UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSSION
                            WASHINGTON, D.C. 20549

                                 FORM 10-KSB

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934:  For the fiscal year ending December 31, 2004

[  ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934: For the transition period from   _________ to _________

                      Commission file number: 000-49950

                        AMERICAN PETROLEUM GROUP, INC.
                        ------------------------------
                (Name of small business issuer in its charter)

Nevada                                              98-0232018        
--------------------------------------------        ---------------------------
(State or other jurisdiction of incorporation       (I.R.S. Employer
 or organization)                                    Identification No.)
      
1400 N. Gannon Drive, 2nd Floor, Hoffman Estates, IL 60194
----------------------------------------------------------
(Address of Principal executive offices)              (Zip Code)

Issuer's telephone number: (847) 805-0125
                           --------------

Securities registered under Section 12(b) of the "Exchange Act"

Common Share, Par Value, $.0001
-------------------------------
       (Title of each Class)

Securities registered under Section 12(g) of the Exchange Act:  None
                                                                ----
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such a 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.
[X] Yes  [  ] No

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year:  $857,172
                                                         -------

The aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price of such common
equity, as of March 29, 2005, was approximately  $1,217,937.50.

The number of shares of Common Stock outstanding, as of March 29, 2005 was:
4,315,000

Transitional Small Business Disclosure Format (check one): Yes [_];   No  [X] 


                                       1


                                                                        
                        AMERICAN PETROLEUM GROUP, INC.
                         ANNUAL REPORT ON FORM 10-KSB

                   For Fiscal Year Ended December 31, 2004

                                    INDEX
                                                            Page No:

PART I ......................................................... 3

ITEM 1.     DESCRIPTION OF BUSINESS............................. 3
ITEM 2.     DESCRIPTION OF PROPERTY............................. 11
ITEM 3.     LEGAL PROCEEDINGS................................... 12
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
            HOLDEDRS............................................ 13


PART II ........................................................ 13

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS................................. 13
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
            OPERATION........................................... 16
ITEM 7.     FINANCIAL STATEMENTS................................ 17
ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL
            DISCLOSURE.......................................... 18
ITEM 8A.    CONTROLS AND PROCEDURES ............................ 19


PART III ....................................................... 20

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF
            THE EXCHANGE ACT.................................... 20
ITEM 10     EXECUTIVE COMPENSATION.............................. 23
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWERNS
            AND MANGAEMENT...................................... 24
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 25
ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K.................... 26
ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES ............. 27


                                       2


                         American Petroleum Group, Inc.

                                     Part I


Item 1.  Description of Business

FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein.  In connection with,
and because we desire to take advantage of, the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, we caution readers
regarding certain forward looking statements in the following discussion and
elsewhere in this report and in any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange
Commission.  Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments.  Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and many of which, with
respect to future business decisions, are subject to change.  These
uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any
forward-looking statements made by, or on our behalf. We disclaim any
obligation to update forward-looking statements.

OVERVIEW
History and Organization
American Petroleum Group, Inc., formerly American Capital Alliance, Inc.,
formerly Prelude Ventures, Inc. (the "Company") was incorporated under the
laws of the State of Nevada on May 24, 2000.  Prior to its acquisition of
American Petroleum Products, Inc., formally Alliance Petroleum Products,
Inc., the Company had limited business operations and was considered a
development stage enterprise.  The activities during that period principally
have been limited to organizational matters, and examining business and
financing opportunities for the Company.


                                       3



Prior Business Matters and Failed Business Acquisitions.
      On March 9, 2001, we acquired a 20-year mining lease from Steve
Sutherland, the owner of 24 unpatented lode-mining claims, sometimes referred
to as the Medicine Project, located in Elko County, Nevada.  The lease was
terminated at some point
 
      During the nine months ended December 31, 2003, management of the
Company terminated the mining lease. As the Company terminated the lease, it
is required to pay all federal and state mining claim maintenance fees for
the current year. The Company is required to perform reclamation work on the
property as required by federal state and local law for disturbances
resulting from the Company's activities on the property. In the opinion of
management, there will be no continuing liability.  Please see the Company's
Schedule 14C Information Statement as filed with the Securities and Exchange
Commission on February 13, 2004 and mailed or furnished to Shareholders on
February 17, 2004, and incorporated herein by reference, for additional
details on this matter.

      On April 1, 2003, the Company entered into an agreement to acquire 100%
of the issued and outstanding shares of Pascal Energy, Inc., a Canadian
corporation, by the issuance of 5,000,000 common shares, restricted under
Rule 144 of the Securities Act of 1933 and at a later date, issue 5,000,000
common shares, restricted under Rule 144 subject to the Company paying not
less than $1,000,000 accumulated dividends to its shareholders of record.
Pascal Energy, Inc.'s business has to provide servicing for the oil and gas
industry.
 
      The Company determined that the transaction could not be completed due
to the inability to complete a comprehensive due diligence. The shares of
common stock previously transferred in anticipation of the completion of the
transaction were returned to the treasury of the Company and canceled.

"TSG" Acquisition
On October 9, 2003, the Company acquired an option for $500,000 to purchase
the assets and certain liabilities of Tri-State Stores, Inc., an Illinois
Corporation ("Tri-State"), GMG Partners LLC, an Illinois Limited Liability
Company ("GMG"), and SASCO Springfield Auto Supply 


                                       4


Company, a Delaware Corporation ("SASCO"). Tri-State, GMG and SASCO are
collectively referred to herein as "TSG." Upon exercise of the option, the
Company was to pay $3,000,000 and assume certain liabilities, not exceeding
$700,000. TSG is involved in the automotive after market. During the first
quarter of 2004, the Company elected not to continue to pursue this acquisition
and let the option lapse.

Motor Parts Waterhouse, Inc.
The Company issued 5,000,000 shares of common stock for an option to acquire
all the outstanding stock of Motor Parts Warehouse, Inc. ("MPW"), of St.
Louis, Missouri.  In order to exercise the option, the Company must issue an
additional 5,000,000 shares of common stock to the shareholders of MPW and
pay $2,200,000. This MPW option cannot be exercised until after the
refinancing of the TSG debt of approximately $3,000,000.  MPW is also an auto
parts distributor.  As a result of the financing not being completed, the
Company elected not to continue to pursue this acquisition and let the option
lapse.

Alliance Petroleum Products Company
On October 9, 2003, the Company also entered into a Stock Purchase Agreement
("Alliance Agreement") with Alliance Petroleum Products Company ("Alliance"),
an Illinois Corporation, and a Rider to the Alliance Agreement ("Rider").
Alliance is in the business of blending and bottling motor oil and
anti-freeze. Under the Alliance Agreement, the Company issued 5,000,000
shares of common stock for 100% of the issued and outstanding shares of the
common stock of Alliance (757,864 common shares).  An additional 5,000,000
shares of common stock of the Company is to be issued to Worldlink
International Network, Inc. upon 24 months from the date hereof. Under the
terms of the Rider, the Company is required to provide funding of at least
$3,500,000 to pay Harris Bank, a secured creditor of Alliance.  The
shareholders of Alliance have the option to have the 757,864 issued and
outstanding shares of common stock of Alliance returned and the Alliance
Agreement rescinded if they choose if the Company did not arrange the funding
within 150 days from the date of the execution of the Alliance Agreement.
Since the expiration of the option period has expired, the principals of the
transactions have verbally agreed to extend the option period pending
completion of the financing. This was a material contingency to the
transactions and as a result has to be resolved prior to recognition of a


                                       5


business combination. On June 24, 2004 (effective date July 1, 2004) the
Company ("Prelude") now known as American Petroleum Group, Inc., ("AMPE") and
Alliance Petroleum Products Company ("Alliance"), entered into an Amendment
to the original Alliance Agreement, dated October 9, 2003 whereby all
previous conditions and contingencies were deemed to have been completed or
waived and the agreement amended as follows;
   o     5,000,000 shares of AMAI voting capital stock are to be issued to the
         shareholders of Alliance in the same proportions as the first
         5,000,000 shares were issued to them pursuant to the exchange of
         securities contemplated in the Agreement and Plan of Reorganization
         upon the execution of this Amendment. The exchange of securities
         also includes, 1,000,000 shares of preferred shares, with the
         necessary Certificate of Designation, to allow conversion at the
         rate of 1 share of preferred to ten (10) shares of common, and to
         permit the preferred shareholders to vote their shares, at any time
         after issuance, and after they have been converted, the shares be
         issued to the shareholders of American in the same proportions as
         the first 5,000,000 shares were issued to them pursuant to the
         Agreement and Plan of Reorganization.
   o     All the shares to the Alliance shareholders are no longer subject to a
         two-year restriction prior to sale or transfer, but are now only
         subject to those transfer restrictions under Rule 144 of the
         Securities Laws.
   o     AMAI assumes all payment obligations and all other agreements of
         Alliance as set forth in the including four "Promissory Notes"; and
         AMAI assumes all payment obligations and all other agreements of
         Alliance to the Harris Bank.

It is the opinion of current management that the terms of the amendment as
contained above, are unenforceable against the Company.  It is the belief and
opinion of current management that the former control person(s) of the
Company attempted to bind the Company for debts due and owing from a
transaction the Company was not a party to, did not hold any assets from or
any obligation to repay and monies lent against assets.  This is better
described as the "threatened Litigation from Harris Bank" as set forth in
Item 3. Litigation

The operations of Alliance have been consolidated with the results of AMAI
since July 1, 2004.  American Petroleum Group, Inc. which was formerly
American Capital Alliance, Inc. (the "Company") is a Chicago based holding
company with an agenda to acquire, merge, and manage various business
opportunities. The Company's current direction is in the manufacturing and
distribution of petroleum and related products for the automotive industry.
After the above acquisition, the Company is no longer considered a
"development state entity"


                                       6



Subsequent Transactions
On December 3, 2004, the Registrant entered into a Letter of Intent, dated
December 1, 2004, with Oilmatic Systems LLC of East Orange, New Jersey,
whereby the Registrant would purchase Oilmatic Systems LLC and/or Oilmatic
International, Inc., for shares of common stock of the Registrant.

As part of the transaction, Michael Allora, President of Oilmatic will
assume, after the closing of the transaction, the position of President and
Chief Operating Officer of American Petroleum as well as Oilmatic.  Mr.
Allora has extensive experience in the delivery of bulk liquids and related
products to businesses, retail and wholesale, in the restaurant field.

Oilmatic is a food service distribution company that supplies a closed loop
Bulk Cooking Oil Supply and Management system.  Its patented state of the art
handheld Dipstick(R) design dispenses and removes cooking oil with the simple
push of a button at the deep fryers.  The system also consists of separate
fresh oil and waste oil tanks.   A key switch allows management to control
unnecessary oil fills and disposals.  This system completely eliminates the
practice of employees manually removing hot used oil which significantly
reduces slips, falls and burns, as well as the hard labor of unloading and
retrieving heavy boxes of oil.  Additionally, the system eliminates hazardous
grease spills both inside and outside of the store that cause grease fires
and grease trap build-ups that pollute our environment.

It is anticipated that the transaction will close after the end of the first
fiscal quarter of 2005.  While there can be no assurance the transaction will
close, the Company is confident that the parties will execute definitive
agreements as scheduled.

PLAN OF OPERATIONS
------------------
      We were a startup, development stage Company prior to the acquisition
of American Petroleum Products Company ("APPC") and did not realize any
revenues from our business operations until that time.  However at time of
acquiring APPC its sales volume was at a point below its break even point and
therefore was losing money.  Management of the Company feels that APPC is
operating at a small percentage of its capacity with its major constraint on


                                       7


increasing volume being that of financing raw materials for manufacturing and
some other limited variable manufacturing costs.  In addition, it is
currently not generating profits of sufficient amount to support the other
operations of the parent Company.  Accordingly, we must raise money from
sources other than the operations of this business.  Our only other source of
cash at this time is investments by others in our Company.  We must raise
cash to complete the acquisitions and stay in business.

In order to raise capital for operations of the parent Company and to
complete the Oilmatic transaction, the Company entered into a transaction
with Cornell Capital Partners LP and Highgate House Funds, Ltd., dated March
8, 2005, whereby the Company entered into a Convertible debenture for a total
amount of $500,000 at 7% interest.  The Note is convertible into shares of
common stock at a conversion price of  $0.85 per share, at the option of the
Lender.  At the same time the Company entered into with Cornell Capital
Partners LP a total Standby Equity Distribution Agreement for up to
$10,000,000 equity line.

We must also obtain additional financing to either purchase our operating
assets or obtain working capital for leasing arrangements

To meet our need for cash, we are attempting to raise debt and equity
financing to complete the acquisitions described in this document and fund
the Company's on-going operations.  There is no assurance that we will be
able to raise these funds and stay in business.  If we do not raise the funds
required to complete any of the acquisitions, we will have to find alternate
sources such as a secondary public offering, private placement of securities,
or loans from officers or others.  If we need additional cash and can not
raise it, we will either have to suspend operations until we do raise the
cash or cease operations entirely

Limited Operating History.
The only historical financial information about our Company on which to base
an evaluation of our performance is the last six months after the acquisition
of APPC which was generating losses at the time of acquisition .  We cannot
guarantee we will be successful in our business operations.  Our business is
subject to the risks inherent in the establishment of a new business


                                       8


enterprise, including limited capital resources and the ability to find and
finance suitable acquisition candidates.  We are seeking equity and debt
financing to provide the capital required to fund additional proposed
acquisitions and our on-going operations.

We have no assurance that future financing will be available to the Company
on acceptable terms.  If financing is not available on satisfactory terms, we
may be unable to continue, develop or expand our operations.  Equity
financing could result in additional dilution to shareholders.

Liquidity, Capital Resources and Operations
Since the Company's inception, the Company has raised funds from
officer/stockholder advances, from private sales of its common shares and
approximately $500,000 from sale of borrowed stock contributed by the
Company's promoters.  This money has been utilized for start-up costs and
operating capital.

In this regard, the Company's plan of operations for the next 12 months is to
pursue profitable business acquisitions, and obtain financing to increase the
sale volume of APPC.  Product research and development is expected to be
minimal during the period.  Additionally, the Company does not expect any
change in number of employees other than through acquisitions.

Results of Operations:
For the Year Ending December 31, 2004 vs. December 31, 2003
-----------------------------------------------------------
Until July 1, 2004, the commencement of the third fiscal quarter of the
Company's fiscal year, the Company did not have an operating unit.
Therefore, a comparison of sales to the previous year is not an accurate
representation of the increase or decrease of the revenues, costs and sales
of the Company. Subsequent to July 1, 2004, the Company had $857,172 in
sales, with the cost of revenues of $732,722 and other expenses, including
interest expense of $25,475 and impairment of Goodwill of $822,262for a total
expense of $3,299,908.

Liquidity and Financial Resources
---------------------------------
During the twelve months ended December 31, 2004, net cash used by operating
activities was $1,441,080.  The Company incurred a net loss of $3,175,458 for
the twelve months ended 


                                       9


December 31, 2004; the company still has a net operating loss even if the stock
compensation expense of $1,523,200 and Impairment expense of $822,262 did not
occur. Additionally at December 31, 2004, current liabilities exceed current
assets by approximately $1,289,200; these factors raise substantial doubt about
the Company's ability to continue as a going concern. The Company anticipates
that in order to fulfill its plan of operation including payment of certain past
liabilities of the company, it will need to seek financing from outside sources.
The company is currently pursuing private debt and equity sources. It is the
intention of the Company's management to also improve profitability by
significantly reducing operating expenses and to increase revenues
significantly, through growth and acquisitions. The Company is actively in
discussion with one or more potential acquisition or merger candidates. There is
no assurance that the company will be successful in raising the necessary funds
nor there a guarantee that the Company can successfully execute any acquisition
or merger transaction with any company or individual or if such transaction is
effected, that the Company will be able to operate such company profitably or
successfully. As shown in the financial statements, the Company incurred a net
loss of $3,175,458 during the year ended December 31, 2004 and has incurred
substantial net losses for each of the past two years. At December 31, 2004,
current liabilities exceed current assets by $1,289,200. These factors raise
substantial doubt about the Company's ability to continue as a going concern. It
is the intention of the Company's management to improve profitability by
significantly reducing operating expenses and to increase revenues
significantly, through growth and acquisitions. The ultimate success of these
measures is not reasonably determinable at this time.

      Administrative expenses for the fiscal year ended December 31, 2004,
including impairment losses and stock compensation expenses was $3,299,908
resulting in losses from operations of $3,175,458.  Included in these amounts
are expenses for stock compensation expense of $1,523,200.   The increases in
the remainder of Administrative expensed are due to the start up of the
operations due to increases in personnel, professional, professional fees,
and a generally higher level of fixed administrative expenses.  It is
anticipated by the Registrant that General and Administrative costs will
remain relatively the same, while Revenues and Gross profit will increase as
a result of the business derived from APPC.


                                       10



Inflation
      The amounts presented in the financial statements do not provide for
the effect of inflation on the Company's operations or its financial
position. Amounts shown for machinery, equipment and leasehold improvements
and for costs and expenses reflect historical cost and do not necessarily
represent replacement cost. The net operating losses shown would be greater
than reported if the effects of inflation were reflected either by charging
operations with amounts that represent replacement costs or by using other
inflation adjustments.

Provision for Income Taxes
      The company has determined that it will more likely than not use any
tax net operating loss carry forward in the current tax year and has taken
and therefore has a valuation amount equal to 100% of any asset.

Employees:
As of December 31, 2004, we employed approximately 29 persons.  None of our
employees are covered by collective bargaining agreements.  We believe that
our relations with or employees are good.



Item 2. Description of Property
The Company currently occupies a sub-lease, for the administrative offices,
located at 1400 North Gannon Drive, Hoffman Estates, Illinois (847-805-0125.
We occupy approximately 700 square feet comprising three offices.  Our rent
is $1,000 per month.  We have no lease and have an oral month-to-month
agreement with the leaseholder of the office space, which is the former
President of the Company.  The space is adequate for the currently needs of
the Company.  If the month-to-month tenancy was to end, we would be able to
move our operations without a significant disruption of operations.

The Company's wholly-owned subsidiary, American Petroleum Products, Inc.,
operates from a manufacturing and distribution facility located at 5841 W.
66th Street, Bedford Park, Il. The 


                                       11


facility is comprised of approximately 36,000 sq. ft. The facility is sufficient
for the needs of the wholly-owned subsidiary for the foreseeable future. The
Company does not have a formal lease and is presently not paying rent for this
property due to a dispute with the former President of the Company, who is also
the owner of this property. We are attempting to reach a resolution with the
former President and landlord of the property. If we are not able to
successfully resolve the dispute, and are forced to vacate the facility, it will
have a substantial material effect on the ability to operate the subsidiary.



Item 3. Legal Proceedings
Other than described below, there are no past, pending or, to our knowledge,
threatened litigation or administrative action which has or is expected by
our management to have a material effect upon our business, financial
condition or operations, including any litigation or action involving our
officer, director or other key personnel.  There have been no changes in the
company's accountants, or disagreements with its accountants since its
inception.

There is a threatened action by the Harris Bank of Chicago, Illinois with
respect to a defaulted loan agreement. Harris Bank claims to have a lien on the
equipment used by the Registrant in its operations. The Registrant has had
contact with Harris Bank and is attempting to resolve the matter. In the event
that a resolution is not resolved in a manner satisfactory to the Registrant, it
could result in the seizure of the equipment and have a material adverse effect
on the operations of the Registrant.

The Company received a letter,  dated February 28, 2005, from the Attorney for
Concentric Consumer  Marketing,  Inc., in connection with certain sums owed by
American Petroleum Products  Corporation  ("APPC"),  a wholly owned subsidiary
of the  Company,  in the  amount  of  $13,000  per month for the past four (4)
months,  for services.  There is no way to determine at this time the validity
of the  claim,  or any  possible  outcome or if the claim is  material  to the
Company,  or even if litigation  will be commenced  against the Company and/or
APPC.


                                       12


Indemnification of Officers and Directors
-----------------------------------------
      At present we have not entered into individual indemnity agreements
with our Officer or Director.  However, our By-Laws and Certificate of
Incorporation provide a blanket indemnification that we shall indemnify, to
the fullest extent under Nevada law, our directors and officers against
certain liabilities incurred with respect to their service in such
capabilities.  In addition, the Certificate of Incorporation provides that
the personal liability of our directors and officers and our stockholders for
monetary damages will be limited.


Item 4. Submission of Matters to a Vote of Security Holders
        On February 15, 2005, the majority of shares entitled to vote
approved certain actions as set forth in the Schedule 14C filed with the SEC
on February 24, 2005, consisting of:

  1.    Electing and appointing the Board of Directors and Officers of American
        Petroleum Group, Inc.;
  2.    Ratified the appointment of Brown Smith Wallace LLC as our independent
        public accountants for the fiscal year ending December 31,
        2003 and 2004;
  3.    Adoption of a Code of Ethics for the Executive Officers of American
        Petroleum Group, Inc., and
  4.    Approving the purchase of all interest in, all assets and stock of
        Oilmatic Systems, LLC ("Oilmatic Transaction" or
        "Transaction").



                                   Part II

Item 5. Market for Common Equity and Related Stockholder Matters

General:
--------
We are authorized to issue 100,000,000 shares of Common Stock, at a par value
$.0001 per share.   As of March 29, 2005, the latest practicable date, there
are 4,315,000 shares of common stock outstanding.  The number of record
holders of Common Stock as of December 31, 2004 is approximately 50.

                                       13


Common Stock:
-------------
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders.  There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors
can elect all of the directors then up for election.  The holders of Common
Stock are entitled to receive ratably such dividends when, as and if declared
by the Board of Directors out of funds legally available therefore.  In the
event we have a liquidation, dissolution or winding up, the holders of Common
Stock are entitled to share ratably in all assets remaining which are
available for distribution to them after payment of liabilities and after
provision has been made for each class of stock, if any, having preference
over the Common Stock.  Holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock

Price Ranges of  American Petroleum Group, Inc. Common Stock:
-------------------------------------------------------------
Market Information
The Company's Common Stock is traded on the NASD OTC Bulletin Board under the
symbol "AMPE."   It was previously traded under the symbol "AMAI" until
October 29, 2004, "PLUD" until February 23, 2004, and "PLUV from September
12, 2002 until December 31, 2002.

There is currently a limited trading market for the Company's Common Stock
with the price being very volatile.  The following chart lists the high and
low closing bid prices for shares of the Company's Common Stock for each
month within the last fiscal year.  These prices are between dealers and do
not include retail markups, markdowns or other fee and commissions, and may
not represent actual transactions.

Fiscal Year 2004:       High Bid    Low Bid     High Ask    Low Ask
-----------------       -------------------------------------------
January 2004            1.05        0.71        1.07        0.75
February 2004           0.81        0.37        0.85        0.41
March 2004              0.43        .022        .048        .025
April 2004              0.32        0.11        0.35        0.13
May 2004                0.17        0.05        0.18        0.06
June 2004               0.12        0.045       .015        0.032
July 2004               0.1         0.03        0.12        0.05
August 2004             0.13        0.025       0.15        0.032


                                       14



September 2004          0.05        0.021       0.055       0.025
October 2004            0.06        0.025       0.07        0.029
November 2004 (1)       1.4         .01         5           .07
December 2004           1.1         0.56        2           0.9

1     Taking into effect a reverse split of 20 to 1, effective November 2004

Fiscal Year 2005:       High Bid    Low Bid     High Ask    Low Ask
-----------------       --------------------------------------------
January 2005            0.92        0.65        1.12        0.75
February 2005           1.03        0.65        1.1         0.8


Liquidation:
------------
In the event of a liquidation of the Company, all stockholders are entitled
to a pro rata distribution after payment of any claims.

Dividend Policy:
The Company has never declared or paid cash dividends on its common stock and
anticipates that all future earnings will be retained for development of its
business.  The payment of any future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, future
earnings, capital requirements, the financial condition of the Company and
general business conditions.

Stock Transfer Agent:
---------------------
Effective March 1, 2005, our transfer agent and registrar of the Common Stock
is Manhattan Transfer Registrar Co., P.O. Box 756. Miller Place, NY  11764,
(631) 585-7341; fax (631) 580-7766.

Recent Sales of Unregistered Securities
---------------------------------------
The information concerning the recent sales of unregistered securities
required by Item 5 is incorporated by reference to the information set forth
in Item 12 "Certain Relationships and Related Transactions" set forth
hereafter


                                       15


Item 6. Management's Discussion and Analysis or Plan of Operation.

Forward-looking Information
---------------------------
      Certain statements in this document are forward-looking in nature and
relate to trends and events that may affect the Company's future financial
position and operating results. The words "expect" "anticipate" and similar
words or expressions are to identify forward-looking statements.  These
statements speak only as of the date of the document; those statements are
based on current expectations, are inherently uncertain and should be viewed
with caution. Actual results may differ materially from the forward-looking
statements as a result of many factors, including changes in economic
conditions and other unanticipated events and conditions. It is not possible
to foresee or to identify all such factors.  The Company makes no commitment
to update any forward-looking statement or to disclose any facts, events or
circumstances after the date of this document that may affect the accuracy of
any forward-looking statement.


                                       16



Item 7.       Financial Statements

               American Petroleum Group, Inc. and Subsidiaries

                        Index to Financial Statements

                                   CONTENTS



                                       17



Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

On November 16, 2004, the current Interim President of the Registrant in
discussions with Amisano Hanson, became aware that the Registrant had not
properly informed Amisano Hanson of its dismissal, and the Registrant had
failed to comply with the notification provisions of Form 8-K for dismissal
of the previous auditor and appointment of the new auditor. Accordingly, the
current management, on November 16, 2004 notified its previous independent
auditor, Amisano Hanson, Chartered Accountants, 750 West Pender Street, Suite
604, Vancouver Canada, V6C 2T7, 604-689-0188, that it was replaced as the
Independent Auditor of the Registrant, by Brown Smith Wallace LLC.  This
action was previously approved by the Board of Directors on or about February
19, 2004.

Members of The Board of Directors and Officers of the Registrant have
discussed these facts with Amisano Hanson, and have discussed the actions
necessary to correct the problem.

The audit reports of, Amisano Hanson, Chartered Accountants, 750 West Pender
Street, Suite 604, Vancouver Canada, V6C 2T7, 604-689-0188 on the Company's
consolidated financial statements as of and for the fiscal years ended
December 31, 2002 and 2001 did not contain an adverse opinion or a disclaimer
of opinion, or modified as to audit scope or accounting principles, however
the auditors qualified their report as to the uncertainty that the Company
would continue as a going concern.  During the period of their engagement,
there were no disagreements between Amisano Hanson, and the Registrant 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 Amisano Hanson, would have caused them to make reference to
the subject matter of the disagreement in connection with its reports on the
Registrant's financial statements, other than the fee dispute that has arisen
between the parties.

The Registrant has furnished Amisano Hanson with a copy of this report and
has requested them to furnish a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the above statements.  A
copy of the resignation letter is to be attached as Exhibit 16 to this Form
8-K.


                                       18



On February 19, 2004, the management of the Registrant engaged Brown Smith
Wallace LLC, located at 1050 N. Lindbergh Blvd. St. Louis, MO 63132,
Telephone 314.983.1200, as its independent auditors to audit its financial
statements for the fiscal year ended December 31, 2003.  The decision to
retain Brown Smith Wallace LLC was approved by the Registrant's board of
directors at that time. Prior to the engagement, Registrant did not consult
with Brown Smith Wallace LLC regarding the application of accounting
principles to a specified transaction, or the type of audit opinion that may
be rendered with respect to the Registrant's financial statements, as well
did not consult with Brown Smith Wallace LLC, as to the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on the small business
issuer's financial statements and either written or oral advice was provided
that was an important factor considered by the small business issuer in
reaching a decision as to the accounting, auditing or financial reporting
issue.


Item 8a.    Controls and Procedures
We recently acquired American Petroleum Products Corp., our main operating
entity, after taking control of the parent Company in September 2004.   As
such, the company is just developing and implementing systems of internal
and disclosure controls. Within the ninety-day period preceding the filing
of this report, our management evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (the "Disclosure
Controls") as of the end of the period covered by this Form 10-KSB and (ii)
any changes in internal controls over financial reporting that occurred
during the last quarter of our fiscal year.  This evaluation ("Controls
Evaluation") was done under the supervision and with the participation of
management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), who became CFO in September 2004, and the
Controller, who became CFO in March 2005.

Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a 


                                       19


control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. Because of the inherent limitations in a cost effective
control system, misstatements due to error or fraud may occur and not be
detected. We will conduct periodic evaluations of our internal controls to
enhance, where necessary, our procedures and controls.

Conclusions

Based upon the Controls Evaluation, the CEO and CFO have concluded that the
Disclosure Controls are effective in reaching a reasonable level of
assurance that management is timely alerted to material information relating
to the Company during the period when its periodic reports are being
prepared.  In accord with the U.S. Securities and Exchange Commission's
requirements, the CEO and CFO conducted an evaluation of the Company's
internal control over financial reporting (the "Internal Controls") to
determine whether there have been any changes in Internal Controls that
occurred during the quarter which have materially affected or which are
reasonable likely to materially affect Internal Controls.  Based on this
evaluation, there have been no such changes in Internal Controls during the
last quarter of the period covered by this report.




                                   Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.

The following were elected to the Board of Directors, effective February 15,
2005:

Ron Shapss              58          Chairman of the Board
James W. Zimbler        39          Director and President
Richard Carter          36          Director and Vice-President
William Bossung         47          Director and VP of Corporate Finance
Michael S. Krome        43          Director and General Counsel
George L. Riggs, III    53          Director


                                       20


Elliot Cole Esq.        71          Director
James Carroll           54          Chief Financial Officer

Ron Shapss, 58, Chairman of the Board
Mr. Shapss is the founder of Ronald Shapss Corporate Services, Inc.,  ("SCS")
a company engaged in consolidating fragmented industries since 1992. RSCS was
instrumental in facilitating the roll-up of several companies into such
entities as U.S. Delivery, Inc., Consolidated Delivery & Logistics, Inc.  Mr.
Shapss was also the founder of Coach USA, Inc.  A 1970 graduate of Brooklyn
Law School, Mr. Shapss is a member of the New York bar.

James W. Zimbler, 39, Director and Interim President
Mr., Zimbler has been a principal of Alpha Advisors, LLC, since its inception
in May 2002.  Alpha is involved as a consultant in the mergers and
acquisitions of public companies, and consulting for private companies that
wish to access the public markets.  Prior to becoming a founding member of
Alpha, he was involved in consulting for capital raising, re-capitalization
and mergers and acquisitions for various clients.  Mr. Zimbler is one of the
initial shareholders in Humana Trans Services Holding Corp. (OTCBB "HTSC").
Mr. Zimbler has recently focused his energies in the field of turnarounds of
small emerging private and public companies.

Richard Carter, 36, Director and Vice-President
1998 - 2002  GunnAllen Financial, Senior Vice President
2002 - 2004  National Securities, Senior Vice President
Richard D. Carter joined American Petroleum Group, Inc. from the
investment-banking field.   Mr. Carter has been responsible for raising
investment capital for 14 years.  Mr. Carter's main focus will be spent on
implementing financial systems and continued funding related to growth and
acquisitions.

William Bossung, 47, Director and Vice President of Corporate Finance
Mr. Bossung has over 18 years of diversified financial experience.  For
approximately the last ten years Mr. Bossung has been President of Alliance
Financial Network, Inc., which provides financial consulting for public and
private companies.  From early 1995 until mid 1997, Mr. 


                                       21


Bossung was the Director of Corporate Finance for Chadmoore Wireless Group,
Inc., which was subsequently acquired by Nextel.

Michael S. Krome, Esq., 43, Director and General Counsel
Michael S. Krome was admitted to practice Law in the State of New York in
February 1991, and in the United States District Court for the Eastern District
of New York in June 1991 and Southern District of New York in November 1994.  He
has been a Director of Human Trans Services Holding Corp (OTC BB "HTSC") since
January 2004.  Since 1991 he has practiced law as a sole practitioner with a
General Practice.  Since 2001 he has concentrated his practice in representing
Public Corporations.  He is a graduate of the State University of New York at
Albany and graduated from the Benjamin N. Cardozo School of Law in June 1990.
From February 1999 to November 1999, he was Vice President of Legal Affairs of
Fortune Media, Inc., (now known as Wayne's Famous Phillies, Inc.).  From April
2000 until January 2001, he was a Director and Counsel to Universal Media
Holdings, Inc., know known as Genio Group, Inc.

George L. Riggs, III, C.P.A., 53, Director
George L. Riggs, III, C.P.A., was the founder and Managing partner of Riggs &
Associates, LLP prior to joining the firm of Centerprise/Scillia Dowling &
Natarelli (formerly Simione Scillia Larrow & Dowling LLC) as an audit and
accounting principal.  He left the firm in October 2002 to return to a solo
practice.  He has been a Director of Human Trans Services Holding Corp (OTC BB
"HTSC") since July 2003.   He specializes in public and privately held
corporations, with significant experience in mergers and acquisitions,
litigation support, and bankruptcy and reorganizations matters.  He has over
twenty-five years experience in public accounting, including 13 years as a
partner at Deliotte & Touche, LLP.  He spent ten years as the Professional
Practice Director for the Hartford, New Haven and Waterbury offices.  In this
position, he was responsible for the review of all engagements to ascertain
compliance with professional guidelines and technical consultations on all
clients in the areas of accounting, auditing and securities.  He is a graduate
of the University of Hartford where he received the Regents Honor award for
graduating first from the school of business administration.  He also holds an
MBA degree from the University of Connecticut with a specialization in finance.
He received a certificate of merit from the Massachusetts Society of CPAs for
passing the CPA exam at the first sitting.  George has conducted many continuing
education 


                                       22


seminars for his prior firms and the Connecticut Society of CPAs as well as
spoken to many professional groups on certain industry, technical and financing
subjects. He holds CPA certificates in Connecticut and Vermont. He is a member
of the American Institute of Certified Public Accountants, the Connecticut
Society of Certified Public Accountants, and Institute of Management
Accountants. Mr. Riggs resigned as CFO on March 17, 2005.

Elliot Cole, Esq., 71, Director
Partner, Patton Boggs LLP.  Elliot Cole has practiced corporate law for 40-plus
years, more than 30 of which he has been a partner at Patton Boggs LLP.  He has
been a Director of Human Trans Services Holding Corp (OTC BB "HTSC") since May
2004.  His expertise is rooted in the representation of early-stage companies.
As a counselor of startups through mezzanine and later-stage financing, Mr. Cole
assists with bringing companies in a wide range of businesses along to
maturity.  His broad-based contacts with financiers and investors have provided
capital and management assistance to a number of the firm's clients over the
years.  Mr. Cole has served on the boards of several business, community and
social organizations.  He has been a trustee of Boston University, his alma
mater, for over 20 years, having served on its Investment Committee and
Community Technology Fund.

James J. Carroll, 54, Chief Financial Officer
James J. Carroll was the founder of Kevney Consulting Group, Ltd (Kevney).
and has been active in Kevney since 2001. Kevney provides diversified
financial and management services to its clients, including merger and
acquisition, reorganization and debt financing consulting and interim chief
financial officer services. Mr. Carroll has over 30 years of financial
experience, including 13 years in public accounting with 5 years as a partner
with a regional public accounting firm. He also has over 15 years of
experience in private industry, including positions as COO and CFO for
various manufacturing and distribution companies.


Item 10. Executive Compensation
      For the fiscal year ended December 31, 2004, no Officer/Director has
been compensated with salaries or other form of remuneration except as set
forth below:


                                       23




                              Capacities in                                             Aggregate
                              Which Remuneration                             Cash       Restricted Share
Name                          was Received              Period Ended         Payment    Remuneration         
----------------------------------------------------------------------------------------------------
                                                                           
Ronald Shapss (1)             Chairman of the Board     December 31, 2004    - 0 -     - 0 -
James W. Zimbler              Interim President         December 31, 2004    $ 52,250  $600,000 (2)
Richard Carter                Vice-President            December 31, 2004    $ 51,100  $600,000 (2)
George L. Riggs, III (3)      Chief Financial Officer   December 31, 2004    $ 20,193  $ 90,000 (2)
Michael S. Krome, Esq.        General Counsel           December 31, 2004    $ 13,846  $ 90,000 (2)


(1)   Mr. Shapss was elected Chairman of the Board on February 15, 2005
(2)   Based upon shares of restricted common stock of the Company, discounted
(3)   Mr. Riggs resigned as CFO on March 17, 2005



Director Compensation:
----------------------
Our directors receive no compensation for their services as director, at this
time, other than what has already been paid by the issuance of shares of
common stock.

Director and Officer Insurance:
-------------------------------
The Company does not have directors and officers ("D & O") liability
insurance at this time.


Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table describes, as of the date of this offering, the
beneficial ownership of our Common Stock by persons known to us to own more
than 5% of such stock and the ownership of Common Stock by our directors, and
by all officers and directors as a group.

Effective August 25, 2004, the control of the Registrant changed.  This was
due to appointment of the new Directors.  In addition, the Registrant issued
a controlling block of shares to the persons identified.  These shares
consisted of shares of common stock and shares of preferred stock Series A,
that was convertible to common stock at a ratio of one share of preferred to
10 shares of common (subsequent to the reverse split the amount is .5 per
share), with immediate voting rights as if they were converted to common
stock.  The shares were issued as part of compensation packages for the
services to be rendered to the registrant.  The series A preferred stock
conversion ration is subject to adjustment of the same reverse split of the
common stock of 20 to 1 that occurred in the fourth fiscal quarter.
Accordingly, the shares of the series A 


                                       24


preferred stock is convertible into a total of 1,838,750 shares of common stock,
and continues to have immediate voting rights equal to that conversion. A total
of 4,315,000 are issued and outstanding as of March 29, 2005.

                            No. of Common  No. of Preferred(1)  % ownership(1)
                            --------------------------------------------------
Ronald Shapps(2)            500,000        1,000,000            11.5
James W. Zimbler (2)        500,000        1,000,000            11.5
Richard Carter (2)          535,000        1,000,000            12.3
George L. Riggs, III (2)     75,000          150,000            *
Michael S. Krome, Esq. (2)   75,000          150,000            *
Elliot Cole, Esq. (2)        75,000          150,000            *
Alpha Advisors, LLC (3)     113,750          227,500            *
Richard Steifel             290,000              --              6.7
Chris Hansen                222,500              --              5.1
Jesse Fuller                887,893              --             20.6
                                                              
Officers and Directors                                        
   (6 persons)            1,873,750        3,677,500            43.4% (4)
                                                           
(1)      Percentage of ownership includes conversion ration of preferred stock
         at a rate of one share of preferred stock to.5 shares of common
         stock.  All holders of the preferred shares have elected to convert
         the Series A preferred shares to common stock.  The additional
         shares of common stock have not yet been issued and are not
         reflected in the table
(2)      Officer and/or Director of the Company.
(3)      Alpha Advisors, LLC is controlled by James W. Zimbler,, George L.
         Riggs, and Michael S. Krome.  When all of the ownership percentages
         are added, the control percentage for Alpha Advisors LLC is 17.6%,
         including the conversion of the preferred stock, if voted as a block.
(4)      Officers and Directors own 41.7% of the issued common stock of the
         Company.  Certain Officers and Directors also own an additional
         3,677,500 shares of preferred stock, convertible into .5 shares of
         common stock each share of preferred, equaling 1,873,750 additional
         shares of common stock and having immediate voting rights.  This
         give effective voting control over the Company.


Item 12.    Certain Relationships and Related Transactions
Issuance of Stock:
-----------------
We issued 75,000 shares of common stock, and 150,000 shares of Series A
preferred stock, to Ronald Shapss as part of his compensation for accepting
the position of Chairman of the Board of Directors, January 2005.
We issued 500,000 shares of common stock, and 1,000,000 shares of Series A
preferred stock, to Ronald Shapss as part of his compensation for accepting
the position of Chairman of the Board of Directors, on February 15, 2005.


                                       25


We issued shares of the Company as set forth on the Form 8-K filed September
20, 2004, and incorporated by reference, in connection with the change of
control of the Company



Item 13.  Exhibits
Index to Exhibits

SEC REFERENCE
NUMBER                  TITLE OF DOCUMENT
------                  -----------------
 3.1              Articles of Incorporation of the Registrant, as amended (1)
 3.2              By-laws of the Registrant, as amended (1)
 99.1             Certification of President Officer pursuant to18
                  U.S.C. Section 1350, as adopted, Pursuant to section 906 of
                  the Sarbanes-Oxley act of 2002  (2)
 99.2             Certification of Chief Financial Officer pursuant to18
                  U.S.C. Section 1350, as adopted, Pursuant to section 906 of
                  the Sarbanes-Oxley act of 2002  (2)

------------
(1)   Previously filed as an exhibit to the Company's Form 10-SB filed on
      June 26, 2001, and subsequent filings
(2)   Filed herewith


Reports on Form 8-K
      A Current Report on Form 8-K, for Item 2, Changes in Control of
Registrant was filed on July 9, 2004 regarding changes to the Board of
Directors.
      A Current Report on Form 8-K, for Item 5.01, Changes in Control of
Registrant was filed on September 20, 2004 regarding changes to the Board of
Directors.
      A Current Report on Form 8-K, for Item 8.01, Other Events was filed on
November 3, 2004, regarding the completion for a reverse split of the common
stock and change of name of the Registrant.
      A Current Report on Form 8-K, for Item 4.01, Changes in Registrant's
Certifying Accountant, 4.02., Non-Reliance on Previously Issued Financial
Statements or a Related Audit Report or Completed Interim Review and 9.01.,
Financial Statements and Exhibits was filed on February 16, 2005

                                       26


Item 14. Principal Accounting Fees and Services
      During the fiscal year ended December 31, 2004, we paid a total of
$_________ in audit, audit-related, tax or other fees paid for professional
services rendered by the independent certified public accountant who audited
the financial statements of the Nevada corporation that are filed herewith
as those of the Company.  See Item 7,  "Financial Statements", above.

During the fiscal year ended December 31, 2004, the Registrant did not have
an audit committee.



SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, American Petroleum Group, Inc. has duly caused this
Report to be signed on behalf of the undersigned thereunto duly authorized on
March 31, 2005.

                                AMERICAN PETROLEUM GROUP, INC.


                                By /s/ James W. Zimbler
                                  ---------------------
                                  James W. Zimbler, President and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated
and on March 31, 2005.

Signature                     Title                               Date
----------------------------------------------------------------------
/s/ Ronald Shapss             Chairman                     March 31, 2005
-----------------
Ronald Shapss

/s/ James W. Zimbler          CEO, President               March 31, 2005
--------------------          Director
James W. Zimbler        

/s/ James J. Carroll          Chief Financial Officer      March 31, 2005
--------------------
James J. Carroll

                                       27



                         AMERICAN PETROLEUM GROUP, INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS
                                      WITH
                          INDEPENDENT AUDITORS' REPORT

                                DECEMBER 31, 2004





TABLE OF CONTENTS
================================================================================

                                                                          Page

Report of Independent Registered Public
    Accounting Firm.......................................................  1

Consolidated Financial Statements

    Consolidated Balance Sheets...........................................  2

    Consolidated Statements of Operations.................................  3

    Consolidated Statements of Stockholders' Equity (Deficit).............  4

    Consolidated Statements of Cash Flows.................................  5

    Notes to Consolidated Financial Statements............................  6




                        Report of Independent Registered
                             Public Accounting Firm


To the Board of Directors and Stockholders
American Petroleum Group, Inc.
Chicago, Illinois


We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Petroleum Group, Inc. and subsidiary (FKA American Capital Alliance, Inc.) as of
December  31,  2004  and  2003,  and  the  related  consolidated  statements  of
operations, stockholders' equity, and cash flows for the years then ended. 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  auditing  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan  and  perform  an audit  to  obtain  reasonable  assurance  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.

The Company has not properly  implemented and accounted for stock option expense
in accordance with generally accepted accounting principles.  The effect of this
departure from generally accepted accounting  principles has not been determined
(see Note I).

In our opinion,  except for the effects of the matter discussed in the preceding
paragraph,  the  consolidated  financial  statements  referred to above  present
fairly, in all material  respects,  the financial position of American Petroleum
Group,  Inc. and subsidiary as of December 31, 2004 and 2003, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
consolidated  financial  statements,  the Company is dependent on its ability to
obtain the necessary  financing to meet its  obligations and pay its liabilities
arising from normal business operations when they come due. These factors, along
with other matters set forth in Note B, raise substantial doubt that the Company
will be able to continue as a going concern.  Management's  plan regarding those
matters is also described in Note B. The  consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from the  outcome  of these
uncertainties.

In connection with a business combination the Company entered into as of July 1,
2004 as  discussed  in Note F,  certain  contingencies  remain to be resolved as
discussed in Note K in order to finalize this transaction.



March 23, 2005




AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Consolidated Balance Sheets
December 31, 2004 and 2003
(See Independent Auditors' Report)
================================================================================

                                                   2004             2003
                                                   ----             ----
ASSETS
Current Assets
Cash and cash equivalents                     $        801    $     35,432

Trade accounts receivable,
net of allowance of $22,700
for doubtful accounts                              291,846              --
Advances to others                                 100,000              --
Acquisition deposits                                    --         200,200
Inventory                                          254,944              --
                                              ------------    ------------
Total Current Assets                               647,591         235,632

Equipment
Equipment                                            6,068              --
Less accumulated depreciation                        2,023
                                              ------------    ------------
                                                     4,045              --
                                              ------------    ------------
TOTAL ASSETS                                  $    651,636    $    235,632
                                              ============    ============


LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Book overdraft                                $      5,523    $         --
Trade accounts payable                             629,825          67,792
Accrued interest                                    32,000              --
Accrued professional fees                           45,000              --
Accrued expenses                                    11,187              --
Notes payable to stockholders                      500,000              --
Loans payable to officers/stockholders             713,269              --
                                              ------------    ------------
Total Current Liabilities                        1,936,804          67,792

Notes Payable to Stockholders                           --         500,000

Commitments and Contingences
(Notes B, F, G, I, K and L)

Stockholders' Equity (Deficit)
Preferred stock; 5,000,000 shares;
2,527,500 shares issued and outstanding             25,275              --
Common stock, $0.001 par value;
100,000,000 shares authorized; 3,740,000
and 1,415,000 shares issued and
outstanding in 2004 and 2003, respectively           3,740           1,415
Additional paid-in capital                      11,523,435       9,328,585
Retained (deficit)                             (12,837,618)     (9,662,160)
                                              ------------    ------------
                                                (1,285,168)       (332,160)
                                              ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)                              $    651,636    $    235,632
                                              ============    ============

                   The accompanying notes are an integral part
                   of these consolidated financialstatements.


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Consolidated Statements of Operations
Years ended December 31, 2004 and 2003
(See Independent Auditors' Report)
================================================================================

                                                     2004         2003
                                                     ----         ----
Net sales                                       $   857,172    $        --

Cost of goods sold                                  732,722             --
                                                -----------    -----------
Gross Profit                                        124,450             --

Expenses
Acquisition expense                                  10,000        196,200
Professional fees                                   145,293        133,067
Management fees                                          --        136,890
Office expenses                                     140,218          2,979
Compensation expenses                             1,523,200      8,778,000
Termination expenses                                     --        355,000
Payroll and payroll taxes                           390,152             --
Bad debts                                            22,700             --
Outside sales                                        83,707             --
Repairs and maintenance                              14,293             --
Depreciation                                          2,023             --
Advertising and promotion                            60,640             --
Other                                                69,099             --
                                                -----------    -----------
Total Expenses                                    2,461,325      9,602,136
                                                -----------    -----------

Income (Loss) Before Other Items                 (2,336,875)    (9,602,136)

Other Income (Expense)
Forgiveness of debt                                      --         32,442
Interest expense                                    (32,000)            --
Other expense                                      (806,583)            --
                                                -----------    -----------
Total Other Income ( Expense)                      (838,583)        32,442
                                                -----------    -----------
NET INCOME (LOSS)                               $(3,175,458)   $(9,569,694)
                                                ===========    ===========
Loss per share                                  $      1.62    $      1.14
                                                ===========    ===========
Weighted average number of shares outstanding     1,965,414        845,795
                                                ===========    ===========

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


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2004 and 2003
(See Independent Auditors' Report)
================================================================================


                                        Preferred Stock         Common Stock        Additional       Retained
                                        ---------------         ------------          Paid-In        Earnings
                                      Number    Par Value    Number    Par Value      Capital        (Deficit)      Total
                                      ------    ---------    ------    ---------      -------        ---------      -----
                                                                                                     
Balance at December 31, 2002           -- $         --      750,000  $        750  $     99,250 $    (92,466) $      7,534

  Net loss                             --           --           --            --            --   (9,569,694)   (9,569,694)

  Stock shares issued                  --           --      665,000           665     9,229,335           --     9,230,000
                             ------------ ------------ ------------  ------------  ------------ ------------  ------------
Balance at December 31, 2003           --           --    1,415,000         1,415     9,328,585   (9,662,160)     (332,160)

  Net loss                             --           --           --            --            --   (3,175,458)   (3,175,458)

  Stock shares issued           2,527,500       25,275    2,598,700         2,599     2,194,576           --     2,222,450

Retired common shares                  --           --     (273,700)         (274)          274           --            --
                             ------------ ------------ ------------  ------------  ------------ ------------  ------------
Balance at December 31, 2004    2,527,500 $     25,275    3,740,000  $      3,740  $ 11,523,435 $(12,837,618) $ (1,285,168)
                             ============ ============ ============  ============  ============ ============  ============



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



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows
Years ended December 31, 2004 and 2003
(See Independent Auditors' Report)
================================================================================

                                                       2004          2003
                                                       ----          ----
Cash flows from operating activities:
Net loss                                          $(3,175,458)   $(9,569,694)
Compensation, consulting and termination
 expenses in exchange for shares                    1,523,200      9,248,000
Impairment of goodwill                                822,262             --
Adjustments to reconcile net loss
 to net cash used in operating activities:
Bad debts                                              22,700             --
Depreciation                                            2,023             --
(Increase) decrease in operating assets:
Trade accounts receivable                             (43,863)            --
Advances to others                                   (100,000)            --
Inventory                                             (11,459)            --
Acquisition deposits                                  200,200       (200,200)
Book overdraft                                        (10,559)            --
Prepaid expenses                                           --            400
Increase (decrease) in operating liabilities:
Trade accounts payable                                228,466         60,529
Accrued expenses                                       80,112             --
                                                  -----------    -----------
Net cash used in operating activities                (462,376)      (460,965)

Cash flows from investing activities:
Acquisition of new subsidiary                        (856,200)            --
Purchases of equipment                                 (3,000)            --
                                                  -----------    -----------
Net cash used in investing activities                (859,200)            --

Cash flows from financing activities:
Issuance of common stock                               44,400             --
Increase in additional paid-in capital                629,575        482,000
Issuance of preferred stock                            25,275             --
Proceeds from loans payable                           587,695             --
Loans payable                                              --        (10,000)
                                                  -----------    -----------
Net cash provided by financing activities           1,286,945        472,000
                                                  -----------    -----------

INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                      (34,631)        11,035

Cash and cash equivalents, beginning of year           35,432         24,397

Cash and cash equivalents, end of year            $       801    $    35,432
                                                  ===========    ===========

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



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note A - Company

      The Board of Directors (the "Board") by unanimous written consent dated as
      of  November   18,  2003,   and  certain   stockholders   (the   "Majority
      Stockholders")  owning a majority of issued and outstanding  capital stock
      of the Company  entitled to vote, by written  consent dated as of November
      18,  2003,  approved  and  adopted  resolutions  to  amend  the  Company's
      Certificate  of  Incorporation.   The  Certificate  of  Amendment  to  the
      Company's  Certificate of Incorporation,  already filed with the Secretary
      of State of  Nevada,  changed  the  Company's  name to  "American  Capital
      Alliance,  Inc." from Prelude  Ventures,  Inc. The name of the Company was
      changed  again on  November  1, 2004 to  American  Petroleum  Group,  Inc.
      ("APG") by a vote of the security holders.

      APG is a Chicago based holding  company with an agenda to acquire,  merge,
      and manage various business  opportunities.  APG's current direction is in
      the  manufacturing  and distribution of petroleum and related products for
      the  automotive  industry.  On  July 1,  2004,  APG  acquired  100% of the
      outstanding stock of American  Petroleum  Products Company  ("APPC").  The
      accompanying  consolidated  financial  statements  include  the results of
      operations of APPC beginning on July 1, 2004. After the above acquisition,
      the Company is no longer considered a "development stage entity".

Note B - Continuance of Operations

      The financial  statements have been prepared using  accounting  principles
      generally  accepted in the United States of America applicable for a going
      concern  which  assumes  that the  Company  will  realize  its  assets and
      discharge its liabilities in the ordinary course of business.  At December
      31, 2004,  the Company had  accumulated  losses of  $12,837,618  since its
      inception.  Its ability to continue as a going  concern is dependent  upon
      the ability of the Company to obtain the  necessary  financing to meet its
      obligations  and  pay  its   liabilities   arising  from  normal  business
      operations when they come due. The Company is currently  pursuing new debt
      and  equity   financing   in   conjunction   with   future   acquisitions.
      Additionally,  approximately  $713,000  was  raised  during the year ended
      December 31, 2004 from loans payable to officers/stockholders (see Note I)
      whose  proceeds  were used for working  capital  needs,  as well as a down
      payment  toward  the  purchase  of  an  option  on  one  of  the  proposed
      acquisitions.

Note C - Summary of Significant Accounting Policies

      Principles of Consolidation

      The  consolidated  financial  statements  include the accounts of American
      Petroleum Group, Inc. and its wholly owned subsidiary,  American Petroleum
      Products  Company  (the  "Company")   after   elimination  of  significant
      intercompany transactions and accounts.


                                      -6-


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note C - Summary of Significant Accounting Policies (Continued)

      Revenue

      Revenue is recognized when the title to inventory is transferred.

      Trade Receivables

      Concentration  of  credit  risk with  respect  to  receivables,  which are
      unsecured are  generally  limited due to the wide variety of customers and
      markets using the Company's  products,  as well as their dispersion across
      many  geographic  areas.  The Company  maintains  allowances for potential
      credit losses,  and such losses have been minimal and within  management's
      expectations.  The allowance for doubtful  accounts is estimated  based on
      various factors  including  revenue,  historical credit losses and current
      trends.

      Inventory

      Inventory  consisted  of  primarily  raw  materials  (oil,  additives  and
      packaging  material) and is valued at the lower of cost or market  applied
      on a first-in, first-out basis.

      Use of Estimates in Financial Statement Preparation

      The  preparation of financial  statements,  in conformity  with accounting
      principles  generally  accepted in the United States of America,  requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of contingent  assets and
      liabilities  at the  date of the  financial  statements  and the  reported
      amounts of revenues  and  expenses  during the  reporting  period.  Actual
      results could vary from the estimates that were used.

      Cash and Cash Equivalents

      For purposes of reporting  cash flows,  the Company  considers  all highly
      liquid debt instruments  purchased with a maturity of three months or less
      to be cash equivalents.

      Depreciation

      Depreciation of equipment is computed using the  straight-line  method for
      financial statements and income tax reporting purposes.

      Advertising Costs

      Advertising  costs are  expenses  as  incurred.  Total  advertising  costs
      charged to expense were $60,640 in 2004.


                                      -7-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note C -    Summary of Significant Accounting Policies (Continued)

      Income Taxes

      The Company  uses the  liability  method of  accounting  for income  taxes
      pursuant  to  Statement  of  Financial  Accounting  Standards,   No.  109,
      "Accounting  for Income  Taxes".  Under this  method,  deferred  taxes are
      determined  based on the  estimated  future  tax  effects  of  differences
      between the financial  statement  and tax basis of assets and  liabilities
      given the  provisions of the enacted tax laws.  Valuation  allowances  are
      recorded  to reduce  deferred  tax assets  when it is more likely than not
      that a tax benefit will not be realized (see Note D).

      Basic Loss Per Share

      The Company  reports basic loss per share in accordance with the Statement
      of Financial  Accounting  Standards No. 128,  "Earnings Per Share".  Basic
      loss per share is computed  using the  weighted  average  number of shares
      outstanding during the period. Diluted earnings per share is not presented
      (see Note I). On August 25, 2004,  the Company  approved a  one-for-twenty
      reverse  stock  split;  all per  share  amounts  have  been  retroactively
      adjusted.

      Fair Value of Financial Instruments

      The carrying amounts of cash and cash  equivalents,  accounts  receivable,
      accounts payable,  and accrued expenses  approximate fair value because of
      the short  maturity of those  instruments.  At December 31, 2004 and 2003,
      the  Company  estimates  that the fair value of its notes  payable are not
      materially  different from its financial  statement carrying value, except
      for the liability for stock borrowings (see Note G).

      New Accounting Pronouncements

      Management  does  not  believe  that  any  recently  issued,  but  not yet
      effective, accounting standards if currently adopted could have a material
      effect on the accompanying financial statements.

      Impairment of Long Lived Assets

      The Company evaluates whether events and circumstances  have occurred that
      indicate  the  remaining  estimated  useful life of long lived  assets may
      warrant  revision  or that the  remaining  balance  of an asset may not be
      recoverable.  The  measurement  of  possible  impairment  is  based on the
      ability to recover the balance of assets from  expected  future  operating
      cash flows on an undiscounted basis. In the opinion of management, no such
      impairment existed at December 31, 2004. See Note F concerning  impairment
      of goodwill.


                                      -8-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note C - Summary of Significant Accounting Policies (Continued)

      Reclassifications

      Certain  prior  period  amounts have been  reclassified  to conform to the
      current year presentation.

Note D - Income Taxes

      Deferred Tax Assets

      The  Financial  Accounting  Standards  Board issued  Statement  No. 109 in
      Accounting  for Income  Taxes ("FAS 109")  which is  effective  for fiscal
      years  beginning  after March 15,  1992.  FAS 109  requires the use of the
      asset and  liability  method of  accounting  for income  taxes.  Under the
      assets  and  liability  method  of  FAS  109,   deferred  tax  assets  and
      liabilities are recognized for the future tax consequences attributable to
      temporary differences between the financial statements 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.

      The following table summarizes the significant components of the Company's
      deferred tax assets:



                                                                      2004           2003
                                                                      ----           ----
                                                                           
      Gross deferred tax assets (non-capital loss carryforward)   $ 4,365,000    $ 3,284,000
      Valuation allowance for deferred tax asset                   (4,365,000)    (3,284,000)
                                                                  -----------    -----------
                                                                  $      --      $      --
                                                                  ===========    ===========


      Income Taxes

      No  provision  for income  taxes has been  provided in these  consolidated
      financial  statements  due to the net loss.  At  December  31,  2004,  the
      Company has net operating loss  carryforwards,  which expire commencing in
      2022,  totaling  approximately  $12,800,000,  the benefit of which has not
      been recorded in the financial statements due to the future uncertainty of
      the generations of earnings by the Company.

Note E - Non-Cash Transactions

      Investing  and  financing  activities  that do not have a direct impact on
      current cash flows are excluded from the cash flow statement.


                                      -9-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note E - Non-Cash Transactions (Continued)

      The  Company  has  recorded  a  termination  expense  in  respect  to  the
      termination  of its former  President and has issued 200,000 common shares
      at $2.35 per share to  satisfy  the total  liability  which  includes  the
      termination  expense,  unpaid  management  fees and unpaid advances to the
      Company (see Note I).

      During 2004, the Company entered into a business  combination and acquired
      certain  operating  assets of APPC in exchange for Company stock (see Note
      F).

Note F - Business Combinations

      Business Acquisition Cancelled

      On April 1, 2003, the Company entered into an agreement to acquire 100% of
      the issued  and  outstanding  shares of Pascal  Energy,  Inc.,  a Canadian
      corporation,  by the issuance of 5,000,000 common shares, restricted under
      Rule 144 of the Securities and Exchange Act and at a later date,  issue an
      additional   5,000,000  common  shares,   restricted  under  Rule  144  of
      Securities  and Exchange Act,  subject to the Company paying not less than
      $1,000,000 in accumulated  dividends to its shareholders of record. Pascal
      Energy,  Inc.'s  business  is to  provide  servicing  for  the oil and gas
      industry.

      The Company has determined that the transaction cannot be completed due to
      the inability to complete a comprehensive  due diligence.  Therefore,  the
      shares previously outstanding were returned to the treasury of the Company
      on February 25, 2004.

      "TSG" Acquisition

      On  October 9, 2003,  the  Company  acquired  an option  for  $500,000  to
      purchase the assets and certain liabilities of Tri-State Stores,  Inc., an
      Illinois Corporation ("Tri-State"),  GMG Partners LLC, an Illinois Limited
      Liability Company ("GMG"),  and SASCO  Springfield Auto Supply Company,  a
      Delaware Corporation ("SASCO").  Tri-State, GMG and SASCO are collectively
      referred to herein as "TSG." Upon exercise of the option,  the Company was
      to pay $3,000,000 and assume certain liabilities,  not exceeding $700,000.
      TSG is involved in the automotive  after market.  During the first quarter
      of 2004, the Company  elected not to continue to pursue this  acquisition.
      The  contractual  amount of the  option  was never  fully  paid,  however,
      amounts  advanced  for the  option  purchase  and  associated  acquisition
      expenses  resulted in an $185,000  charge to operations for the year ended
      December 31, 2003 and $10,000 for the year ended December 31, 2004.


                                      -10-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note F - Business Combinations (Continued)

      Motor Parts Waterhouse, Inc.

      The  Company  issued  5,000,000  shares of  common  stock for an option to
      acquire all the outstanding stock of Motor Parts Warehouse,  Inc. ("MPW"),
      of St. Louis,  Missouri. In order to exercise the option, the Company must
      issue an additional  5,000,000  shares of common stock to the shareholders
      of MPW and pay $2,200,000. This MPW option cannot be exercised until after
      the refinancing of the TSG debt of approximately  $3,000,000.  MPW is also
      an  auto  parts  distributor.  As a  result  of the  financing  not  being
      completed, the Company elected not to continue to pursue this acquisition.

      Alliance Petroleum Products Company

      On  October  9, 2003,  the  Company  also  entered  into a Stock  Purchase
      Agreement ("Alliance  Agreement") with Alliance Petroleum Products Company
      ("Alliance"),  an  Illinois  Corporation,  and a  Rider  to  the  Alliance
      Agreement ("Rider").  Alliance is in the business of blending and bottling
      motor oil and  anti-freeze.  Under the  Alliance  Agreement,  the  Company
      issued  5,000,000  shares  of  common  stock  for 100% of the  issued  and
      outstanding  shares  of the  common  stock  of  Alliance  (757,864  common
      shares). An additional  5,000,000 shares of common stock of the Company is
      to be issued to Worldlink  International Network, Inc. upon 24 months from
      the above date.  Under the terms of the Rider,  the Company is required to
      provide  funding  of at least  $3,500,000  to pay Harris  Bank,  a secured
      creditor of Alliance. The shareholders of Alliance have the option to have
      the  757,864  issued and  outstanding  shares of common  stock of Alliance
      returned and the  Alliance  Agreement  rescinded  if they  choose,  if the
      Company did not  arrange the funding  within 150 days from the date of the
      execution of the Alliance Agreement.  Since the option period has expired,
      the  principals of the  transactions  have  verbally  agreed to extend the
      option period  pending  completion of the  financing.  This was a material
      contingency to the  transactions  and as a result had to be resolved prior
      to recognition of a business combination. On June 24, 2004 (effective date
      July 1,  2004) the  Company  ("Prelude")  then known as  American  Capital
      Alliance,   Inc.,   ("AMAI")  and  Alliance   Petroleum  Products  Company
      ("Alliance"),   entered  into  an  Amendment  to  the  original   Alliance
      Agreement,  dated  October 9. 2003  whereby all  previous  conditions  and
      contingencies  were  deemed  to have  been  completed  or  waived  and the
      agreement amended as follows:


                                      -11-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note F - Business Combinations (Continued)

      Alliance Petroleum Products Company (Continued)

            o     5,000,000 shares of AMAI voting capital stock are to be issued
                  to the shareholders of Alliance in the same proportions as the
                  first  5,000,000  shares were  issued to them  pursuant to the
                  exchange of securities  contemplated in the Agreement and Plan
                  of  Reorganization  upon the execution of this Amendment.  The
                  exchange of  securities  also  includes,  1,000,000  shares of
                  preferred   shares,   with  the   necessary   Certificate   of
                  Designation,  to  allow  conversion  at the rate of 1 share of
                  preferred  to ten (10)  shares of  common,  and to permit  the
                  preferred shareholders to vote their shares, at any time after
                  issuance,  and after they have been  converted,  the shares be
                  issued to the shareholders of American in the same proportions
                  as the first 5,000,000  shares were issued to them pursuant to
                  the Agreement and Plan of Reorganization.

            o     All the  shares  to the  Alliance  shareholders  are no longer
                  subject to a two year  restriction  prior to sale or transfer,
                  but are now only subject to those transfer  restrictions under
                  Rule 144 of the Securities Laws.

            o     AMAI assumes all payment  obligations and all other agreements
                  of Alliance  as set forth in the  including  four  "Promissory
                  Notes"; and AMAI assumes all payment obligations and all other
                  agreements of Alliance to the Harris Bank. (See Note K)

      The operations of Alliance have been consolidated with the results of AMAI
      since July 1, 2004.

      The aggregate acquisition price was $856,200, which consisted of 1,107,500
      of  the  Company's   common  stock  valued  at  $0.54  and  cash  advances
      outstanding to Company at the time of  consummation  of the  transactions.
      The value of the stock was  determined  based on the  approximate  average
      market price of the shares on August 11, 2004 (change in control date) and
      discounted for factors such a limited market for the stock.




                                      -12-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note F - Business Combinations (Continued)

      Alliance Petroleum Products Company  (Continued)

      Following  is a  condensed  balance  sheet  showing the fair values of the
      assets acquired and the liabilities assumed as of the date of acquisition:

          Current assets                                              $  498,087
          Property and equipment                                           3,068
          Goodwill arising in the acquisition                            822,262
                                                                      ----------
                                                                      $1,323,417

          Current liabilities                                         $  341,642
          Current maturities of long-term debt                           125,575
          Net assets acquired                                            856,200
                                                                      ----------
                                                                      $1,323,417

      The Company  acquired  only minimal  property,  plant and equipment in the
      transaction;  Alliance  does not have  title to these  production  assets.
      Additionally,  no expense has been recognized  during the six months ended
      December  31,  2004  for  compensation  for the use of the  machinery  and
      equipment  to  a  corporation  representing  the  processor  operation  to
      Alliance  and to an entity  that  owned  the real  estate.  The  processor
      company was owned by the former officers of APPC who are also stockholders
      and  directors  of the  Company;  the real  estate  company is owed by the
      former  president and a major  stockholder  of the Company;  The assets of
      these  entities  secure  obligations to Harris Bank as a result of certain
      transactions  entered  into by the  predecessor  company,  the real estate
      company or their owners. A security interest had been entered into to as a
      result of these prior lending  activities with  appropriate lien filed and
      personal  guarantee of the principals,  some who are currently officers of
      the Company or Alliance.  Harris Bank has  threatened  foreclosure  if the
      prior  borrowers  can not reach terms  allowing  the bank to forebear  the
      defaults. (See Note K)

      Goodwill  (excess of purchase price over net assets  acquired) of $822,262
      arising in the above described acquisition had been recognized at the time
      of purchase.  Subsequently,  management determined that the goodwill value
      was totally  impaired as APPC is operating  on a negative  cash flow basis
      and, therefore, the recoverability of the asset is uncertain and was fully
      written off in December 31, 2004.



                                      -13-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note F - Business Combinations (Continued)

      Pro Forma Information

      On July 1, 2004,  the company  purchased 100% of the voting stock of APPC.
      Results of operations for APPC are included in the consolidated  financial
      statements  since that date. The  acquisition  was made for the purpose of
      the reasons as stated above. Following are pro forma amounts assuming that
      the acquisition was made on January 1, 2004:

             Net sales                                              $ 1,487,007
           Cost of good sold                                          1,217,846
                                                                    -----------
               Gross profit                                             269,161

           Expenses                                                   3,836,886
                                                                    -----------
             Net income (loss)                                       (3,567,725)
                                                                    -----------
             Loss per share:
               Basic                                                $      1.82
                                                                    ===========

Note G - Notes Payable to Stockholders

      The Company  entered into a stock  borrowing  arrangement  whereby several
      stockholder/officers  of the Company transferred  approximately  1,000,000
      shares  pre-split  or 50,000  shares on a post split basis of common stock
      into an  escrow  account.  The  shares  were  subsequently  sold  with the
      proceeds of $500,000  being  transferred  to the  Company.  The Company is
      obligated to return the shares to the original  holders by April 2005.  If
      the Company had to repurchase  its stock at December 31, 2004, it would be
      required  to pay  $51,500 to acquire the  aggregate  shares  using a $1.03
      approximate  share price in order to replace  such shares for the original
      contributors  of the stock.  The balance sheet as of December 31, 2003 was
      restated to record the $500,000  liability and reduce  additional  paid-in
      capital.


                                      -14-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note H - Related Party Transactions

      Payroll Services

      The Company  had its payroll  processed  though a  "professional  employer
      organization"  owned by a  publicly  traded  corporation  that has  common
      shareholders,  directors and officers.  This company processed $351,513 of
      payroll, taxes and benefits,  along with an administration fee of $18,155.
      Included  in accounts  payable at  December  31, 2004 is a balance due for
      these services of $113,858.

      Expense Reimbursements

      The Company reimburses Company  officer/directors  for travel,  office and
      other expenses.  In addition,  certain  officers make temporary  advances.
      Accounts Payable includes $14,987 of advances of these types.

      Due Alpha Advisors

      A professional  services  agreement dated October 9, 2003 was entered into
      with  Alpha  Advisors,  LLC for a term of one  year and  renewable  for an
      additional   year.   Alpha   Advisors   LLC   is  an   entity   owned   by
      stockholders/directors/officers of the Company. The fee for these services
      was the issuance of  1,000,000  shares of common stock of the Company upon
      execution  of the  agreements,  $25,000  due at signing  of the  Tri-State
      Stores and Alliance Petroleum Group, Inc. agreements and $6,000 payable on
      the first of each month thereafter.  In addition, a finder's fee of 10% of
      any new  financing  was to be  paid on  funds  being  committed.  Accounts
      Payable includes $31,000 of such amounts due as of September 30, 2004. The
      Company and Alpha are currently in the process of converting the debt into
      equity based upon a discount of 80% from the market price.

      Operating Assets

      The  operations  of APPC are  performed  in a plant  owned  by the  former
      President  and current  shareholder  of the Company.  The Company does not
      have a lease and is presently  not paying rent for this  property due to a
      dispute with the former President (see Note L).


                                      -15-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note I - Related Party Loans Payable to Officers/Stockholders

                                                                          2004
                                                                         Amount
      Rick Carter                                                       $  6,000
      Ron Shapps                                                         200,000
      Michael Cahr                                                       100,000
      Warren Field                                                        50,000
      New Century Capital Consultants, Inc.                               50,000
      Keystone Nittany Ventures                                          113,353
      Former President                                                   142,916
      Malibu Management Company                                           16,000
      Alliance Finance Network                                            35,000
                                                                        --------
         Total                                                          $713,269
                                                                        ========

      New Century Capital Consultants, Inc.-Note Payable

      The  Company  on March  16,  2004  entered  into a  convertible  unsecured
      revolving  promissory note agreement with New Century Capital Consultants,
      Inc.  The lender is a  stockholder  in the  Company  via  compensation  it
      received (see Note H). The agreement  allows for borrowings up to $500,000
      of which $50,000 has been advanced currently. Interest accrues at the rate
      of 9% per annum payable along with the any outstanding  principle  balance
      on March 16, 2005,  unless the note is in default.  The lender may convert
      the  principal  amount and any accrued  interest  into common stock of the
      Company  based upon a formula  equal to 40% below the closing bid price of
      the stock  starting  after six months from  execution  of this  agreement.
      Additionally, on a one time basis the lender upon written demand after the
      six months can  require  the  Company to prepare  and file a  registration
      statement under the Securities and Exchange Act of 1933 for an offering of
      up  to  1,000,000  shares.  Also,  the  agreement  allows  for  "piggyback
      registration"  rights in that the Company must notify the lender and allow
      the  lender  to  register  its  shares  if  the  companies   file  such  a
      registration  statement.  The agreement contains events of default such as
      bankruptcy, insolvency, defaults or rendering of judgments on indebtedness
      in excess of $75,000 on from any other lender. Additionally, the agreement
      contains  certain  covenants  as  prohibition  of  payment  of  dividends,
      retirements or  redemptions of capital stock,  or the transfer of material
      assets of the Company.  Upon these acts of defaults,  the entire amount of
      principal and interest is immediately  due, and interest accrues at a rate
      of 15% per annum.

      On October 18, 2004, the Company  received notice from the lender that, in
      its opinion,  the Company was in default on the arrangement as a result of
      distributions  of to classes of equity  holders and  possibly  transfer of
      material assets. The lender has made assertions about  misappropriation of
      corporate  funds.  Management  of the Company  finds these  assertions  as
      unfounded  and feel the  Company  is in  compliance  with the terms of the
      agreement.


                                      -16-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note I - Related Party Loans Payable to Officers/Stockholders (Continued)

      Keystone  Nittany  Ventures,   Malibu  Management   Company  and  Alliance
      Financial Network

      Keystone Nittany Ventures,  Inc.  (Keystone) and Malibu Management Company
      (Malibu)  are  corporations  owned by the  President of the Company who is
      also a  director  and a  major  shareholder.  Alliance  Financial  Network
      ("AFN") is a corporation  owned by a Vice  President of the Company who is
      also a  director  and  shareholder.  Keystone,  Malibu  and AFN have  from
      time-to-time made advances to the Company.  The loans are unsecured due on
      demand and call for interest of 8% per annum.

      Former President

      The amount recorded by the Company  represents the estimated fair value of
      the  liability of the amount  assumed at the time of purchase of APPC.  It
      appears that the liability  represents funds advanced for working capital.
      The obligation is unsecured,  as no terms for repayment,  and non-interest
      bearing.  As a result of other  contingencies that of the purchase of AAPC
      the  final  settled  amount  of  this  liability  could  be  significantly
      different from the present recorded amount.

      Other Stockholders

      Warren Field, Rick Carter,  Michael Cahr and Ron Shapps are related to the
      Company by virtue of being stockholders.  The loans payable are unsecured,
      due on demand,  and accrue  interest of 7% per annum.  Certain  notes have
      provisions  including options to purchase additional common shares at $.01
      per share.

Note J - Stockholders' Equity

      A consulting  services agreement was entered into on October 9, 2003, with
      National Securities  Corporation,  Inc. for a term of six months renewable
      on a monthly  basis.  The fee for this  service is the  issuance of 12,500
      shares post split of common stock of the Company.

      A consulting  services agreement was entered into on October 9, 2003, with
      New Century  Consultants,  Inc.  for a term of six months  renewable  on a
      monthly  basis.  The fee for this service is the issuance of 50,000 shares
      post split of common stock of the Company.

      A  consulting  agreement  was  entered  into on  October  10,  2003,  with
      Commonwealth  Partners NY, LLC for a term of three years. The fee for this
      service is the  issuance  of 10,000  free  trading  shares  post split and
      15,000 restricted shares post split of common stock of the Company.




                                      -17-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note J - Stockholders' Equity (Continued)

      On January 27, 2004, the Company  entered into a  manufacturing  agreement
      with the shareholders of International Pit Crew Express,  Inc. ("IPC"),  a
      Texas corporation, to acquire the exclusive right to manufacture petroleum
      products  for IPC's  customers  within the United  States,  including  the
      United States  convenience  store  industry.  As  consideration  for these
      rights,  the Company  issued  700,000 shares post split of common stock on
      April 2, 2004 to the shareholders of IPC. Additionally,  the Company is to
      provide one half of the funds necessary for the purchase of machinery, and
      all related parts, supplies, and installation costs.

      In  conjunction  with the change of  control of the  Company on August 11,
      2004,  649,375  shares  post  split of  common  and  2,527,500  shares  of
      preferred stock were issued to newly elected officers of the Company.  The
      Company recognized the issuance as compensation  expense of $1,516,500 for
      the year ended  December  31,  2004.  The value was based upon the closing
      price of the stock as quoted on the "electronic  bulletin board market" on
      August 11, 2004. Series A Preferred Stock is convertible at a ratio of one
      share of  Series A  Preferred  Stock to .5  shares  of  common  stock.  In
      addition,  the Company entered into certain  compensation  agreements with
      these newly elected officers (see Note K).

Note K - Commitments and Contingencies

      Compensation Agreements

      In August 2004, the Company entered into a compensation agreement with Mr.
      William  Bossung for the position of Vice  President of Corporate  Finance
      and a  Director  of the  Company  through  December  2005  with a one year
      renewal.  Compensation includes fees of $100,000 per annum and issuance of
      common and preferred stock.

      In August 2004, the Company entered into a compensation agreement with Mr.
      Rick Carter for the position of Vice President  through December 2005 with
      a one year  renewal.  Compensation  includes fees of $80,000 per annum and
      issuance of common and preferred stock.

      In August 2004, the Company entered into a compensation agreement with Mr.
      James W.  Zimbler  for the  position  of  President  and a Director of the
      Company  through  December  2005  with a one  year  renewal.  Compensation
      includes  fees of $144,000 per annum and issuance of common and  preferred
      stock.


                                      -18-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note K - Commitments and Contingencies (Continued)

      Compensation Agreements (Continued)

      Effective  January  1,  2005,  the  Company  entered  into a  compensation
      agreement  with Ronald Shapps for the position of Chairman of the Board of
      Directors  through  December  2005 with a one year  renewal.  Compensation
      includes fees of $144,000 and the issuance of common and preferred stock.

      Harris Bank

      In  conjunction  with the Harris  Bank  attempting  to collect  their debt
      against  certain  parties  as  indicated  above  in  Note F,  the  bank is
      requesting  that  the  Company  become a party  to any  forbearance  as to
      collection  of the debt,  such as  becoming  a  guarantor  or buying  life
      insurance for the original  makers of the debt.  The basis of their claims
      is  that  the  Company  is  using  facilities  that  secure  the  original
      borrowings.  It is the  opinion of  management  and counsel of the Company
      that there is no basis and claims or commitments since APPC or APG was not
      a  borrower  or a  guarantor  on the  debt  (management  of  Alliance  are
      guarantors   of  the   original   debt  based  on  their  role  as  former
      shareholders/officers  of Alliance before its acquisition by the Company).
      The Company entered into  negotiations  with the bank and is attempting to
      secure  financing to purchase the operating  assets being  utilized in the
      operations at fair value.

      Compensation for Utilizing Operating Assets

      As indicated in Note H, no rent or  compensation of any type has been paid
      to the entities that claim to have legal title to the operating  assets of
      APPC.  Management  has taken the position that since there was no contract
      or agreement  to purchase or for the payment of rentals for these  assets,
      therefore  nothing is owed.  The  consolidated  operations  for the period
      since APPC was acquired do not contain any provision for  compensation for
      use of the facilities.  The owner (and former President of the Company and
      major  shareholder)  of the entity that owns the real estate is claiming a
      monthly  rental amount of $15,000.  This is a contingency  relating to the
      business combination that could potentially result in an adjustment of the
      purchase price of APPC and additional charges to the Company's operations.

      Amendment of Alliance Petroleum Products Company Agreement

      On June 24, 2004 the Company amended the original  agreement  removing the
      contingencies  contained in the original  document,  the most  significant
      being of refinancing certain debt owed Harris Bank (see Note F and above).
      As part of this amendment the original  agreement  stated APPC assumed all
      payment  obligations  and all other  agreements  of Alliance to the Harris
      Bank,; and all payment obligations and all other agreements of Alliance as
      set forth in the following four "Promissory Notes":


                                      -19-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note K - Commitments and Contingencies (Continued)

            o     Alliance  is to pay  $200,000  to  Richard  Stiefel  after all
                  amounts  have been paid to Jesse  Fuller  and  American  Group
                  Financial  (owned  by  Jesse  Fuller)  and  funding  has  been
                  received  from  Cornell  Capital  Corporation.   The  note  is
                  non-interest  bearing.  Jesse Fuller was the former  president
                  and a director of the Company and a major shareholder. Richard
                  Stiefel is an officer in Alliance and former shareholder,  and
                  currently is an officer/director/  shareholder of the Company.
                  It is the opinion of current  management that the terms of the
                  amendment as contained  above, are  unenforceable  against the
                  Company.  It is the belief and  opinion of current  management
                  that the former control  person(s) of the Company attempted to
                  bind the  Company  for debts due and owing from a  transaction
                  the  Company  was not a party to, did not hold any assets from
                  or any obligation to repay and monies lent against assets.

            o     Alliance promises to pay American Group Financial, Inc. and/or
                  Jesse Fuller  $407,368.09  and any additional sums that AGF or
                  Jesse Fuller owes to Harris Bank. Jesse Fuller is the owner of
                  AGF, the former president of the Company,  former director and
                  still a major shareholder. The note accrues interest at 5% per
                  annum. The note was due December 1, 2004. It is the opinion of
                  current   management  that  the  terms  of  the  amendment  as
                  contained above, are unenforceable  against the Company. It is
                  the belief and opinion of current  management  that the former
                  control person(s) of the Company attempted to bind the Company
                  for debts due and owing from a transaction the Company was not
                  a party to, did not hold any assets from or any  obligation to
                  repay and monies lent against assets.

            o     Alliance  is to pay  $200,000 to  Virginia  Gefvert  after all
                  amounts  have been paid to Jesse  Fuller  and  American  Group
                  Financial  (owned  by  Jesse  Fuller)  and  funding  has  been
                  received  from  Cornell  Capital  Corporation.   The  note  is
                  non-interest  bearing.  Jesse Fuller was the former  president
                  and a  director  of  the  Company,  and a  major  shareholder.
                  Virginia Gefvert was a former  shareholder of Alliance.  It is
                  the  opinion  of  current  management  that  the  terms of the
                  amendment as contained  above, are  unenforceable  against the
                  Company.  It is the belief and  opinion of current  management
                  that the former control  person(s) of the Company attempted to
                  bind the  Company  for debts due and owing from a  transaction
                  the  Company  was not a party to, did not hold any assets from
                  or any obligation to repay and monies lent against assets.


                                      -20-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note K - Commitments and Contingencies (Continued)

      Amendment of Alliance Petroleum Products Company Agreement (Continued)

            o     Alliance is to pay $200,000 to American Group Financial,  Inc.
                  after all amounts  have been paid to Jesse Fuller and American
                  Group  Financial  (owned by Jesse Fuller) and funding has been
                  received  from  Cornell  Capital  Corporation.   The  note  is
                  non-interest  bearing.  Jesse Fuller was the former  president
                  and a  director  of  the  Company,  and a  major  shareholder.
                  Virginia Gefvert was a former  shareholder of Alliance.  It is
                  the  opinion  of  current  management  that  the  terms of the
                  amendment as contained  above, are  unenforceable  against the
                  Company.  It is the belief and  opinion of current  management
                  that the former control  person(s) of the Company attempted to
                  bind the  Company  for debts due and owing from a  transaction
                  the  Company  was not a party to, did not hold any assets from
                  or any obligation to repay and monies lent against assets.

      Mining Lease

      By a lease letter agreement  effective March 9, 2001, and amended March 4,
      2002 and September 4, 2002, the Company was granted the exclusive right to
      explore,  develop and mine the Medicine  Project  property located in Elko
      County  of the  State of  Nevada.  The term of the lease was for 20 years,
      with automatic  extensions so long as the conditions of the lease are met.
      During  the year  ended  December  31,  2003,  management  of the  Company
      terminated the mining lease.  As the Company  terminated the lease,  it is
      required to pay all federal and state  mining claim  maintenance  fees for
      the current year. The Company is required to perform  reclamation  work on
      the property as required by federal  state and local law for  disturbances
      resulting from the Company's activities on the property. In the opinion of
      management, there will be no continuing liability.

      Termination

      During 2003,  the Company  agreed to issue 10,000 common shares post split
      to its former  President for the  settlement  of  management  fees payable
      ($105,000),  advances to the Company  ($10,000)  and  termination  expense
      ($355,000).   The  shares  were  valued  at  $2.35  per  share,  by  prior
      consultants.  These  shares were issued to the former  President  and were
      accounted for as an addition to paid-in capital.




                                      -21-



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements - Continued
December 31, 2004
(See Independent Auditors' Report)
================================================================================


Note L - Subsequent Events

      On December 3, 2004, the Registrant entered into a Letter of Intent, dated
      December 1, 2004,  with Oilmatic  Systems LLC of East Orange,  New Jersey,
      whereby the Registrant  would purchase  Oilmatic  Systems LLC and/Oilmatic
      International,  Inc., for shares of common stock of the Registrant.  It is
      anticipated  that the  transaction  will close  after the end of the first
      fiscal  quarter of 2005.  While there can be no assurance the  transaction
      will  close,  the  Company is  confident  that the  parties  will  execute
      definitive agreements as scheduled.

      The Company entered into a transaction  with Cornell  Capital  Partners LP
      and Highgate House Funds,  Ltd., dated March 8, 2005,  whereby the Company
      entered into a Convertible  debenture for a total amount of $500,000 at 7%
      interest.  The  Note is  convertible  into  shares  of  common  stock at a
      conversion  price of $0.85 per share, at the option of the Lender.  At the
      same time,  the Company  entered into with Cornell  Capital  Partners LP a
      total Standby Equity  Distribution  Agreement for up to $10,000,000 equity
      line.



                                      -22-