business Administration.

Renny Walker has been President of Production Resources, Inc. Oil America Group, Inc., a wholly-owned subsidiary of the Company, since 2005. Mr. Walker has an extensive background in the oil and gas industry including significant experience as a landman and in oil and gas exploration and production.

Effective May 27, 2008, Joe Christopher was elected to serve as a Director and will serve as a Director until the next annual meeting of the Shareholders of the Company.

Effective March 8, 2010 with the sale of Production Resources, Inc. (“PRI”) by the Company, PRI is no longer a wholly-owned subsidiary and Renny Walker is no longer an employee of the Company.

There are no agreements with respect to the election of Directors. We have not previously compensated our Directors for service on our Board of Directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our Board of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. The Company does not have a standing nominating committee or audit committee as the Board consists of only two members, Mr. Bitters and Mr. Christopher, which makes such committee’s impracticable. Mr. Bitters and Mr. Christopher are the sole directors participating in the consideration of director nominees. The Company knows of no understanding or arrangement between any director, nominee for director, officer or any other person pursuant to which he was or is to be selected as a director or nominee for director or an Officer of the Company.

None of our officers and/or directors signing this annual report have ever filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws.

-3436-

Section 16(a) Beneficial Ownership Reporting Compliances

Pursuant to Section 16(a) of the 1934 Act, the Company's directors and executive officers, and any persons holding more than 10% of its common stock, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based on the Company's review of Forms 3, 4 and 5 filed by such persons, the Company believes that during the fiscal year ended December 31, ~~2008~~2009, all Section 16(a) filing requirements applicable to such persons were met in a timely manner.

Code of Ethics, Whisteblower and Insider Trading

On February 1, 2008, the Company adopted a Code of Ethics for its Principal Executive Officer and Senior Financial Officer (the “Code of Ethics”). A copy of the Code of Ethics is filed as Exhibit 14 to this Form 10-K. The Code of Ethics is also available free of charge by writing to the Company at 6073 Hwy 281 South, Mineral Wells, TX 76067. The Code of Ethics establishes procedures for personal investment and restricts certain transactions by our personnel. The Code of Ethics generally does not permit investment by our employees in securities that may be purchased or held by us. Any updates to the Code of Ethics will be disclosed by the Company on a Form 8-K.

Additionally, the Company adopted Whistleblower and Insider Trading and Disclosure Policies on February 1, 2008. The Whistleblower policy provides that any employee of the Company may submit a good faith complaint regarding accounting or auditing matters to the management of the Corporation without fear of dismissal or retaliation of any kind. The Company is committed to achieving compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. The Corporation’s Board of Directors (until an Audit Committee is formally established) will oversee treatment of employee concerns in this area.

The Insider Trading Policy and Disclosure Policy provides guidance and procedures for employees, consultants, officers and directors related to Rule 10b-5 of the federal securities laws which prohibits buying or selling of a company’s stock by any person having knowledge of non-public material information concerning that company. In this context, material information is defined as information that a reasonable investor would want to know in making a decision to buy or sell that stock. The federal securities laws also impose certain duties on companies whose stock is publicly traded to take appropriate measures, in advance, to prevent insider trading violations. Primarily for this reason, the Company has adopted this policy to limit and restrict buying and selling of its stock by persons with access to non-public information in an effort to prevent violations of the antifraud provisions of the securities laws.

Identification of Audit Committee; Audit Committee Financial Expert

As discussed previously, the Company does not have a standing audit committee as the Board consists of only two members, Mr. Bitters and Mr. Christopher, which makes such a committee impracticable.

The Delaware General Corporation Law, our charter and by-laws provide for indemnification of our directors and officers for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful.

Our charter and by-laws limit the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:

·	any breach of their duty of loyalty to the corporation or its stockholders;

·	acts of omissions that are not in good faith or that involve intentional misconduct or a knowing violation of law;

·	unlawful payments of dividends or unlawful stock repurchases or redemptions; or

·	any transaction from which the director derived an improper personal benefit.

-3537-

The limitations do not apply to liabilities arising under the federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission.

Our charter and by-laws provide that we will indemnify our directors and officers, and may indemnify other employees and agents, to the maximum extent permitted by law. We believe that indemnification under our by-laws covers at least negligence and gross negligence on the part of indemnified parties. Our by-laws also permit us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of actions taken in his or her capacity as an officer, director, employee or agent, regardless of whether the by-laws would permit indemnification.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

Our charter provides that we must indemnify our directors and officers and that we must advance expenses, including attorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions. In addition, our charter provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent that the Delaware law statute prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, you may lose some or all of your investment in our common stock if we pay the costs of settlement or damage awards against our directors and officers under these provisions. We believe these provisions are necessary to attract and retain talented and experienced directors and officers.

ITEM 11. EXECUTIVE COMPENSATION

We provided named executive officers and our other employees with a salary to compensate them for services rendered during the fiscal year. Salary amounts for the named executive officers are determined for each executive based on his or her position and responsibility, and on past individual performance. Salary levels are typically considered annually as part of our performance review process. Merit based increases to salaries of the named executive officers are based on our board of directors’ assessment of the individual’s performance.

The following table shows for the years ended December 31, ~~2008~~2009 and ~~2007~~2008, the compensation awarded or paid by the Company to its Chief Executive Officer and its named executive officers as that term is defined in Item 402(a)(2) of Regulation S-B.

Summary Compensation Table

Name and Principal Position (1)	Year	~~Year~~Salary ($) (3)	Bonus ($)	Stock Awards ($)	Option Awards ($)	~~Salary~~Non- Equity Incentive Plan Compensation ($) ~~(4)~~	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All other Compensation ($)	Total ($)	~~Bonus ($)~~			~~Stock Awards ($)~~		~~Option Awards ($)~~		~~Non- Equity Incentive Plan Compensation ($)~~		~~Change in Pension Value and Nonqualified Deferred Compensation Earnings~~		~~All other Compensation ($)~~		~~Total ($)~~
Charles Bitters, Chief Executive Officer	2009 2008	120,000 120,000	~~2008~~- ~~2007~~-	- -	29,997 (4) -	- -	~~120,000~~- ~~120,000~~-	- -	149,997 120,000		~~- -~~			~~- -~~		~~- -~~		~~- -~~		~~- -~~		~~- -~~		~~120,000 120,000~~
Joe Christopher, President of Oil America Group, Inc.	2009 2008	65,000 65,000	~~2008~~- ~~2007~~-	- -	59,994 (4) -	- -	~~65,000~~- ~~65,000~~-	- -	124,994 65,000		~~- -~~			~~- -~~		~~- -~~		~~- -~~		~~- -~~		~~- -~~		~~65,000 65,000~~
Renny Walker, President of Production Resources, Inc.			2008 2007				70,384 64,970				- 29,047	(3)		- -		- -		- -		- -		- -		70,384 94,017
Renny Walker, former President of Production Resources, Inc. (5)	2009 2008	70,384 70,384	- -	- -	14,999 (4) -	- -	- -	- -	84,383 70,384

-3638-

1 Mr. Bitters and Mr. Christopher serve on the Company’s board of directors and do not receive any compensation for their director roles.

2 Mr. Bitters and Mr. Christopher serve on the Company’s board of directors and do not receive any compensation.

3 Salary is total base salary earned, rather paid or not. For both 2009 and 2008, Mr. ~~Walker’s~~ ~~bonus~~Bitters ~~includes~~earned $27120,~~547~~000 of ~~payments~~salary ~~from~~and Mr. Christopher earned $65,000 of salary. Effective June 30, 2009, Mr. Bitters converted $60,000 of his 2009 salary and all unpaid previously earned salary into $0.0001 par value common stock of the ~~sale~~Company at an exchange rate of a$0.25 ~~lease~~per ~~in 2007~~share. Effective June 30, 2009, Mr. Christopher forgave $32,500 of his 2009 salary and all unpaid previously earned salary.

4 ~~Salary is~~Represents ~~total~~the ~~base~~Black-Scholes ~~salary~~value ~~earned~~on the grant date of May 1, ~~rather~~2009 ~~paid~~for ornon-qualified ~~not. For~~stock ~~both~~options ~~2008~~issued ~~and 2007,~~as ~~Mr.~~follows: Charles Bitters ~~earned~~– ~~$120~~2,000,000, ofJoe ~~salary~~Christopher – 4,000,000, and ~~Mr.~~Renny ~~Christopher~~Walker ~~earned~~– ~~$65~~1,000 ,000. All of ~~salary,~~the ~~both~~options were issued with an exercise price of ~~which~~$0.015 ~~were~~per ~~accrued~~share and ~~unpaid~~were 100% vested on the grant date.

~~No director~~5 ~~received~~Effective ~~any~~with ~~type~~the sale of ~~compensation~~Production ~~from~~Resources, ~~the~~Inc. ~~Company~~on ~~for~~March ~~serving~~8, in2010, ~~such capacity~~Mr. ~~during~~Walker ~~the~~is ~~years~~no ~~ended~~longer ~~December~~an ~~31,~~employee ~~2008~~or ~~and~~executive ~~2007~~officer.

Option Grants in Last Fiscal Year

NoOn May 11, 2009, the Company granted 9,800,000 non-qualified stock options to employees and consultants under the 2008 Non-Qualified Stock Option Plan. All of the options granted were at an exercise price of $0.15 per share. Of the 9,800,000 stock options granted, in7,000,000 were issued to employees and 2,800,000 were issued to consultants. All of the ~~year~~options ~~ended~~were ~~December~~vested 31100% upon the grant date of May 11, ~~2008~~ 2009. Of the 7,000,000 stock options issued to ~~any~~employees, ~~executive~~2,000,000 ~~officers~~were granted to Charles Bitters, 4,000,000 to Joe Christopher and 1,000,000 to Renny Walker.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

NoEffective ~~options~~October ~~were~~27, ~~exercised~~2009, in the ~~year~~Company ~~ended~~received ~~December~~$15,000 31from the exercise of 1,000,000 ~~2008~~stock options by ~~any~~Renny ~~executive~~Walker ~~officers~~at the exercise price of $0.015 per share. The options were issued on May 11, 2009 and all 1,000,000 of the options were vested 100% upon the grant date of May 11, 2009.

Outstanding Equity Awards at Fiscal Year-End

We do not currently have any outstanding stock appreciation rights or stock options outstanding at December 31, 2008.

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Charles Bitters	2,000,000	-	-	$0.015	May 11, 2019	-	-	-	-
Joe Christopher	4,000,000	-	-	$0.015	May 11, 2019	-	-	-	-
Renny Walker	-	-	-	$0.015	May 11, 2019	-	-	-	-

-39-

Employment Agreements

Effective July 1, 2003, the Company entered into a salary and equipment rental agreement with its Charles Bitters, its Chief Executive Officer. The agreement is for an annual salary of $120,000 and a $3,500 per month equipment rental agreement. As of January 1, 2005, the $3,500 per month equipment rental agreement with the Chief Executive Officer was terminated. Effective AsJune ~~of December 31~~30, ~~2007~~2009, the Company owed the Chief Executive Officer $~~306~~593,~~425~~735 for unpaid amounts under the agreement~~. During~~ ~~the~~which ~~year~~has ~~ended~~been ~~December~~converted ~~31,~~into ~~2008~~2,374,940 ~~the~~shares ~~Company accrued~~of ~~but~~Stock ~~did~~based ~~not~~upon ~~pay~~a conversion price of $~~120,000~~0.25 ~~for~~per ~~compensation~~share, ~~reduced~~a significant premium to the ~~balance~~market ~~$8,500 for~~price ~~payments~~of ~~made~~the toStock. After the ~~Chief~~conversion ~~Executive~~discussed ~~Officer,~~above and ~~increased~~from July 1, 2009 through December 31, 2009, the ~~balance~~ Company accrued $9360,000 for ~~advances~~salary ~~made~~obligation, by the Chief Executive Officer onadvanced ~~behalf~~$46,800 ofto the Company~~. As~~ aand ~~result~~the Company repaid $13,650 of the ~~accrued~~amount ~~balance~~advanced asto the Chief Executive Officer. As of December 31, ~~2008~~2009, the amount outstanding is $~~510~~93,~~925~~150 and is ~~classified~~recorded as a component of Due Toto Related Parties in the accompanying consolidated financial statements.

Effective January 1, 2005, the Company has an agreement with Joe Christopher, the President of its wholly owned subsidiary Oil America Group, Inc. (“OAG”) in the amount of $65,000 annually. ~~Through~~As ~~December~~of 31June 30, ~~2008~~2009, the ~~Company~~President of OAG was owed $292,500 for unpaid salary. Effective June 30, 2009, the unpaid salary of $292,500 has ~~accrued~~ been forgiven by the President of OAG and as a result of the transaction and since the President of OAG is an officer of the Company and is a related party, the $~~260~~292,~~000~~500 of accrued compensation ~~related~~forgiven was classified as a capital transaction and recorded to ~~this~~additional ~~agreement~~paid in capital in the accompanying consolidated financial statements. After the conversion discussed above and ~~this~~ from July 1, 2009 through December 31, 2009, the Company accrued $32,500 for salary obligation, the President advanced OAG $15,200 and OAG owed the President $2,844 for expenses paid on behalf of OAG. As of December 31, 2009, the amount outstanding is $49,544 and is recorded as ~~other~~a ~~current~~component ~~liabilities~~of Due to Related Parties in the accompanying consolidated financial statements.

In the future we may implement a retirement savings plan and medical insurance plan covering our officers and other employees.

We do not have any other contractual arrangements with our executive officers or directors, nor do we have any compensatory arrangements with our executive officers other than as described above. Except as described above with respect to Mr. Bitters, we have not agreed to make any payments to our named executive officers because of resignation, retirement or any other termination of employment with us or our subsidiaries, or from a change in control of us, or a change in the executive’s responsibilities following a change in control.

-37-

Director Compensation

We do not have a formal plan for director compensation. No director received any type of compensation from the Company for serving in such capacity for the ~~year~~years ended December 31, 2009 and 2008, respectively.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table summarizes certain information as of ~~April~~May 151, ~~2009~~2010 with respect to the beneficial ownership of our common stock by (1) our directors and executive officers, (2) stockholders known by us to own 5% or more of the shares of our Common Stock, and (3) all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws, where applicable, the person named below has voting and investment power with respect to all shares of our common stock shown as beneficially owned by him.

~~Beneficial ownership is determined in accordance with the Rule 13d~~-3(a) of the Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws, where applicable, the person named below has voting and investment power with respect to all shares of our common stock shown as beneficially owned by him.40-

Title of Class	~~Title~~Name and Address of ~~Class~~Beneficial Owner (a) (c)	~~Name~~Amount and ~~Address~~Nature of Beneficial ~~Owner (a)~~Ownership		~~Amount and Nature of Beneficial Ownership~~	Percent of Class
Common Stock	~~Common~~Charles ~~Stock~~Bitters, CEO and Director 353 South Hackberry Ave New Braunfels, TX 78130	~~Charles Bitters, CEO and Director 353 South Hackberry Ave New Braunfels, TX 78130~~	17,019,616	~~113,816~~ (b)	*	27	%
Common Stock	~~Common~~Joe ~~Stock~~Christopher, President of Oil America Group, Inc. 400 S. Zang Blvd., Suite 812 Dallas, TX 75208	~~Joe Christopher, President of Oil America Group, Inc. 400 S. Zang Blvd., Suite 812 Dallas, TX 75208~~	611,000	~~111,000 (c)~~	*	1	%
	Common Stock	Renny Walker, President of Production Resources, Inc. 705 County Rd. 646 Hondo, TX 78861		131,944	*

*	Less than 1%

(a) Under Rule 13d-3 under the Securities Exchange Act of 1934, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the number of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this Offering. As of ~~April~~May 1514, ~~2009~~2010, the Company had 2062,~~360~~616,~~389~~748 shares of common stock issued, outstanding and ~~outstanding~~issuable.

(b)	Includes 62 shares in the name of a corporation controlled by Mr. Bitter’s wife.

(c) ~~Includes~~Excludes 80Renny Walker,~~000~~ ~~shares~~former ~~held~~President ~~directly~~of byProduction ~~Mr. Christopher~~Resources, ~~25,000~~Inc. ~~held~~(“PRI”) ~~directly~~as by a ~~company~~result ~~controlled~~of ~~by Mr. Christopher and 6,000 shares in~~ the ~~name~~sale of ~~Oil~~PRI ~~America~~on ~~Group,~~March ~~Inc.~~8, ~~which Mr~~2010. ~~Christopher is the President and has sole voting power.~~

-38-

Equity Compensation Plan Information

The following table gives information as of December 31, ~~2008~~2009, about our common stock that may be

issued upon the exercise of options, warrants and rights under all of our existing equity compensation

plans:

Plan Category

(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights

(ab) ~~Number~~Weighted-average ~~of securities to be issued upon~~ exercise price of outstanding options, warrants and rights

(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)

~~(b) Weighted-average exercise price of outstanding options, warrants and rights~~

~~‘ (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)~~

Equity compensation plans approved by security holders (1)

8,800,000

$0.015

~~-0-~~1,200,000

~~-0-~~

~~10,000,000~~

Equity compensation plans not approved by security holders

-0-

~~-0-~~

Total

8,800,000

$0.015

~~-0-~~1,200,000

~~-0-~~

~~10,000,000~~

(1) Consists of the following equity compensation plans: 2008 Non-Qualified Stock Option Plan.

-41-

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

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 for a salary of $120,000 annually and a $3,500 per month equipment rental agreement. As of January 1, 2005, the $3,500 per month equipment rental agreement with the Chief Executive Officer was terminated. As of ~~December~~the ~~31,~~Effective ~~2007~~Date, the Company owed the Chief Executive Officer $~~306~~593,~~425~~735 for unpaid amounts under the agreement~~. During~~ ~~the year~~which ~~ended~~has ~~December~~been ~~31,~~converted ~~2008,~~into ~~the Company accrued but did not pay $120~~2,~~000 for compensation~~374,940 ~~reduced~~shares ~~the~~of ~~balance~~Stock ~~$8,500~~based ~~for~~upon ~~payments~~a ~~made~~conversion toprice ~~the Chief Executive Officer, and increased the balance $93,000 for advances made by the Chief Executive Officer on behalf~~ of ~~the Company~~$0. As25 aper ~~result~~share, ~~the accrued~~a ~~balance~~significant aspremium ofto ~~December~~the ~~31,~~market ~~2008~~price ~~is $510,925 and is classified as a component~~ of ~~Due To Related Parties in~~ the ~~accompanying financial statements~~Stock.

As of ~~December~~ ~~31, 2008,~~ the ~~Chief~~Effective ~~Executive~~Date, ~~Officer~~Bend ofArch ~~the Company is owed $894~~Petroleum,~~103 for~~ ~~advances~~Inc. ~~and unpaid equipment rental charges made on behalf of~~ (“Bend Arch”), the Company’s wholly-owned subsidiary~~. As of December 31~~, ~~2007, Bend Arch~~ owed the Chief Executive Officer $~~704~~1,~~703~~007,715 for previous advances and equipment rental charges at $4,500 per month. ~~During~~This ~~the~~amount ~~year~~has ~~ended December~~been ~~31,~~converted ~~2008,~~into ~~the Chief Executive Officer advanced $162~~4,~~400 of funds to Bend Arch; the Company recorded $54~~030,~~000~~860 ~~for~~shares ~~equipment~~of ~~rental~~Stock ~~charges~~based ~~and~~upon ~~repaid $27,000~~a toconversion ~~the~~price ~~Chief~~of ~~Executive Officer resulting in the~~ $~~894,103~~0.25 ~~balance~~per ~~at December 31~~share, ~~2008 classified as~~ a ~~component~~significant ofpremium ~~Due~~ to ~~Related~~the ~~Parties~~market inprice of the ~~accompanying~~ ~~financial statements~~Stock.

~~At December~~As ~~31,~~of ~~2008~~the Effective Date, we owed the ~~President~~operator of ~~Oil~~the ~~America~~Company’s ~~Group,~~oil ~~Inc.~~and isgas ~~owed~~properties $~~260~~1,~~000~~736,219 for ~~unpaid~~ ~~salary~~services ~~per~~as anthe ~~agreement~~operator ~~effective~~of ~~January~~the 1,Company’s ~~2005~~oil and gas production activities. The ~~agreement~~ operator is ~~for~~Proco ~~annual~~Operating ~~compensation~~Co. ofInc. ~~$65,000~~(“Proco”) and ~~none~~is a related party as Proco is controlled by the brother of ~~this~~the Company’s Chief Executive Officer. This amount has been ~~paid~~ ~~since~~converted into 6,944,877 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the ~~inception~~market price of the ~~agreement~~Stock.

~~At December~~The ~~31,~~Company ~~2007,~~evaluated the ~~operator~~conversion of ~~the~~each ~~Company’s~~of ~~oil~~the ~~and~~above ~~gas~~due ~~properties~~to ~~was~~related ~~owed $696,631~~party ~~for~~balances ~~services~~and as the ~~operator~~accrued ofinterest ~~the~~in ~~Company’s~~accordance ~~oil~~with ~~and~~paragraph ~~gas~~20 ~~production activities. During~~of ~~the~~APB ~~year~~26 ~~ended~~(ASC ~~December~~470-50-40) ~~31,~~“Debt ~~2008,~~— ~~the~~Modifications ~~operator balance~~and ~~owed~~Extinguishments ~~was~~— ~~increased~~Derecognition” ~~for~~and ~~the~~recorded ~~net~~an ~~activities~~aggregate ~~performed such that as of December 31~~$2, ~~2008~~623,408 ~~the~~gain ~~net~~representing ~~amount due to~~ the ~~operator~~difference ofbetween the ~~Company’s~~reacquisition ~~oil~~price and ~~gas~~ ~~production~~the ~~activities~~net ~~was~~carrying ~~$1,630,734~~amount ~~and is classified as a component~~ of ~~Due to~~the ~~Related~~extinguished ~~Parties~~debt. Since in the ~~accompanying~~gain ~~financial~~was ~~statements. The operator~~from istransactions ~~Proco~~with ~~Operating~~related ~~Co.~~parties, ~~Inc.~~the ~~(“Proco”)~~$2,623,408 ~~and~~was isrecorded ato ~~related~~additional ~~party~~paid asin ~~Proco is~~capital ~~controlled~~as bya ~~the~~component ~~brother~~ of ~~the Company~~Stockholders’s ~~Chief Executive Officer~~Equity.

~~-39-~~As of the Effective Date, the President of Oil America Group, Inc. (“OAG”) was owed $292,500 for unpaid salary per an agreement effective January 1, 2005. The agreement is for annual compensation of $65,000 and none of this amount has been paid since the inception of the agreement. The unpaid salary of $292,500 has been forgiven by the President of OAG as of the Effective Date. As a result of the transaction and since the President of OAG is an officer of the Company and is a related party, the $292,500 of accrued compensation forgiven was classified as a capital transaction and recorded to additional paid in capital.

The balance outstanding for Due to Related Parties at December 31, 2009 is as follows.

Due to Related Parties:
	Dec. 31,		Dec. 31,
	2009		2008
Due to Chief Executive Officer from advances and salary agreement with Company.	$	93,150	$	510,925
Due to Chief Executive Officer from advances and rental agreement with Bend Arch		131,060		894,103
Due to Chief Executive officer from advances to OAG		12,700		-
Due to President of OAG from advances and salary agreement with Company		49,544		260,000
Due to Operator of oil and gas properties		4,995		1,630,735
Total Due To Related Parties	$	291,449	$	3,295,763

-42-

As a result of the previously discussed conversion to Stock, the balance of the Due to related parties was zero as of June 30, 2009. For the period from July 1, 2009 to December 31, 2009, the following transactions occurred related to Due To Related Parties:

Under the July 1, 2003 salary and equipment rental agreement with the Chief Executive Officer, the Company accrued $60,000 for salary obligation, the Chief Executive Officer advanced $46,800 to the Company and the Company repaid $13,650 of the amount advanced to the Chief Executive Officer. As of December 31, 2009, the amount outstanding is $93,150 and is recorded as a component of Due to Related Parties in the accompanying consolidated financial statements.

Under the previous $4,500 per month equipment rental agreement between the Company and Bend Arch, Bend Arch accrued $27,000 per the agreement, the Chief Executive officer advanced $129,800 to Bend Arch and Bend Arch repaid $25,740 to the Chief Executive Officer. As of December 31, 2009, the amount outstanding is $131,060 and is recorded as a component of Due to Related Parties in the accompanying consolidated financial statements.

The Chief Executive Office advanced $12,700 to OAG and as of December 31, 2009, the amount is recorded as a component of Due to Related Parties in the accompanying consolidated financial statements.

Under a salary agreement with the President of OAG, $32,500 was accrued for salary by OAG. Additionally, the President advanced OAG $14,200 and OAG owed the President $2,844 for expenses paid on behalf of OAG. As of December 31, 2009, the amount outstanding is $49,544 and is recorded as a component of Due to Related Parties in the accompanying consolidated financial statements.

The operator of the Company’s oil and gas properties was owed $4,995 by Bend Arch as of December 31, 2009 for services related to the Company’s oil and gas production activities. 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. As of December 31, 2009, the amount is recorded as a component of Due to Related Party in the accompanying consolidated financial statements.

Since November 1, 2003, the Company and Proco have had an operating agreement for Proco to operate the Company’s oil and natural gas production activities. The term of the operating agreement is equal to the term of the oil and gas leases held by the Company. In general, Proco incurs costs which are billed to the Company and Proco markets and sells oil and natural gas and collects payments from customers. Such payments are then remitted to the Company. Proco has a First and preferred lien on the leasehold interests of the Company against any amounts due to Proco by the Company.

Director Independence

Our common stock trades on ~~the~~Pink ~~Over The Counter Bulletin Board~~Sheets. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent.

We are not currently subject to corporate governance standards defining the independence of our directors, and we have chosen to define an “independent” director in accordance with the NASDAQ Global Market's requirements for independent directors (NASDAQ Marketplace Rule 4200). Under this definition, we have determined that since we have only one director and who is also the Chief Executive Officer and Chief Financial Officer of the Company, we do not currently qualify as has having any independent directors. We do not list the “independent” definition we use on our Internet website.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

~~Audit~~Salberg ~~Fees: Audit fees~~& ~~consist~~Company, ofP.A. ~~fees~~(“Salberg”) ~~billed~~was ~~for~~appointed ~~professional~~as ~~services rendered for~~ the ~~audit~~independent ~~of our~~registered ~~year-end~~public ~~financial~~accounting ~~statements~~firm ~~and~~for ~~services in connection with statutory and regulatory filings. For~~ the fiscal year ended December 31, ~~2008,~~2009 ~~fees incurred~~and byfor the ~~Company~~September ~~from Moore were an aggregate of $19~~30,~~500~~ ~~for~~2009 ~~the~~ quarterly review. Moore ~~associated~~& ~~with~~Associates ~~our~~Chartered ~~Form~~(“Moore”) ~~10-Q~~was ~~filings~~the ~~and~~independent ~~any~~registered ~~amendments thereto. For~~public ~~the~~accounting ~~years~~firm ~~ended~~for ~~December~~fiscal ~~31,~~year 2008 and ~~2007,~~the ~~fees incurred~~quarterly byinterim ~~the~~reviews ~~Company~~through ~~from~~March ~~Moore~~31, ~~were~~2009. Seale ~~zero~~ and ~~$20~~Beers,~~000~~ ~~for~~CPAs ~~the~~(“Seale”) ~~annual~~was ~~audit of~~ the ~~Company's~~independent ~~financial~~registered ~~statements~~public ~~included~~accounting asfirm ~~part~~for ofthe ~~our~~June ~~Form~~30, ~~10-K filing~~2009 quarterly review.

On August 27, 2009, the Public Company Accounting Oversight Board (“PCAOB”) revoked the registration of Moore, the Company’s previous independent registered public accounting firm. This action was because of violations of PCAOB rules and auditing standards in auditing the financial statements, PCAOB rules and quality controls standards, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and noncooperation with a PCAOB investigation. As a result, our new independent registered public accounting firm, Salberg has re-audited the Company’s December 31, 2008 consolidated financial statements due to the revocation of Moore's registration, and these appear in the December 31, 2009 audited consolidated financial statements.

~~Audit~~-~~Related Fees: Audit~~43-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. There were no audit-related fees during the years ended December 31, 2008 and 2007.

~~Tax~~The ~~Services Fees: Tax~~following ~~fees~~table ~~consist~~shows ofthe fees ~~billed~~ for ~~professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance. There were no tax fees during~~ the fiscal years ended December 31, 2008 and ~~2007~~2009.

All Other Fees: Other fees would include fees for products and services other than the services reported above. There were no other fees during the years ended December 31, 2008 and 2007.

	Fiscal 2008 Moore		Fiscal 2008 Salberg		First Quarter 2009 Moore		Second Quarter 2009 Seale		Fiscal 2009 Salberg
Audit Fees (1)	$	39,500	$	30,000	$	11,375	$	11,375	$	37,000
Audit Related Fees (2)	$	0	$	0	$	0	$	0	$	0
Tax Fees	$	0	$	0	$	0	$	0	$	0
All Other Fees	$	0	$	0	$	0	$	0	$	0

(1) Audit fees — these fees relate to the audit of our annual consolidated financial statements and the review of our interim quarterly consolidated financial statements.

(2) Audit related fees — these fees relate primarily to the auditors’ review of our registration statements and audit related consulting.

The Company does not have a standing audit committee, rather the entire Board acts as the Company’s audit committee. Management is responsible for our internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of our financial statements in accordance with auditing standards generally accepted in the United States and expressing an opinion on the conformity of those audited financial statements in accordance with accounting principles generally accepted in the United States. The Board’s responsibility is to monitor and oversee these processes and is also directly responsible for the appointment, compensation, and oversight of the Company's independent registered public accounting firm.

The Board has established a pre-approval policy that describes the permitted audit, audit-related, tax and other services to be provided by ~~Moore~~Salberg, the Company's independent registered public accounting firm. The policy requires that the Board pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to assure that the provision of such service does not impair the auditor's independence.

Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the Board for specific pre-approval, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Board. However, the Board may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Board at its next scheduled meeting. The Board does not delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management.

~~-40-~~The Board has reviewed the audited consolidated financial statements and met and held discussions with management regarding the audited consolidated financial statements. Management has represented to the Board that the Company's financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Board has discussed with Salberg, the Company's independent registered public accounting firm, matters required to be discussed by Statement of Auditing Standards No. 61 (Communication with Audit Committees). The Board received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended by the Independence Standards Board, and has discussed with the auditors the auditors' independence.

~~The~~Based ~~Board has~~on ~~reviewed~~ the ~~audited~~Board’s ~~consolidated~~discussion ~~financial statements and met and held discussions~~ with management ~~regarding~~and the ~~audited~~independent ~~consolidated~~registered ~~financial statements. Management~~public ~~has~~accounting ~~represented~~firm, to the Board ~~that the Company~~'s ~~financial~~review ~~statements~~of ~~were~~the ~~prepared~~audited infinancial ~~accordance~~statements, ~~with~~the ~~accounting principles~~representations ~~generally~~of ~~accepted~~management inand the ~~United~~report ~~States.~~of ~~The Board has discussed with Moore,~~ the ~~Company's~~ independent registered public accounting firm, ~~matters required~~ to bethe ~~discussed~~Board, bythe ~~Statement of Auditing Standards No. 61 (Communication with Audit Committees). The~~ Board ~~received~~recommends ~~and reviewed~~that the ~~written~~audited ~~disclosures~~consolidated ~~and~~financial ~~the~~statements ~~letter~~be ~~from~~included in the ~~independent~~Company's ~~registered public~~Annual ~~accounting~~Report ~~firm~~on ~~required~~Form by10-K ~~Independence~~for ~~Standard~~the ~~No.~~years 1,ended ~~Independence Discussions~~December ~~with Audit Committees~~31, as2009 ~~amended~~and ~~by the Independence Standards Board~~2008, ~~and~~for ~~has~~filing ~~discussed~~ with the ~~auditors the auditors' independence~~SEC.

Based on the Board’s discussion with management and the independent registered public accounting firm, the Board's review of the audited financial statements, the representations of management and the report of the independent registered public accounting firm to the Board, the Board recommends that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-~~K for the years ended December 31, 2008 and 2007, for filing with the SEC.~~44-

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibit No		Description of Exhibit
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)
3.12		Form S-8 Registration Statement under the Securities Act of 1933 filed September 25, 2008. (1)
14.1		Code of Ethics (1)
20.1		Oil and Gas property valuation by ~~Blue~~Cullen ~~Ridge~~Thomas ~~Enterprises~~Consulting Geologist as of December 31, ~~2008~~2009 *
20.2		Consent letter from Cullen Thomas Consulting Geologist for Oil and Gas property valuation as of December 31, 2009 *
21.1		Subsidiaries of American Energy Production, Inc. *
23.1		Consent letter from Salberg & Co., P.C. *
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.

-4145-

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMERICAN ENERGY PRODUCTION, INC.
Date: April 30, 2009	By:	/s/ Charles Bitters
		Charles Bitters
		Chief Executive Officer and Chief Financial Officer

AMERICAN ENERGY PRODUCTION, INC.

By: /s/ Charles Bitters

Charles Bitters

Chief Executive Officer and Chief Financial Officer

Date: May 14, 2010

In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Charles Bitters Charles Bitters	President, Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer)	~~April~~May 3014, ~~2009~~2010
/s/ Joe Christopher Joe Christopher	Director	~~April~~May 3014, ~~2009~~2010

-4246-

American Energy Production, Inc. and Subsidiaries

Page No.

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2008 and 2007	F-3
Consolidated Balance Sheets at December 31, 2009 and 2008	F-3
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007	F-4
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008	F-4
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2008 and 2007	F-5
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2009 and 2008	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008	F-6
Notes to Consolidated Financial Statements	F-78
Supplemental Oil and Gas Data (Unaudited)	F-2030

F-1-

~~REPORT OF~~Report ~~INDEPENDENT~~of ~~REGISTERED~~Independent ~~PUBLIC~~Registered ~~ACCOUNTING~~Public ~~FIRM~~Accounting Firm

~~MOORE &~~To ~~ASSOCIATES,~~the ~~CHARTERED~~Board of Directors and Stockholders of:

ACCOUNTANTS AND ADVISORS

PCAOB REGISTERED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

American Energy Production, Inc.

We have audited the accompanying consolidated balance sheets of American Energy Production, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conduct our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Energy Production, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had a net loss of $2,148,551 and $2,283,978 for the years ended December 31, 2008 and 2007, respectively. Additionally, at December 31, 2008, the Company has minimal cash, a negative working capital balance of $6,693,177, and a stockholders’ deficit of $3,055,149. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Moore & Associates, Chartered

Moore & Associates, Chartered

Las Vegas, Nevada

May 5, 2009

6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501

F-2

American Energy Production, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of American Energy Production, Inc. and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Energy Production, Inc. and Subsidiaries as of December 31, 2009 and 2008 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of $1,009,328 in 2009, and used cash for operating activities of $330,208. At December 31, 2009, the Company has minimal cash and had a working capital deficiency and accumulated deficit of $481,566 and $27,232,519, respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Salberg & Company, P.A.

SALBERG & COMPANY, P.A.

Boca Raton, Florida

May 14, 2010

F-2-

American Energy Production, Inc. and Subsidiaries

Consolidated Balance Sheets

ASSETS
	12/31/2008			12/31/2007
	12/31/2009			12/31/2008
Current Assets
Cash	$	8847,~~937~~284		$	~~133~~88,~~220~~937
Accounts receivable		-32,523			~~1,205~~-
Other current assets		~~146~~-			~~316~~146
Total Current Assets		8979,~~083~~807			~~134~~89,~~740~~083
Property and equipment, net		4,011,903			4,365,765
Oil and Gas Properties and Equipment, net		3,773,071			4,011,903
Other Assets
Development programs - related party		134,092			104,392
Development program costs		-			135,280
Other		1,188			168,379
Total Other Assets		-			135,280
Total Other Assets		135,280			272,771
Total Assets	$	3,852,878		$	4,236,266
Total Assets		4,236,266			4,773,277
LIABILITIES
Current Liabilities
Accounts payable	$	~~312~~109,~~903~~542		$	~~373~~312,~~403~~903
Other current liabilities		11,855			175,548
Bank account deficit		682			-
Due to related parties		3,295,763			1,707,759
Other current liabilities		12,481			11,853
Notes payable		2,115,062			2,023,714
Due to related parties		291,449			3,295,763
Accrued interest payable		946,385			778,486
Notes payable		134,171			115,062
Accrued payroll taxes and penalties		84,161			80,346
Notes payable - related party		-			2,000,000
Lease payable		16,131			16,131
Accrued interest payable		900			147,700
Total Current Liabilities		6,782,260			5,155,387
Accrued interest payable - related party		-			798,685
Asset Retirement Obligations		509,155			524,488
Accrued payroll taxes and penalties		12,148			84,161
Total Liabilities	$	7,291,415		$	5,679,875
Lease payable		-			16,131
Commitments and Contingencies (Note 8)
Total Current Liabilities		561,373			6,782,258
STOCKHOLDERS' DEFICIT
Long-Term Liabilities
Convertible preferred stock, Series A, $0.0001 par value,
Asset retirement obligations		532,046			509,155
5,000,000 shares authorized, 3,500,000 shares	$	350		$	350
Total Long-Term Liabilities		532,046			509,155
Common stock, $0.0001 par value,
Total Liabilities	$	1,093,419		$	7,291,413
500,000,000 shares authorized, 20,360,389 and 19,767,055 shares, respectively		2,037			1,977
Commitments and Contingencies (Note 9)
Common stock issuable, $0.0001 par value, zero and 596,000 shares respectively		-			60
STOCKHOLDERS' EQUITY (DEFICIT)
Additional paid in capital		24,067,655			24,067,655
Convertible preferred stock, Series A, $0.0001 par value, 5,000,000 shares
Accumulated deficit		(26,223,191	)		(24,074,640	)
authorized, none and 3,500,000 shares outstanding, respectively	$	-		$	350
		(2,153,149	)		(4,599	)
Common stock, $0.0001 par value, 500,000,000 shares authorized,
Less: Subscription Receivable		(902,000	)		(902,000	)
39,266,071 and 20,360,349 shares outstanding, respectively		3,927			2,037
Total Stockholders' Deficit		(3,055,149	)		(906,599	)
Common stock issuable, $0.0001 par value, 23,350,677 shares
Total Liabilities and Stockholders' Deficit	$	4,236,266		$	4,773,277
and none issuable and outstanding, respectively		2,335			-
Additional paid in capital		30,860,716			24,067,655
Accumulated deficit		(27,232,519	)		(26,223,191	)
		3,634,459			(2,153,149	)
Less: Subscription Receivable		(875,000	)		(902,000	)
Total Stockholders' Equity (Deficit)		2,759,459			(3,055,149	)
Total Liabilities and Stockholders' Equity (Deficit)	$	3,852,878		$	4,236,266

The accompanying notes are an integral part of these consolidated financial statements.

~~See accompanying notes to consolidated financial statements.~~F-3-

F-3

American Energy Production, Inc. and Subsidiaries

Consolidated Statements of Operations

	Years Ended
	Year Ended
	December 31,
	2008			2007
	2009			2008
Revenues:
Oil sales, net	$	1,~~842~~107,~~059~~940		$	1,~~581~~842,~~661~~059
Operating Expenses
Compensation		~~255~~350,~~384~~120			~~213~~255,~~419~~384
Consulting		-44,696			~~3,260~~-
Depreciation, depletion and accretion		~~562~~294,~~334~~561			~~540~~562,~~677~~334
Rent		896,~~161~~617			3689,~~527~~161
General and administrative		~~225~~208,~~836~~385			~~389~~260,~~746~~063
Production		21,~~265~~191,~~456~~029			2,~~300~~232,~~198~~318
Professional		~~126~~176,~~748~~733			~~173~~126,~~393~~748
Taxes		91,896			86,436
Research and development		215,434			-
Website		1,080			-
Business taxes		85,246			91,896
Total Operating Expenses		32,~~617~~572,~~895~~821			3,~~743~~617,~~656~~904
Operating Loss		(1,~~775~~464,~~836~~881	)		2(1,~~161~~775,~~995~~845	)
Other Income (Expense)
Other income (expense)		~~(195~~543,~~942~~110	)		19(198,~~097~~516	)
Gain on sale of properties		-			29,309
Interest expense		(87,557	)		(170,760	)
Interest expense		(170,769	)		(164,383	)
Payroll tax expense and penalties		-			(6,004	)
Payroll tax expense and penalties		(6,004	)		(6,004	)
Gain on Sale of Property		-			2,574
Total Other Income (Expense)		~~(372~~455,~~716~~553	)		(~~121~~372,~~982~~706	)
Net Loss	$	(21,~~148~~009,~~551~~328	)	$	(2,~~283~~148,~~978~~551	)
Net Loss Per Share - Basic and Diluted	$	(0.1102	)	$	(0.1211	)
Weighted average Shares Outstanding		2041,~~361~~384,~~880~~640			1920,~~770~~301,~~055~~880

The accompanying notes are an integral part of these consolidated financial statements.

~~See accompanying notes to consolidated financial statements.~~F-4-

F-4

American Energy Production, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Years Ended December 31, ~~2007~~2009 and ~~2006~~2008

	Preferred Stock						Common Stock				Common Stock Issuable
											Common Stock									Additional						Total
	Shares			Amount			Shares		Amount		Shares			Amount			Subscription Receivable			Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Deficit
	Preferred Stock						Common Stock				Issuable						Subscription			Paid-In			Accumulated			Stockholders'
Balance at December 31, 2006		3,500,000		$	350			19,767,055	$	1,977		3,000		$	-		$	(902,000	)	$	23,978,715		$	(21,790,662	)	$	1,288,379
	Shares			Amount			Shares		Amount		Shares			Amount			Receivable			Capital			Deficit			Equity (Deficit)
Common stock issued for subscription receivable		-			-			-		-		593,000			60			-			88,940						89,000
Balance at December 31, 2007		3,500,000		$	350			19,767,015	$	1,977		596,000		$	60		$	(902,000	)	$	24,067,655		$	(24,074,640	)	$	(906,598	)
Net loss, year ended December 31, 2007		-			-			-		-		-			-			-			-			(2,283,978	)		(2,283,978	)
Common stock issued for subscription receivable		-			-			593,334		60		(593,000	)		(60	)		-			-						-
Balance at December 31, 2007		3,500,000		$	350			19,767,055	$	1,977		596,000		$	60		$	(902,000	)	$	24,067,655		$	(24,074,640	)	$	(906,599	)
Write off of issuable shares from 2003 - 3,000 shares		-			-			-		-		(3,000	)		-			-			-			-			-
Common stock issued for sale of stock - $0.15 per share		-			-			593,334		60		(593,000	)		(60	)		-			-			-			0
Write off of issuable shares from 2003 - 3,000 shares		-			-			-		-		(3,000	)		(0	)		-			-			-			(0	)
Net loss, year ended December 31, 2008		-			-			-		-		-			-			-			-			(2,148,551	)		(2,148,551	)
Balance at December 31, 2008		3,500,000		$	350			20,360,~~389~~349	$	2,037		-		$	(0-	)	$	(902,000	)	$	24,067,655		$	(26,223,191	)	$	(3,055,149	)
Common stock issued for sale of stock		-			-			8,405,722		840		-			-			-			140,915			-			141,755
Common stock issued for conversion of preferred stock		(3,500,000	)		(350	)		10,500,000		1,050		-			-			-			(700	)		-			-
Stock options issued for compensation		-			-			-		-		-			-			-			104,990						104,990
Stock options issued for consulting		-			-			-		-		-			-			-			41,996			-			41,996
Common stock issued for conversion of note payable and accrued interest		-			-			-		-		10,000,000			1,000			-			534,000			-			535,000
Common stock issued for conversion of due to related parties and accrued interest		-			-			-		-		13,350,677			1,335			-			712,925			-			714,260
Related party gain from conversion of note payable and accrued interest		-			-			-		-		-			-			-			1,965,000			-			1,965,000
Related party gain from conversion of due to related parties and accrued interest		-			-			-		-		-			-			-			2,623,408			-			2,623,408
Capital contribution from forgiveness of accrued interest by related party		-			-			-		-		-			-			-			378,027			-			378,027
Capital contribution from forgiveness of accrued compensation by related party		-			-			-		-		-			-			-			292,500			-			292,500
Write-off uncollectible subscription receivable		-			-			-		-		-			-			27,000			-			-			27,000
Net loss, year ended December 31, 2009		-			-			-		-		-			-			-			-			(1,009,328	)		(1,009,328	)
Balance at December 31, 2009		-		$	-			39,266,071	$	3,927		23,350,677		$	2,335		$	(875,000	)	$	30,860,716		$	(27,232,519	)	$	2,759,459

The accompanying notes are an integral part of these consolidated financial statements

~~See accompanying notes to consolidated financial statements~~F-5-

F-5

American Energy Production, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended
	Year Ended
	December 31,
	2008			2007
	2009			2008
Operating Activities:
Cash Flows From Operating Activities:
Net loss	$	(2,148,551	)	$	(2,283,978	)
Reconciliation of net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to cash provided by operating activities:
Net loss	$	(1,009,328	)	$	(2,148,551	)
Depreciation expense		479,212			443,062
Adjustments to reconcile net loss to net cash
Depletion expense		61,218			74,337
Depreciation expense		196,098			479,212
Accretion expense		21,904			23,278
Depletion expense		75,572			61,218
Accretion expense		22,891			21,904
Stock options issued for compensation		104,990			-
Stock options issued for consulting		41,996			-
Write off of payroll taxes and penalties		(69,851	)		-
Common stock issued for oil and gas equipment		1,750			-
Changes in operating assets and liabilities:
Accounts receivable		1(32,~~205~~523	)		~~122~~1,205
Other current assets		~~170~~146			~~3,880~~169
Other assets		~~167,191~~-			16167,~~321~~191
Accounts payable		(60203,~~500~~361	)		46(60,~~212~~500	)
Other current liabilities		(163,693	)		10,245
Bank account deficit		682			-
Due from related party		-			88,229
Other current liabilities		626			(163,693	)
Due to related party		1625,~~588,004~~856			1,~~531~~588,~~027~~003
Accrued interest payable		~~167~~(67,~~191~~458	)		~~161~~167,~~864~~900
Accrued payroll taxes payable		3,815			7,770
Lease payable		(16,131	)		-
Net Cash Provided By Operating Activities		117,874			122,368
Accrued payroll taxes payable		(2,163	)		3,815
Investing Activities:
Net Cash (Used In) Provided By Operating Activities		(330,208	)		117,873
Investment in property and equipment		(223,805	)		(118,412	)
Cash Flows From Investing Activities:
Payments for development programs - related party		(29,699	)		(25,767	)
Investment in property and equipment		(32,838	)		(223,805	)
Net Cash Used In Investing Activities	$	(253,504	)	$	(144,178	)
Decrease (increase) in development program costs		135,280			(29,699	)
Financing Activities:
Net Cash Provided By (Used In) Investing Activities		102,442			(253,504	)
Proceeds from note payable		103,000			-
Cash Flows From Financing Activities:
Proceeds from sale of common stock		-140,005			89103,000
Proceeds from repayment of subscription receivable		-			-
Proceeds from issuance of note payable		14,736			-
Repayment of note payable		(11,652	)		(40,873	)
Write-off uncollectible subscription receivable		27,000			-
Net Cash Provided By (Used In) Financing Activities		91,348			48,127
Repayment of note payable		4,373			(11,652	)
Net Increase in Cash		(44,282	)		26,317
Net Cash Provided By Financing Activities		186,114			91,348
Cash at Beginning of Period		133,220			106,902
Net Decrease in Cash		(41,653	)		(44,283	)
Cash at End of Period		88,937			133,219
Cash at Beginning of Period		88,937			133,220
Cash interest paid	$	-		$	-
Cash at End of Period	$	47,284		$	88,937
Supplemental disclosure of non-cash transactions
Capitalized asset retirement obligations	$	-		$	3,841
Retirement of asset retirement obligation from sale of properties		-			20,158
Retirement of asset retirement obligation from audit of properties		37,237			-

The accompanying notes are an integral part of these consolidated financial statements

~~See accompanying notes to consolidated financial statements~~F-6-

~~F-6~~American Energy Production, Inc. and Subsidiaries

~~1. HISTORY~~Consolidated ~~AND NATURE~~Statements OFof ~~BUSINESS~~Cash Flows (Continued)

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.

	Year Ended
	December 31,
	2009		2008
Supplemental disclosure of cash flow information
Income taxes paid	$	-	$	-
Cash interest paid	$	836	$	1,311
Supplemental disclosure of non-cash investing and financing activities
Conversion of note payable and accrued interest to common stock	$	535,000	$	-
Conversion of due to related parties and accrued interest to common stock	$	714,260	$	-
Related party gain included in stockholders' equity from conversion of note payable and accrued interest to common stock	$	1,965,000	$	-
Related party gain included in stockholders' equity from conversion of due to related parties and accrued interest to common stock	$	2,623,408	$	-
Capital contribution from forgiveness of accrued interest by related party	$	378,027	$	-

Capital contribution from forgiveness of accrued compensation by related party	$	292,500	$	-
Write-off of predecessor company accounts payable	$	316,289	$	-
Write-off of accrued interest payable on previously converted debentures	$	122,671	$	-
Write-off of lease payable and accrued interest	$	45,495	$	-
Retirement of asset retirement obligation from audit of properties	$	-	$	37,237

The accompanying notes are an integral part of these consolidated financial statements

F-7-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

1. HISTORY AND NATURE OF OPERATIONS

American Energy Production, Inc. (“American Energy”, (“AENP”), “the Company”, “we”, “us”, “our” “its”) is a publicly traded energy company that is engaged primarily in the acquiring, developing, producing, exploring and selling of oil and natural gas. Additionally, the Company is a partner, under an operating agreement in the exploration, evaluation, development and mining of gold and other minerals. 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 ~~was~~determined ~~f/k/~~in 2009 to diversify from only its oil and gas operations into a ~~Communicate~~working ~~Now~~gold mine operation.~~com~~ On August 6, ~~Inc~~2009, the Company announced that it has executed a non-binding Letter of Intent (“LOI”) for the acquisition of Dorado Gold, LLC and Master Petroleum, LLC, both California limited liability companies (together “Dorado”). Dorado owns 100% of certain placer gold mining claims, land and ~~was~~equipment ~~incorporated~~(the “Joint Properties”) 25 miles north of Weaverville, California. Additionally, on ~~January~~the 31same date as the LOI was executed, ~~2000~~ ~~under~~AENP and Dorado executed a 120 day Operating Agreement to jointly participate in the ~~laws~~exploration, evaluation, development and mining of gold and other minerals within the ~~State~~Joint ofProperties ~~Delaware~~(“Gold Venture”). AENP Onwill ~~July~~bear ~~15,~~100% ~~2002,~~of all expenses during operations of the ~~Company changed~~Gold ~~its~~Venture ~~corporate~~and ~~name~~AENP and Dorado will each receive fifty percent (50%) of product or revenues after expenses and AENP will manage the Gold Venture. The acquisition of Dorado by AENP is subject to ~~American~~AENP’s ~~Energy~~sole ~~Production,~~evaluation ~~Inc~~of the results after the 120 day Gold Venture period is completed.

~~On February~~In 20December 2009, ~~2003~~the Gold Venture was extended for one year through December 31, ~~upon~~2010. As of the ~~acquisition~~date of ~~certain~~this ~~oil~~report, ~~and~~no ~~gas~~decision ~~assets,~~has been made by the Company ~~entered~~in ~~into~~relation ato ~~new~~the ~~development~~LOI ~~stage~~and a definitive agreement. The ~~Activities~~Company ~~during~~believes ~~the~~this ~~development stage~~working ~~include~~gold ~~acquisition~~mining ofoperation ~~assets,~~will ~~obtaining~~be ~~geological~~a ~~reports,~~hedge ~~developing~~against ~~an implementation~~inflation ~~plan~~and towill ~~extract~~also help offset the depressed price of oil and natural gas, ~~completing~~until ~~initial~~these ~~sales~~commodities ofrecover ~~oil~~in ~~and seeking~~the ~~capital~~near future.

~~On January 12, 2004, the Company filed a Form N~~F-~~54A with the Securities and Exchange Commission (“SEC”) to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940, as amended (“Act”).~~8-

InAmerican ~~May 2006,~~Energy ~~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~~Production, ~~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~~Inc. ~~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 (See Note 12 – Subsequent Events).Subsidiaries

OnNotes ~~March 13, 2007, at a Special Meeting of Shareholders, the Shareholders approved and authorized the Board~~ to ~~withdraw~~Consolidated ~~the~~Financial 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 has utilized April 1, 2007 as the inception date for the new business as an oil and gas operating company (See Note 12 – Subsequent Events).Statements

AtYears ~~a meeting~~ended ~~held~~December ~~on May 16~~31, ~~2007,~~2009 ~~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. 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, 2007.2008

F-7

2. GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $21,~~148~~009,~~551~~328 and $2,~~283~~148,~~978~~551 for the years ended December 31, ~~2008~~ 2009 and ~~2007~~2008, respectively. Additionally, at December 31, ~~2008~~2009, the Company has minimal cash, aand ~~negative~~has a working capital ~~balance~~deficit of $6481,~~693~~566,~~177,~~ ~~a stockholders’ deficit of 3,055,149 and is subject to certain contingencies as discussed in Note 10,~~ which could have a material impact on the Company’s financial condition and operations. The ~~ability~~working ofcapital ~~the~~deficit ~~Company~~was tosignificantly ~~continue~~reduced asfrom a ~~going~~ ~~concern~~deficit isof ~~dependent~~$6,693,175 onat ~~the~~December ~~Company’s~~31, ~~ability~~2008 to ~~raise~~the ~~capital~~December ~~and generate~~31, ~~sufficient~~2009 ~~revenues~~balance ~~and~~by ~~cash~~the ~~flow~~write ~~from~~off ~~its~~of ~~business~~the ~~plan~~obligations asdiscussed anbelow ~~oil~~along ~~and gas~~with ~~operating~~the ~~company. The~~conversion ~~financial~~of ~~statements~~notes ~~included~~payable, inaccrued ~~this report~~interest doand ~~not~~due ~~include~~to ~~any~~related ~~adjustments~~parties ~~that~~to ~~might~~common bestock ~~necessary~~effective ifJune 30, 2009. As a result, the Company ~~is unable~~has tostockholder’s ~~continue~~equity of $2,759,459 at December 31, 2009 as compared to a ~~going~~stockholders’ ~~concern~~deficit of $3,055,149 at December 31, 2008.

We have substantial current obligations and at December 31, ~~2008~~2009, we had $6561,~~782,260~~373 of current liabilities as compared to only $8979,~~083~~807 of current assets. Accordingly, the Company does not have sufficient cash resources or current assets to pay these obligations.

Our substantial ~~debt~~ obligations pose risks to our business and stockholders by:

·	making it more difficult for us to satisfy our obligations;

·	impeding us from obtaining additional financing in the future for working capital, capital expenditures and general corporate purposes; and

·	making us more vulnerable to a downturn in our business and limit our flexibility to plan for, or react to, changes in our business.

~~The~~On ~~time required~~July ~~for~~29, ~~the~~2009, ~~Company~~but toeffective ~~become~~June ~~profitable is highly uncertain~~30, ~~and Management~~2009 ~~cannot~~(the ~~assure~~“Effective ~~you~~Date”), ~~that~~ the Company and ~~will~~certain ~~achieve~~of orits ~~sustain profitability~~wholly-owned orsubsidiaries ~~generate~~eliminated ~~sufficient~~certain ~~cash~~debt ~~flow~~obligations ~~from~~by ~~operations~~converting tothem ~~meet~~into ~~planned capital expenditures, working capital and debt service requirements~~$0.0001 ~~If required,~~par ~~the~~value ~~ability~~common tostock ~~obtain~~(“Stock”) ~~additional~~of ~~financing from other sources also depends on many factors beyond~~ the Company~~’s control~~. Additionally, ~~including~~ the ~~state~~Company ofsuccessfully ~~the capital~~negotiated ~~markets~~ and ~~the~~eliminated ~~prospects~~a ~~for~~substantial ~~the~~amount ~~Company’s~~of ~~business.~~obligations ~~The~~that ~~necessary additional~~were ~~financing~~incurred ~~may~~from ~~not~~a bepredecessor ~~available~~company toand ~~the~~converted ~~Company~~an orexisting ~~may~~preferred bestock ~~available only~~agreement ~~on terms that would result in further dilution~~ to ~~the current owners of common stock~~Stock.

~~F-8~~As a result of the above restructuring of the Company’s consolidated balance sheet, the Company eliminated the majority of its debt as of the Effective Date and will issue or has issued 33,850,677 shares of Stock, 23,350,677 from the conversion of debt obligations and 10,500,000 from the conversion of preferred stock. See Note 5 – Debt and Note 7 – Stockholders’ Equity.

Management believes that as a result of restructuring of the balance sheet as discussed above, the Company will have several options available to obtain financing from third parties in order to carry out the business plan of the Company.

F-9-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

The accompanying consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amount and classification of liabilities which may result from the inability of the Company to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) for annual financial information and with the instructions to Form 10-K of Regulation S-K.

Principles of Consolidation

The accompanying consolidated financial statements include the general accounts of American Energy and its wholly-owned subsidiaries as of December 31, ~~2008~~2009 and ~~2007~~ 2008 and all significant intercompany transactions, accounts and balances have been eliminated in consolidation.

~~Accounting~~ Use of Estimates

When preparing financial statements in conformity with ~~U.S.~~United States Generally Accepted Accounting Principles (“GAAP”), management must make estimates based on future events that affect the reported amounts of assets and liabilities and, the disclosure of contingent assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in the accompanying financial statements include ~~going~~valuation ~~concern,~~of ~~BDC conversion,~~ oil and gas properties, valuation and depreciation periods of property and equipment, the evaluation of whether our assets are impaired, asset retirement obligations, ~~revenue~~valuation ~~recognition,~~of ~~the~~non-cash stock based grants, 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. ~~The actual amounts could differ materially from such estimates.~~

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~~Accounts ~~and Gas Properties~~Receivable

~~The Company~~Accounts receivable ~~uses~~result from the ~~successful~~sale ~~efforts~~of ~~method~~the Company’s products and is reported at net of ~~accounting~~any allowance for doubtful accounts. The Company estimates its ~~oil~~allowance for doubtful accounts based on a specific identification basis and ~~gas properties~~additional allowances as needed based upon historical collections experience. ~~Costs~~ Payment ~~incurred~~is bydue upon delivery of the ~~Company~~product, ~~related~~unless toother arrangements are made. Management reviews the ~~acquisition~~ ofcustomer ~~oil~~accounts ~~and~~on ~~gas~~a ~~properties~~routine ~~and~~basis ~~the~~to ~~cost~~determine ofif ~~drilling~~an ~~successful~~account ~~wells are~~should ~~capitalized~~be charged off. ~~Costs~~ At December 31, 2009, all accounts receivable are deemed to ~~maintain~~be ~~wells~~collectible ~~and~~in ~~related~~full. Payments ~~equipment and~~from ~~lease~~oil and ~~well~~natural ~~operating~~gas ~~costs~~sales are ~~charged~~remitted by customers, to ~~expense~~the ~~as incurred. Gains~~operator, who is a related party and ~~losses~~the ~~arising~~operator ~~from~~then ~~sales~~remits ofthese ~~properties~~payments ~~are included~~to inthe ~~income~~Company. ~~Unproved~~ ~~properties~~(See ~~are~~Note ~~assessed periodically~~10 ~~for~~– ~~possible~~Related ~~impairment~~Party Transactions).

~~Property and Equipment~~F-10-

~~The Company’s~~American ~~oil~~Energy ~~and gas rig is depreciated over its estimated useful life of ten years~~Production, ~~using the straight line method~~Inc. ~~Vehicles~~ ~~are depreciated over their estimated useful life of three years, using the straight line method. Maintenance, repairs~~ and ~~minor replacements are charged to operations in the year incurred.~~Subsidiaries

~~F-9~~Notes to Consolidated Financial Statements

~~Asset~~Years ~~Retirement Obligations~~ended December 31, 2009 and 2008

~~The Company~~Oil ~~accounts~~and ~~for~~Gas ~~asset~~Properties 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.Equipment

The ~~estimated~~ ~~liability~~Company isuses ~~determined~~the ~~using~~successful ~~significant~~efforts ~~assumptions,~~method ~~including current~~of ~~estimates~~accounting offor ~~plugging~~its oil and ~~abandonment~~gas ~~costs,~~properties. Unproved ~~annual~~properties ~~inflation~~are ofassessed ~~these costs,~~periodically ~~the~~for ~~productive~~possible ~~lives~~impairment. Costs ofincurred ~~wells,~~by ~~and~~the aCompany ~~risk-adjusted~~related ~~interest~~to ~~rate.~~the ~~Changes in~~acquisition ~~any~~ of ~~these~~proved ~~assumptions~~and ~~can~~unproved ~~result~~oil inand ~~significant~~gas ~~revisions~~properties toand the ~~estimated asset~~cost ~~retirement~~of ~~obligations.~~drilling ~~Revisions~~only tosuccessful ~~the~~wells ~~asset~~are ~~retirement~~capitalized. Costs ~~obligations~~to ~~are recorded~~maintain ~~with~~wells anand ~~offsetting~~related ~~change~~equipment toand ~~producing~~lease ~~properties,~~and ~~resulting~~well ~~in prospective~~operating ~~changes~~costs toon ~~depletion~~proved ~~and~~properties ~~depreciation~~are ~~expense~~charged ~~and~~to ~~accretion~~expense ofas ~~the discount~~incurred. Gains ~~Because~~and oflosses ~~the~~arising ~~subjectivity~~from sales of ~~assumptions~~properties ~~and~~are ~~the~~included ~~relatively~~in ~~long lives~~other ofincome ~~most~~(expense). Proved ofoil ~~the~~and ~~wells,~~gas ~~the~~properties ~~costs~~are todepleted ~~ultimately~~using ~~retire~~ the ~~Company’s~~units-of-production ~~wells may~~method ~~vary~~based ~~significantly~~on ~~from~~total ~~prior~~proved ~~estimates~~reserves.

The Company’s oil and gas rig is depreciated over its estimated useful life of ten years, using the straight line method. Vehicles are depreciated over their estimated useful life of three years, using the straight line method. Repairs and maintenance are expensed in the year incurred, while renewals and betterments are generally capitalized. Expenditures less than $1,000, including contract labor, are expensed to operations in the year incurred.

Accounting for the Impairment of Long-Lived Assets

We account for the impairment of long-lived assets in accordance ASC 360-10 (SFAS No. 144), ~~Accounting~~ ~~for~~“Property, ~~the~~Plant ~~Impairment or~~and ~~Disposal of Long-Lived Assets~~Equipment, 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 years ended December 31, 2008 and 2007.~~

Asset Retirement Obligations

The Company accounts for asset retirement obligations in accordance with ASC 410 (SFAS No. 143), “Asset Retirement and Environmental 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 surrounding property. 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 at the asset’s inception, with an offsetting increase to the producing properties asset. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value and is classified as an expense in the consolidated statement of operations. The discount rate utilized by the Company is 4.5% with a range of ten to twenty year estimated life for the properties.

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 discounted liability. 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.

F-11-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Environmental Matters

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

Revenue Recognition

~~Revenues from~~The ~~sales~~Company ofsells crude oil and natural gas ~~products~~under ~~are~~short-term ~~recorded~~agreements ~~when~~at ~~deliveries have~~prevailing ~~occurred~~market prices and ~~legal~~is ~~ownership~~recognized ofat the ~~commodity~~point ~~transfers~~of tosale, ~~the customer. Revenues~~that ~~from~~is, when the ~~production~~crude of oil and natural gas ~~properties~~ inis ~~which~~extracted from the ~~Company~~tanks. Generally, ~~shares~~this anis ~~undivided~~at ~~interest~~the ~~with~~point ~~other producers~~where ~~are~~the ~~recognized~~customer ~~based~~has ontaken title and has assumed the ~~actual~~risks ~~volumes~~and ~~sold~~rewards byof ownership, the ~~Company~~sales ~~during the~~price ~~period~~is fixed or determinable and collectability is reasonable assured.

~~Fair~~Gold ~~Value~~Mine ofOperating ~~Financial Instruments~~Agreement

WeThe ~~define the~~Company ~~fair~~jointly ~~value~~participates ofin aan ~~financial~~operating ~~instrument~~agreement asfor the ~~amount~~exploration, atevaluation, ~~which~~development ~~the~~and ~~instrument could~~mining beof ~~exchanged~~gold inand aother ~~current~~minerals ~~transaction~~with ~~between~~an ~~willing~~unrelated ~~parties.~~third party. The ~~carrying~~ ~~value~~Company ofmanages ~~trade~~the ~~receivable,~~gold ~~other~~mine ~~receivables~~operation, ~~other~~is ~~assets~~responsible ~~and~~for ~~accounts payable~~one ~~approximates~~hundred ~~fair~~percent ~~value~~(100%) ~~because~~ of ~~the~~all ~~short~~expenses, ~~maturity~~and ofwill ~~those instruments.~~receive ~~The~~fifty ~~estimated~~percent ~~fair~~(50%) ~~value~~ of ~~our~~product ~~other~~or ~~obligations~~revenues isafter ~~estimated based~~expenses. The ongold ~~the~~mine ~~current~~operation ~~rates~~is ~~offered~~in tothe usdevelopment ~~for~~phase ~~similar maturities. Based~~and onno ~~prevailing~~revenue ~~interest~~or ~~rates~~product ~~and~~has ~~the~~been ~~short-term maturity~~realized offrom ~~all~~the ofoperation. As ~~our~~a ~~indebtedness~~result, ~~management~~the ~~believes~~Company ~~that~~has classified expenditures incurred for the ~~fair~~gold ~~value~~mine ~~of our~~operations ~~obligations~~as ~~approximates~~research ~~book~~and ~~value~~development atexpense ~~December~~in ~~31,~~the ~~2008~~consolidated ~~and 2007~~statement of operations.

Research and Development

Prior to December 31, 2008, the Company had expenditures related to potential ventures with third parties for the development of oil and gas opportunities not included in the Company’s existing asset base. These were recorded as Development Programs as an Other Asset at December 31, 2008. In 2009, the Company analyzed all of these potential programs and determined that based upon existing market conditions and the focus of the Company to diversify its energy operations, that the development programs would be abandoned. Accordingly, the Company reclassified the previous development program expenditures as research and development expense in the accompanying consolidated financial statements. Additionally, the Gold Mine Operating Agreement discussed previously has been classified as research and development expense.

Fair Value Measurements of Financial Instruments

We measure our financial assets and liabilities in accordance ASC 820 (SFAS No. 157), Fair Value Measurements and Disclosures. For certain of our financial instruments, including cash, accounts receivable, due from related party, accounts payable, other current liabilities, due to related parties and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for other assets, notes payable, deferred other income and asset retirement obligations also approximate fair value because current interest rates available to us for debt with similar terms and maturities are substantially the same.

F-12-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Effective January 1, 2008, we adopted accounting guidance for financial assets and liabilities. The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Financial Assets and Liabilities

We currently measure and report the fair value liability for asset retirement obligations. The fair value liability for asset retirement obligations has been recorded as determined by calculating the present value of estimated cash flows related to the liability. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009:

	Balance at December 31, 2009		Quoted priced in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
			(Level 1)		(Level 2)		(Level 3)
Liabilities:
Asset Retirement Obligations	$	532,046	$	-	$	-	$	532,046
Total financial liabilities	$	532,046	$	-	$	-	$	532,046

The following reflects activity through December 31, 2009 of the fair value measurements using significant unobservable Level 3 inputs:

Balance at December 31, 2008	$	509,155
Accretion of discounted liability		22,891
Ending balance at December 31, 2009	$	532,046

F-13-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Non-Financial Assets and Liabilities

The Company evaluated and determined that there were no non-financial assets and liabilities as of December 31, 2009 and 2008, respectively.

Stock-Based Compensation

The Company adopted ASC 718 (SFAS No. 123R), Compensation – Share- Based ~~Payment~~Compensation, as of January 1, 2006, using the modified prospective application method. This statement requires the recognition of compensation expense measured at fair value when we obtain employee services in stock-based payment transactions.

Prior to January 1, 2006, the Company recognized compensation cost associated with stock-based awards under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under APB 25, the difference between the quoted market price as of the date of the grant and the contractual purchase price of shares was charged to operations over the vesting period on a straight-line basis. No compensation cost was recognized for fixed stock options with exercise prices equal to the market price of the stock on the dates of grant.

F-10

Upon the adoption of SFAS 123R, the Company began recording compensation cost related to all new stock based compensation grants after our adoption date. The compensation cost to be recorded is based on the fair value at the grant date.

Concentration of Risk

Our financial instruments that are potentially exposed to credit risk consist primarily of cash and accounts receivable for which the carrying amounts approximate fair value. No amounts exceeded federally insured limits as of December 31, 2009 and 2008, respectively. At certain times, our demand deposits held in banks may exceed the federally insured limits. The Company has not experienced any losses related to these deposits.

Net Income (Loss) per Common Share

The Company computes earnings (loss) per share in accordance with ASC 260-10 (SFAS No. 128, “Earnings per Share.” ASC 260-10 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At December 31, 2009, there were options to purchase 8,800,000 shares of the Company’s common stock which may dilute future earnings per share.

Legal Costs and Contingencies

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.

If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.

Income Taxes

Income taxes are accounted for under the asset and liability method of ASC 740 (SFAS No. 109), ~~Accounting~~ ~~for~~ “Income ~~Taxes~~ ~~(“SFAS 109”)~~Taxes. Under ~~SFAS~~ASC ~~109~~740, 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~~ASC ~~109~~740, 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.

F-14-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Effective January 1, 2007, the Company adopted provisions of ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes. These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. Upon the adoption of ASC 740, the Company had no unrecognized tax benefits. During the years ended December 31, 2009 and 2008, no adjustments were recognized for uncertain tax benefits. All years from 2006 through 2009 are still subject to audit.

The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company will adjust tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results.

The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include the United States.

Impact of Recently Issued Accounting Standards

InOn ~~April 2009~~December 31, 2008, the ~~Financial~~SEC ~~Accounting~~adopted ~~Standards~~major ~~Board~~revisions to its rules governing oil and gas company reporting requirements (“~~FASB”)~~Modernization ~~issued~~of ~~FSP~~Oil Noand Gas Reporting Requirements”). ~~FAS 157-4,~~These ~~“Determining~~include ~~Fair~~provisions ~~Value~~that ~~When~~permit the ~~Volume~~use ~~and~~of ~~Level~~new oftechnologies ~~Activity~~to ~~for~~determine ~~the Asset~~proved orreserves ~~Liability~~and ~~Have~~that ~~Significantly~~allow ~~Decreased~~companies ~~and~~to ~~Identifying~~disclose ~~Transactions That~~their ~~Are~~probable ~~Not~~and ~~Orderly”~~possible ~~(“FSP~~reserves ~~FAS~~to ~~157-4”)~~investors. ~~FSP~~ ~~FAS~~The ~~157-4~~current ~~provides guidance~~rules onlimit ~~estimating~~disclosure ~~fair~~to ~~value~~only ~~when~~proved ~~market~~reserves. ~~activity~~The ~~has~~new ~~decreased~~disclosure ~~and~~requirements ~~on identifying~~also ~~transactions~~require ~~that~~companies ~~are~~to ~~not~~report ~~orderly. Additionally,~~the ~~entities are~~independence ~~required~~and toqualifications ~~disclose~~of inthe ~~interim~~person ~~and~~primarily ~~annual~~responsible ~~periods~~for the ~~inputs~~preparation ~~and~~or ~~valuation techniques~~audit ~~used~~of reserve estimates, and to ~~measure~~file ~~fair~~reports ~~value. This~~when ~~FSP~~a isthird ~~effective~~party ~~for interim~~is ~~and~~relied ~~annual~~upon ~~periods~~to ~~ending~~prepare ~~after~~or ~~June~~audit ~~15,~~reserves ~~2009~~estimates. The ~~Company does~~new ~~not~~rules ~~expect~~also require that oil and gas reserves be reported and the ~~adoption~~full-cost ofceiling ~~FSP~~value ~~FAS~~calculated ~~157~~using an average price based upon the prior 12-4month ~~will~~period. ~~have~~The anew ~~material~~oil ~~impact~~and gas reporting requirements are effective for annual reports on ~~its financial~~Form ~~condition~~10-K for fiscal years ending on or ~~results~~after ofDecember 31, ~~operation~~2009, with early adoption not permitted.

~~In October~~On ~~2008~~January 6, ~~the FASB issued FSP No. FAS 157-3~~2010, ~~“Determining~~ the ~~Fair Value of a~~ Financial ~~Asset~~Accounting ~~When~~Standards ~~the~~Board ~~Market~~(“FASB”) ~~for~~issued ~~That~~Accounting ~~Asset~~Standards isUpdate ~~Not~~2010-3 ~~Active,”~~ (~~“FSP~~ASU ~~FAS 157~~2010-3”), which ~~clarifies~~aligns ~~application~~the ofoil ~~SFAS~~and ~~157~~gas inreserve aestimation ~~market~~and ~~that~~disclosure isrequirements ~~not active. FSP~~of ~~FAS~~Extractive ~~157~~Industries -3 ~~was~~Oil ~~effective~~and ~~upon~~Gas ~~issuance,~~(Topic ~~including~~932) ~~prior periods~~with ~~for~~the ~~which~~oil ~~financial~~and ~~statements~~gas ~~have~~reporting ~~not~~requirements ~~been issued. The adoption~~ of ~~FSP FAS 157-3 had no impact on~~ the ~~Company’s~~SEC ~~results~~revisions ofdiscussed ~~operations, financial condition or cash flows~~above.

In ~~December~~ ~~2008~~April 2009, ~~the~~accounting ~~FASB~~guidance ~~issued~~was ~~FSP~~released ~~No.~~with ~~FAS~~respect ~~140-4~~to ~~and~~interim ~~FIN~~disclosures ~~46(R)-8, “Disclosures by Public Entities (Enterprises)~~ about ~~Transfers~~fair value of ~~Financial~~financial ~~Assets~~instruments ~~and Interests~~to inrequire ~~Variable~~disclosures ~~Interest~~about ~~Entities.” This disclosure-only FSP improves~~ the ~~transparency~~fair ofvalue ~~transfers~~ of financial ~~assets~~instruments ~~and~~for aninterim ~~enterprise’s involvement~~reporting ~~with variable interest entities~~periods, ~~including qualifying special-purpose entities. This FSP is~~ effective for ~~the first~~ reporting ~~period~~periods ~~(interim or annual)~~ ending after ~~December~~June 15, ~~2008, with earlier application encouraged~~2009. ~~The~~ We ~~Company~~have ~~adopted~~incorporated ~~this~~required ~~FSP effective~~disclosures ~~January~~in 1,these ~~2009. The~~consolidated ~~adoption~~financial ofstatements ~~the~~with ~~FSP had~~ no ~~impact~~ effect on ~~the~~our ~~Company’s~~financial position, results of operations, ~~financial condition~~ or cash flows.

In ~~December~~ ~~2008~~May 2009, ~~the~~accounting ~~FASB~~guidance was issued ~~FSP~~regarding ~~No.~~subsequent ~~FAS 132(R)-1~~events, ~~“Employers’~~which ~~Disclosures about~~establish ~~Postretirement~~general ~~Benefit~~standards ~~Plan~~of ~~Assets”~~accounting ~~(“FSP~~for ~~FAS~~and ~~132(R)-1”). FSP FAS~~disclosure ~~132(R)-1~~of ~~requires~~events ~~additional~~that ~~fair~~occur ~~value~~after ~~disclosures~~the ~~about~~balance ~~employers’~~sheet ~~pension and~~date ~~postretirement~~but ~~benefit~~before ~~plan~~financial ~~assets~~statements ~~consistent~~are ~~with~~issued ~~guidance~~or ~~contained~~are ~~in SFAS 157~~available to be issued. ~~Specifically~~ In particular, ~~employers~~guidance ~~will~~sets beforth ~~required~~the toperiod ~~disclose information~~after ~~about~~the ~~how~~balance ~~investment~~sheet ~~allocation~~date ~~decisions~~during ~~are~~which ~~made~~management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the ~~fair~~circumstances ~~value of~~under ~~each~~which ~~major~~an ~~category~~entity ofshould ~~plan~~recognize ~~assets~~events ~~and~~or ~~information~~transactions ~~about~~occurring after the ~~inputs~~balance sheet date, and ~~valuation~~ ~~techniques~~the ~~used~~disclosures tothat ~~develop~~should ~~the~~be ~~fair~~made ~~value~~about ~~measurements~~such ofevents ~~plan~~or ~~assets~~transactions. This ~~FSP~~accounting guidance is effective for ~~fiscal~~reporting ~~years~~periods ending after ~~December~~June 15, 2009~~. The~~, ~~Company~~and ~~does~~should not ~~expect~~result ~~the~~in ~~adoption~~significant changes in subsequent events that an entity reports, either through recognition or disclosure, in financial statements. Among other things, this guidance requires disclosure of ~~FSP~~the ~~FAS~~date ~~132(R)-1 will~~through ~~have~~which aan ~~material~~entity ~~impact~~has onevaluated ~~its~~subsequent events and the basis for that date, that is, whether that date represents the date the financial ~~condition~~statements were issued or ~~results~~were ~~of operation~~available to be issued. We have incorporated required disclosures in these consolidated financial statements.

In ~~September~~ ~~2008~~April 2009, the ~~FASB~~Financial ~~issued~~Accounting ~~exposure~~Standards ~~drafts~~Board ~~that~~(“FASB”:) ~~eliminate~~issued ~~qualifying special~~ASC ~~purpose~~825, ~~entities~~The ~~from~~Fair ~~the~~Value ~~guidance~~Option ~~of SFAS No. 140, “Accounting~~ for ~~Transfers~~ ~~and Servicing of~~ Financial Assets and ~~Extinguishments~~ of Financial Liabilities:,” ~~and~~ The FASB ~~Interpretation~~ 46issued ~~(revised~~ASC ~~December~~825 ~~2003), “Consolidation~~which ~~of Variable Interest~~permits ~~Entities −~~entities ~~an interpretation~~to ofchoose ~~ARB No.~~to ~~51,”~~measure asmany ~~well~~financial asinstruments ~~other modifications. While~~and ~~the~~certain ~~proposed~~other ~~revised~~items ~~pronouncements~~at ~~have~~fair ~~not been~~value ~~finalized~~that ~~and~~are ~~the~~not ~~proposals~~currently ~~are~~required ~~subject~~ to ~~further~~be ~~public~~measured ~~comment,~~at ~~the Company~~fair ~~anticipates~~value. ASC ~~the~~825 ~~changes~~was ~~will~~implemented ~~not~~for ~~have a significant impact on~~ the Company’s ~~financial~~fiscal ~~statements. The~~year ~~changes~~end ~~would~~December ~~be effective March 1~~31, ~~2010~~2008, onand ainterim ~~prospective~~periods ~~basis~~beginning January 1, 2008.

F-1115-

~~In June 2008,~~American ~~the~~Energy ~~FASB issued FASB Staff Position EITF 03-6-1~~Production, ~~Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”)~~Inc. ~~FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting,~~ and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.Subsidiaries

~~In May~~Notes ~~2008,~~to ~~the~~Consolidated ~~FASB issued SFAS No. 163, “Accounting for~~ Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.Statements

InYears ~~May 2008,~~ended ~~the~~December ~~FASB issued SFAS No. 162~~31, ~~“The~~2009 ~~Hierarchy~~and of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.2008

In ~~March 2008~~June 2009, ~~the~~ FASB ~~issued~~approved ~~SFAS~~the ~~No.~~Accounting ~~161,~~Standards ~~Disclosures~~Codification ~~about~~(“the ~~Derivative~~Codification”) ~~Instruments~~as ~~and Hedging~~the ~~Activities—an~~single ~~amendment~~source of ~~FASB~~authoritative ~~Statement~~nongovernmental NoGAAP. ~~133. This standard~~All ~~requires~~existing ~~companies~~accounting tostandard ~~provide~~documents, ~~enhanced~~such ~~disclosures~~as ~~about~~FASB, ~~(a)~~American ~~how~~Institute ~~and why~~of anCertified ~~entity~~Public ~~uses derivative instruments~~Accountants, ~~(b)~~Emerging ~~how~~Issues ~~derivative~~Task ~~instruments~~Force and other related ~~hedged~~literature, ~~items~~excluding ~~are~~guidance ~~accounted~~from ~~for~~the ~~under~~SEC, ~~Statement~~have ~~133~~been ~~and~~superseded ~~its~~by ~~related interpretations~~the Codification. All other non-grandfathered, ~~and~~non-SEC ~~(c)~~accounting ~~how~~literature ~~derivative~~not ~~instruments~~included ~~and~~in ~~related~~the ~~hedged~~Codification ~~items affect~~has anbecome ~~entity’s~~nonauthoritative. ~~financial~~The ~~position~~Codification did not change GAAP, ~~financial~~but ~~performance~~instead introduced a new structure that combines all authoritative standards into a comprehensive, ~~and~~topically ~~cash~~organized ~~flows~~online database. ~~This~~ ~~Statement~~The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements ~~issued~~as ~~for~~all ~~fiscal~~future ~~years~~references ~~and interim~~to ~~periods~~authoritative ~~beginning~~accounting ~~after~~literature ~~November~~will ~~15,~~be ~~2008,~~referenced in accordance with ~~early~~the ~~application encouraged~~Codification. ~~The~~There ~~Company~~have ~~has~~been ~~not~~no ~~yet~~changes ~~adopted~~to the ~~provisions~~content of ~~SFAS~~the ~~No.~~Company’s ~~161,~~financial ~~but does~~statements ~~not~~or ~~expect~~disclosures itas ~~to have~~ a ~~material~~result ~~impact~~of onimplementing ~~its~~the ~~consolidated~~Codification ~~financial position,~~during ~~results~~the ofyear ~~operations~~ended orDecember ~~cash~~31, ~~flows~~2009.

~~In December~~As ~~2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of~~ a ~~"simplified"~~result ~~method, as discussed in SAB No. 107 (SAB 107), in developing an estimate~~ of ~~expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular,~~ the ~~staff indicated in SAB 107 that it will accept a company'~~Company’s ~~election~~implementation toof ~~use~~ the ~~simplified method~~Codification, ~~regardless~~previous ofreferences ~~whether~~to ~~the~~new ~~company~~accounting ~~has~~standards ~~sufficient information~~and toliterature ~~make~~are ~~more~~no ~~refined~~longer ~~estimates of expected term~~applicable. AtIn the ~~time~~accompanying ~~SAB~~consolidated ~~107 was~~financial ~~issued~~statements, the ~~staff~~Company ~~believed~~has ~~that~~provided ~~more~~reference ~~detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available~~ to ~~companies.~~ ~~Therefore,~~ the ~~staff~~both ~~stated in SAB 107 that it would not expect a company to use~~ the ~~simplified~~old ~~method~~and ~~for~~new ~~share~~guidance option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to ~~accept,~~assist ~~under~~in ~~certain~~understanding ~~circumstances,~~ the ~~use~~impacts of ~~the simplified~~recently ~~method~~adopted ~~beyond~~accounting ~~December 31~~literature, ~~2007.~~particularly ~~The Company currently uses the simplified method~~ for ~~“plain~~guidance ~~vanilla”~~adopted ~~share~~since ~~options and warrants, and will assess~~ the ~~impact~~beginning of ~~SAB~~the ~~110~~current ~~for~~ fiscal year ~~2009.~~but Itprior isto ~~not~~the ~~believed~~Codification. New ~~that~~references ~~this~~ will ~~have~~use anthe ~~impact~~term onAccounting ~~the~~Standards ~~Company’s~~Codification ~~consolidated~~(“ASC”) ~~financial~~followed ~~position,~~by ~~results~~the ~~of operations~~relevant orASC ~~cash flows~~section.

~~In December 2007, the FASB issued SFAS No~~4. OIL ~~160,~~AND ~~“Noncontrolling~~GAS ~~Interests~~PROPERTIES ~~in Consolidated~~AND Financial Statements—an amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.EQUIPMENT

~~In December~~Oil 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations’. This Statement replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirements in Statement 141. This Statement establishes principles and ~~requirements~~ ~~for~~Gas ~~how~~Properties ~~the acquirer: (a) recognizes~~ and ~~measures~~Equipment in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is oncomprised ~~or after the beginning~~ of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.following:

F-12

	December 31,
	2009		2008
Oil and gas properties, successful efforts	$	4,283,365	$	4,283,364
Other property and equipment		1,776,905		1,744,067
Total		6,060,270		6,027,431
Less: Accumulated depreciation and depletion		2,287,199		2,015,528
Oil and Gas Properties and equipment, net	$	3,773,071	$	4,011,903

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities—Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements. The Company adopted SFAS No. 159 on March 1, 2008 and it did not have a material impact on the Company’s consolidated statement of operations or financial condition.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company adopted this statement March 1, 2008, and it did not have a material impact on the Company’s consolidated statement of operations or financial position.

In 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007, as required.

The current Company policy classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. There was no interest or selling, general and administrative expenses accrued or recognized related to income taxes for the years ended December 31, 2008 or 2007. The Company has not taken a tax position that would have a material effect on the consolidated financial statements or the effective tax rate for the year ended December 31, 2008 or during the prior three years applicable under FIN 48. It is determined not to be reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within twelve months of the adoption

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however the application of this statement may change current practice. The requirements of SFAS 157 were first effective for the Company’s fiscal year beginning January 1, 2008. However, in February 2008 the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year. Accordingly, the Company’s adoption of this standard on January 1, 2008, was limited to financial assets and liabilities. The adoption of SFAS 157 did not have a material effect on the Company’s consolidated results of operations or financial condition.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.” The fair value option permits entities to choose to measure eligible financial instruments at fair value at specified election dates. The entity will report unrealized gains and losses on the items on which it has elected the fair value option in earnings. SFAS 159 is effective beginning in fiscal year 2008. The adoption of SFAS 159 did not have a material impact on the Company’s consolidated results of operations or financial condition.

Net Income (Loss) per Common Share

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

F-13

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.

4. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

	December 31,
	2008		2007
Oil and gas properties, successful efforts	$	4,283,365	$	4,362,610
Other property and equipment		1,744,067		1,520,261
Total		6,027,431		5,840,863
Less: Accumulated depreciation and depletion		2,015,528		1,475,098
Property and equipment, net	$	4,011,903	$	4,365,765

On December 13, 2007, Production Resources, Inc. (“PRI”), a wholly-owned subsidiary of the Company, sold the J.N. Wilson “A” lease in Medina County, Texas to a third party. The lease included 190 acres of land, $49,250 of oil and gas properties and equipment at historical cost, $16,599 of oil and gas properties recorded as an asset for asset retirement obligations, offset by $20,158 of asset retirement obligation liabilities. The sales price of the lease was $75,000 and $45,618 of the proceeds was utilized to pay off the outstanding balance of a promissory note and accrued interest (See Note 5 – Debt). The remaining $29,832 of cash was paid as a bonus to the President of PRI (See Note 6 – Due to and From Related Parties). As a result of the transaction, the Company recorded a $29,309 gain on the sale of properties.

5. DEBT

Our debt at December 31, 2008 and 2007 consisted of the following:

Lease Payable

	December 31,
	2008		2007
	2009		2008
$21,238 computer equipment lease, bearing interest at 10% per annum	$	~~16,131~~-	$	16,131

F-1416-

OnAmerican ~~April 16,~~Energy ~~2001~~Production, ~~the Company leased computer equipment under a 36-month lease that was accounted for as a capital lease in the amount of $21,238~~Inc. ~~The~~ ~~lease was secured by the computer equipment~~ and perfected by a financing statement; however, the Company liquidated the equipment in 2006 (with the lessor approval) and paid the resulting $4,000 of proceeds to the lessor. As a result of the computer liquidation other payments, the remaining unpaid balance of principal has been $16,131 since March 31, 2006. The payable is personally guaranteed by a former officer/director and the Chief Executive Officer of the Company. As of December 31, 2008, the Company has recorded a total of $25,029 in accrued interest for this payable in the accompanying Balance Sheet.Subsidiaries

~~In November~~Notes ~~2003, a settlement was negotiated with the lessor discussed above~~ to ~~forgive~~ ~~the~~Consolidated ~~outstanding~~Financial principal and accrued interest on the lease payable once the transfer of 4,000 shares (100,000 shares prior to the one-for-twenty five reverse stock split) of the Company’s common stock personally held by the Company’s Chief Executive office occurs. The Chief Executive Officer of the Company transferred these shares on September 15, 2003. However, as of December 31, 2007, the transaction has not been finalized as the lessor has not agreed to the settlement. The Company expects to fully resolve this matter in the future at which time the value of the shares exchanged and any related gain or loss will be determined and recognized – (see Note 7 – Commitments and Contingencies and Note 8 – Related Party Transactions).Statements

AsYears of ended December 31, ~~2008,~~2009 ~~the~~and Company has recorded $122,671 of accrued interest for previously issued convertible debentures. Several convertible debenture holders previously elected to convert all or a portion of the convertible debentures into common stock. However, the conversion did not include accrued interest that was specified in the convertible debenture documentation. 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 December 31, 2008.

On April 16, 2001, the Company leased computer equipment under a 36-month lease that was accounted for as a capital lease in the amount of $21,238. The lease was secured by the computer equipment and perfected by a UCC financing statement; however, the Company liquidated the equipment in 2006, with the lessor approval, and paid the resulting $5,107 of net proceeds to the lessor. As a result, the remaining unpaid balance of principal had been $16,131 since March 31, 2006. The payable was personally guaranteed by a former officer and director of the Company and the current Chief Executive Officer of the Company. As of December 31, 2008, the Company had recorded a total of $25,029 in accrued interest for this 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 current Chief Executive Officer to the lessor occurs. The Chief Executive Officer of the Company transferred these shares on September 15, 2003 but the lessor did not sign the settlement.

The Company researched the matter and believes that consideration was provided by the Company and accepted by the Lessor for the settlement and that no further consideration or action is required by the Company. Additionally, under Delaware corporation law, statute of limitations for claims is three years and since the settlement was completed in November 2003, no further obligation of the Company is warranted. Accordingly, during 2009 the $16,131 debt obligation and $25,029 of accrued interest have been written off to Other Income in the consolidated financial statements.

Notes Payable

	December 31,
	2008		2007
	2009		2008
$2,000,000 Promissory Note, dated February 20, 2003, bearing interest at 8% per annum and due on December 31, 2008	$	2,000,000	$	2,000,000
$25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6.75% per annum and due on January 25, 2010.	$	23,684	$	24,062
$25,000 Line of Credit, dated October 28, 2005, bearing simple variable interest at 6% per annum and due on February 28, 2008.		24,062		23,714
$124,487 Note, dated March 27, 2008, not formalized and not bearing interest		100,487		91,000
$103,000 Note, dated March, 2008, not formalized and not bearing interest		91,000		-
$10,000 Note, dated June 30, 2009, bearing interest at 18% per annum and due December 31, 2009.		10,000		-
	$	2134,~~115,062~~171	$	2115,~~023,714~~062

On ~~June 15,~~October ~~2004~~28, ~~Bend Arch Petroleum~~2005, ~~Inc. (“~~Bend Arch~~”),~~ aentered ~~wholly-owned~~into ~~subsidiary of the Company executed~~ a $225,000~~,000~~ ~~promissory~~line ~~note~~of ~~accruing~~credit ~~interest~~facility ~~at 8%~~ with ~~Proco~~ ~~Operating~~a ~~Co.,~~financial ~~Inc.,~~institution afor ~~company~~working ~~controlled~~capital bypurposes. ~~the~~The ~~brother~~line of ~~the~~credit ~~Company’s Chief~~is ~~Executive~~secured ~~Officer~~by ~~(See~~a ~~Note~~certificate 9of –deposit ~~Related~~held ~~Party~~by ~~Transactions~~the financial institution and ~~Note~~bears 10simple ~~– Operator~~interest ~~Agreement)~~per ~~with~~annum at a ~~maturity~~variable ~~date~~rate ofwhich ~~July~~was 3.25,% ~~2007. The purpose~~as of ~~the~~December ~~Note~~31, is2009. toAs ~~secure~~of ~~payment~~December ~~for~~31, ~~oil~~2009, ~~and~~the ~~gas~~outstanding ~~leases~~balance ~~and~~is ~~wells located~~$23,684 ~~in Comanche~~ and ~~Eastland~~is ~~counties~~classified inas ~~the~~a ~~State~~component of ~~Texas sold to Bend Arch by Proco on June 15, 2004. The~~ Note ~~replaced~~Payable ain ~~$2,000,000~~the ~~convertible debenture~~accompanying ~~dated~~consolidated ~~January~~financial ~~5, 2004~~statements.

On June 30, 2009, the Company received $10,000 of proceeds from a short-term note from an unrelated third party. The terms included interest at a rate of 18% per annum, a December 31, 2009 maturity date, and a late payment charge equal to 5% of the unpaid balance and interest at the lesser of a) 18% or b) as permitted by law. As of December 31, 2009, the Company had accrued $900 of accrued interest related to the note payable and the note payable had not been repaid and was considered in default. See Note 12 – Subsequent Events.

~~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.~~F-17-

~~The~~American ~~First Extension~~Energy ~~modified~~Production, ~~the~~Inc. ~~terms~~and ~~of the Note as follows:~~Subsidiaries

·Notes ~~The maturity date of the Note was extended~~ to ~~September~~Consolidated ~~25,~~Financial ~~2007.~~Statements

·Years ~~Bend~~ended ~~Arch~~December ~~covenants that as long as the Note is outstanding and unpaid~~31, no2009 ~~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.~~2008

~~F-15~~As of December 31, 2008, the Company had recorded $122,671 of accrued interest for previously issued convertible debentures. All of the convertible debenture holders previously elected to convert all or a portion of the convertible debentures into common stock. However, the conversion agreement did not include accrued interest that was specified in the convertible debenture. The Company has researched the matter and believes that no further consideration is warranted for these conversions as a result of the executed conversion agreements. Additionally, since the Company is subject to Delaware corporation law, the Delaware statute of limitations for claims is three years, and the last conversion was in 2005, no further obligation of the Company is warranted. Accordingly, at December 31, 2009, the $122,671 of accrued interest has been written off to Other Income in the accompanying consolidated financial statements.

~~Effective September~~Notes ~~25,~~Payable ~~2007,~~– ~~Bent~~Related 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:Party

· The maturity date of the Note was extended to March 31, 2008. (See Note 10- Subsequent Events)

	December 31,
	2009		2008
$2,000,000 Promissory Note, dated June 15, 2004, bearing interest at 8% per annum and due on December 31, 2008	$	-	$	2,000,000
	$	-	$	2,000,000

AsBend ~~of December~~Arch 31Petroleum, ~~2008~~Inc. (“Bend Arch”), a wholly-owned subsidiary of the Company, ~~has~~had ~~accrued~~a $~~798~~2,~~685~~000,000 ofPromissory ~~accrued~~Note ~~interest~~(Note”) that was due and payable on ~~the Promissory~~December 31, 2009. The Note ~~and~~was isissued ~~included~~to asProco Operating Co., Inc. (“Proco”), a ~~component~~company controlled by the brother of ~~accrued~~the ~~interest~~Company’s ~~payable~~Chief Executive Officer and a director. The purpose of the Note was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the ~~accompanying~~State ~~financial~~of ~~statements~~Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004.

On ~~October~~ 28July 29, ~~2005~~2009, ~~Bend~~but ~~Arch~~effective ~~entered~~June ~~into~~30, a2009 ~~$25~~(the “Effective Date”),~~000~~ ~~line~~the ofNote ~~credit~~was ~~facility~~converted ~~with a~~into ~~financial~~8,000,000 ~~institution~~shares ~~for~~of ~~working~~Stock ~~capital~~based ~~purposes.~~upon ~~The~~a ~~line~~conversion price of ~~credit~~$0.25 ~~is secured~~per byshare, a ~~certificate~~significant ofpremium ~~deposit~~to ~~held~~the bymarket price of the ~~financial~~Stock. Additionally, ~~institution~~the ~~and~~Note ~~bears simple~~accrued interest ~~per annum~~ at a ~~variable~~ rate ~~which~~of iseight ~~six~~ percent (68%) per annum and as of ~~December~~ 31the Effective Date, ~~2008~~accrued interest was $878,027. An Asagreement ofwas ~~December~~reached ~~31,~~whereby ~~2008~~Proco forgave $378,027 of the ~~outstanding~~accrued ~~balance~~interest isand the remaining $24500,~~062 and~~000 ishas ~~included~~been inconverted ~~the~~into ~~Note~~2,000,000 ~~Payable~~shares ~~balance~~of inStock based upon a conversion price of $0.25 per share, a significant premium to the ~~accompanying~~market ~~consolidated financial~~price ~~statements~~of the Stock.

InThe ~~March 2008, the~~ Company ~~purchased~~evaluated ~~oilfield~~the ~~property~~conversion ~~and equipment for a price~~ of ~~$150,000. The~~ ~~terms~~the ~~included~~Note aand ~~cash~~the ~~payment~~accrued ofinterest ~~$47,000~~in ~~and~~accordance awith ~~note payable~~ASC ~~for~~470-50-40 ~~the~~(Paragraph ~~balance~~20 of ~~$103~~APB 26),~~000. During~~ ~~the~~“Debt ~~nine~~— ~~months~~Modifications ~~ended September~~and ~~30,~~Extinguishments ~~2008,~~— ~~the~~Derecognition” ~~Company~~and ~~paid~~recorded ~~down~~a $121,965,000 ofgain ~~principal~~representing ~~and~~ the ~~balance is~~difference ~~$91,000~~between asthe ofreacquisition ~~December~~price ~~31, 2008~~ and ~~classified~~the asnet acarrying ~~component~~amount of ~~Note Payable in~~ the ~~accompanying~~extinguished ~~consolidated~~debt ~~financial~~and ~~statements. As~~since ~~of December 31, 2008, no formal agreement of~~ the ~~terms~~gain ofwas ~~the~~from ~~note~~a ~~payable~~transaction ~~had~~with ~~been finalized and the Company has~~ a ~~verbal~~related ~~agreement~~party, ~~to pay~~ the ~~principal back at a rate of~~ $101,965,000 ~~monthly. It~~was isrecorded ~~anticipated~~to ~~that~~additional apaid ~~formal~~in ~~agreement will~~capital beas ~~negotiated~~a ~~and~~component ~~finalized~~of inStockholders’ ~~the future~~Equity.

~~6. DUE~~As TOa ~~AND~~result ~~FROM~~of ~~RELATED PARTIES~~the conversions discussed above, the Company will issue 10,000,000 shares of Stock and as of December 31, 2009, these have been recorded as issuable in the accompanying consolidated financial statements.

Due to Related Parties:	December 31,
	2008		2007
Due to Chief Executive Officer from salary and rental agreement with Company.	$	510,925	$	306,425
Due to Chief Executive Officer from advances and rental agreement with Bend Arch		894,103		704,703
Due to President of Oil America Group, Inc. from salary agreement with Company		260,000		-
Due to Operator of oil and gas properties		1,630,734		696,631
Total Due To Related Parties	$	3,295,763	$	1,707,759

6. ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (“ARO”) associated with the retirement of its proved oil and gas properties as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated proved properties asset. The ARO is recorded at fair value, excluding salvage values, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate.

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 year ended December 31, 2008, the Company accrued but did not pay $120,000 for compensation, reduced the balance $8,500 for payments made to the Chief Executive Officer, and increased the balance $93,000 for advances made by the Chief Executive Officer on behalf of the Company. As a result, the accrued balance as of December 31, 2008 is $510,925 and is classified as a component of Due To Related Parties in the accompanying financial statements.F-18-

AsAmerican ~~of December~~Energy 31Production, ~~2008, the Chief Executive Officer of the Company is owed $894,103 for advances and unpaid equipment rental charges made on behalf of Bend Arch, the Company’s wholly-owned subsidiary~~Inc. As ~~of December 31, 2007, Bend Arch owed the Chief Executive Officer $704,703 for previous advances~~ and ~~equipment~~ rental charges at $4,500 per month. During the year ended December 31, 2008, the Chief Executive Officer advanced $162,400 of funds to Bend Arch; the Company recorded $54,000 for equipment rental charges and repaid $27,000 to the Chief Executive Officer resulting in the $894,103 balance at December 31, 2008 classified as a component of Due to Related Parties in the accompanying financial statements.Subsidiaries

~~F-16~~Notes to Consolidated Financial Statements

At Years ended December 31, ~~2008,~~2009 ~~the President of Oil America Group, Inc. is owed $260,000 for unpaid salary per an agreement effective January 1, 2005. The agreement is for annual compensation of $65,000~~ and ~~none of this amount has been paid since the inception of the agreement.~~2008

~~At December~~The ~~31,~~following ~~2007,~~represents ~~the~~a ~~operator~~reconciliation of the ~~Company’s~~asset ~~oil~~retirement ~~and~~obligations ~~gas properties was owed $696,631~~ for ~~services as~~ the ~~operator~~years ~~of the Company’s oil and gas production activities. During the year~~ ended December 31, ~~2008,~~2009 ~~the operator balance owed was increased for the net activities performed such that as of December 31, 2008, the net amount due to the operator of the Company’s oil~~ and ~~gas~~ production activities was $1,630,734 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).2008:

7. ASSET RETIREMENT OBLIGATIONS

	December 31,
	2009		2008
Asset retirement obligations at beginning of period	$	509,155	$	524,487
Revision to estimate and additions		-		(37,237	)
Other adjustments		-		-
Liabilities settled during the period		-		-
Accretion of discounted liability		22,891		21,905
Asset retirement obligations at end of period	$	532,046	$	509,155

~~The following~~7. STOCKHOLDERS’ ~~represents a reconciliation of the asset retirement obligations for the years ended December 31, 2008 and 2007:~~EQUITY

	December 31,
	2007			2006
Asset retirement obligations at beginning of period	$	524,487		$	517,526
Revision to estimate and additions		(37,237	)		3,841
Other adjustments		-			(20,157	)
Liabilities settled during the period		-			-
Accretion of discount		21,905			23,277
Asset retirement obligations at end of period	$	509,155		$	524,487

8. STOCKHOLDERS’ EQUITY

Capital Structure

The Company is authorized to issue up to ~~500~~5,000,000 shares of ~~common~~preferred stock, at $0.0001 par value per share, of which ~~20,360,389~~none were issued and outstanding as of December 31, 2009 and 2008, respectively.

~~Effective September~~The ~~14, 2007, the~~ Company ~~announced~~is ~~that~~authorized ~~all~~to ofissue ~~the~~up ~~required~~to ~~steps~~500,000,000 ~~had been~~shares ~~completed for a one-for-twenty five reverse stock split~~ of ~~its~~ common ~~stock.~~ ~~In connection with the reverse~~ stock ~~split~~, ~~the~~at ~~shares~~$0.0001 ~~outstanding~~par ~~prior to~~value ~~the~~per ~~reverse~~share, ~~split~~of ~~were~~which ~~494~~39,~~170~~266,~~082~~071 and ~~after the stock split there are 19~~20,~~767~~360,~~055,~~349 ~~giving~~shares ~~effect~~were toissued ~~rounding~~and ~~adjustments. In~~outstanding ~~accordance~~at ~~with FAS~~December ~~128~~31, ~~all~~2009 ~~share~~ and ~~per~~2008, ~~share~~respectively. Additionally, ~~amounts~~the ~~have~~Company ~~been~~has ~~retroactively~~23,350,677 ~~adjusted~~shares toissuable ~~the beginning~~at ofDecember ~~the~~31. ~~period~~2009 toas ~~reflect~~discussed below. In total, the ~~amendment~~Company tohas ~~our~~62,616,748 ~~Articles~~shares ~~of Incorporation~~outstanding ~~for~~and ~~the~~issuable ~~reverse~~at ~~stock~~December ~~split~~31, 2009.

The Company is authorized to issue up to 510,000,000 shares of ~~preferred~~common stock~~, $0.0001~~ ~~par~~under ~~value~~the ~~per~~2008 ~~share,~~Non-Qualified ofStock ~~which~~Option ~~3,500,000~~Plan ~~were~~(the ~~issued~~“Plan”). The ~~and~~Plan ~~outstanding~~is ~~as of~~to ~~December~~assist ~~31, 2007. All of~~ the ~~preferred~~Company ~~stock~~in issecuring ~~held~~and byretaining ~~the~~key ~~Chief Executive~~participants ~~Officer~~ of ~~the~~outstanding ~~Company.~~ability ~~Under~~by ~~the~~making ~~terms~~it ofpossible ~~the~~to ~~designation,~~offer ~~these Series~~them Aan ~~shares~~increased ~~are~~incentive ~~not entitled~~ to ~~dividends. The~~join ~~shares~~or ~~are convertible,~~continue atin the ~~option~~service of the ~~holder,~~Company atand ~~any~~to ~~time,~~increase ~~into~~their ~~three~~efforts ~~times~~for asits ~~many common~~welfare ~~shares~~through asparticipation ~~Series~~in A,the ~~preferred~~ownership ~~that~~and ~~are~~growth ~~held~~of the Company. ~~There~~As ~~are~~of ~~no liquidation~~December ~~rights~~31, or2009, ~~preferences to Series A~~9,800,000 ~~preferred~~ stock ~~holders~~options ~~as compared~~have tobeen ~~any~~granted ~~other~~under ~~class~~the ofPlan ~~stock. These~~and ~~shares~~issued ~~are~~by ~~non-voting, however,~~ the ~~holders,~~Company asand a8,800,000 ~~class~~stock ~~may~~options ~~elect~~are ~~two directors~~outstanding.

~~There were~~Preferred ~~no changes in the preferred stock outstanding balance for the year ended December 31, 2008.~~Stock:

FPrior to June 30, 2009 (the “Effective Date”), the Company had 3,500,000 shares of Series A Preferred Stock outstanding and all of it was held by the Chief Executive Officer of the Company. Under the terms of the designation, these Series A shares were not entitled to dividends and were convertible, at the option of the holder into three times as many common shares as Series A preferred stock that are held. There were no liquidation rights or preferences to Series A preferred stock holders as compared to any other class of stock. These shares were non-17voting, however, the holders, as a class may elect two directors.

As of the Effective Date, the Chief Executive Officer elected to convert the preferred stock and the Company issued 10,500,000 shares of common stock.

Common Stock:

~~Since December~~Effective ~~31,~~April ~~2005~~1, 32009,~~000~~ ~~shares~~the ~~(75~~Company issued 50,000 shares ~~adjusted~~of ~~for~~Stock ~~the one-for-twenty five reverse stock split) remained issuable~~ to an ~~overseas~~unrelated ~~investor~~third ~~who~~party ~~had subscribed~~ for anoil ~~amount~~and ~~exceeding~~gas ~~the~~related ~~shares that were actually issued under the terms of an offering in fiscal 2003~~equipment. The ~~investor~~Stock ~~had~~was ~~paid~~valued ~~for the~~at ~~full subscription~~$1,750 ~~and~~or ~~as such, no amounts are due to the Company~~$0.035 ~~However, the~~per ~~Company has attempted to contact the investor several times in order to process the certificate but has been unable to reach the investor. In June 2008~~share, the ~~Company~~closing ~~made~~trading ~~the~~price ~~decision to write off the 3,000 issuable shares that had a post-reverse split historical balance~~ of ~~thirty cents ($0.30). As a result,~~ the ~~Company~~Stock noon ~~longer~~April ~~classifies the 3~~1,~~000 shares~~ ~~as issuable and the $0~~2009.~~30 historical cost was offset against other income in the consolidated financial statements.~~

On December 13, 2007, the Company received $89,000 of proceeds from the sale of 593,000 shares of its $0.0001 par value common stock at $.15 per share. The $.15 per share price was determined based upon a 40% discount to the closing market price of $.25 per share on the sale date of December 13, 2007. The discount reflects there is no active market for the stock because it is thinly traded and that the $.25 per share is a more reflective value of the fair market value on the sales date. At December 31, 2007, the shares were classified as common stock issuable in the consolidated financial statements. In January 2008, the shares were issued by the Company’s transfer agent and as such, are no longer classified as common stock issuable.F-19-

~~Options~~American Energy Production, Inc. and Subsidiaries

~~In September~~Notes ~~2008, the Company’s Board of Directors approved the issuance of up~~ to ~~10,000,000~~ ~~shares~~Consolidated ofFinancial common stock under the 2008 Non-Qualified Stock Option Plan (the “Plan”). The Plan is to assist the Company in securing and retaining Key Participants of outstanding ability by making it possible to offer them an increased incentive to join or continue in the service of the Company and to increase their efforts for its welfare through participation in the ownership and growth of the Company. On September 25, 2008, the Company filed a Form S-8 with the SEC for the registration of the underlying shares of stock from the plan. As of December 31, 2008, no grants under the Plan had been issued by the Company.Statements

~~9. INCOME TAXES~~Years ended December 31, 2009 and 2008

~~There~~Effective ~~was no~~May ~~income~~11, ~~tax~~2009, ~~during~~ the ~~years~~Company ~~ended~~received ~~December~~$50,000 31of proceeds from the sale of 5,000,000 ~~2008~~shares ~~and~~of ~~2007~~Stock ~~due~~at $0.01 per share. The $0.01 per share price was determined based upon a discount to the ~~Company’s~~ ~~net~~closing ~~loss~~market ~~and~~price ~~valuation~~of ~~allowance~~$0.015 ~~position~~per share on the sale date of May 11, 2009.

~~The Company’s~~Effective ~~tax~~June ~~expense~~30, ~~differs~~2009, ~~from~~ the ~~“expected”~~Chief ~~tax~~Executive ~~expense~~Officer ~~(benefit)~~elected ~~for~~to ~~the years~~convert ~~ended December 31~~3,500,000 ~~2008~~shares ~~and~~of ~~2007~~$0.0001 ~~(computed~~par byvalue ~~applying~~preferred ~~the~~stock ~~Federal Corporate~~into ~~tax~~10,500,000 ~~rate~~shares of ~~35%~~common ~~for~~stock ~~2008~~per ~~and~~the ~~2007~~terms toof ~~loss~~the ~~before~~preferred ~~taxes),~~stock ~~as follows:~~(See Preferred Stock above).

	Years Ended December 31,
	2008			2007
Computed “expected” tax benefit	$	(751,993	)	$	(799,392	)
Valuation allowance		751,993			799,392
Net taxable benefit	$	-		$	-

Effective September 6, 2009, the Company received $10,005 from the sale of 333,500 shares of stock at $0.03 per share. The $0.03 per share price was determined based upon a discount to the closing market price of $.0105 per share on the sale date of September 6, 2009.

~~F-18~~Effective October 10, 2009, the Company received $20,000 from the sale of 1,000,000 shares of stock at $0.02 per share. The $0.02 per share price was determined based upon a discount to the closing market price of $.07 per share on the sale date of October 1, 2009.

Effective October 6, 2009, the Company received $15,000 from the sale of 600,000 shares of stock at $0.025 per share. The $0.025 per share price was determined based upon a discount to the closing market price of $.0105 per share on the sale date of October 6, 2009.

Effective October 8, 2009, the Company received $20,000 from the sale of 200,000 shares of stock at $0.10 per share. The $0.10 per share price was the closing market price on October 8, 2009.

Effective October 13, 2009, the Company received $10,000 from the sale of 222,222 shares of stock at $0.045 per share. The $0.045 per share price was determined based upon a discount to the closing price of $0.10 per share on the sale date of October 14, 2009.

Effective October 27, 2009, the Company received $15,000 from the exercise of 1,000,000 stock options by the President of Production Resources, Inc. (“PRI”), a wholly-owned subsidiary of the Company, at the exercise price of $0.015 per share. The options were issued on May 11, 2009 and all 1,000,000 of the options were vested 100% upon the grant date of May 11, 2009.

As a result of the above, the Company has 39,266,071 outstanding shares at December 31, 2009.

Common Stock Issuable:

On June 30, 2009 (the “Effective Date”), the Company and certain of its wholly-owned subsidiaries eliminated certain debt obligations by converting them into common stock (“Stock”) of the Company.

F-20-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Bend Arch Petroleum, Inc. (“Bend Arch”), the Company’s wholly-owned subsidiary, had a $2,000,000 Note that was due and payable on December 31, 2009. The Note was issued to Proco, a company controlled by the brother of the Company’s Chief Executive Officer and a director. The purpose of the Note was to secure payment for oil and gas leases and wells located in Comanche and Eastland counties in the State of Texas sold to Bend Arch by Proco on June 15, 2004. The Note replaced a $2,000,000 convertible debenture dated January 5, 2004. As of the Effective Date, the Note has been converted into 8,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock. These shares are recorded as issuable at December 31, 2009. Additionally, the Note accrued interest at a rate of eight percent (8%) per annum and as of the Effective Date, accrued interest was $878,027. An agreement was reached whereby Proco forgave $378,027 of the accrued interest and the remaining $500,000 has been converted into 2,000,000 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock. These shares have been recorded as issuable at December 31, 2009.

As of the Effective Date, Bend Arch, the Company’s wholly-owned subsidiary, owed the Chief Executive Officer $1,007,715 for previous advances and equipment rental charges at $4,500 per month. This amount has been converted into 4,030,860 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock. These shares have been recorded as issuable at December 31, 2009 (See Note 10 – Related Party Transactions)

As of the Effective Date, the operator of the Company’s oil and gas properties was owed $1,736,219 for services as the operator of the Company’s oil and gas production activities. The operator is Proco Operating Co. Inc. (“Proco”) and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer. This amount has been converted into 6,944,877 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock. These shares have been recorded as issuable at December 31, 2009 (See Note 10 – Related party Transactions).

As a result of the above, the Company has 23,350,677 shares classified as issuable at December 31, 2009.

Subscription Receivable

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 December 31, 2009 and is in discussions with both the third party and the transfer agent to resolve the issue. As of the date of these financial statements, no resolution of the matter has been completed (See Note 9 – Commitments and Contingencies).

F-21-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

Stock Options:

The Company evaluated the stock options in accordance with ASC 718 (SFAS 123R), “Stock Compensation” and utilized the Black Scholes method to determine valuation. As a result of our analysis, the total value for the stock option issuance on the grant date of May 11, 2009 was $146,986 and was recorded as $104,990 of compensation expense and $41,996 of consulting expense.

The Company used the following in the calculation:

Stock Price (grant date)	$	0.015
Exercise Price	$	0.015
Expected Term (between vesting period and term of stock options)		5.00
Volatility		348	%
Annual Rate of Quarterly Dividends		0.00	%
Risk Free Interest Rate (10 year T-bill rate)		3.17	%

We have adopted the guidance of ASC 718-10-S99-1 for purposes of determining the expected term for stock options. Due to limited historical data to rely upon, we use the "simplified" method in developing an estimate of expected term for stock options per ASC 718-10-S99-1.

The following table summarizes activity related to options:

	Number of Shares			Weighted Average Exercise Price
Balance at December 31, 2008		-		$	-
Granted		9,800,000			0.015
Exercised		(1,000,000	)		0.015
Forfeited	____ -			__ -
Balance at December 31, 2009		8,800,000		$	0.015

F-22-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

The terms of options to purchase our common stock are summarized below:

----------------------------Options Outstanding------------------------Options Exercisable------

Range of Exercise Prices	Number Outstanding at December 31, 2009	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at December 31, 2009	Weighted Average Exercise Price
$0.015	8,800,000	7.28 Years	$0.015	8,800,000	$0.015

Effective October 27, 2009, the Company received $15,000 from the exercise of 1,000,000 stock options by the President of PRI at the exercise price of $0.015 per share. The options were issued on May 11, 2009 and all 1,000,000 of the options were vested 100% upon the grant date of May 11, 2009.

8. INCOME TAXES

There was no income tax during the years ended December 31, 2009 and 2008 due to the Company’s net loss and valuation allowance position.

The Company’s tax expense differs from the “expected” tax expense (benefit) for the years ended December 31, 2009 and 2008 (computed by applying the Federal Corporate tax rate of 35% for 2009 and 2008 to loss before taxes), as follows:

	Years Ended December 31,
	2009			2008

Computed “expected” tax benefit	$	(353,265	)	$	(751,993	)
Stock based issuances		51,445			-
Valuation allowance		301,820			751,993
Net taxable benefit	$	-		$	-

F-23-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:

	2008			2007
	2009			2008
Deferred tax assets:
Net operating loss carryforward	$	1,~~548~~821,~~597~~523		$	~~790~~1,~~689~~548,597
Accrued compensation		6432,~~750~~375			4264,~~000~~750
Asset retirement obligations		78,~~666~~012			87,~~147~~666
Total deferred tax assets		1,~~621~~861,~~013~~910			~~840~~1,~~836~~621,013
Deferred tax liabilities:
Oil and gas properties		(7811,~~332~~493	)		(4178,~~444~~332	)
Net deferred tax asset		1,~~542~~850,~~682~~417			~~799~~1,~~392~~542,682
Valuation allowance		(1,~~542~~850,~~682~~417	)		(~~799~~1,~~392~~542,682	)
Net deferred taxes	$	-		$	-

In assessing the recognition of deferred tax assets, management estimates it is more likely than not that the Company will be in a net loss position for the year ended December 31, ~~2008~~2009, the Company’s fiscal year end. As a result, the valuation allowance has been recorded for the entire amount of the net deferred tax asset. Net operating loss carry-forwards aggregate approximately $45,~~424~~204,~~563~~352 and expire in years through ~~2029 (see note below)~~2030.

~~As discussed previously, 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~~9. ~~The~~COMMITMENTS ~~Company~~AND is no longer a BDC with unconsolidated majority-owned portfolio companies but rather 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 has utilized April 1, 2007 as the inception date for the new business as an oil and gas operating company. As a result of this change, and IRS Section 382 rules, the net operating loss carry-forwards from previous years to April 1, 2007 will not be allowable and are not included in the above disclosures.CONTINGENCIES

10. COMMITMENTS AND CONTINGENCIES

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

~~Prior~~The ~~to December 31, 2007, the~~ Company and certain of its wholly-owned subsidiaries ~~were~~ are delinquent in the filing of franchise tax reports with the State of Texas and the State of Delaware and as a result, the Company and certain of its wholly-owned subsidiaries ~~were~~are not in good standing. ~~The~~As ~~Company and its wholly-owned subsidiaries have filed the required reports and as~~ a result, ~~management~~ ~~anticipates that~~ the Company and ~~all~~certain 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~~and ~~they~~not ~~were~~being ~~filed~~in good standing.

~~In November~~As ~~2003~~of the Effective Date, athe ~~settlement~~Company ~~was~~had ~~negotiated~~recorded ~~with~~approximately a$262,000 ~~lessor~~of toaccounts ~~forgive~~payable from the ~~outstanding~~ ~~principal~~predecessor ~~and~~company, ~~interest~~Communicate onNow.com, ~~the~~Inc. Since ~~related~~these ~~note~~trade accounts payable ~~resulting~~have ~~from leased~~been ~~computers~~outstanding ~~once~~for ~~the~~an ~~transfer~~extended period of ~~4,000~~time ~~shares~~with ~~(100,000~~no ~~shares~~communication ~~prior~~between to the ~~one-for-twenty~~ ~~five~~Company ~~reverse~~and ~~stock~~any ~~split)~~of ~~personally~~the ~~held~~vendors, by the Company’s ~~Chief Executive~~commenced ~~Officer~~the ~~occurred~~process ~~(see~~of ~~Note~~eliminating 5the –liabilities ~~Debt~~from ~~and~~its ~~Note 8 – Related Party Transactions)~~records. AsAdditionally, ofthe ~~December~~Company 31determined ~~the~~additional ~~transaction~~accounts ~~has~~payable ~~not~~in ~~been finalized~~the asamount ~~the~~of ~~lessor~~approximately ~~has~~$54,000 were not ~~agreed~~valid toand ~~the~~should ~~settlement~~be eliminated. ~~However~~Additionally, since the ~~shares~~Company ~~were~~is ~~transferred~~subject to Delaware corporation law and the ~~lessor~~statute inof ~~September~~limitations ~~2003. The Company~~for ~~expects~~claims tois ~~fully~~three ~~resolve~~years, ~~this~~no ~~matter~~further inobligation of the ~~future~~Company atis ~~which~~warranted. Accordingly, ~~time~~ the ~~value~~ $316,000 of ~~the~~accounts ~~shares~~payable ~~exchanged~~has ~~and~~been ~~any~~written ~~related~~off ~~gain~~to orOther ~~loss~~Income ~~will~~as beof ~~determined and~~December ~~recognized~~31, 2009 in the accompanying consolidated financial statements.

The Company has included $84,161 of unpaid federal payroll taxes and employee withholdings and related penalties and interest in its accrued expenses as of December 31, 2008. 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.F-24-

~~F-19~~American Energy Production, Inc. and Subsidiaries

~~The Company~~Notes has $312,903 of accounts payable as of December 31, 2008 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~~Consolidated ~~the~~Financial ~~liabilities.~~Statements

~~In December~~Years ~~2005~~ended 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 December 31, ~~2008~~2009 and ~~is in discussions with both the third party and the transfer agent to resolve the issue. As of the date of these financial statements, no resolution of the matter has been completed.~~2008

11As of the Effective Date, the Company had recorded $83,812 of unpaid federal payroll taxes and employee withholdings and related penalties and interest. ~~RELATED~~These ~~PARTY TRANSACTIONS~~unpaid federal taxes are entirely from CommunicateNow.com (Communicate”), the predecessor company. The previous Chief Executive Officer of Communicate structured a settlement payment agreement with the Internal Revenue Service and has personally paid the balance of the obligation down to $12,091 as of December 31, 2009. Accordingly, the Company has reduced the balance recorded to $12,091 and the difference of $71,721 has been recorded to Other Income in the accompanying consolidated financial statements at December 31, 2009. Since the previous Chief Executive Officer is no longer affiliated with the Company in any way and is not a related party, the Company determined that this was not a capital transaction and should be recorded to Other Income. The remaining balance of $12,091 is included as accrued payroll taxes and penalties in the Company’s accompanying consolidated financial statements because of potential federal tax liens against the Company until the balance is paid in full.

From May 2004 to March 2005, the Company issued 108,000 shares (2,700,000 shares prior to the one-for-twenty five reverse stock split) in exchange for a $27,000 subscription receivable. The Company has determined that the subscription receivable is uncollectible and at December 31, 2009, the subscription receivable of $27,000 has been written off and charged to Other Expense in the accompanying consolidated financial statements.

10. RELATED PARTY TRANSACTIONS

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

~~On November~~Effective July 1, 2003, the Company entered into ana ~~operating~~salary ~~agreement for its oil~~ and ~~gas~~equipment ~~production~~rental ~~activities~~agreement with ~~Proco,~~its aChief ~~company~~Executive ~~controlled~~Officer byfor ~~the~~a ~~brother~~salary of ~~the~~ ~~Company’s~~$120,000 ~~Chief~~annually ~~Executive~~and ~~Officer~~a ~~(See~~$3,500 ~~Note~~per 5month –equipment ~~Due~~rental toagreement. As ~~Related~~of ~~Parties).~~January ~~The term~~1, of2005, the ~~operating~~$3,500 ~~agreement~~per ismonth ~~equal~~equipment torental ~~the~~agreement ~~term~~with of the ~~oil~~Chief ~~and~~Executive ~~gas~~Officer ~~leases held~~was byterminated. As of the ~~Company. In~~Effective ~~general~~Date, the ~~operator~~Company ~~incurs~~owed ~~costs~~the ~~which~~Chief ~~are billed~~Executive toOfficer ~~the~~$593,735 ~~Company~~for ~~and~~unpaid amounts under the ~~operator~~agreement ~~markets~~which ~~and~~has ~~sells~~been ~~oil~~converted ~~and~~into ~~collects payments~~2,374,940 ~~from~~shares ~~customers.~~of ~~Such~~Stock ~~payments~~based ~~are~~upon ~~then~~a ~~remitted~~conversion toprice ~~the Company~~of $0. ~~The~~25 ~~operator~~per ~~has~~share, a ~~first~~significant ~~and~~premium ~~preferred~~to ~~lien on~~ the ~~leasehold interests~~market price of the ~~Company~~Stock ~~against~~(See ~~any~~Note ~~sums~~7 ~~due~~– toStockholders’ ~~the Operator by the Company~~Equity).

~~See~~As ~~Note 6~~of –the ~~Due~~Effective toDate, ~~Related~~Bend ~~Parties~~Arch Petroleum, Inc. (“Bend Arch”), the Company’s wholly-owned subsidiary, owed the Chief Executive Officer $1,007,715 for ~~additional~~previous ~~related~~advances ~~party transactions~~and equipment rental charges at $4,500 per month. This amount has been converted into 4,030,860 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock (See Note 7 – Stockholders’ Equity). .

As of the Effective Date, we owed the operator of the Company’s oil and gas properties $1,736,219 for services as the operator of the Company’s oil and gas production activities. The operator is Proco and is a related party as Proco is controlled by the brother of the Company’s Chief Executive Officer. This amount has been converted into 6,944,877 shares of Stock based upon a conversion price of $0.25 per share, a significant premium to the market price of the Stock (See Note 7 – Stockholders’ Equity).

The Company evaluated the conversion of each of the above due to related party balances and the accrued interest in accordance with ASC 470-50-40 (Paragraph 20 of APB 26) “Debt — Modifications and Extinguishments — Derecognition” and recorded an aggregate $2,623,408 gain representing the difference between the reacquisition price and the net carrying amount of the extinguished debt. Since the gain was from transactions with related parties, the $2,623,408 was recorded to additional paid in capital as a component of Stockholders’ Equity.

F-25-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

As of the Effective Date, the President of Oil America Group, Inc. (“OAG”) was owed $292,500 for unpaid salary per an agreement effective January 1, 2005. The agreement is for annual compensation of $65,000 and none of this amount has been paid since the inception of the agreement. The unpaid salary of $292,500 has been forgiven by the President of OAG as of the Effective Date. As a result of the transaction and since the President of OAG is an officer of the Company and is a related party, the $292,500 of accrued compensation forgiven was classified as a capital transaction and recorded to additional paid in capital.

The balance outstanding for Due to Related Parties at December 31, 2009 is as follows.

Due to Related Parties:
	Dec. 31,		Dec. 31,
	2009		2008
Due to Chief Executive Officer from advances and salary agreement with Company.	$	93,150	$	510,925
Due to Chief Executive Officer from advances and rental agreement with Bend Arch		131,060		894,103
Due to Chief Executive officer from advances to OAG		12,700		-
Due to President of OAG from advances and salary agreement with Company		49,544		260,000
Due to Operator of oil and gas properties		4,995		1,630,735
Total Due To Related Parties	$	291,449	$	3,295,763

As a result of the previously discussed conversion to Stock (See Note 5 – Debt), the balance of the Due to related parties was zero as of June 30, 2009. For the period from July 1, 2009 to December 31, 2009, the following transactions occurred related to Due To Related Parties:

The Chief Executive Office advanced $12,700 to OAG and as of December 31, 2009, the amount is recorded as a component of Due to Related Parties in the accompanying consolidated financial statements.

The operator of the Company’s oil and gas properties was owed $4,995 by Bend Arch as of December 31, 2009 for services related to the Company’s oil and gas production activities. 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. As of December 31, 2009, the amount is recorded as a component of Due to Related Party in the accompanying consolidated financial statements.

F-26-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

12. SUBSEQUENT EVENTS

On March 6, ~~2009 but effective December 31~~30, ~~2008~~2010, ~~Bent~~the ~~Arch~~$10,000 ~~executed~~note apayable ~~Fourth Modification~~that ~~and~~was ~~Extension~~in ~~Agreement~~default ~~(the~~as ~~“Fourth~~of ~~Extension”)~~December in31, ~~relation~~2009 towas ~~the Note~~repaid ~~that~~in ~~was~~full toincluding ~~become~~accrued ~~due~~interest ~~and~~in ~~payable~~the onamount ~~December~~of 31$10,900 ~~2008~~ (See Note 5 – Debt). ~~The Fourth Extension modified the terms of the Note as follows;~~

The $425,000.00 USD worth of EBY restricted common stock to be issued to the Company was set at $0.08 per share CDN based upon the exchange rate between Canadian and United States Dollars as of the date of Closing when the TSX gave final approval. However, the Transaction specified that in the event that the EBY restricted stock amount to be issued resulted in ownership by the Company of ten percent (10%) or more of the outstanding shares of EBY, then the EBY Stock amount would be reduced to an amount of EBY shares which does not exceed 9.97% of the total outstanding common shares of EBY and the resulting shortfall in the $425,000 USD value of the EBY Stock amount of the purchase price would be paid to the Company in cash as consulting services fees under an eighteen (18) month consulting agreement.

Effective March 8, 2010, the TSX approved the Transaction and under the terms of the definitive agreement, 5.0 million shares of EBY restricted common stock were issued to the Company, along with an eighteen (18) month consulting agreement totaling 36,800 USD. Additionally, the Company will also retain a 1% gross overriding royalty on any oil or natural gas formation below 1,200 feet.

Management evaluated all activity of the Company through May 15, 2010 (the issue date of the Company’s consolidated financial statements) and concluded no other subsequent events have occurred that would require recognition in the consolidated financial statements.

F-27-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables set forth a summary of the Company’s quarterly unaudited consolidated financial information for each of the four quarters ended December 31, 2009 and 2008:

2009	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Revenues:
Oil sales, net	$	292,817		$	319,279		$	264,908		$	230,936

Operating Expenses
Compensation		63,067			62,493			183,732			57,078
Consulting		1,200			-			41,996			1,500
Depreciation, depletion and accretion		(91,056	)		121,899			129,303			134,415
Rent		1,678			1,539			1,660			1,740
General and administrative		96,947			39,946			44.047			27,445
Production		269,384			330,544			300,444			290,656
Professional		95,043			10,078			42,323			29,290
Research and development		215,434			-			-			-
Taxes		17,884			24,769			12,536			30,057
Total Operating Expenses		669,581			591,268			756,041			572,181

Operating Loss		(376,765	)		(271,989	)		(491,133	)		(341,245	)

Other Income (Expense)
Other income (expense)		489,325			(28,096	)		81,782			100
Interest expense		(1,627	)		(939	)		(42,830	)		(42,161	)
Payroll tax expense and penalties		-			-			-			(1,501	)
Total Other Income (Expense)		487,698			(29,035	)		38,952			(43,562	)

Net Income (Loss)	$	110,933		$	(301,024	)	$	(452,181	)	$	(384,807	)

Net Income (Loss) Per Share - Basic and Diluted	$	0.00		$	(0.01	)	$	(0.02	)	$	(0.02	)

Weighted average Shares Outstanding		121,474,677			59,438,651			23,090,067			19,917,770

F-28-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

2008	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Revenues:
Oil sales, net	$	311,263		$	539,132		$	553,445		$	438,219

Operating Expenses
Compensation		116,657			46,243			46,242			46,243
Depreciation, depletion and accretion		120,723			148,760			151,550			141,301
Rent		43,979			22,920			10,452			11,810
General and administrative		74,860			66,452			62,7757			55,631
Production		440,850			755,724			611,871			424,347
Professional		34,048			15,600			26,334			50,766
Taxes		16,312			13,508			37,731			24,345
Total Operating Expenses		847,428			1,069,208			946,954			754,442

Operating Loss		(536,165	)		(530,076	)		(393,509	)		(316,223	)

Other Income (Expense)
Other income (expense)		(198,819	)		2,574			303			-
Interest expense		(43,049	)		(42,903	)		(42,345			(42,335
Payroll tax expense and penalties		(1,501	)		(1,501	)		(1,501	)		(1,501	)
Total Other Income (Expense)		(243,369	)		(41,831	)		(43,543	)		(43,836	)

Net Loss	$	(779,534	)	$	(571,907	)	$	(437,052	))	$	(360,059	)

Net Loss Per Share - Basic and Diluted	$	(0.04	)	$	(0.03	)	$	(0.02	)	$	(0.02	)

Weighted average Shares Outstanding		20,360,389			20,360,389			23,363,356			20,363,386

F-29-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)

The following tables set forth supplementary disclosures for oil and gas producing activities in accordance with ASC 932 (SFAS No. 69), ~~Disclosures~~Extractive ~~about~~Activities - Oil and Gas ~~Producing Activities~~.

Costs Incurred

A summary of costs incurred in oil and gas property acquisition, development, and exploration activities (both capitalized and charged to expense) for the year ended December 31, ~~2008~~2009 as follows:

Acquisition of proved properties	$	-
Acquisition of unproved properties	$	-
Development costs	$	-
Exploration costs	$	-

~~F-20~~Results of Operations for Oil and Gas Producing Activities

~~Results~~ The following table presents the results of ~~Operations~~operations for ~~Producing~~the ~~Activities~~Company’s oil and gas producing activities for the year ended December 31, 2009:

The following table presents the results of operations for the Company’s oil and gas producing activities for the year ended December 31, 2008:

Revenues, net of royalties	$	1,107,940
Production costs		(1,191,029	)
Depletion, depreciation, and valuation provisions		(294,561	)
Exploration costs		--
		(377,650	)
Income tax expense		-
Results of operations for producing activities (excluding corporate overhead and interest costs)	$	(377,650	)

Revenues, net of royalties	$	1,842,059
Production costs		(2,265,456	)
Depletion, depreciation, and valuation provisions		(580,723	)
Exploration costs		--
		(1,004,120	)
Income tax expense		-
Results of operations for producing activities (excluding corporate overhead and interest costs)	$	(1,004,120	)

Reserve Quantity Information

The following table presents the Company’s estimate of its proved oil and gas reserves all of which are located in the United States. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of reserves related to new discoveries are more imprecise than those for producing oil and gas properties. Accordingly, the estimates are expected to change as future information becomes available. The estimates have been prepared with the assistance of an independent petroleum reservoir engineering firm. Oil reserves, which include condensate and natural gas liquids, are stated in barrels and gas reserves are stated in thousands of cubic feet.

	Oil						Gas
	(MBBL)						(BCF)
Proved reserves as of December 31,	2008			2007			2008			2007
Beginning of period		6.934			-			1.575			-
Conversion from a BDC company to an oil and gas operating company – April 1, 2007		-			6.944			-			1.635
Production		(0.012	)		(0.010	)		(0.089	)		(0.060	)
Revisions of previous estimates		0.806			-			39.036			-
End of period		7.728			6.934			40.522			1.575

F-30-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

	Oil						Gas
	(MBBL)						(BCF)
Proved reserves as of December 31,	2009			2008			2009			2008

Beginning of period		7.728			6.934			40.522			1.575
Production		(0.014	)		(0.012	)		(0.073	)		(0.089	)
Revisions of previous estimates		( 0.068	)		0.806			(14.912	)		39.036
End of period		7.646			7.728			25.537			40.522

Standardized Measure of Discounted Future Net Cash Flow and Changes Therein Relating to Proved Oil and Gas Reserves

The following information is based on the Company’s best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows as of December 31, ~~2008~~2009 and ~~2007~~2008 in accordance with ~~SFAS~~ASC ~~No. 69~~932, ~~“Disclosures About Oil and Gas Producing Activities”~~ which requires the use of a 10% discount rate. This information is not the fair market value, nor does it represent the expected present value of future cash flows of the Company’s proved oil and gas reserves.

F-21

	December 31,
	2009			2008
Future cash inflows	$	522,138,946		$	576,028,283
Future production costs (1)		(60,354,482	)		(83,582,682	)
Future development costs		(13,500,000	)		(13,500,000
Future income tax expenses		(156,899,562	)		(167,630,960	)
Future net cash flows		291,384,902			311,314,641
10% annual discount for estimated timing of cash flows		(196,254,662	)		(215,734,906	)
Standardized measure of discounted future net cash flows at the end of the year	$	95,130,240		$	95,579,735

	December 31,
	2008			2007
Future cash inflows	$	576,028,283		$	512,426,856
Future production costs (1)		(83,582,682	)		(33,096,290	)
Future development costs		(13,500,000	)		--
Future income tax expenses (2)		(167,630,960	)		(167,765,698	)
Future net cash flows		311,314,641			311,564,868
10% annual discount for estimated timing of cash flows		(215,734,906	)		(215,908,308	)
Standardized measure of discounted future net cash flows at the end of the year	$	95,579,735		$	95,656,560

(1)	Production costs include oil and gas operations expense, production ad valorem taxes, transportation costs and general and administrative expense supporting the Company’s oil and gas operations.

(1)	Production costs include oil and gas operations expense, production ad valorem taxes, transportation costs and general and administrative expense supporting the Company’s oil and gas operations.
(2)	Previously for the December 31, 2007 report, the Company did not calculate future income tax expense and this has been reflected in the current report.

F-31-

American Energy Production, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2009 and 2008

See the following table for average prices utilized for the disclosed amounts above.

	December 31, 2008
	December 31, 2009
Average crude oil price per Bbl	$	4456.6079
Average natural gas price per Mcf	$	53.7164

Future production and development costs, which include dismantlement and restoration expense, are computed by estimating the expenditures to be incurred in developing and producing the Company’s proved crude oil and natural gas reserves at the end of the year, based on average costs for 2009 and year-end costs for 2008, and assuming continuation of existing economic conditions.

Future income tax expenses are computed by applying the appropriate year-end statutory tax rates to the estimated future pretax net cash flows relating to the Company’s proved crude oil and natural gas reserves, less the tax bases of the properties involved. The future income tax expenses give effect to tax credits and allowances, but do not reflect the impact of general and administrative costs and exploration expenses of ongoing operations relating to the Company’s proved crude oil and natural gas reserves.

Sources of Changes in Discounted Future Net Cash Flows

Principal changes in the aggregate standardized measure of discounted future net cash flows attributable to the Company’s proved crude oil and natural gas reserves, as required by SFAS No. 69, at year end are set forth in the table below.

	Year ended December 31, 2008			Year ended December 31, 2007
	Year ended December 31, 2009			Year ended December 31, 2008
Standardized measure of discounted future net cash flows at the beginning of the year	$	95,~~656~~579,~~560~~735		$	-95,656,560
Extensions, discoveries and improved recovery, less related costs		-			-
Revisions of previous quantity estimates		(57,685,119)			258,843,160
Conversion from a BDC company to an oil and gas operating company		-			513,176,934
Changes in estimated future development costs		23,228,200			(63,986,392)
Revisions of previous quantity estimates		258,843,160			-
Net changes in prices and production costs		65,834,244			(143,217,588)
Changes in estimated future development costs		(63,986,392)			(33,096,290)
Accretion of discount		19,480,244			173,403
Purchases (sales) of minerals in place		-			-
Sales of oil and gas produced, net of production costs		(83,089	)		(423,397)
Net changes in prices and production costs		(143,217,588)			-
Net change in income taxes		(51,223,975)			(51,466,011)
Accretion of discount		173,403			(215,908,308)
Standardized measure of discounted future net cash flows-end of the year	$	95,130,240		$	95,579,735
Sales of oil and gas produced, net of production costs		(423,397	)		(750,078)
Development costs incurred during the period		--			--
Change in timing of estimated future production and other		--			--
Net change in income taxes		(51,466,011)			(167,765,698)
Standardized measure of discounted future net cash flows at the end of the year	$	95,579,735		$	95,656,560

F-2232-

Filing Compare · AMERICAN ENERGY PRODUCTION INC