UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB/A

    Quarterly Report Pursuant to Section 13 or 15(D) of The Securities Act of
                                      1934

                 For the quarterly period ended: March 31, 2005

                        Commission file number: 000-49950


                         AMERICAN PETROLEUM GROUP, INC.
        (Exact name of small business issuer as specified in its charter)

                                Nevada 98-0232018
        (State or other jurisdiction of (IRS Employee Identification No.)
                         incorporation or organization)

           1400 N. Gannon Drive, 2nd Floor, Hoffman Estates, IL 60194
                    (Address of principal executive offices)

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

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

Yes |X|        No |_| 


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

 Common Stock, $0.0001 par value              12,036,750
 (Class)                                     (Outstanding as of May 17, 2005)



                         AMERICAN PETROLEUM GROUP, INC.
                                   FORM 10-QSB
                                 March 31, 2005

                                   INDEX

                                                                           Page
                                                                           ----
Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
         Consolidated Balance
         Sheets..............................................................F-2
         Consolidated Statements of
         Operations..........................................................F-3
         Consolidated Statements of Cash
         Flows...............................................................F-4
         Consolidated Statements of Stockholders'
         Equity..............................................................F-5
         Notes to Consolidated Financial
         Information.........................................................F-6

Item 2   Management's Discussion and Analysis or Plan of Operation............3

Item 3   Controls and Procedures..............................................9


Part II - OTHER INFORMATION

Item 1. Legal Proceedings.................................................... 10

Item 2. Unregistered Sales of Equity Securities and use of
Proceeds....................10

Item 3. Defaults Upon Senior Securities.......................................10

Item 4. Submission Of Matters To A Vote Of Security Holders.................. 10

Item 5. Other Information.................................................... 10

Item 6. Exhibits............................................................. 10

Signatures....................................................................10

Certifications................................................................11


                                       2


PART I:  FINANCIAL INFORMATION

                         AMERICAN PETROLEUM GROUP, INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 MARCH 31, 2005

TABLE OF CONTENTS
-------------------------------------------------------------------------------

                                                                           PAGE

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



AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Interim Balance Sheets
March 31, 2005 and December 31, 2004
================================================================================



                                                          (UNAUDITED)     (Audited)
                                                           MARCH 31,     December 31,
                                                             2005            2004
                                                         ------------    ------------
                                                                   
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                $    139,705    $        801
Trade accounts receivable, net of allowance of $22,700
for doubtful accounts                                         241,579         291,846
Advances to others                                            236,837         100,000
Acquisition deposits                                           12,500              --
Inventory                                                     230,187         254,944
                                                         ------------    ------------

TOTAL CURRENT ASSETS                                          860,808         647,591

EQUIPMENT
Equipment                                                       6,068           6,068
Less accumulated depreciation                                   2,523           2,023
                                                         ------------    ------------

                                                                3,545           4,045
                                                         ------------    ------------

TOTAL ASSETS                                             $    864,353    $    651,636
                                                         ============    ============

LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES
Book overdraft                                           $         --    $      5,523
Trade accounts payable                                        490,929         629,825
Accrued interest                                               11,392          32,000
Accrued professional fees                                          --          45,000
Accrued expenses                                               10,497          11,187
Notes payable to stockholders                                 925,000         500,000
Loans payable to officers/stockholders                        647,915         713,269
                                                         ------------    ------------

TOTAL CURRENT LIABILITIES                                   2,085,733       1,936,804

COMMITMENTS AND CONTINGENCES (NOTES B, F, G, I AND K)

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 5,000,000 shares; 3,677,500 shares
and 2,527,500 issued and outstanding in 2004 and               36,775          25,275
2003, respectively
Common stock, $0.001 par value; 100,000,000 shares
authorized; 8,723,000 and 3,635,000 shares issued and
outstanding in 2004 and 2003, respectively                      8,723           3,740
Additional paid-in capital                                 15,416,783      11,523,435
Retained deficit                                          (16,683,661)    (12,837,618)
                                                         ------------    ------------

                                                           (1,221,380)     (1,285,168)
                                                         ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)                                         $  1,789,353    $  1,151,636
                                                         ============    ============


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


                                      F-2


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Interim Statements of Operations
Three Month Periods Ended March 31, 2005 and 2004
================================================================================



                                                (UNAUDITED)     (Unaudited)
                                                 MARCH 31,       March 31,
                                                    2005            2004
                                                ------------    ------------

                                                          
NET SALES                                       $    384,901    $         --

COST OF GOODS SOLD                                   280,595              --
                                                ------------    ------------

GROSS PROFIT                                         104,306              --

EXPENSES
Acquisition expense                                       --          10,000
Professional fees                                     72,647          33,715
Office expenses                                       37,340             350
Compensation expenses                                690,000              --
Payroll and payroll taxes                            266,433              --
Licenses and insurance                                12,954              --
Outside sales                                         36,300              --
Rent and taxes                                         4,000              --
Repairs and maintenance                                  595              --
Utilities                                              9,735              --
Vehicles                                                 693              --
Telephone                                              7,251              --
Plant equipment                                        2,743              --
Depreciation                                             500              --
Advertising and promotion                                395              --
Travel and entertainment                              16,146           3,977
   Financing expense                               2,782,500
Other                                                  5,106           1,783
                                                ------------    ------------

TOTAL EXPENSES                                     3,945,338          49,825
                                                ------------    ------------

LOSS BEFORE OTHER ITEMS                           (3,841,032)        (49,825)

OTHER INCOME (EXPENSE)

Interest expense                                     (10,417)             --
Other income                                           5,406              --
                                                ------------    ------------

TOTAL OTHER INCOME ( EXPENSE)                         (5,011)             --
                                                ------------    ------------

NET LOSS                                        $ (3,846,043)   $    (49,825)
                                                ============    ============

Loss per share                                  $      (0.71)   $     (0.066)
                                                ============    ============

Weighted average number of shares outstanding      5,401,000         750,000
                                                ============    ============


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


                                      F-3


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Interim Statements of Stockholders' Equity (Deficit)
Three Month Periods Ended March 31, 2005 and Year Ended December 31, 2004

================================================================================



                                    Preferred Stock                 Common Stock             Additional
                               ----------------------------------------------------------      Paid-In
        (AUDITED)                 Number        Par Value       Number        Par Value        Capital
                               ------------   ------------   ------------    ------------    ------------
                                                                              
BALANCE AT DECEMBER 31, 2003             --   $         --      1,415,000    $      1,415    $  9,328,585

Net loss                                 --             --             --              --              --

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

Retired common shares                    --             --       (273,700)           (274)            274
                               ------------   ------------   ------------    ------------    ------------
        (AUDITED)
BALANCE AT DECEMBER 31, 2004      2,527,500         25,275      3,740,000           3,740      11,523,435

Net loss                                 --             --             --              --              --

Stock shares issued               1,150,000         11,500      4,983,000           4,983       3,893,348
                               ------------   ------------   ------------    ------------    ------------

        (UNAUDITED)
BALANCE AT MARCH 31, 2005         3,677,500   $     36,775      8,723,000    $      8,723    $ 15,416,783
                               ============   ============   ============    ============    ============




                                 Retained
                                 Earnings
        (AUDITED)                (Deficit)         Total
                                ------------    ------------
                                          
BALANCE AT DECEMBER 31, 2003    $ (9,662,160)   $   (332,160)

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

Stock shares issued                       --       2,222,450

Retired common shares                     --              --
                                ------------    ------------
        (AUDITED)
BALANCE AT DECEMBER 31, 2004     (12,837,618)     (1,285,168)

Net loss                          (3,846,043)     (3,846,043)

Stock shares issued                       --       3,909,831
                                ------------    ------------

        (UNAUDITED)
BALANCE AT MARCH 31, 2005       $(16,683,661)   $ (1,221,380)
                                ============    ============


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


                                      F-4


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

Interim Statements of Cash Flows
Three Month Periods Ended March 31, 2005 and 2004
================================================================================



                                                                  (UNAUDITED)    (Unaudited)
                                                                   MARCH 31,       March 31,
                                                                      2005            2004
                                                                  ------------    ------------
                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                          $ (3,846,043)   $    (49,825)
Compensation, consulting, financing and termination
 expenses in exchange for shares                                     3,472,500              --

Adjustments to reconcile net loss to net cash used in operating
 activities:
Depreciation                                                               500              --
(Increase) decrease in operating assets:
Trade accounts receivable                                               50,267              --
Advances to others                                                    (136,837)             --
Inventory                                                               24,757              --
Acquisition deposits                                                   (12,500)        (26,000)
Book overdraft                                                          (5,523)             --

Increase (decrease) in operating liabilities:
Trade accounts payable                                                (138,896)         23,347
Accrued expenses                                                       (66,298)             --
                                                                  ------------    ------------

NET CASH USED IN OPERATING ACTIVITIES                                 (658,073)        (52,478)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock                                                 1,008              --
Increase in additional paid-in capital                                 424,823          18,000
Issuance of preferred stock                                             11,500              --
Proceeds from loans payable                                            359,646              --
                                                                  ------------    ------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                              796,977          18,000
                                                                  ------------    ------------

INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                                       138,904         (34,478)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             801          35,432
                                                                  ------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                          $    139,705    $        954
                                                                  ============    ============


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


                                      F-5


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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 March 31, 2005, the Company had accumulated
            losses of $16,683,661 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
            $264,000 was raised during the quarter ended March 31, 2005 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.


                                      F-6


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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.


                                      F-7


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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 March
            31, 2005 and December 31, 2004, 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 March 31,
            2005. See Note F concerning impairment of goodwill.


                                      F-8


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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:



                                                                           2005           2004
                                                                       -----------    -----------
                                                                                        
           Gross deferred tax assets (non-capital loss carryforward)   $ 5,673,000      4,365,000
           Valuation allowance for deferred tax asset                   (5,673,000)    (4,365,000)
                                                                       -----------    -----------
                                                                       $        --    $        --
                                                                       ===========    ===========


            INCOME TAXES
            No provision for income taxes has been provided in these
            consolidated financial statements due to the net loss. At March 31,
            2005 and December 31, 2004, the Company has net operating loss
            carryforwards, which expire commencing in 2022, totaling
            approximately $16,650,000 and $12,800,000, respectively, 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.


                                      F-9


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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.


                                      F-10


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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:


                                      F-11


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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.


                                      F-12


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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
           quarter ended March 31, 2005 for compensation for the use of the
           machinery and equipment to a corporation representing the predecessor
           operation to Alliance and to an entity that owned the real estate.
           The predecessor 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.


                                      F-13


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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

            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 March 31, 2005, it would be required to pay $38,000 to
            acquire the aggregate shares using a $0.76 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.


                                      F-14


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE G -   NOTES PAYABLE (CONTINUED)

           HIGHGATE HOUSE FUNDS, LTD. TRANSACTION

           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. As part of this transaction, the Company paid fees to
           Cornell Capital of 750,000 shares (of which 15,000 was given to
           Newbridge Securities as Placement Agent for the SEDA Agreement), plus
           a commitment fee and Structuring fee to Yorkville Advisors
           Management, LLC of a total of $75,000. In addition, as part of the
           Secured Debenture, Highgate House Funds, Ltd. was issued 3,100,000
           shares of common stock as collateral by the Company. Upon payment, or
           conversion of the Convertible Debenture, these shares are to be
           returned to the Company and returned to treasury. An additional
           50,000 shares of common stock were issued as additional compensation
           for the Convertible Debenture. As of March 31, 2005, the Company had
           received $425,000 in advances against the Convertible debenture. A
           financing expense of $2,782,500 was charged to operations for this
           transaction.

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. For the quarter ended March 31,
           2005, this company processed $261,829 of payroll, taxes and benefits,
           along with an administration fee of $15,700.

           EXPENSE REIMBURSEMENTS
           The Company reimburses Company officer/directors for travel, office
           and other expenses. In addition, certain officers make temporary
           advances.


                                      F-15


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE H -   RELATED PARTY TRANSACTIONS (CONTINUED)

           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 Notes F and K).

NOTE I -   RELATED PARTY LOANS PAYABLE TO OFFICERS/STOCKHOLDERS



                                                         3/31/05       12/31/04
                                                         AMOUNT         Amount
                                                      ------------   ------------

                                                                        
              Rick Carter                             $    150,000   $      6,000
              Ron Shapps                                        --        200,000
              Michael Cahr                                 100,000        100,000
              Warren Field                                  50,000         50,000
              New Century Capital Consultants, Inc.         50,000         50,000
              Keystone Nittany Ventures                         --        113,353
              Former President                             142,915        142,916
              Malibu Management Company                         --         16,000
              Alliance Finance Network                      85,000         35,000
              Jeff Neimen                                   50,000             --
              John Niestrom                                 20,000             --
                                                      ------------   ------------
                 Total                                $    647,915   $    713,269
                                                      ============   ============



                                      F-16


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE I -   RELATED PARTY LOANS PAYABLE TO OFFICERS/STOCKHOLDERS (CONTINUED)

           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.

           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. During the quarter ended March 31, 2005, the outstanding loans
           were converted to equity in the Company.


                                      F-17


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE I -   RELATED PARTY LOANS PAYABLE TO OFFICERS/STOCKHOLDERS (CONTINUED)

           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. During the quarter ended
           March 31, 2005, the outstanding loans to Ron Shapps were converted to
           equity in the Company.

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.

           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 75,000 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.


                                      F-18


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE J -   STOCKHOLDERS' EQUITY (CONTINUED)

           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.

           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.


                                      F-19


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE K -   COMMITMENTS AND CONTINGENCIES (CONTINUED)

           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. It is anticipated
           that an agreement will be signed by the end of the second fiscal
           quarter of 2005.

           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. The
           Company is in negotiations with the owner and anticipates that the
           dispute will be resolved and an agreement will be signed by the end
           of the second fiscal quarter of 2005.

           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":


                                      F-20


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         AMENDMENT OF ALLIANCE PETROLEUM PRODUCTS COMPANY AGREEMENT (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 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.


                                      F-21


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

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.


                                      F-22


AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
================================================================================

NOTE K -   COMMITMENTS AND CONTINGENCIES (CONTINUED)

           OILMATIC STATUS - SUBSEQUENT EVENT

           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. Originally, it was anticipated that the transaction will
           close after the end of the first fiscal quarter of 2005. Subsequent
           to March 31, 2005, however, management no longer felt that the mutual
           goals of both parties were attainable and the transaction with
           Oilmatic was cancelled.


                                      F-23


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

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 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.

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. 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.


                                       3


         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 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.

Completed Transactions
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 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 (the number of shares indicates the amount prior to the
reverse split of November 2004); 


                                       4


      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"

Subsequent Transactions
Oilmatic Systems, LLC
         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.


                                       5


         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.

         Effective May 20, 2005, Management no longer felt that the mutual goals
of both parties were attainable and therefore the transaction with Oilmatic was
cancelled between the Parties.


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 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 continue to raise cash to complete future
acquisitions and stay in business, including funding current operations.

         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 and a Standby Equity Distribution Agreement for up to
$10,000,000. 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. As part of this
transaction, we paid fees to Cornell Capital of 750,000 shares (of which 15,000
was given to Newbridge Securities as Placement Agent for the SEDA Agreement),
plus a commitment fee and Structuring fee to Yorkville Advisors Management, LLC
of a total of $75,000. In addition, as part of the Secured Debenture, Highgate
House Funds, Ltd. was issued 3,100,000 shares of common stock as collateral by
the Company. Upon payment, or conversion of the Convertible Debenture, these
shares are to be returned to the Company and returned to treasury. An additional
50,000 shares of commons tock was issued as part of its compensation for the
Convertible Debenture.

         To meet our need for cash, we were investigating and attempting to
raise debt and equity financing to complete the acquisition of Oilmatic (which
is no longer active) as 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.


                                       6


         For its current operations, the Company has sufficient cash and revenue
to support only near term operations.


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
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 Quarter Ending March 31, 2005 vs. March 31, 2004 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. For the period ended March 31,
2005, the Company had $384,901 in sales, with the cost of revenues of $280,595
and other expenses, including financing expenses related to Cornell capital and
Highgate House of $2,782,500 for a total expense of $3,945,338.

Liquidity and Financial Resources
During the three months ended March 31, 2005, net cash used by operating
activities was $658,073. The Company incurred a net loss of $3,846,043 for the
three months ended March 31, 2005; the company still has a net operating loss
even if the stock compensation expense of $690,000 and financing expense of
$2,782,500 did not occur. Additionally at March 31, 2005, current liabilities
and long-term liabilities exceed current assets by approximately $1,221,380;
these factors raise substantial doubt about the Company's ability to continue as


                                       7


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.

         Administrative expenses for the three months ended March 31, 2005,
including stock compensation expenses and financing expenses were $3,945,338,
resulting in losses from operations of $3,846,043. Included in these amounts are
expenses for stock compensation and financing expense of $3,472,500. 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.

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.


                                       8


ITEM 3. 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-QSB 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 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 II: OTHER INFORMATION

ITEM 1. 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.


                                       9


         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. Recently, the Company has reached an oral
agreement for the resolution of all claims between Harris Bank, the former
control person of the Company and the Company, whereby the Company will be
acquiring the real property and fixed assets involved in the dispute. This oral
agreement is being reduced to a written agreement and if executed and completed,
will resolve any issues outstanding. It is anticipated that the Agreements will
be signed by all parties, and the transaction completed, by the end of the third
fiscal quarter.

         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. The Company has reached a settlement with Concentric Consumer Marketing,
Inc., and expects to execute a Settlement Agreement shortly.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We issued 75,000 shares of common stock, and 150,000 shares of Series A
preferred stock, to Eliot Cole, Esq. as part of his compensation for accepting
the position of a Director on 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.

We issued shares in relation to the Highgate House Funds, Ltd. Convertible
Debenture and the Standby Equity Distribution Agreement with Cornell Capital
Partners LP, as follows:

                  Highgate House Funds, Ltd.         3,100,000 for collateral
                  Highgate House Funds, Ltd.         50,000 for compensation
                  Cornell Partners, LP               735,000 as compensation
                  Newbridge Securities Corporation   15,000 for compensation as 
Placement Agent for the SEDA Agreement

We issued 683,000 shares from the exercise of the options granted to Holders of
certain promissory Notes issued by the Company. These creditors were entitled to
purchase one shares (1) at a purchase price of one cent ($0.01) for each dollar
lent to the company.

The use of the proceeds from the Highgate House Funds, Ltd., transaction was for
general working capital, and to fund the Oilmatic Acquisition.

The use of proceeds from the exercise of the option shares is for general
working capital of the Company.


                                       10


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.


ITEM 5. OTHER INFORMATION.

None.


ITEM 6.  EXHIBITS

(a)      Exhibits

      3.1   Articles of Incorporation of the Registrant*

      3.2   By-laws of the Registrant*

      31.1  Rule 13A-14(A)/15D-14(A) Certification for President/Chief Executive
            Officer

      31.2  Rule 13A-14(A)/15D-14(A) Certification for Chief Financial Officers

      32.1  Section 1350 Certification for President/Chief Executive Officer

      32.2  Section 1350 Certification for President/Chief Financial Officer
      ------------
* These documents are hereby incorporated by reference to Form SB-2, as amended,
June 26, 2001, and subsequent filings.



SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date:    May 27, 2005
                                      American Petroleum Group, Inc.

                                      /s/ James W. Zimbler
                                      -----------------------------------
                                      James W. Zimbler, 
                                      Interim President/Chief Executive Officer

                                      /s/ James Carroll
                                      -----------------------------------
                                      James Carroll, 
                                      Chief Financial Officer

                                       11