Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ___ TO ___
Commission file number: 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Name of small business issuer in its charter)
Nevada 87-0448843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Gorham Island, Suite 303
Westport, Connecticut 06880
(Address of principal executive offices) (Zip code)
(Issuer's telephone number 203/222-7315)
___________________________
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
___________________________
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or in any amendment to this Form 10-KSB. ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ___ No X
The issuer had no revenues for the year ended June 30, 2010.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity as of October 5, 2010, was $18,843,586.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No ___
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of October 5, 2010, the number of Common shares outstanding was 33,189,190
DOCUMENTS INCORPORATED BY REFERENCE - None
1
THE AMERICAN ENERGY GROUP, LTD.
INDEX TO FORM 10-K
PART 1 PAGE
Items 1 and 2. Business and Properties 3
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
and Issuer Purchase of Equity Securities 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 20
Item 9A Controls and Procedures 20
Item 9B Other Information 21
PART III
Item 10. Directors, Executive Officers and Corporate Governance 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management And Related Stockholder Matters 25
Item 13. Certain Relationships and Related Transactions, and Director
Independence 25
Item 14. Principal Accounting Fees and Services 25
PART IV
Item 15. Exhibits and Financial Statement Schedules 26
SIGNATURES 27
2
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES.
Overview-Post-Bankruptcy
Until our 2002 bankruptcy filing, we were an independent oil and natural
gas company engaged in the exploration, development, acquisition and production
of crude oil and natural gas properties in the Texas gulf coast region of the
United States and in the Jacobabad area of the Republic of Pakistan. We emerged
from bankruptcy in January 2004 with two assets, an 18% gross overriding royalty
in the Yasin Concession in Pakistan, and a working interest in an oil and gas
lease in Galveston County, Texas. While the bankruptcy proceedings were
pending, our producing oil and gas leases in Fort Bend County, Texas were
foreclosed by a secured lender. Our non-producing Galveston County, Texas oil
and gas lease rights were not affected by the foreclosure. In November 2003, we
sold the capital stock of our then existing subsidiary, Hycarbex, which held the
exploration license in Pakistan, to Hydro Tur (Energy) Ltd., a company organized
under the laws of the Republic of Turkey ("Hydro Tur"). We retained an 18.0%
overriding royalty interest in the production which may be derived in the future
from drilling operations. We emerged from bankruptcy in January 2004 with these
two assets intact and with our sole business being the maintenance and
management of these assets.
Acquisition of the Original Pakistan Concession and the 18% Royalty Interest in
the Yasin Concession
In April 1995, our wholly owned subsidiary at the time, Hycarbex-American
Energy, Inc., acquired an exploration license for the Jacobabad (2768-4) Block
in the Sindh Province of the Middle Indus Basin of Pakistan, approximately 230
miles northeast of the port city of Karachi. At that time, our assets and the
assets of our subsidiaries included both North American and Pakistan development
properties. Original exploration efforts on the Jacobabad Block indicated the
presence of commercially viable natural gas in the area, but a commercial well
was not achieved. On August 11, 2001, Hycarbex was awarded a new exploration
license on the Yasin (2768-7) Block. Hycarbex was, at the time, required to
relinquish some of its Jacobabad Concession acreage (the "Concession"). Due to
management's belief that the acreage held great potential based upon geologic
analysis and gas shows which appeared in the drilling of the Jacobabad wells,
Hycarbex negotiated a simultaneous surrender of some of the Jacobabad acreage
while retaining the desired acreage as part of the new Yasin Concession. As
indicated below, in the latter stages of our bankruptcy proceedings, we sold all
of the stock of our Hycarbex subsidiary to Hydro Tur and received an 18% gross
royalty in the future production of the Yasin Concession.
Acquisition of Zamzama North and Sanjawi Working Interests
On October 29, 2009, we executed an agreement to acquire from Hycarbex a
two and one half percent (2-1/2%) working interest in each of the 2,258 square
kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and
1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province,
Pakistan. Each concession block is operated by Heritage Oil and Gas Limited.
Heritage Oil and Gas Limited is an affiliate of Heritage Oil, plc, an
independent oil and gas company which focuses its oil and gas operations on
Africa, the Middle East, and Russia. Heritage Oil's shares trade on the London
Stock Exchange under the symbol HOIL with a secondary listing on the Toronto
Stock Exchange under the symbol HOC. Other working interest participants in
the two Blocks are Sprint Energy (Private) Limited, an affiliate of
Pakistan-based JS Group, and Trakker Energy (Private) Limited, an affiliate of
Pakistan-based TPL Holdings, Ltd. Under the terms of the agreement, our 2-1/2%
working interests are "carried" by Hycarbex for the initial two (2) wells on the
Sanjawi Block and the initial three (3) wells on the Zamzama North Block. The
term "carried" means that the costs associated with work programs, seismic, road
preparation, drillsite preparation, rig and equipment mobilization, drilling,
reworking, testing, logging completion and governmental fees (except taxes on
production) shall be borne entirely by Hycarbex. Infrastructure costs such as
pipelines and surface facilities constructed after the first discovery well on
each Block are not carried. After the initial carried wells have been drilled,
we will be required to bear our proportionate share of drilling and exploration
costs. The agreement provides an option to American Energy Group, Ltd. to
convert our working interest in any well at any time to a 1.5% gross royalty
interest free of any exploration costs or operating costs.
Galveston County, Texas Assets
In June 1997, we purchased the interests of Luck Petroleum Corporation
("Luck") in two oil and gas leases in Galveston County, Texas. The leases are
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situated in an area of the Texas Gulf Coast which is productive in multiple
zones or horizons and the leases themselves have produced commercial quantities
of oil and gas from both shallow and mid-range zones. In 1986, Luck assigned
these mid-range zones to Smith Energy, reserving for itself an "after-payout"
15% back-in working interest. Luck also limited the depths assigned to Smith
Energy, thereby resulting in depths generally greater than 10,000 feet being
entirely reserved to Luck, except for a small overriding royalty in the deep
zones which was also conveyed to Smith Energy. We succeeded to the interests of
Luck free of liens and encumbrances as a result of the 1997 purchase. With
regard to the mid-range zones, once "payout" has occurred, as defined in the
1986 conveyance by Luck to Smith Energy, we were entitled to receive 15% of the
monthly working interest production from the existing Smith Energy wells on the
leases. The leases also include deep zones under the leases which were acquired
from Luck in which we own 100% of the working interest.
We previously notified Smith Energy of our claim that the 15% interest in
the mid-range zones had matured and filed a bankruptcy proceeding against Smith
Energy to obtain an accounting. Smith Energy contested this assertion resulting
in a dispute over relative rights of the parties. We dismissed the suit in the
bankruptcy court with the intention of pursuing civil litigation against Smith
Energy in the Texas state court system. However, on April 14, 2006, we entered
into a Compromise Settlement Agreement with Smith Energy and Howard A. Smith,
fully resolving the dispute without the need for further litigation. Under the
settlement terms, we have agreed to relinquish our 15% back in interest in the
mid-range zones in exchange for Smith Energy's overriding royalties in the deep
zones, access to Smith Energy's existing high quality 3D seismic data covering
the leases, and a stipulation by Smith Energy that we can operate all wells
drilled by us or our agents in the deep zones and, where needed, utilize
existing Smith Energy roads, water injection wells, and other facilities.
Our management is exploring the various opportunities to realize value from
these deep rights, including potential farmout or sale. The best course for
these assets has not been determined, but the leases are held in force by third
party production and, therefore, do not require development of these rights by a
certain date.
Bankruptcy Proceedings and Sale of Hycarbex Subsidiary
On June 28, 2002, involuntary bankruptcy proceedings were initiated against
us in the Southern District of Texas, which were converted to Chapter 11
debtor-in-possession proceedings in December 2002. In the first quarter of
2003, our primary secured lender obtained the approval of the Bankruptcy Court
to foreclose all of the Texas-based oil and gas leases except the leases in
Galveston County, Texas. At the time, the status of the exploration license for
the Yasin Concession was also under close governmental scrutiny due to the
financial and continuous drilling requirements imposed under the terms of the
license by the Pakistan Government. In November 2003, after management
concluded negotiations with several interested prospective purchasers, we
reached an agreement with Hydro Tur to sell to Hydro Tur all of our interest in
our then-existing subsidiary, Hycarbex-American Energy, Inc. Hydro Tur was
selected as the purchaser due to its strong financial background, its commitment
to implement a multiple well development of the Yasin Concession and its
willingness to assign to us an 18% gross royalty on oil and gas production from
all acreage in the concession for as long as the concession exists.
Pursuant to our Second Amended Plan of Reorganization which was approved by
the Bankruptcy Court on September 3, 2003, all outstanding shares of common and
preferred stock were cancelled and the issuance of new shares of common stock to
the bankruptcy creditors was authorized by the Court. We emerged from
bankruptcy in January 2004 with new management, virtually debt-free, and with
our outstanding common stock reduced to almost one third of pre-bankruptcy
level. We emerged from bankruptcy as a restructured company, focused upon
acquiring and developing new oil and gas-based projects through prudent
management of our two assets, the 18% royalty interest in the Yasin Concession
in Pakistan and our working interests in our oil and gas leases in Galveston
County, Texas.
Pakistan Activities and Additional Opportunities
Pakistan has a very large sedimentary area of 827,268 square kilometers
(319,325 square miles). Most of this area remains virgin and unexplored as
current cumulative drilling efforts total one exploratory well for every 1,370
square kilometers (529 square miles). According to the Ministry of Petroleum and
Natural Resources ("MPNR"), cumulative drilling within Pakistan has resulted in
a very encouraging success ratio of 1:3.4 based upon 202 commercial discoveries
out of 689 wells drilled. The MPNR estimates Pakistan's current proven gas
reserves at 54 trillion cubic feet, of which 21.6 trillion cubic feet have been
produced. The Pakistani government's current liberal policies toward foreign
investment and development of these resources have fostered a great deal of
activity and opportunities to acquire exploration rights in these undeveloped
areas.
4
Relevant Features of Pakistan Oil and Gas Laws
In Pakistan, exploration licenses are awarded directly by the office of the
President. Under the current rules, the term of each concession is twenty five
(25) years with the opportunity for a five (year) extension. The rules are
silent as to extensions beyond 30 years, but recent aggressive efforts by the
government to privatize the oil and gas industry have resulted in requests from
potential private bidders to clarify the possibility of additional extensions if
wells continue to produce. At the time of a concession award, the recipient is
awarded a 95% working interest and the remaining 5% is awarded to the
government-owned Government Holdings (Private) Limited ("GHPL"). A twelve and
one half percent (12.5%) royalty is also retained by the government of Pakistan.
The 5% working interest held by GHPL is a "carried interest" and thus does not
share in the costs of drilling and completion of the wells. Production profits
and gains (as determined by a 1979 Income Tax Ordinance) are subject to a forty
percent (40%) income tax. The working interest owners (other than GHPL) are
also required to pay the President a production bonus should the production
achieve certain milestones. A bonus of $500,000 is the first threshold at
commencement of Commercial Production, then $1,000,000 upon achieving 30 million
barrels of oil equivalent ("BPOE"), then $1,500,000 upon achieving 60 million
BPOE, then $3,000,000 upon achieving 80 million BPOE and finally $5,000,000 upon
achieving 100 million BPOE. Under the concession agreement, the production
bonuses are required to be expended upon infrastructure in the area. The term
"Commercial Production" is defined as production of petroleum from a Commercial
Discovery which ensures at least the recovery of all expenses attributable to
the discovery within a reasonable time and the earning of a reasonable profit.
The term Commercial Discovery refers to a discovery well which is declared by
the operator, then verified by an appraisal well, with the concurrence of the
Operating Committee and the government, and which would justify economic
development. If the operator believes that an appraisal well is not justified,
then the working interest owners have the right to seek Commercial Discovery
status on a one-well basis. At such time as the operator achieves a Commercial
Discovery, GHPL has the right to increase its 5% working interest up to a
maximum of 25% in the discovery area by reimbursing to the operator out of
GHPL's share of production 5% of the costs of drilling and completion.
Thereafter, GHPL must pay its proportionate share of all development costs. In
the last several years, the government of Pakistan has not exercised its rights
to increase its working interest when Commercial Discoveries occurred, but the
option to do so is nevertheless included within each concession agreement.
The concession agreements contain acreage relinquishment provisions which
require relinquishment of 20% of the undeveloped acreage at the end of the
initial term of the license and an additional 30% of the undeveloped acreage at
the end of the second renewal period. The area surrounding producing wells may
be retained, as determined by the government at the time of relinquishment.
However, there is no relinquishment requirement if upon the Commercial
Discovery, the operator applies for and is granted a "Lease". Such an
application for Lease must be accompanied by a development plan disclosing how
the operator intends to develop the acreage, equip the wells, and transport the
resulting production. The Lease has a duration equivalent to the duration of
the license.
Under the current rules, working interests can be transferred with the
approval of the Government. For example, in January 2005, Hycarbex transferred a
ten percent (10%) working interest to Techno Petroleum (Private) Limited. There
is, however, no existing registry for a non-cost bearing royalty carved from the
working interest and transferred to a private party. Contracts which create
such interests are legal and enforceable in Pakistan, just as in United States'
venues, under the Pakistan law titled: Specific Relief Act of 1887. Like
royalties in the United States, the royalty assigned to us is free of the costs
of development and exploration and thus does not have the financial exposure
associated with a working interest. However, title to the royalty interest is
not registered similar to an interest in real estate as it would be in the
United States. An overriding royalty interest in Pakistan is dependent upon the
viability of the concession to continue in force. Therefore, forfeiture or
surrender of the concession will result in elimination of the overriding
royalty.
Gas Pricing in Pakistan
The Oil and Gas Regulatory Authority ("OGRA") is the agency with
jurisdiction over wellhead and consumer gas pricing. According to the OGRA, the
pricing is directly linked to the international prices for crude oil and furnace
oil. Prices are based upon a baseline of 1,000 British Thermal Units ("BTU").
If the gas which is sold has a BTU content which is less than or greater than
1,000 BTUs, the negotiated price is proportionately decreased or increased,
respectively. The gas prices for each producing concession are published by the
OGRA.
5
Early Drilling Efforts on Concession Acreage
In the 1950's, Burmah Oil Company (predecessor to Pakistan Petroleum Ltd.
("PPL") drilled two wells on concession acreage to just over 5,800 feet, each of
which indicated gas and oil. In the 1970's, Amoco Oil drilled a 15,000 feet
well which also demonstrated gas and oil. The seismic database acquired in 1995
with the original Jacobabad Concession was extremely limited, consisting of only
a few old Amoco vibroseis lines. In 1997, Hycarbex shot 262 km of new 2-D date
and acquired the P9222 2-D line running north-south, just outside the eastern
boundary of the concession and this data was processed. The remaining Amoco
vibroseis data and all the remaining ODGC 2-D lines (approximately 600 km) were
not processed when acquired. Hycarbex originally drilled four exploratory wells
on the Jacobabad concession. The first well was drilled in 1998 to a depth
sufficient to test the primary producing zone in the region. This well found
natural gas in several zones and a drill stem test confirmed the presence of
high-quality gas before operations were suspended. At the time, equipment
available on the well site was inadequate to deal with downhole problems. We
believe that this well could be redrilled. The second well, drilled in a
different portion of the concession, encountered mechanical problems and did not
reach sufficient depth to test any targeted formations. The third well
encountered large quantities of hydrogen sulfide and carbon dioxide, which
appeared to be confined to a relatively small area around the wellbore. In July
2000, approximately 40km of new seismic was shot and processed, but the acreage
comprising the concession was so vast that early drillsite selection still
involved some degree of speculation. In 2001, Hycarbex drilled its fourth well
which likewise indicated natural gas in the Sui Main and upper Chiltan
formations, but did not result in a commercial completion.
The Haseeb No. 1 Well
The Haseeb No. 1 Well was drilled on the Yasin Concession by the Polish Oil
and Gas Company for Hycarbex during March and April 2005 to a total depth of
4,945 feet (1,507 meters). The well is located approximately 9 miles from the
Hassan No. 1 well drilled by PPL and 5.6 miles from the City of Shikapur in the
Sindh Province. Open hole logs performed on the well demonstrated gas shows
from 3,543 feet to 3,688 feet and a net pay thickness of 82 feet. The drill
stem test conducted over a short duration on a one-half inch choke indicated a
production rate form the Sui Main Limestone equivalent to approximately 7.3 MM
cubic feet of 805 BTU gas per day. The gas was tested for carbon dioxide and
water content and was found to have low levels of each, indicating a likelihood
that processing will not be required prior to pipeline transmission.
In the fall of 2005, Hycarbex completed the acidization of the Haseeb No.
1. Post-treatment testing by Schlumberger Oilfield Services indicated an
increase in the natural gas flow rate originally calculated at the time of the
drill stem test at 7.3 million cubic feet per day. Schlumberger further
concluded that the 10 million cubic feet rate could be potentially increased to
as high as 25-28 million cubic feet per day if the existing production tubing is
replaced with higher diameter production tubing and if the wellhead pressure is
maintained at approximately 1,000 psi. In September, 2010, Hycarbex completed
its pipe line connection and commenced gas sales to Sui Southern Gas Company
under the Extended Well Test Gas Sales and Purchase Agreement covering the sale
of gas from the Haseeb Gas Field on Yasin Block (2768-7) signed by the parties
in December, 2009. Initial production into the line commenced at five (5)
million cubic feet of gas per day (MMCFD) and will be gradually increased under
the Extended Well Test to approximately fifteen (15) MMCFD. According to
Hycarbex's management, based upon evaluation of the data to be collected from
the Extended Well Test over the next several months, the working interest owners
will evaluate the prospects for additional drilling in the Haseeb discovery area
with the objective of increasing the production rate well in excess of the 15
MMCFD.
The Yasin Concession has access to pipeline infrastructure. The 12-inch
Quetta gas line runs NW-SE through the concession and connects to the 20-inch
Sui-Karachi gas line. The Karachi-Muzaffargarh oil line also runs through the
southern portion of the concession. The most recent estimates for pipeline
connection received from Hycarbex indicate a connection during October 2009.
Seismic Database
The efforts by Hycarbex to substantially expand the seismic database in
2004 and 2005 resulted in several miles of additional seismic being shot on the
concession. Currently, Hycarbex has captured approximately 700 kilometers (435
miles) of high resolution 2D seismic raw data. This seismic raw data has been
processed with the old seismic data using current techniques and has been
analyzed by highly experienced geophysicists. The results have not only verified
geologic structures with closure and high likelihood of gas productivity, but
have also delineated drillsite locations which are likely to enhance drilling
success. The technical staff at Hycarbex has identified at least ten (10) areas
to date on the Yasin Concession which are recommended for drilling.
6
The Al-Ali No. 1 Well
Hycarbex drilled the Al-Ali No. 1 Well on the Yasin Concession in 2006. The
drilling of Al-Ali #1 Well as an exploratory well was undertaken to fulfill the
work obligations for the third contract year under the Concession License.
While gas shows were encountered during drilling, the gas volumes, on
preliminary analysis, did not appear to be commercially viable and the well was
plugged.
The Yasin Exploratory Well No. 1
The Yasin Exploratory Well No. 1 was commenced in November, 2008. On
September 28, 2009, Hycarbex announced the results of the drilling and its
drilling analysis to date. After drilling to the Sui Main Limestone, which was
only one of the target zones for the well, mechanical difficulties were
encountered in the hole. The Sui Main Limestone showed strong intermittent gas
during the drilling, but a steady flow was not achieved. Hycarbex spent several
months attempting to resolve the mechanical difficulties and considering
alternative remedial operations while simultaneously evaluating the geologic
data obtained from the drilling. After evaluation, angular redrilling in the
same wellbore and other remedial measures targeted at saving the wellbore were
decided against because the preliminary data collected by Hycarbex indicates
that the drilling placement was not at the optimum position on the producing
structure. As of the date of this report, Hycarbex has indicated that it plans
to perform additional seismic to refine the preliminary data obtained from the
drilling process. According to Hycarbex, the drilling reaffirmed Hycarbex's
belief that the structure is very promising and thus a nearby replacement well
is planned by Hycarbex after completion of the additional seismic.
Other Factors Affecting Pakistan Exploration Opportunities
With regard to Pakistan in-country opportunities, experts view Pakistan as
a country with realistic potential for the discovery of large oil and gas
reserves. Previously perceived as containing far less oil and gas potential
than the Arabian Peninsula countries, Pakistan has never received the extensive
exploration efforts required to fully explore the vast and numerous structures
warranting such attention. However, in recent years, a significant number of
well known international oil and gas operators have moved into Pakistan, and
their efforts have met with a high degree of success. These operators include
BP Amoco and Premier from the United Kingdom, BHP from Australia, China Oil from
China, OMV from Austria, Petronas from Malasia, MOL from Hungary and Shell Oil
from the Netherlands. A number of new commercial discoveries have been
announced in recent years. There is also geological data which suggests nearly
identical structures with those of the Arabian Peninsula. Of the 725
exploratory wells drilled through 2008 (15 of which have been offshore), an
above-average number (i.e. 1:3.3) have succeeded and this degree of success
supports the position that Pakistan is a good location in which to focus
exploration efforts.
The MPNR openly states in its website that the agency felt a need to move
toward a more liberalized and deregulated framework, with the government
limiting its role to policy formulation and implementation. In its website under
the section "Strategy to Achieve Mission", the Ministry states that its
strategies will include deregulation, liberalization and privatization of oil,
gas and mineral sectors.
Exploration and production opportunities in Pakistan are attractive for a
number of additional reasons. One such reason is high demand relative to the
available supply. Domestic demand for natural gas greatly exceeds supply in
Pakistan, and is expected to continue to do so for the foreseeable future.
Pakistan is undergoing rapid economic growth. Energy represents a significant
percentage of total Pakistani imports and the country currently imports over 80%
of the oil it consumes, all at a significant cost.
In 2001, the Pakistan government launched a new Petroleum Exploration and
Production Policy which offers efficient procedures complimented by a liberal
policy framework for obtaining and developing concessions. On November 6, 2007,
the Ministry of Petroleum & Natural Resources approved the new Petroleum and
Exploration Policy of 2007 (the "2007 Exploration Policy"). Under existing
policies, the concessions are awarded by an open and fair bidding process which
does not exempt the state-owned oil companies. Operators conduct regular
meetings with ministry officials but the regulatory involvement is relaxed and
on a par with international standards. The licenses are granted directly by the
President of Pakistan through his oil ministry officials. Foreign investors are
permitted unrestricted expatriation of funds, including profits. The sales
markets are unregulated and producers may sell to state marketing organizations
or third parties. Current efforts are underway to get the market prices on a par
with international prices. Energy Information Administration (EIA) reports, and
Pakistani sources confirm, that future commercial discoveries will have a ready
market at favorable pricing. Imports of goods, including vehicles and equipment
is also simplistic, with no tariffs. The 2007 Exploration Policy contained
several incentives to induce foreign investment and accelerate in-country
7
exploration activities, including new petroleum pricing policies which increased
the gas pricing available for the Yasin Block (2768-7). The 2007 Exploration
Policy was revised in 2009 to further increase competitive pricing. The
increased gas prices will materially benefit The American Energy Group, Ltd. due
to its 18% royalty in the Yasin Block (2768-7), which includes the Haseeb #1
Well. The New Exploration Policy is published in its entirety at the website for
the Ministry of Petroleum & Natural Resources, the internet address for which is
www.mpnr.gov.pk.
Pakistan sits in a strategic location geographically. The Republic of
China has been aggressive in identifying potential sources of energy, including
Pakistan, to fuel its exploding industrial economy. Several extremely large
pipeline projects are in the planning stages. The World Bank compares
Pakistan's economic energy intensity per GDP to its neighbors, China and India
and rates Pakistan as the third fastest growing economy. Natural resources
often provide a developing country with a significant portion of its hard
currency reserves and therefore contribute to economic development in a material
fashion. Pakistan's government has demonstrated a strong commitment to economic
development and is working cooperatively with the oil and gas industry to
further this agenda. These cooperative efforts will accelerate foreign
investment in Pakistan, accelerate the development of additional oil and gas
reserves, and reduce Pakistan's dependency upon imported sources of energy.
Private investment is highly regarded as evidenced by the current efforts of
Pakistan Petroleum Limited (PPL), which is state owned, to sell 51 percent of
the company and to transfer management control to a strategic investor. (See
discussion below regarding proposed changes to exploration rules to lengthen the
terms of exploration licenses).
While the region has shown political instability and violence, including
inside Pakistan's borders, the Government of Pakistan has proven to be an ally
on the war against global terrorism.
Office Facilities
In April, 2006, we relocated our principal executive offices are located at
1 Gorham Island, Suite 303, Westport, Connecticut. The office space contains
approximately 3,574 square feet and is leased under a 5-year lease commencing
April 1, 2006, at a rate of $11,913.33 per month for the initial year,
$12,211.17 per month for the second year, $12,509.00 per month for the third
year, $12,806.83 per month for the fourth year, and $13,104.67 per month for the
final year. The lease contains a 5-year option period with base rental ranging
from $13,402.50 in the first year of the option period to $14,593.83 in the
final option year. For the year ending June 30, 2010, office rentals totaled
$161,035. Commencing with the original execution of the lease, we subleased a
portion of the leased premises to third parties. There are three subleases with
one year remaining on their term. The combined rentals attributable to the
subleases, including utilities are now $7,000 per month which approximates forty
seven percent (47%) of our current monthly rental. Current annual utility
burdens are approximately $15,000 for the entire premises. We have subleased
approximately sixty five percent (65%) of our space and believe the retained
space is adequate for our needs.
Employees
As of June 30, 2010, we had three full-time employees, which include the
President, Pierce Onthank, and two administrative assistants in the corporate
office.
ITEM 1A-RISK FACTORS
Company-related Risks
An investment in our Common Stock involves a high degree of risk. You
should carefully consider the risks described below before deciding to purchase
shares of our Common Stock. If any of the events, contingencies, circumstances
or conditions described in the risks below actually occur, our business,
financial condition or results of third party operations upon which our royalty
interests depend could be seriously harmed. The trading price of our Common
Stock could, in turn, decline and you could lose all or part of your investment.
The Company's limited history and prior bankruptcy proceedings make an
evaluation of us and our future extremely difficult, and profits are not
assured.
In view of our limited history in the oil and gas exploration business, our
prior bankruptcy proceedings between June 2002 and January 2004, and the fact
that we do not have a current revenue stream from operations, it may be
difficult for investors to evaluate our business and prospects. Each investor
must consider our business and prospects in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development. For our business plan to succeed, we must successfully undertake
most of the following activities:
8
* Find and acquire rights in attractive oil and gas properties including
the ability to successfully negotiate with foreign governments to obtain
these rights;
* Develop or cause third parties to develop the oil and gas projects to a
stage at which oil and gas are being produced in commercially viable
quantities;
* Procure purchasers of commercial production of oil and gas;
* Comply with applicable laws and regulations;
* Identify and enter into binding agreements with suitable joint venture
partners for future projects;
* Raise a sufficient amount of funds to continue acquisition, exploration
and development programs;
* Implement and successfully execute its business strategy;
* Respond to competitive developments and market changes; and
* Attract, retain and motivate qualified personnel.
There can be no assurance that we will be successful in undertaking any or
all of such activities. A failure to undertake successfully most, if not all,
of the activities described above could materially and adversely affect our
business, prospects, financial condition and results of operations. In
addition, there can be no assurance that exploration and production activities,
if any, will produce oil and gas in commercially viable quantities, if any at
all. There can be no assurance that sales of oil and gas production will
generate significant revenues for a sustained period or that we will be able to
achieve or sustain profitability in any future period.
Cumulative voting is not available to stockholders.
Cumulative voting in the election of directors is expressly denied in our
Articles of Incorporation. Accordingly, the holder or holders of a majority of
the outstanding shares of our common stock may elect all of our Directors.
Management's large percentage ownership of the outstanding common stock helps
enable them to maintain their positions as such and thus control of our business
and affairs.
The trading price of the common stock entails additional regulatory
requirements, which may negatively affect such trading price.
The trading price of our common stock is below $5.00 per share. As a
result of this price level, trading in our common stock is subject to the
requirements of certain rules promulgated under the Exchange Act. These rules
require additional disclosure by broker-dealers in connection with any trades
generally involving any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such rules require
the delivery, before any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must
determine the suitability of the penny stock for the purchaser and receive the
purchaser's written consent to the transaction before sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our common stock. As a
consequence, the market liquidity of our common stock could be severely affected
or limited by these regulatory requirements.
The Company will incur significant costs as a result of operating as a public
company, and our management will be required to devote substantial time to new
compliance initiatives.
The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as well as rules
subsequently implemented by the SEC, have imposed various new requirements on
public companies, including requiring changes in corporate governance practices.
The Company's management and other personnel will need to devote a substantial
amount of time to these new compliance initiatives. Moreover, these rules and
regulations will increase the Company's legal and financial compliance costs and
will make some activities more time-consuming and costly. For example, these new
rules and regulations are expected to make it more difficult and more expensive
to obtain director and officer liability insurance, and the Company may be
required to incur substantial costs to maintain the same or similar coverage.
9
In addition, the Sarbanes-Oxley Act requires, among other things, that the
Company maintain effective internal controls for financial reporting and
disclosure controls and procedures. In particular, the Company must perform
system and process evaluation and testing of our internal controls over
financial reporting to allow management and the independent registered public
accounting firm to report on the effectiveness of our internal controls over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The
testing, or the subsequent testing by its independent registered public
accounting firm, may reveal deficiencies in internal controls over financial
reporting that are deemed to be material weaknesses. Compliance with Section 404
will require that the Company incur substantial accounting expense and expend
significant management efforts. The Company currently does not have an internal
audit group, and will need to hire additional accounting and financial staff
with appropriate public company experience and technical accounting knowledge.
Moreover, if the Company is unable to comply with the requirements of Section
404 in a timely manner, or if the independent registered public accounting firm
identifies deficiencies in the Company's internal controls over financial
reporting that are deemed to be material weaknesses, the market price of the
stock could decline, and the Company could be subject to sanctions or
investigations by the SEC or other regulatory authorities, which would require
additional financial and management resources.
Management controls a significant percentage of our current outstanding common
stock and their interests may conflict with those of our shareholders.
As of June 30, 2010, the directors and executive officers and their
respective affiliates collectively and beneficially owned approximately 17.1% of
the outstanding common stock, including all warrants exercisable within 60 days.
This concentration of voting control gives the Directors and executive officers
and their respective affiliates substantial influence over any matters which
require a shareholder vote, including, without limitation, the election of
directors, even if their interests may conflict with those of other
shareholders. It could also have the effect of delaying or preventing a change
in control of or otherwise discouraging a potential acquirer from attempting to
obtain control. This could have a material adverse effect on the market price
of the common stock or prevent the shareholders from realizing a premium over
the then prevailing market prices for their shares of common stock.
The Company may have conflicts of interest with key personnel.
Our key personnel may, from time to time, be engaged in activities which
could be construed as a conflict of interest. Dr. Iftikhar Zahid, our Resident
Manager-Parkistan and our director, is a principal officer and a director of
Hycarbex-American Energy, Inc., our former subsidiary and the owner/operator of
the Yasin Concession. A conflict could arise in the event that the Company and
Hycarbex have a future dispute over royalty interest payment matters.
Additionally, our key personnel may own non-Company oil and gas investments, and
may sit on the board of directors of other oil and gas companies. It is
possible that we may purchase oil and gas services from key personnel in the
future.
The Company is dependent on key personnel.
We depend to a large extent on the services of certain key management
personnel, including R. Pierce Onthank, our President and Chief Executive
Officer, Dr. Iftikhar A. Zahid, our director who serves as the key liaison
officer in Pakistan, as well as other key consultants, the loss of any of which
could have a material adverse effect on our operations. We do not maintain
key-man life insurance with respect to any of our officers or directors.
The favorable policies toward foreign investment in Pakistan oil and gas
exploration could change.
Future governmental enactments or changes to existing policies could impact
our ownership or asset value. The royalty interest which we hold in the Yasin
Block, the working interests we hold in the Sanjawi and Zamzama North Blocks and
other interests which we will seek to acquire in other concession opportunities
could be adversely affected by future regulatory and/or policy changes. Since
the value of these interests is derived from the actual net proceeds of
production, changes to the duration of the exploration license, applicable taxes
or tariffs, or commodity purchase prices could significantly affect our
interests in the region.
We may experience potential fluctuations in results of operations.
Our future revenues may be affected by a variety of factors, many of which
are outside our control, including (a) the success of project results; (b)
swings in availability of services needed to implement projects and the pricing
of such services; (c) a volatile oil and gas pricing market which may make
certain projects that we undertake uneconomic; (d) the ability to develop
infrastructure to accommodate growth; (e) the ability to attract new independent
10
producers with prospects in a timely and effective manner; and (f) the amount
and timing of operating costs and capital expenditures relating to establishing
our business operations and infrastructure. As a result of our limited
operating history and the emerging nature of our business plan, it is difficult
to forecast revenues or earnings accurately, which may fluctuate significantly
from quarter to quarter.
The issuance of additional authorized shares of our common and preferred stock
or the exercise of stock options and warrants may dilute our investors and
adversely affect the market for our common stock.
We are authorized to issue 80,000,000 shares of our common stock. The
30,863,760 shares of our common stock issued and outstanding does not include
shares reserved in anticipation of the conversion of notes or the exercise of
options or warrants. As of June 30, 2009, we had outstanding warrants to
purchase shares of our common stock, the exercise price of which range between
$0.75 and $1.70 per share, and we have reserved shares of our common stock for
issuance in connection with the potential exercise thereof. To the extent such
options or warrants are exercised, the holders of our common stock will
experience further dilution. In addition, in the event that any future financing
should be in the form of, be convertible into or exchangeable for, equity
securities, and upon the exercise of options and warrants, investors may
experience additional dilution.
Possible or actual sales of a substantial number of shares of common stock
by the selling stockholders in this offering could have a negative impact on the
market price of our common stock. No prediction can be made as to the effect,
if any, that sales of shares of common stock or the availability of such shares
for sale will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of common stock may be
sold in the public market would likely have a material adverse effect on
prevailing market prices for the common stock and could impair our ability to
raise capital through the sale of our equity securities.
The exercise of the outstanding convertible securities will reduce the
percentage of common stock held by our stockholders. Further, the terms on which
we could obtain additional capital during the life of the convertible securities
may be adversely affected, and it should be expected that the holders of the
convertible securities would exercise them at a time when we would be able to
obtain equity capital on terms more favorable than those provided for by such
convertible securities. As a result, any issuance of additional shares of common
stock may cause our current stockholders to suffer significant dilution which
may adversely affect the market.
In addition to our shares of common stock which may be issued without
stockholder approval, we have 20,000,000 shares of authorized preferred stock,
the terms of which may be fixed by our Board of Directors. We presently have no
issued and outstanding shares of preferred stock and while we have no present
plans to issue any shares of preferred stock, our Board of Directors has the
authority, without stockholder approval, to create and issue one or more series
of such preferred stock and to determine the voting, dividend and other rights
of holders of such preferred stock. The issuance of any of such series of
preferred stock may have an adverse effect on the holders of common stock.
The Company and the operators of projects in which it participates depend on
industry vendors and may not be able to obtain adequate services.
Our third party oil and gas operators are largely dependent on industry
vendors for our success. These contracted services include, but are not limited
to, accounting, drilling, completion, workovers and reentries, geological
evaluations, engineering, leasehold acquisition (landmen), operations, legal,
investor relations/public relations, and prospect generation. We could be
harmed if the operators of our projects fail to attract quality industry vendors
to participate in the drilling of prospects or if industry vendors do not
perform satisfactorily. We have little control over factors that influence the
performance of such vendors.
The Company relies on third parties for production services and processing
facilities.
The marketability of the our production depends upon the proximity of our
projects' reserves to, and the capacity of, facilities and third party services,
including oil and natural gas gathering systems, pipelines, trucking or terminal
facilities, and processing facilities. The unavailability or lack of capacity
of such services and facilities could result in the shut-in of producing wells
or the delay or discontinuance of development plans for properties. A shut-in
or delay or discontinuance could materially adversely affect our financial
condition.
The Company's Directors and Officers have limited liability and have rights to
indemnification.
11
Our Articles of Incorporation and Bylaws provide, as permitted by governing
Nevada law, that our directors and officers shall not be personally liable to
the Company or any of its stockholders for monetary damages for breach of
fiduciary duty as a director or officer, with certain exceptions. The Articles
further provide that we will indemnify our directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil
litigation or criminal action brought against them on account of their being or
having been its directors or officers unless, in such action, they are adjudged
to have acted with gross negligence or willful misconduct.
The inclusion of these provisions in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors and officers,
and may discourage or deter stockholders or management from bringing a lawsuit
against directors and officers for breach of their duty of care, even though
such an action, if successful, might otherwise have benefited us and our
stockholders.
The Articles provide for the indemnification of our officers and directors,
and the advancement to them of expenses in connection with any proceedings and
claims. The Articles include related provisions meant to facilitate the
indemnitee's receipt of such benefits. These provisions cover, among other
things: (i) specification of the method of determining entitlement to
indemnification and the selection of independent counsel that will in some cases
make such determination, (ii) specification of certain time periods by which
certain payments or determinations must be made and actions must be taken, and
(iii) the establishment of certain presumptions in favor of an indemnitee.
General Risks of the Oil and Gas Business
Investment in the oil and gas business is risky.
Oil and gas exploration and development is an inherently speculative
activity. There is no certain method to determine whether or not a given
prospect will produce oil or gas or yield oil or gas in sufficient quantities
and quality to result in commercial production. There is always the risk that
development of a prospect may result in dry holes or in the discovery of oil or
gas that is not commercially feasible to produce. There is no guarantee that a
producing asset will continue to produce. Because of the high degree of risk
involved, there can be no assurance that the Company will recover any portion of
its investment or that its investment in oil and gas exploration activities will
be profitable.
The oil and gas business is subject to drilling and operational hazards.
The oil and gas business involves a variety of operating risks, including:
- blowouts, cratering and explosions;
- mechanical and equipment problems;
- uncontrolled flows of oil and gas or well fluids;
- fires;
- marine hazards with respect to offshore operations;
- formations with abnormal pressures;
- pollution and other environmental risks; and
- natural disasters.
Any of these events could result in loss of human life, significant damage to
property, environmental pollution, impairment of operations and substantial
losses. Locating pipelines near populated areas, including residential areas,
commercial business centers and industrial sites, could increase these risks.
In accordance with customary industry practice, our operators will maintain
insurance against some, but not all, of these risks and losses. The occurrence
of any of these events not fully covered by insurance could have a material
adverse effect on our financial position and the results of operations.
The Company will face fierce competition from other companies in the acquisition
of development opportunities.
A large number of companies and individuals engage in drilling for gas and
oil, and there is competition for the most desirable prospects. This is
likewise the case in Pakistan where foreign investment is accelerating at a
tremendous pace. We will encounter intense competition from other companies and
other entities in the pursuit of quality prospects for investment. We may be
competing with numerous gas and oil companies which may have financial resources
significantly greater than ours.
12
Oil and gas properties are subject to unanticipated depletion.
The acquisition of oil and gas prospects is almost always based on
available geologic and engineering data, the extent and quality of which vary in
each case. Successful wells may deplete more rapidly than the available
geological and engineering data originally indicated. Unanticipated depletion,
if it occurs, would result in a lower return for the Company or a loss to the
shareholders.
Oil and gas prices are volatile.
Our revenues, cash flow, operating results, financial condition and ability
to borrow funds or obtain additional capital depend substantially on the prices
that we receive for oil and gas production. Declines in oil and gas prices may
materially adversely affect our financial condition, liquidity, ability to
obtain financing and operating results. Lower oil and gas prices also may
reduce the amount of oil and gas that we can produce economically. High oil and
gas prices could preclude acceptance of our business model. Depressed prices in
the future would have a negative effect on our future financial results.
Historically, oil and gas prices and markets have been volatile, with prices
fluctuating widely, and they are likely to continue to be volatile. Prices for
oil and gas are subject to wide fluctuations in response to relatively minor
changes in supply of and demand, market uncertainty and a variety of additional
factors that are beyond our control. These factors include:
- the threat of global terrorism;
- regional political instability in areas where the exploratory wells are
drilled;
- the available supply of oil;
- the level of consumer product demand;
- weather conditions;
- political conditions and policies in the greater oil producing regions,
including the Middle East;
- the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
- the price of foreign imports;
- actions of governmental authorities;
- domestic and foreign governmental regulations;
- the price, availability and acceptance of alternative fuels; and
- overall economic conditions.
These factors and the volatile nature of the energy markets make it impossible
to predict with any certainty future oil and gas prices. Our inability to
respond appropriately to changes in these factors could negatively affect our
profitability.
Terrorist attacks and continued hostilities in the Middle East or other
sustained military campaigns may adversely impact the industry and us.
The terrorist attacks that took place in the United States on September 11,
2001, were unprecedented events that have created many economic and political
uncertainties, some of which may materially adversely impact us. The long-term
impact that terrorist attacks and the threat of terrorist attacks may have on
the oil and gas business is not known at this time. Uncertainty surrounding
continued hostilities in the Middle East or other sustained military campaigns
may adversely impact us in unpredictable ways.
Political instability both internal and external to Pakistan could adversely
affect drilling operations and gas marketing.
Pakistan is geographically positioned in a region which has experienced a
great deal of political instability and violence. The current regime is viewed
as pro-western, but a change in government in Pakistan, such as an Islamic
fundamentalist government, could have many wide-ranging adverse effects upon the
validity of existing exploration licenses and concession agreements and upon our
ability to enforce our contractual agreements. Additionally, with or without
such governmental changes, recurring incidents of violence could adversely
affect oil and gas exploration and marketing operations which would, in turn,
adversely affect our ability to receive royalty payments derived from those
operations. Examples of regional conflicts, incidents and political unrest
inside Pakistan's borders include the following:
13
- the Kashmir region bordering India, Pakistan, Afghanistan and China, has
been a continuing source of tension and armed conflict between India and
Pakistan since 1947;
- Baluchistan Province tribesmen have attacked the Sui gas fields in
Balochistan in Southwest Pakistan generally as a protest for more jobs
and higher royalty payments; and
- Pakistan has experienced violence along its Afghanistan border as well
as incidents of internal urban violence from fundamentalist militant
Islamic groups who oppose governmental ties with the United States.
Continued incidents of political unrest and violence in the future could
interrupt drilling operations and gas marketing of our projects.
The Company's domestic assets are subject to domestic governmental regulations
and hazards related to environmental issues.
Gas and oil operations in the United States are subject to extensive
government regulation and to interruption or termination by governmental
authorities on account of ecological and other considerations. The Environmental
Protection Agency of the United States and the various state departments of
environmental affairs closely regulate gas and oil production effects on air,
water and surface resources. Furthermore, proposals concerning regulation and
taxation of the gas and oil industry are constantly before Congress. It is
impossible to predict future proposals that might be enacted into law and the
effect they might have on the Company. Thus, restrictions on gas and oil
activities, such as production restrictions, price controls, tax increases and
pollution and environmental controls may have a material adverse effect on the
Company.
Hazards in the drilling and/or the operation of gas and oil properties,
such as accidental leakage or spillage, are sometimes encountered. Such hazards
may cause substantial liabilities to third parties or governmental entities, the
payment of which could reduce distributions or result in the loss of Company
leases. Although it is anticipated that insurance will be obtained by
third-party operators for the benefit of the Company, we may be subject to
liability for pollution and other damages due to environmental events which
cannot be insured against due to prohibitive premium costs, or for other
reasons. Environmental regulatory matters also could increase substantially the
cost of doing business, may cause delays in producing oil and gas or require the
modification of operations in certain areas. Operations are subject to numerous
stringent and complex laws and regulations at the federal, state and local
levels governing the discharge of materials into the environment or otherwise
relating to environmental protection. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil and criminal
penalties, the imposition of remedial requirements, and the imposition of
injunctions to force future compliance.
The Oil Pollution Act of 1990 ("OPA 90") and its implementing regulations
impose a variety of requirements related to the prevention of oil spills, and
liability for damages resulting from such spills in United States waters. OPA 90
imposes strict joint and several liability on responsible parties for oil
removal costs and a variety of public and private damages, including natural
resource damages. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal safety,
construction or operation regulation. If a party fails to report a spill or to
cooperate fully in a cleanup, liability limits likewise do not apply. Even if
applicable, the liability limits for offshore facilities require the responsible
party to pay all removal costs, plus up to $75 million in other damages. For
onshore facilities, the total liability limit is $350 million. OPA 90 also
requires a responsible party at an offshore facility to submit proof of its
financial ability to cover environmental cleanup and restoration costs that
could be incurred in connection with an oil spill.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and analogous state laws impose
strict, joint and several liability on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These parties include the owner or operator of the site where
the release occurred, and those that disposed or arranged for the disposal of
hazardous substances found at the site. Responsible parties under CERCLA may be
subject to joint and several liability for remediation costs at the site, and
may also be liable for natural resource damages. Additionally, it is not
uncommon for neighboring landowners and other third parties to file tort claims
for personal injury and property damage allegedly caused by hazardous substances
released into the environment.
14
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. In addition, there are state
statutes, rules and regulations governing conservation matters, including the
unitization or pooling of oil and gas properties, establishment of maximum rates
of production from oil and gas wells and the spacing, plugging and abandonment
of such wells. Such statutes and regulations may limit the rate at which oil and
gas could otherwise be produced from the Company's properties and may restrict
the number of wells that may be drilled on a particular lease or in a particular
field.
ITEM 1B - UNRESOLVED STAFF COMMENTS
There were no unresolved staff comments as of June 30, 2010 or the date of
this report.
ITEM 3 - LEGAL PROCEEDINGS
There were no legal proceedings pending against the Company as of June 30,
2010 or the date of this report.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the year
ended June 30, 2010.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASE OF EQUITY SECURITIES
Our common stock is traded on the over-the-counter bulletin board under the
symbol AEGG. The trading market began during the quarter ending December 31,
2004. The following table sets forth the quarterly high and low bid prices for
each quarter since the inception of trading. Such prices represent quotations
between dealers, without dealer markup, markdown or commissions, and may not
represent actual transactions.
Quarter High Low
-------------------------------------------------
December 31, 2004 $0.55 $0.20
March 31, 2005 $1.50 $0.75
June 30, 2005 $3.03 $0.50
September 30, 2005 $1.82 $1.15
December 31, 2005 $1.90 $1.01
March 31, 2006 $1.98 $1.30
June 30, 2006 $2.00 $1.45
September 30, 2006 $1.45 $0.60
December 31, 2006 $1.40 $0.40
March 31, 2007 $1.60 $1.03
June 30, 2007 $1.49 $0.85
September 30, 2007 $1.21 $0.70
December 31, 2007 $1.04 $0.42
March 31, 2008 $0.95 $0.51
June 30, 2008 $1.06 $0.56
September 30, 2008 $0.88 $0.53
December 31, 2008 $1.17 $0.51
March 31, 2009 $1.00 $0.45
June 30, 2009 $0.85 $0.60
September 30, 2009 $0.86 $0.61
December 31, 2009 $0.76 $0.52
March 31, 2010 $0.94 $0.63
June 30, 2010 $0.90 $0.65
As of June 30, 2010, the final trading day of the fiscal year, the closing
price for shares of our common stock in the over-the-counter market, as reported
by the OTC Bulletin Board, was $0.88. As of June 30, 2010, we had
approximately 40 registered holders of our common stock (excluding holders in
"street name"). As of June 30, 2010, there were 33,176,807 shares of common
stock issued and outstanding. As of October 5, 2010, there were 33,189,190
shares of common stock issued and outstanding.
15
Dividend Policy
There are no restrictions in our Articles of Incorporation or Bylaws that
prevent us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual
course of business; or
2. Our total assets would be less than the sum of our total liabilities
plus the amount that would be needed to satisfy the rights of
stockholders who have preferential rights superior to those receiving
the distribution.
We have not declared any dividends and we do not plan to declare any dividends
in the foreseeable future. Our current policy is to retain any earnings in
order to finance the expansion of our operations. Our Board of Directors will
determine future declaration and payment of dividends, if any, in light of the
then-current conditions they deem relevant and in accordance with the Nevada
Revised Statutes.
Equity Compensation Plan Information
The following table sets forth all equity compensation plans as of June 30,
2010.
Equity Compensation Plan Information
-------------------------------------------------------------------------------------------------------
Plan category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
(a) (b) securities reflected in
column (a))
(c)
-------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders -0- -0- -0-
-------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders 2,000,000 Common $1.00 -0-
Total 2,000,000 $1.00 -0-
-------------------------------------------------------------------------------------------------------
Recent Sales of Unregistered Securities
We did not sell any unregistered securities during the fiscal year.
However, during the fiscal year we issued 2,000,000 shares of Common Stock as a
portion of the consideration for acquisition of the Sanjawi and Zamzama North
working interests. Also included in the consideration paid was 100,000 Warrants
to purchase Common Stock with a 3-year duration and an exercise price of $1.75.
We also issued 152,552 shares in payment of services and payables.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the Company as
of and for each of the annual periods (each ending June 30) indicated. The
following data should be read in conjunction with Items 7 and 8 herein.
16
2010 2009 2008 2007 2006
-------------------------------------------------------------------------------------------------------
Revenue
-------------------------------------------------------------------------------------------------------
Oil and Gas Sales -0- -0- -0- -0- -0-
-------------------------------------------------------------------------------------------------------
General and Administrative Expenses
Legal and Professional 134,062 201,887 241,785 747,086 373,014
Depreciation and Amortization Expense 6,642 6,971 6,755 4,649 720
General and Administrative 777,437 677,873 681,265 859,162 529,332
Total Expenses 918,141 886,731 929,805 1,610,897 903,066
Net Operating Loss 886,731 929,805 1,610,897 903,066
-------------------------------------------------------------------------------------------------------
Other Income and (Expense)
-------------------------------------------------------------------------------------------------------
Interest Income -0- 1,742 22,795 2,865
Interest Expense (6,592) (6,465) (4,790) (118) (38,806)
Total Other Income and (Expense) (6,592) (6,465) (3,048) 181,981 (1,396,199)
Net Loss Before Federal Income Tax (924,733) (893,196) (932,853) (1,428,916) (2,390,907)
Federal Income Tax -0- -0- -0- -0-
-------------------------------------------------------------------------------------------------------
Net Loss (924,733) (893,196) (932,853) (1,428,916) (2,390,907)
-------------------------------------------------------------------------------------------------------
Basic Loss Per Common Share (0.03) (0.03) (0.03) (0.05) (0.09)
-------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares 32,428,153 30,863,760 30,605,335 30,158,934 27,624,094
Outstanding
-------------------------------------------------------------------------------------------------------
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains statements about the future, sometimes referred
to as "forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. We intend the forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in Section
27A of the Securities Act and Section 21E of the Exchange Act. Statements that
describe our future strategic plans, goals or objectives are also
forward-looking statements.
Readers of this report are cautioned that any forward-looking statements,
including those regarding the Company or its management's current beliefs,
expectations, anticipations, estimations, projections, proposals, plans or
intentions, are not guarantees of future performance or results of events and
involve risks and uncertainties, such as:
. The future results of drilling individual wells and other exploration and
development activities;
. Future variations in well performance as compared to initial test data;
. Future events that may result in the need for additional capital;
. Fluctuations in prices for oil and gas;
. Future drilling and other exploration schedules and sequences for various
wells and other activities;
. Uncertainties regarding future political, economic, regulatory, fiscal,
taxation and other policies in Pakistan;
. Our future ability to raise necessary operating capital.
The forward-looking information is based on present circumstances and on our
predictions respecting events that have not occurred, which may not occur or
which may occur with different consequences from those now assumed or
anticipated. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including the risk factors detailed in this report. The forward-looking
statements included in this report are made only as of the date of this report.
We are not obligated to update such forward-looking statements to reflect
subsequent event or circumstances.
Overview
Prior to our bankruptcy proceedings initiated on June 28, 2002, we were an
active oil and gas exploration and development company with operations in Texas.
Our revenue producing domestic oil and gas leases were foreclosed by the secured
creditor in early calendar 2003 resulting in the loss of our only revenue
producing asset. In November, 2003, we sold our Hycarbex-American Energy, Inc.
("Hycarbex") subsidiary, which was the owner and operator of the Yasin 2768-7
17
Petroleum Concession Block in the Republic of Pakistan, to a foreign
corporation. We retained in the sale an 18% overriding royalty interest in the
Yasin Block. Drilling of the first well in Pakistan as to which our overriding
royalty pertains, named the Haseeb No. 1 Well, was successfully completed by
Hycarbex-American Energy, Inc. ("Hycarbex"), in the fourth quarter of the fiscal
year ended June 30, 2005. All testing to date by Hycarbex indicates that the
Haseeb No. 1 well will be a significant commercial gas well. A state-of-the-art
surface facility for the well was constructed for Hycarbex after well
completion. During September 2010, Hycarbex connected the well to the Sui
Southern Gas Company pine line, and commenced gas sales under an Extended Well
Test at the initial rate of 5 million cubic feet of gas per day (MMCFD). This
rate is expected to be gradually increased to 15 MMCFD during the Extended Well
Test.
The drilling of Al-Ali #1 Well, the second well to which our overriding
royalty pertains, was undertaken by Hycarbex to fulfill the work obligations for
the third contract year under the Concession License and was not commercially
successful. The well was plugged. The drilling data is being studied by
Hycarbex, together with a review of the logging data by Schlumberger Oilfield
Services, in order to determine if further operations would likely yield
commercial volumes of gas.
The Yasin Exploratory Well No. 1 was commenced in November, 2008. On
September 28, 2009, Hycarbex announced the results of the drilling and its
drilling analysis to date. After drilling to the Sui Main Limestone, which was
only one of the target zones for the well, mechanical difficulties were
encountered in the hole. The Sui Main Limestone showed strong intermittent gas
during the drilling, but a steady flow was not achieved. Hycarbex spent several
months attempting to resolve the mechanical difficulties and considering
alternative remedial operations while simultaneously evaluating the geologic
data obtained from the drilling. After evaluation, angular redrilling in the
same wellbore and other remedial measures targeted at saving the wellbore were
decided against because the preliminary data collected by Hycarbex indicates
that the drilling placement was not at the optimum position on the producing
structure. Hycarbex announced plans to perform additional seismic to refine the
preliminary data obtained from the drilling process. Since the drilling
reaffirmed Hycarbex's belief that the structure is very promising, a nearby
replacement well is expected to be drilled in the future by Hycarbex after
completion of the additional seismic.
On October 29, 2009, we executed an agreement to acquire from Hycarbex a
two and one half percent (2-1/2%) working interest in each of the 2,258 square
kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and
1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province,
Pakistan is consistent with this strategy, as under the terms of the agreement,
our 2-1/2% working interests will be deemed "carried" by Hycarbex for the
initial two (2) wells on the Sanjawi Block and the initial three (3) wells on
the Zamzama North Block. The term "carried" means that the costs associated with
work programs, seismic, road preparation, drillsite preparation, rig and
equipment mobilization, drilling, reworking, testing, logging completion and
governmental fees (except taxes on production) shall be borne entirely by
Hycarbex. Infrastructure costs such as pipelines and surface facilities
constructed after the first discovery well on each Block are not carried. After
the initial carried wells have been drilled, we are required to bear our
proportionate share of drilling and exploration costs in subsequent wells, but
the agreement provides an option to us to convert our working interest in any
well at any time to a 1.5% gross royalty interest free of any exploration costs,
operating costs or deductions related to the well in which the conversion has
been made other than applicable production taxes assessed against the royalty.
Results of Operations
Our operations for the twelve months ended June 30, 2010 reflected a net
operating loss of $918,141 as compared to $886,731 for the twelve months ended
June 30, 2009, related to salaries, office rental and overhead charges and legal
and professional fees. Prior to the September, 2010, connection of the Haseeb
No. 1 Well to the gas marketing pipe line, we had no recurring income stream and
relied upon the proceeds of securities sales and loans. The anticipated future
royalty proceeds from the recently connected Haseeb No. 1 Well, are expected to
be sufficient to meet all salaries, legal and accounting expenses and
administrative overhead for the current fiscal year and beyond.
Liquidity and Capital Resources
Prior to the connection of the Haseeb No. 1 to the gas marketing pipe line,
we funded our operations through private loans, all of which have been repaid,
and through the private sale of securities. During the fourth quarter of the
2006 year, we sold $3.95M of our Common stock. Of this amount, we deposited
$2,100,000 with Hycarbex in trust for future acquisitions of additional royalty
interests in Pakistan, but we made periodic withdrawals from this escrow to fund
ongoing administrative expenses due to unanticipated delays in the commencement
of Haseeb No. 1 gas sales. The connection to the marketing pipe line and
18
resulting gas sales under the Extended Well Test which commenced in September
2010 are expected to provide future cash flow sufficient to meet the Company's
ongoing expenses as well as to make investment in other oil and gas
opportunities. Additionally, under the terms of the October 29, 2009, agreement
with Hycarbex to acquire interests in the Zamzama North 2667-8 and Sanjawi
3068-2 petroleum concessions, we are entitled to continue to withdraw $50,000
per month from the 2006 escrow to fund operations until we have received an
aggregate $200,000 in Haseeb No. 1 royalty proceeds.
Business Strategy and Prospects
In September, 2010, Hycarbex completed its pipe line connection and
commenced gas sales to Sui Southern Gas Company under the Extended Well Test Gas
Sales and Purchase Agreement covering the sale of gas from the Haseeb Gas Field
on Yasin Block (2768-7) signed by the parties in December, 2009. Despite recent
monsoon rains and resulting flooding which ravaged several regions of Pakistan
during July and August 2010, the Haseeb surface facility and pipe line avoided
all damage. Initial production into the line commenced at five (5) million cubic
feet of gas per day (MMCFD) and will be gradually increased under the Extended
Well Test to approximately fifteen (15) MMCFD. According to Hycarbex's
management, based upon evaluation of the data to be collected from the Extended
Well Test over the next several months, the working interest owners will
evaluate the prospects for additional drilling in the Haseeb discovery area with
the objective of increasing the production rate well in excess of the 15 MMCFD.
The Yasin Block, to date, has no Proved Reserves as that term and the
calculation for discounted future net cash flows for reporting purposes is
mandated by the Financial Accounting Standards Board in Statement of Financial
Accounting Standards No. 69, titled "Disclosures About Oil and Natural Gas
Producing Activities". However, based upon test results upon the Haseeb No. 1
and other data collected by Hycarbex from its drilling and seismic activities,
we strongly believe that the Yasin Block acreage contains oil and gas producing
physical structures which are worthy of further exploration. If successfully
developed, our reserved 18% overriding royalty interest will likely be a good
source of cash revenues because the royalty, by its nature, entitles us to share
in gross, rather than net, production. We expect to use these anticipated
revenues for further investment in other revenue generating assets or business
activities.
On October 29, 2009, the Company executed an agreement to acquire from
Hycarbex a two and one half percent (2-1/2%) working interest in each of the
2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province,
Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III,
Sindh Province, Pakistan, each of which is operated by Heritage Oil and Gas
Limited. Heritage Oil and Gas Limited is an affiliate of Heritage Oil, plc, an
independent oil and gas company which focuses its oil and gas operations on
Africa, the Middle East, and Russia. Heritage Oil's shares trade on the London
Stock Exchange under the symbol HOIL with a secondary listing on the Toronto
Stock Exchange under the symbol HOC. Other working interest participants in
the two Blocks are Sprint Energy (Private) Limited, an affiliate of
Pakistan-based JS Group, and Trakker Energy (Private) Limited, an affiliate of
Pakistan-based TPL Holdings, Ltd. Under the terms of the agreement, the
American Energy Group, Ltd.'s 2-1/2% working interests are "carried" by Hycarbex
for the initial two (2) wells on the Sanjawi Block and the initial three (3)
wells on the Zamzama North Block. The term "carried" means that the costs
associated with work programs, seismic, road preparation, drillsite preparation,
rig and equipment mobilization, drilling, reworking, testing, logging completion
and governmental fees (except taxes on production) shall be borne entirely by
Hycarbex. Infrastructure costs such as pipelines and surface facilities
constructed after the first discovery well on each Block are not carried. After
the initial carried wells have been drilled, American Energy Group, Ltd. shall
bear its proportionate share of drilling and exploration costs. The agreement
provides an option to American Energy Group, Ltd. to convert its working
interest in any well at any time to a 1.5% gross royalty interest free of any
exploration costs or operating costs. Heritage Oil and Gas Limited has published
on its website non-specific plans to commence a well on the Zamzama North
acreage in the near future based upon existing 2D seismic data. If such
development activities occur and are successful, then our Zamzama North interest
would also be a source of revenue in the future.
Recent Pakistan Political Developments
On October 6, 2007, President Pervez Musharraf was reelected. On November
3, 2007, President Musharraf declared a state of emergency in Pakistan. The
declaration was accompanied by a suspension of the constitution. The state of
emergency was lifted and the constitution was reinstated on December 15, 2007.
The Parliamentary elections originally slated for January, 2008, were postponed
after the death of Benazir Bhutto on December 27, 2007 until February 18, 2008.
The opposition parties assumed control through these elections and President
Pervez Musharraf later resigned on August 19, 2008. He was succeeded on
September 6, 2008 by President Asif Ali Zardari, the widower of Benazir Bhutto.
President Zardari made numerous cabinet and ministry appointments in the latter
part of 2008 and the early part of 2009, including the Ministry of Petroleum and
Natural Resources.
19
Incidents of violence and political protest continue to occur within the
country according to international news sources. These political events have
not impacted our ownership of the overriding royalty or the ongoing business
practices within the country, including oil and gas exploration, development and
production by Hycarbex and other major operators doing business in Pakistan. We
cannot predict the effect of future political events or political changes upon
Hycarbex's operations and our expectations of deriving revenues from our
interests through the sale of gas into Pakistan's pipeline infrastructure.
Galveston County, Texas Leases
We believe that the deeper zones which we currently hold may have
development potential. We are exploring the various opportunities to realize
value from these deep rights, including potential sale. We have not yet
determined the best course for these assets. These leases are held in force by
third party production and, therefore, the leases do not require development of
these rights by a certain date.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements during the fiscal year ended June
30, 2010.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to market risk from changes in interest rates and
commodity prices.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required to be filed pursuant to this
Item 7 begin on Page F-1 of this report. Such consolidated financial statements
are hereby incorporated by reference into this Item 8. The Supplementary Data
requirement as set forth in Item 302 of Regulation S-K is inapplicable to the
Company.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have neither changed nor had disagreements with our accountants
regarding accounting and financial disclosure.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
the Principal Executive Officer/Principal Financial Officer, we have evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive
Officer/Chief Financial Officer have concluded that, as of June 30, 2010, these
disclosure controls and procedures were ineffective to ensure that all
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is: (i) recorded, processed, summarized and reported,
within the time periods specified in the Commission's rule and forms; and (ii)
accumulated and communicated to our management, including our Chief Executive
Officer/Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There have been no material changes in internal control over financial reporting
that occurred during the fourth fiscal quarter that have materially affected, or
are reasonably likely to materially affect the Company's internal control over
financial reporting.
20
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Chief Executive
Officer/Chief Financial Officer and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Our evaluation of internal control over financial reporting includes using the
COSO framework, an integrated framework for the evaluation of internal controls
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
to identify the risks and control objectives related to the evaluation of our
control environment.
Our management conducted an evaluation of the effectiveness of our internal
control over financial reporting. Based on our evaluation, management concluded
that our internal control over financial reporting was ineffective as of June
30, 2010 due to a significant deficiency. A material weakness in internal
control over financial reporting is defined by the Public Company Accounting
Oversight Board's Audit Standard No. 5 as a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company's annual or
interim financial statements will not be prevented or detected on a timely
basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control over financial reporting that is less severe
than a material weakness, yet important enough to merit attention by those
responsible for oversight of our financial reporting. Management's assessment
identified a significant deficiency in internal control over financial reporting
based upon the extremely small size of the Company and its resultant inability
to appropriately segregate financial duties. Management intends to increase
staff size and segregate financial duties and responsibilities once the revenue
stream from its production royalty generates the monthly cash flow required for
such staffing. The sale of gas began in September, 2010, and revenues are
anticipated in the near term.
In light of the significant deficiency described above, we performed additional
analysis and other post-closing procedures to ensure our financial statements
were prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the financial statements included in this report
fairly present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation requirements by
the company's registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.
Inherent Limitations Over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations,
including the possibility of human error and circumvention by collusion or
overriding of controls. Accordingly, even an effective internal control system
may not prevent or detect material misstatements on a timely basis. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B - OTHER INFORMATION
None.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The directors and executive officers of the Company at June 30, 2009,
included the following persons, each of whom serves on the audit committee of
the Company:
Name Age Position
-----------------------------------------------------------------------------
R. Pierce Onthank 50 Director, President, CEO, CFO & Secretary-Treas.
Iftikhar Ahmed Zahid 51 Director
Karl Welser 56 Director
R. Pierce Onthank, age 50, serves as President, CEO, Secretary-Treasurer.
Mr. Onthank has also served as our Director since 2003. Mr. Onthank received a
BA in economics from Denison University in 1983. He served as the investment
broker for the Company from 1998 until 2001. In addition to serving American
Energy Group Ltd. as one of its prior investment bankers, Mr. Onthank has
21
specialized in oil and gas investments for his previous clients. With over 20
years of experience in the securities business, Mr. Onthank has held senior
positions in investment banking firms and has managed high yield net worth and
institutional portfolios. Mr. Onthank began his career in the Merrill Lynch
training program and subsequently was employed by Bear Stearns in 1985 where he
became a limited partner in 1987. In 1988, he became a Senior Vice President at
Drexel Burnham Lambert, where his primary responsibilities were to manage the
private client group, which was involved in both public and private investments
for individual and institutional accounts. Mr. Onthank served as a Senior Vice
President at Paine Webber from 1990 to 1993. From 1993 to 1995, he was employed
by Smith Barney Shearson where he managed the investments of institutional and
individual clients. Before becoming a director and an executive officer of The
American Energy Group Ltd., he co-founded Crary Onthank & O'Neill, an investment
banking company, in 1998.
Dr. Iftikhar Zahid, age 51, has served as our Director since 2001. Dr.
Zahid was educated at Murray College in Sailkot, Pakistan where he received a
Degree in Science in 1976. Dr. Zahid received his degree in medicine from the
Dow Medical College at Karachi University in 1979. In 1981, he joined the
police services of Pakistan. In 1988, he resigned from governmental services as
a Superintendent of Police. Between 1988 and 1996, Dr. Zahid served as an
advisor and consultant to several multi-national organizations doing business in
Pakistan. In 1996, Dr. Zahid became Resident Director/Country Manager of the
Pakistan Office of Hycarbex, our then-existing subsidiary. In June 2001, he was
promoted to Vice-President and Resident Director of Hycarbex and joined us as a
director. Since our sale of Hycarbex in November 2003, Dr. Zahid has been
managing our 18% royalty interest in the Yasin Block Concession. In April
2004, Dr. Zahid was appointed President of Hycarbex and in November 2005, Dr.
Zahid was appointed as a director of Hycarbex.
Karl Welser, age 56, has been our Director since May, 2005. Mr. Welser has
been actively involved in private real estate and finance ventures for family
interests since 1999. After graduating from the Dr. Raeber/ZH &KV/ZH business
school in Zurich in 1972, Mr. Welser joined Bank J. Vontobel which specialized
in private financial management. From 1977-1980, Mr. Welser attended the Zurich
Management School where he obtained his Economist KSZH degree. From 1980
through 1998, while employed at Z rcher Kantonalbank, Bankinstitut and UBS in
Zurich, Switzerland, respectively, Mr. Welser's primary activities included
analysis of the securities markets. From 1999 forward, Mr. Welser has managed
family financial interests outside of the public sector.
Board of Directors
We held no physical meetings and four telephonic meetings of the Board of
Directors during the fiscal year ended June 30, 2010, and the Board of Directors
took action at Board meetings or by unanimous written consent sixteen (16) times
during that period. Mr. Onthank and Dr. Zahid are our only Directors who are
also our officers and/or operations executives.
We do not have any standing committees of the Board of Directors, which we
believe is adequate based on the size of our business.
We do not currently have a process for security holders to send
communications to the Board of Directors. However, we welcome comments and
questions from our shareholders. Shareholders can direct communications to our
Chief Executive Officer, Pierce Onthank, at our executive offices, 1 Gorham
Island, Suite 303, Westport, Connecticut 06880. While we appreciate all
comments from shareholders, we may not be able to individually respond to all
communications. We attempt to address shareholder questions and concerns in our
press releases and documents filed with the SEC so that all shareholders have
access to information about the Company at the same time. Mr. Onthank collects
and evaluates all shareholder communications. If the communication is directed
to the Board of Directors generally or to a specific director, Mr. Onthank will
disseminate the communications to the appropriate party at the next scheduled
Board of Directors meeting. If the communication requires a more urgent
response, Mr. Onthank will direct that communication to the appropriate
executive officer. All communications addressed to our directors and executive
officers will be reviewed by those parties unless the communication is clearly
frivolous.
Nomination and/or Appointment of Directors
The Board of Directors has not adopted a formal policy with regard to the
process to be used for identifying and evaluating nominees for director. The
consideration of candidates nominated by directors is at the Board's discretion.
We believe this practice is adequate based on the size of our business and
current Board member qualifications. Our Bylaws do not contain a specific
procedure for nomination of persons to serve for election to the Board of
22
Directors. Our Bylaws provide that the number of Directors shall be not less
than two nor more than seven. Vacancies in the Board of Directors may be filled
by a majority of remaining Directors.
Compensation of Directors
Our Directors are reimbursed for reasonable out-of-pocket expenses in
connection with their services as members of the Board including attendance at
Board of Director meetings, and may be granted options to purchase shares of our
common stock at the discretion of our Board of Directors. Directors are not
otherwise provided any remuneration for their services as our Directors.
Compliance with Section 16(A) of the Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that our directors and executive officers and persons who beneficially own more
than 10% of our common stock file with the Securities and Exchange Commission
various reports as to their ownership of and activities relating to our common
stock. Such reporting persons are required by the SEC regulations to furnish us
with copies of all Section 16(a) reports they file. Based on information
provided to management, we believe that our officers and directors have complied
with all filing requirements under Section 16(a) of the Securities Exchange Act
of 1934.
Code of Ethics
In September 2004, we adopted a Code of Ethics that is applicable to all
directors, officer and employees. A copy of the Code of Ethics may be obtained
without charge by writing to: The American Energy Group, Ltd., 1 Gorham Island
Suite 303, Westport, Connecticut 06880.
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table reflects all forms of compensation for the fiscal years
ended June 30, 2007, 2008, 2009 and 2010 for services provided by our executive
officers and directors.
--------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------------------------------------------------------------
Awards Payouts
-----------------------------
Other Options/
Annual Restricted SARs LTIP All Other
Comp- Stock Warrants payouts Comp-
Name Title Year Salary Bonus ensation Awarded (#) ($) ensation
--------------------------------------------------------------------------------------------------------
R.Pierce President, 2010 $240,000 -0- $74,214 -0- -0- -0- -0-
Onthank(1) CEO and 2009 $192,000 -0- -0- -0- -0- -0- -0-
Sec. Treas. 2008 $241,311 -0- -0- -0- -0- -0- -0-
2007 $204,000 $75,000 -0- -0- -0- -0- -0-
--------------------------------------------------------------------------------------------------------
Dr. Iftikhar A. (2) 2010 $180,000 -0- -0- -0- -0- -0- -0-
Zahid(1) 2009 $180,000 -0- -0- -0- -0- -0- -0-
2008 $180,000 -0- -0- -0- -0- -0- -0-
2007 $180,000 $75,000 -0- -0- -0- -0- -0-
--------------------------------------------------------------------------------------------------------
Notes to Summary Compensation Table:
(1) Between July 1, 2003 and January 31, 2004, neither Mr. Onthank nor
Dr. Zahid received any cash compensation. Beginning February 1, 2004,
each was paid $10,000 per month. Beginning April 1, 2004, Mr.
Onthank's cash salary was increased to $16,000 per month and Dr.
Zahid's cash salary was increased to $15,000 per month. Beginning
April 1, 2007, Mr. Onthank's salary was increased to $20,000 per
month.
23
(2) Dr. Zahid manages our assets in Pakistan. He holds no formal officer
title with us.
Stock Option/SAR and Warrant Grants
There were no grants of stock options, SAR's or Warrants to executive officers
or directors during the fiscal year ended June 30, 2009. There are currently no
outstanding stock options or SAR's.
Aggregated Option/SAR/Warrant Exercises In
Last Fiscal Year and FY-End Option/SAR Values
----------------------------------------------------------------------------------------------------
Number of Value of
Unexercised Unexercised In-The-
Underlying Money
Options/SARs/ Options/SARs/
Warrants at FY end Warrants at FY end
(#); ($);
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
----------------------------------------------------------------------------------------------------
Pierce Onthank -0- -0- 1,000,000/0 $510,000/0
----------------------------------------------------------------------------------------------------
Iftikhar Zahid -0- -0- 1,000,000/0 $510,000/0
----------------------------------------------------------------------------------------------------
There were no stock options, SAR's or warrants exercised by any of our named
executive officers during our most recent fiscal year ended June 30, 2010.
Long-Term Incentive Plans
We currently have no Long-Term Incentive Plans.
Employment contracts and change-in-control arrangements
There are no employment contracts or change-in-control agreements between
us and our executive officers or directors.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 5, 2010, with
respect to the beneficial ownership of shares of common stock by (i) each person
known to us who owns beneficially more than 5% of the outstanding shares of
common stock, (ii) each of our Directors, (iii) each of our Executive Officers
and (iv) all of our Executive Officers and Directors as a group. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares shown. As of October 5, 2010, we had 33,189,190 shares of
common stock issued and outstanding.
-----------------------------------------------------------------------------------------------------
Name and address of beneficial Title of Class Number of Shares of Percentage of Common
owner of Stock Common Stock Stock (1)
-----------------------------------------------------------------------------------------------------
R. Pierce Onthank
1 Gorham Island Suite 303 Common stock 2,277,778 (2) 6.6% (2)
Westport, Connecticut 06680
-----------------------------------------------------------------------------------------------------
Dr. Iftikhar A. Zahid
1 Gorham Island Suite 303 Common stock 2,780,000 (2) 8.1%(2)
Westport, Connecticut 06680
-----------------------------------------------------------------------------------------------------
Karl Welser
1 Gorham Island Suite 303 Common stock 318,000 1.0%
Westport, Connecticut 06680
-----------------------------------------------------------------------------------------------------
Hycarbex Asia Pte Ltd.
5 Shenton Way, #14-04/06 Common Stock 2,100,000(3) 6.3%
SINGAPORE 068808
-----------------------------------------------------------------------------------------------------
All Officers and Directors
as a group (total of three) Common stock 5,375,778 (4) 15.7%
-----------------------------------------------------------------------------------------------------
24
(1) Under Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a
security includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i) voting
power, which includes the power to vote, or to direct the voting of shares; and
(ii) investment power, which includes the power to dispose or direct the
disposition of shares. Certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
the information is provided. In computing the percentage ownership of any
person, the amount of shares is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares of any
person as shown in this table does not necessarily reflect the person's actual
ownership or voting power with respect to the number of shares of common stock
actually outstanding on June 30, 2010. As of June 30, 2010 there were
33,171,807 shares of our common stock issued and outstanding.
(2) Includes 1,000,000 shares issuable upon the exercise of warrants to
purchase shares of common stock.
(3) Includes 100,000 shares issuable upon the exercise of warrants to purchase
shares of common stock.
(4) Includes 2,000,000 shares issuable upon the exercise of warrants to
purchase shares of common stock.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
On May 12, 2006, we entered into a non-exclusive Agency Agreement with
Hycarbex - American Energy, Inc., an entity for which our director, Dr. Iftihhar
Zahid, serves as President, under which Hycarbex agreed to locate for the
Company, and negotiate on behalf of the Company, royalty purchase opportunities
within the Republic of Pakistan. The Agreement provided for a finder's fee to
Hycarbex equal to $50,000 for each royalty purchase which is actually
consummated. As of June 30, 2010, we had on deposit a total of $392,500 with
Hycarbex which included a $100,000 reduction for Hycarbex finder's fees under
the May 12, 2006 Agreement due to the acquisition of the Zamzama North and
Sanjawi working interests. Under the terms of the October 29, 2009 acquisition,
in addition to stock and warrants issued to purchase the interests, we agreed to
pay a future cash consideration equal to the remaining funds on deposit with
Hycarbex less an amount equal to $50,000 per month until such time as American
Energy Group, Ltd. is paid an aggregate $200,000 in royalties from the Haseeb
No. 1 Well. This Well was connected to the gas marketing pipe line during
September, 2010.
Other than the foregoing agency agreement, none of the following persons has any
direct or indirect material interest in any transaction to which we were or are
a party during the past two years, or in any proposed transaction to which we
propose to be a party:
(A) any of our directors or executive officers;
(B) any nominee for election as one of our directors;
(C) any person who is known by us to beneficially own, directly or
indirectly, shares carrying more than 5% of the voting rights attached
to our common stock; or
(D) any member of the immediate family (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons named in paragraph
(A), (B) or (C) above.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
25
Audit fees billed by the Company's Principal Accountant were $6,937.50
during the year ended June 30, 2010.
Audit Related Fees
There have been no audit related fees billed by the Company's Principal
Accountant as of the date of this report.
The Company's audit committee is comprised solely of its Board of
Directors.
Tax Fees
There have been no tax fees billed by the Company's Principal Accountant as
of the date of this report.
All Other Fees
There have been no other fees billed by the Company's Principal Accountant
as of the date of this report.
PART IV
ITEM 15 - EXHIBITS
The following documents are filed as Exhibits to this report:
Exhibit 31.1 - Certification by R. Pierce Onthank, President and Acting
Chief Financial and Principal Accounting Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a);
Exhibit 32.1 - Certification by R. Pierce Onthank, President and Acting
Chief Financial and Principal Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act 2002, Section 1350(a) and
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE AMERICAN ENERGY GROUP, LTD.
By: /s/ R. Pierce Onthank
-----------------------------------------
R. Pierce Onthank, President, Secretary, Director
Chief Financial Officer and Principal Accounting
Officer
DATED: October 13, 2010
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company in the capacities and on the
dates indicated.
By: /s/ Iftikhar A. Zahid
---------------------
Iftikhar A. Zahid, Director
Date signed: October 13, 2010
By: /s/ Karl Welser
---------------
Karl Welser, Director
Date signed: October 13, 2010
27
THE AMERICAN ENERGY GROUP, LTD.
FINANCIAL STATEMENTS
June 30, 2010 and 2009
CONTENTS
Report of Independent Registered Public Accounting Firm F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-8
Notes to the Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors and Shareholders of
The American Energy Group, Ltd.
Westport, CT.
We have audited the accompanying balance sheets of The American Energy Group,
Ltd. as of June 30, 2010 and 2009 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The American Energy Group, Ltd.
as of June 30, 2010 and 2009 and the results of their operations and their cash
flows for the years then ended, in conformity accounting principles generally
accepted in the United States of America.
Chisholm, Bierwolf, Nilson & Morrill, LLC
Layton, Utah
October 13, 2010
F-2
THE AMERICAN ENERGY GROUP, LTD.
Balance Sheets
For the Years Ended June 30,
Assets
------
2010 2009
----------- -----------
Current Assets
--------------
Cash (Note 1) $ 25,585 $ 33,879
Funds reserved for acquisitions (Note 6) 392,500 1,139,500
----------- -----------
Total Current Assets 418,085 1,173,379
----------- -----------
Property and Equipment
----------------------
Office equipment 27,421 27,421
Leasehold improvements 26,458 26,458
Accumulated depreciation (25,983) (19,341)
----------- -----------
Net Property and Equipment 27,896 34,538
----------- -----------
Other Assets
------------
Investment in oil & gas working interest 1,583,914 -
Security deposit 26,209 26,209
----------- -----------
Total Other Assets 1,610,123 26,209
----------- -----------
Total Assets $ 2,056,104 $ 1,234,126
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
-------------------
Accounts payable $ 62,757 $ 69,519
Security deposits 13,200 13,200
Accrued liabilities 651,500 490,900
----------- -----------
Total Current Liabilities 727,457 573,619
----------- -----------
Total Liabilities 727,457 573,619
----------- -----------
Stockholders' Equity (Notes 7 & 8)
----------------------------------
Common stock, par value $0.001 per share;
authorized 80,000,000 shares; 33,171,807 and
31,019,255 shares issued and outstanding,
respectively 33,172 31,019
Capital in excess of par value 10,313,546 8,722,826
Accumulated deficit (9,018,071) (8,093,338)
----------- -----------
Total Stockholders' Equity 1,328,647 660,507
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,056,104 $ 1,234,126
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
THE AMERICAN ENERGY GROUP, LTD.
Statements of Operations
For the Years Ended June 30,
2010 2009
----------- -----------
Revenue $ - $ -
------- ----------- -----------
General and Administrative Expenses
-----------------------------------
Legal and professional 134,062 201,887
Depreciation and amortization expense 6,642 6,971
General and administrative 777,437 677,873
----------- -----------
Total Expenses 918,141 886,731
----------- -----------
Net Operating Loss (918,141) (886,731)
----------- -----------
Other Income and (Expense)
--------------------------
Interest expense (6,592) (6,465)
----------- -----------
Total Other Income and (Expense) (6,592) (6,465)
----------- -----------
Net Loss before Federal Income Tax (924,733) (893,196)
Federal Income Tax - -
----------- -----------
Net Loss $ (924,733)$ (893,196)
=========== ===========
Basic Loss per Common Share $ (0.03)$ (0.03)
=========== ===========
Weighted Average Number of Shares Outstanding 32,428,153 30,863,760
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders' Equity
For the Period July 1, 2008 through June 30, 2009
Common Stock
------------------------ Capital in Excess Accumulated
Shares Amount of Par Value Deficit Totals
------------ ----------- ------------------ -------------------- --------------
Balance June 30, 2008 30,718,752 $ 30,719 $ 8,484,018 $ (7,200,142) $ 1,314,595
------------ ----------- ------------------ -------------------- --------------
July, 2008, new shares issued
for payables at $0.92 per share 14,614 15 12,985 - 13,000
August, 2008, new shares issued
for payables at $0.80 per share 8,125 8 6,492 - 6,500
October, 2008, new shares issued
for payables at $0.93 per share 20,077 20 18,640 - 18,660
October, 2008, new shares issued
for payables incurred for services
rendered July 2007 through
May 2008 at a weighted
average price of $0.86 per share 55,674 56 47,692 - 47,748
November, 2008, new shares issued
for payables at $0.69 per share 9,420 9 6,491 - 6,500
January, 2009, new shares issued
for payables at $0.79 per share 16,479 17 12,983 - 13,000
January, 2009, new shares issued
for services at $0.80 per share 104,000 104 83,096 - 83,200
February, 2009, new shares issued
for payables at $0.79 per share 8,228 8 6,492 - 6,500
March, 2009, new shares issued
for payables at $0.65 per share 10,000 10 6,490 - 6,500
April, 2009, new shares issued
for payables at $0.69 per share 9,420 9 6,491 - 6,500
May, 2009, new shares issued
for payables at $0.61 per share 10,656 11 6,489 - 6,500
June, 2009, new shares issued
for payables at $0.69 per share 9,420 9 6,491 - 6,500
June, 2009, new shares issued
for payables incurred for services
rendered June 2008 through
May 2009 at a weighted
average price of $0.74 per share 24,390 24 17,976 - 18,000
Net (loss) for the year ended
June 30, 2009 - - - ( 893,196) ( 893,196)
------------- ----------- ------------------ -------------------- --------------
Balance June 30, 2009 31,019,255 $ 31,019 $ 8,722,826 $ ( 8,093,338) $ 660,507
============= =========== ================== ==================== ==============
The accompanying notes are an integral part of these financial statements.
F-5
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders' Equity
For the Period July 1, 2009 through June 30, 2010
Common Stock Capital in
--------------------------------- Excess Accumulated
Shares Amount of Par Value Deficit Totals
---------------- ---------------- ---------------- ---------------- --------------
Balance June 30, 2009 31,019,255 $ 31,019 $ 8,722,826 $ (8,093,338) $ 660,507
---------------- ---------------- ---------------- ---------------- --------------
July, 2009, new shares issued
for payables at $0.81 per share 8,025 8 6,492 - 6,500
August, 2009, new shares issued
for payables at $0.73 per share 8,904 9 6,491 - 6,500
September 2009, new shares issued
for payables at $0.79 per share 8,228 8 6,492 - 6,500
October, 2009, new shares issued
for payables at $0.69 per share 9,420 9 6,491 - 6,500
October, 2009, new shares issued
to acquire oil & gas working
interest investment at $0.72 per share 2,000,000 2,000 1,438,000 - 1,440,000
November, 2009, new shares issued
for payables at $0.64 per share 10,156 10 6,490 - 6,500
December 2009, new shares issued
for payables at $0.66 per share 9,848 10 6,490 - 6,500
December, 2009, 100,000 warrants
in connection with oil and gas
working interest acquisition - - 43,913 - 43,913
December, 2009, new shares issued
for services at $0.70 per share 14,280 14 9,986 - 10,000
January, 2010, new shares issued
for payables at $0.54 per share 8,025 8 6,492 - 6,500
January, 2010, new shares issued
for services at $0.74 per share 4,000 4 2,956 - 2,960
February, 2010, new shares issued
for payables at $0.66 per share 9,848 10 6,490 - 6,500
March 2010, new shares issued
for payables at $0.74 per share 8,784 9 6,491 - 6,500
April 2010, new shares issued
for payables at $0.71 per share 9,155 9 6,491 - 6,500
The accompanying notes are an integral part of these financial statements.
F-6
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders' Equity
For the Period July 1, 2009 through June 30, 2010
Common Stock
---------------------------------- Capital in Excess Accumulated
Shares Amount of Par Value Deficit Totals
---------------- ---------------- ------------------ --------------- -------------
May, 2010, new shares issued
for payables incurred for services
rendered June 2009 through May
2010 at a weighted average
price of $0.71 per share 25,431 26 17,974 - 18,000
June, 2010, new shares issued
for payables at $0.69 per share 18,448 19 12,981 - 13,000
Net (loss) for the year ended
June 30, 2010 - - - (924,733) (924,733)
---------------- ---------------- ------------------ --------------- -------------
Balance June 30, 2010 33,171,807 $ 33,172 $ 10,313,546 $ (9,018,071) $ 1,328,647
================ ================ ================== =============== =============
The accompanying notes are an integral part of these financial statements.
F-7
THE AMERICAN ENERGY GROUP, LTD.
Statements of Cash Flows
For the Years Ended June 30,
2010 2009
------------ ----------
Cash Flows From Operating Activities
------------------------------------
Net loss $ (924,733) $(893,196)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 6,642 6,971
Common stock issued for current debt, services 108,960 178,360
Changes in operating assets and liabilities
Increase (decrease) in accounts payable (6,763) (1,085)
Increase (decrease) in security deposits - 2,000
Increase (decrease) in accrued expenses
and other current liabilities 160,600 199,400
------------ ----------
Net Cash Used In Operating Activities (655,294) (507,550)
----------- ----------
Cash Flows From Investing Activities
------------------------------------
Funds reserved for acquisitions 747,000 514,445
Expenditures for working interest investment (100,000) (-)
------------ ----------
Net Cash Provided By Investing Activities 647,000 514 445
------------ ----------
Cash Flows From Financing Activities
------------------------------------
Net Cash (Used In) Financing Activities - -
------------ ----------
Net Increase (Decrease) in Cash (8,294) 6,895
Cash and Cash Equivalents, Beginning of Year 33,879 26,984
------------ ----------
Cash and Cash Equivalents, End of Year $ 25,585 $ 33,879
============ ==========
Cash Paid For:
--------------
Interest $ 6,465 $ 6,465
Taxes $ - $ -
Non-Cash Financing Activities:
------------------------------
Common stock issued in satisfaction of
accounts payable $ 24,500 $ 60,748
Common stock issued for services rendered $ 84,460 $ 178,360
Common stock issued for oil and gas working interest $ 1,440,000 $ -
Warrants issued for oil and gas working interest $ 43,913 $ -
The accompanying notes are an integral part of these financial statements.
F-8
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 1 - Organization and Summary of Significant Accounting Policies
--------------------------------------------------------------------
a. Organization
The American Energy Group, Ltd. (the Company) was incorporated in the State
of Nevada on July 21, 1987 as Dimension Industries, Inc. Since
incorporation, the Company has had several name changes including DIM, Inc.
and Belize-American Corp. Internationale with the name change to The
American Energy Group, Ltd. effective November 18, 1994.
During the year ended June 30, 1995, the Company incorporated additional
subsidiaries including American Energy-Deckers Prairie, Inc., The American
Energy Operating Corp., Tomball American Energy, Inc., Cypress-American
Energy, Inc., Dayton North Field-American Energy, Inc. and Nash Dome
Field-American Energy, Inc. In addition, in May 1995, the Company acquired
all of the issued and outstanding common stock of Hycarbex, Inc.
(Hycarbex), a Texas corporation, in exchange for 120,000 shares of common
stock of the Company, a 1% overriding royalty on the Pakistan Project (see
Note 2) and a future $200,000 production payment if certain conditions are
met. The acquisition was accounted for as a pooling-of-interests on the
date of the acquisition. The fair value of the assets and liabilities
assumed approximated the fair value of the 120,000 shares issued of $60,000
as of the date of the acquisition. Accordingly, book value of the assets
and liabilities assumed was $60,000. In April 1995, the name of that
company was changed to Hycarbex-American Energy, Inc. The Company and its
subsidiaries were principally in the business of acquisition, exploration,
development and production of oil and gas properties.
On June 28, 2002, the Company was placed into involuntary Chapter 7
bankruptcy by three creditors, including Georg von Canal, an officer and
director who was then involved in litigation with the Company to invalidate
an attempt to remove him from his management positions. The bankruptcy
filing followed an unsuccessful effort by management to resolve both the
litigation and the need for a substantial cash infusion through a stock
sale to a German-based investor which would have simultaneously resulted in
a restructure of management. Shortly after this bankruptcy filing, the
secured creditor holding a first lien on the Company's only producing oil
and gas leases in Fort Bend County, Texas, sought permission from the
bankruptcy court to foreclose on those assets. The Company responded by
converting the Chapter 7 bankruptcy proceedings to a Chapter 11
reorganization proceeding. The company obtained approval of a plan of
reorganization in September 2002, but the secured creditor was nevertheless
permitted to foreclose upon the Fort Bend County oil and gas leases.
Subsequent to the approval of the foreclosure of the oil and gas producing
properties, the Company abandoned the remaining oil and gas properties
except for one lease in southeast Texas. For the year ended June 30, 2003,
the Company recognized a loss of $13,040,120 on the foreclosure and
abandonment of the oil and gas properties and the sale of the fixed assets.
On October 26, 2003, the Company sold its wholly-owned subsidiary,
Hycarbex-American Energy, Inc., for an 18% overriding royalty interest in
the Exploration License No. 2768-7 dated August 11, 2001, of the Yasin
Exploration Block.
On January 29, 2004, the Company was released from bankruptcy. Pursuant to
the plan, all of the existing 66,318,037 shares of common stock and 41,499
shares of preferred stock were cancelled. The Company issued 18,898,518 new
shares of common stock to creditors. Also, the Company adopted the
provisions for fresh-start reporting. Accordingly, the accumulated deficit
accumulated through January 29, 2004 has been eliminated. The Company is
considered to have a fresh-start due to the cancellation of the prior
shareholders' common stock and the subsequent issuance of common stock to
creditors, the new shareholders.
F-9
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------
a. Organization (continued)
On April 14, 2005, the Company's wholly owned inactive subsidiary, American
Energy Operating Corp (AEOC) filed for a voluntary bankruptcy liquidation.
On July 24, 2006, the American Energy Operating Corp. received a final
decree from the United States Bankruptcy Court - Southern District of Texas
that the Company's estate had been fully administered and that the Chapter
7 was closed.
b. Accounting Methods
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a June 30 year-end.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
d. Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation on drilling and
related equipment, vehicles and office equipment is provided using the
straight-line method over expected useful lives of five to ten years. For
the years ended June 30, 2010 and 2009, the Companies incurred total
depreciation of $6,642 and $6,971, respectively.
e. Basic Loss Per Share of Common Stock
For the Year For the Year
Ended June 30, Ended June 30,
2010 2009
-------------- --------------
Loss (numerator) $ (924,733) $ (893,196)
Shares (denominator) 32,428,153 30,863,760
-------------- --------------
Per Share Amount $ (0.03) $ (0.03)
-------------- --------------
The basic loss per share of common stock is based on the weighted average
number of shares issued and outstanding during the period of the financial
statements. Stock warrants convertible into 3,707,326 and 3,607,326 shares
of common stock for the years ended June 30, 2010 and 2009, respectively,
are not included in the basic calculation because their inclusion would be
antidilutive, thereby reducing the net loss per common share.
F-10
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 differ from those
estimates.
g. Long Lived Assets
All long lived assets are evaluated for impairment per FASB ASC 310-10-35
(formerly SFAS No. 144) whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. Any
impairment in value is recognized as an expense in the period when the
impairment occurs.
h. Equity Securities
Equity securities issued for services rendered have been accounted for at
the fair market value of the securities on the date of issuance.
i. Income Taxes
At June 30, 2010, the Company had net operating loss carryforwards of
approximately $47,782,494 that may be offset against future taxable income
from the year 2010 through 2029. No tax benefit has been reported in the
June 30, 2010 financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount.
The income tax benefit differs from the amount computed at federal
statutory rates of approximately 38% as follows:
Year Ended June 30,
-----------------------------
2010 2009
------------- -------------
Income tax benefit at statutory rate $ 351,399 $ 339,415
Change in Valuation allowance (351,399) (339,415)
============= =============
Income Tax Expense $ - $ -
============= =============
Deferred tax assets are comprised of the following:
Year Ended June 30,
-----------------------------
2010 2009
------------- -------------
Federal tax benefit of net operating
loss carryforward $ 18,157,348 $ 18,524,823
Valuation allowance (18,157,348) (18,524,823)
============= =============
$ - $ -
============= =============
F-11
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------
j. Fair Value of Financial Instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, "Fair Value
Measurements. This guidance defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosure requirements for fair value measures. The three levels are
defined as follows:
* Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
* Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
* Level 3 inputs to valuation methodology are unobservable and
significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the
short period of time between the origination of such instruments and their
expected realization and their current market rate of interest. The
carrying value of convertible promissory notes approximates fair value
because negotiated terms and conditions are consistent with current market
rates as of December 31, 2009. No convertible promissory notes were
outstanding as of December 31, 2008.
k. Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk include cash and cash equivalents. The Company maintains its cash and
cash equivalents with major financial institutions selected based on
management's assessment of the banks' financial stability. Balances
occasionally exceed the $250,000 federal deposit insurance limit. The
Company has not experienced any losses on deposits.
l. Restoration, Removal and Environmental Liabilities
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws regulate the discharge of materials into
the environment and may require the Company to remove or mitigate the
environmental effects of the disposal or release of petroleum substances at
various sites. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that have no future
economic benefit are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessments and/or remediation is probable, and the costs can
be reasonably estimated. Such liabilities are generally undiscounted unless
the timing of cash payments for the liability or component are fixed or
reliably determinable. As of June 30, 2010, the Company believes it has no
such liabilities.
m. Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-02,
Consolidation (Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does
not change, the scope of current US GAAP. It clarifies the decrease in
ownership provisions of Subtopic 810-10 and removes the potential conflict
between guidance in that Subtopic and asset derecognition and gain or loss
recognition guidance that may exist in other US GAAP. An entity will be
required to follow the amended guidance beginning in the period that it
first adopts FAS 160 (now included in Subtopic 810-10). For those entities
that have already adopted FAS 160, the amendments are effective at the
beginning of the first interim or annual reporting period ending on or
after December 15, 2009. The amendments should be applied retrospectively
to the first period that an entity adopted FAS 160. The Company does not
expect the provisions of ASU 2010-02 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01,
Equity (Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task
Force). This amendment to Topic 505 clarifies the stock portion of a
distribution to shareholders that allows them to elect to receive cash or
stock with a limit on the amount of cash that will be distributed is not a
stock dividend for purposes of applying Topics 505 and 260. Effective for
interim and annual periods ending on or after December 15, 2009, and would
be applied on a retrospective basis. The Company does not expect the
provisions of ASU 2010-01 to have a material effect on the financial
position, results of operations or cash flows of the Company.
F-12
In December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for
Statement 167. (See FAS 167 effective date below.)
In December 2009, the FASB issued Accounting Standards Update 2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers of Financial
Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for Statement 166. (See FAS 166 effective date
below) In October 2009, the FASB issued Accounting Standards Update
2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing. This Accounting Standards
Update amends the FASB Accounting Standard Codification for EITF 09-1. (See
EITF 09-1 effective date below.)
In October 2009, the FASB issued Accounting Standards Update 2009-14,
Software (Topic 985): Certain Revenue Arrangements That Include Software
Elements. This update changed the accounting model for revenue arrangements
that include both tangible products and software elements. Effective
prospectively for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15,2010. Early adoption is
permitted. The Company does not expect the provisions of ASU 2009-14 to
have a material effect on the financial position, results of operations or
cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements.
This update addressed the accounting for multiple-deliverable arrangements
to enable vendors to account for products or services (deliverables)
separately rather than a combined unit and will be separated in more
circumstances that under existing US GAAP. This amendment has eliminated
that residual method of allocation. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning
on or after June 15, 2010. Early adoption is permitted. The Company does
not expect the provisions of ASU 2009-13 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12,
Fair Value Measurements and Disclosures (Topic 820): Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its Equivalent). This
update provides amendments to Topic 820 for the fair value measurement of
investments in certain entities that calculate net asset value per share
(or its equivalent). It is effective for interim and annual periods ending
after December 15,2009. Early application is permitted in financial
statements for earlier interim and annual periods that have not been
issued. The Company does not expect the provisions of ASU 2009-12 to have a
material effect on the financial position, results of operations or cash
flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging
Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for
Own-Share Lending Arrangements in Contemplation of Convertible Debt
Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the
accounting treatment and disclosure of share-lending arrangements that are
classified as equity in the financial statements of the share lender. An
example of a share-lending arrangement is an agreement between the Company
(share lender) and an investment bank (share borrower) which allows the
investment bank to use the loaned shares to enter into equity derivative
contracts with investors. EITF 09-1 is effective for fiscal years that
beginning on or after December 15,2009 and requires retrospective
application for all arrangements outstanding as of the beginning of fiscal
years beginning on or after December 15,2009. Share-lending arrangements
that have been terminated as a result of counterparty default prior to
December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the
first reporting period that begins on or after June 15, 2009. The Company
does not expect the provisions of EITF 09-1 to have a material effect on
the financial position, results of operations or cash flows of the Company.
F-13
In June 2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS
No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy
of Generally Accepted Accounting Principles - a replacement of FASB
Statement No. 162").FASB ASC 105-10 establishes the FASB Accounting
Standards Codification TM (Codification) as the source of authoritative
accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP. FASB ASC 105-10 is effective for financial statements
issued for fiscal years and interim periods ending after September 15,
2009. As such, the Company is required to adopt these provisions at the
beginning of the fiscal year ending December 31, 2009. Adoption of FASB ASC
105-10 did not have a material effect on the Company's financial
statements.
In June 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)")
which amends the consolidation guidance applicable to a variable interest
entity ("VIE"). This standard also amends the guidance governing the
determination of whether an enterprise is the primary beneficiary of a VIE,
and is therefore required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. Previously, the
standard required reconsideration of whether an enterprise was the primary
beneficiary of a VIE only when specific events had occurred. This standard
is effective for fiscal years beginning after November 15, 2009, and for
interim periods within those fiscal years. Early adoption is prohibited.
Adoption of FASB ASC 810-10-65 did not have a material impact on the
Company's financial statements.
In June 2009, the FASB ASC 860-10 (Prior authoritative literature: issued
SFAS No. 166, "Accounting for Transfers of Financial Assets, an Amendment
of FASB Statement No. 140"), which eliminates the concept of a qualifying
special-purpose entity ("QSPE"), clarifies and amends the de-recognition
criteria for a transfer to be accounted for as a sale, amends and clarifies
the unit of account eligible for sale accounting and requires that a
transferor initially measure at fair value and recognize all assets
obtained and liabilities incurred as a result of a transfer of an entire
financial asset or group of financial assets accounted for as a sale. This
standard is effective for fiscal years beginning after November 15, 2009.
Adoption of FASB ASC 860-10 did not have a material impact on the Company's
financial statements.
In May 2009, FASB issued FASB ASC 855-10 (Prior authoritative literature:
SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 establishes principles
and requirements for the reporting of events or transactions that occur
after the balance sheet date, but before financial statements are issued or
are available to be issued. FASB ASC 855-10 is effective for financial
statements issued for fiscal years and interim periods ending after June
15, 2009. As such, the Company adopted these provisions at the beginning of
the interim period ended June 30, 2009.
In April 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 164, "Not-for-Profit Entities: Mergers and
Acquisitions") which governs the information that a not-for-profit entity
should provide in its financial reports about a combination with one or
more other not-for-profit entities, businesses or nonprofit activities and
sets out the principles and requirements for how a not-for-profit entity
should determine whether a combination is in fact a merger or an
acquisition. This standard is effective for mergers occurring on or after
Dec. 15, 2009 and for acquisitions where the acquisition date is on or
after the beginning of the first annual reporting period, beginning on or
after Dec. 15, 2009. This standard does not apply to the Company since the
Company is considered a for-profit entity.
Note 2 - Oil and Gas Properties
-------------------------------
The Company owns an interest in two oil and gas leases located in Southeast
Texas. The Company is exploring various opportunities to realize value from
these interests, including potential farmout or sale. The Company intends
to adopt the full cost method of accounting for oil and gas properties in
the event that the Company develops their interests in these leases. As of
June 30, 2010, the Company does not have any proved reserves as defined
under FASB ASC 932-235-50 (formerly SFAS No. 69) and has not incurred any
costs associated with the development of these oil and gas properties and
had not received any oil and gas revenue from these leases.
F-14
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 2 - Oil and Gas Properties (continued)
-------------------------------
The Company also holds an 18% gross royalty interest in the Yasin
Concession in Pakistan. As of June 30, 2010, the Company had not received
any royalties from their interest in this concession. The concession was
acquired in 2003 through the sale of a wholly owned subsidiary of the
Company. Revenues to be derived from this interest are overriding in nature
and there are no future financial obligations or commitments required of
the Company to secure this royalty interest.
Note 3 - Lease Commitments
--------------------------
The Company entered into a long term lease for office space in June, 2006.
The original lease term is 5 years with a 5 year extension term. The lease
requires monthly rentals of $11,913, $12,211, $12,509, $12,807 and $ 13,105
for the twelve months ended May 31, 2007, 2008, 2009, 2010 and 2011,
respectively. The president of the Company personally guaranteed $75,000 of
obligations under this lease
As of June 30, 2010, minimum future lease payments under this lease are as
follows:
Year ended June 30, 2011 $ 144,155
==========
The Company incurred $174,826 and $157,662 of rent expense under this lease
for the years ended June 30, 2010 and 2009, respectively.
Subsequent to entering the lease described above, the Company has entered
into various subleases to sublet a portion of the office space obtained in
the lease. The lease terms of the sub leases are month to month.
The Company received $95,650 and $141,850 from these sub-leases for the
years ended June 30, 2010 and 2009.
Note 4 - Common Stock
---------------------
During July 2008, the Company issued 14,614 shares of common stock for
payables valued at $13,000.
During August 2008, the Company issued 8,125 shares of common stock for
payables valued at $6,500.
During October 2008, the Company issued 75,751 shares of common stock for
service and payables valued at $66,408.
During November 2008, the Company issued 9,420 shares of common stock for
services and payables valued at $6,500.
During January 2009, the Company issued 120,479 shares of common stock for
services and payables valued at $96,200.
During February 2009, the Company issued 8,228 shares of common stock for
services and payables valued at $6,500.
During March 2009, the Company issued 10,000 shares of common stock for
services and payables valued at $6,500.
During April 2009, the Company issued 9,420 shares of common stock for
services and payables valued at $6,500.
F-15
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 4 - Common Stock (continued):
----------------------------------
During May 2009, the Company issued 10,656 shares of common stock for
services and payables valued at $6,500.
During June 2009, the Company issued 33,810 shares of common stock for
services and payables valued at $24,500.
During July 2009, the Company issued 8,025 shares of common stock for
services and payables valued at $6,500.
During August 2009, the Company issued 8,904 shares of common stock for
services and payables valued at $6,500.
During September 2009, the Company issued 8,228 shares of common stock for
services and payables valued at $6,500.
During October 2009, the Company issued 9,420 shares of common stock for
services and payables valued at $6,500.
During October 2009, the Company issued 2,000,000 shares of common stock
for an oil and gas working interest valued at $1,440,000.
During November 2009, the Company issued 10,156 shares of common stock for
services and payables valued at $6,500.
During December 2009, the Company issued 24,128 shares of common stock for
services and payables valued at $16,500.
During January 2010, the Company issued 12,025 shares of common stock for
services and payables valued at $9,460.
During February 2010, the Company issued 9,848 shares of common stock for
services and payables valued at $6,500.
During March 2010, the Company issued 8,784 shares of common stock for
services and payables valued at $6,500.
During April 2010, the Company issued 9,155 shares of common stock for
services and payables valued at $6,500.
During May 2010, the Company issued 25,431 shares of common stock for
services and payables valued at $18,000.
During June 2010, the Company issued 18,448 shares of common stock for
services and payables valued at $13,000.
F-16
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 5 - Common Stock Warrants
------------------------------
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of FASB ASC 718-10-25 (formerly FASB Statement No. 123(R),
"Share Based Payment" ("SFAS 123R"), using the
modified-prospective-transition method. Under this transition method, total
compensation cost recognized in the statement of operations for the years
ended June 30, 2007 and 2006 includes compensation costs for all
share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of ASC 718-10-25, and compensation costs for all
share-based payments granted subsequent to January 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of ASC
718-10-25. The Company estimates the fair value of each stock award at the
grant date by using the Black-Scholes option pricing model. The Company did
not grant any stock-based compensation option awards during the years ended
June 30, 2010 and 2009. During the year ended June 30, 2010, the Company
issued 100,000 warrants in connection with the acquisition of the oil and
gas working interest acquisition more fully explained in Note 7 below and
also extended the expiration date of the 2,000,0000 warrants to its
officers for an additional five years.
A summary of the status of the Company's stock warrants as of June 30, 2010
and 2009 is presented below:
Weighted Ave.
Stock Exercise Exercise
Warrants Price Price
----------------- ---------------- --------------------
Outstanding and Exercisable, June 30, 2008 3,942,326 $ 0.75-1.70 $ 1.34
Granted - - -
Expired/Canceled 335,000 - -
Exercised - - -
----------------- ---------------- --------------------
Outstanding and Exercisable, June 30, 2009 3,607,326 $ 0.75-1.70 $ 1.34
----------------- ---------------- --------------------
Outstanding and Exercisable, June 30, 2009 3,607,326 $ 0.75-1.70 $ 1.34
----------------- ---------------- --------------------
Granted 100,000 - -
Expired/Canceled - - -
Exercised - - -
----------------- ---------------- --------------------
Outstanding and Exercisable, June 30, 2010 3,707,326 $ 0.75-1.70 $ 1.31
----------------- ---------------- --------------------
A summary of outstanding stock warrants at June 30, 2010 follows:
Number of Remaining Weighted
Common Stock Contracted Exercise Ave Exer.
Equivalents Expir. Date Life (Years) Price Price
----------------------- ----------------------- --------------------- ---------------------- -------------------------
1,607,326 May 2011 1.917 $1.70 $1.70
100,000 October, 2012 2.333 $1.75 $1.75
1,000,000 December 2015 5.500 $0.75 $0.75
500,000 December 2015 5.500 $1.00 $1.00
500,000 December 2015 5.500 $1.50 $1.50
F-17
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2010 and 2009
Note 6 - Related Party Transactions
-----------------------------------
On May 12, 2006, the Company entered into a non-exclusive Agency Agreement
with Hycarbex - American Energy, Inc., an entity for which our Director,
Dr. Iftikhar Zahid, serves as president, under which Hycarbex will attempt
to locate for the Company, and to negotiate on behalf of the Company,
royalty purchase opportunities within the Republic of Pakistan. The
Agreement provides for a finder's fee to Hycarbex equal to $50,000 for each
royalty purchase which is actually consummated. Prior to October 29, 2009,
the Company, in its discretion, could deposit funds with Hycarbex which
were to be used solely for such acquisition purposes and subject to the
Company's approval of the transaction. As of June 30 2009, the Company had
on deposit a total of $1,139,500 with Hycarbex for these potential
acquisitions. During the year the Company utilized these funds and as of
June 30, 2010 the Company had on deposit $392,500. During the year ended
June 30, 2010, the Company entered into a Carried Working Interest Purchase
and Sale Agreement with Hycarbex restricting the use of these funds more
fully discussed in Note 7 below.
Note 7 - Investment in Oil and Gas Working Interest - Related Party
-------------------------------------------------------------------
On October 29, 2009, the Company executed an agreement to acquire from
Hycarbex - American Energy, Inc. (Hycarbex), a related party, a two and one
half percent (2-1/2%) working interest in each of the 2,258 square
kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province,
Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone
III, Sindh Province, Pakistan. In exchange for the working interest, the
Company issued (1) 2,000,000 shares of common stock to Hycarbex, (2)
100,000 warrants with a three year duration to purchase an additional
100,000 shares at $1.75 per share and (3) $100,000 in cash. In addition,
the purchase agreement requires Hycarbex to transfer $50,000 per month of
the funds remaining in escrowed funds reserved for acquisitions to the
Company until such time as the Company has received $200,000 in royalty
payments from the Haseeb Exploratory Well No. 1. Once the Company has
received $200,000 in royalty payments from the Haseeb Exploratory Well No.
1, any remaining balance in the funds reserved for acquisitions, currently
$392,500, will be forfeited to Hycarbex for additional consideration of the
acquisition of the oil and gas working interests.
The Company has the option to convert the two and one half percent working
interests described above to a one and one half percent gross royalty
working interest at any time.
Note 8 - Subsequent Events
--------------------------
The Company has evaluated subsequent events for the period of June 30, 2010
through the date the financial statements were issued, and concluded there
were no events or transactions occurring during this period that required
recognition or disclosure in its condensed financial statements.
F-1
