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EX-32.1 - CERTIFICATION - AMERICAN ENERGY GROUP LTDaegg_ex321.htm
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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, 2018

 

 

¨

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 registrant as specified in its charter)

 

Nevada

 

87-0448843

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

20 Nod Hill Road

Wilton, Connecticut

 

06897

(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

 

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

 

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

 

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

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

 

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

 

Large accelerated filer 

¨

Non-accelerated filer 

¨

Accelerated filer 

¨

Smaller reporting company

x

 

 

Emerging growth company

¨

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

 

The issuer had no revenues during the year ended June 30, 2018.

 

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 December 31, 2017, was $2,484,150.

 

As of October 22, 2018, the number of Common shares outstanding was 71,904,290.

 

DOCUMENTS INCORPORATED BY REFERENCE – None

 

 
 
 
 

 

THE AMERICAN ENERGY GROUP, LTD.

INDEX TO FORM 10-K

 

PART 1

 

PAGE

 

 

Items 1 and 2.

Business and Properties

 

3

Item 1.

Risk Factors

 

6

Item 2.

Unresolved Staff Comments

 

12

Item 3.

Legal Proceedings

 

12

Item 4.

Mine Safety Disclosures

 

12

 

 

PART II

 

 

 

Item 5.

Market For Common Equity and Related Stockholder Matters and Issuer Purchase of Equity Securities.

 

13

Item 6.

Selected Financial Data

 

14

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

15

Item 8.

Financial Statements and Supplementary Data

 

15

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

15

Item 9A.

Controls and Procedures

 

16

Item 9B.

Other Information

 

16

 

 

PART III

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

17

Item 11.

Executive Compensation

 

18

Item 12.

Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters

 

20

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

21

Item 14.

Principal Accounting Fees and Services

 

21

 

 

PART IV

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

 

22

 

 

SIGNATURES

 

23

 

 
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PART I

 

ITEMS 1 AND 2 – BUSINESS AND PROPERTIES.

 

Overview

 

On April 15, 2015, the International Chamber of Commerce Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 sale of 100% of the stock of Hycarbex is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thereby returning the Company to its 100% ownership position of the common stock of Hycarbex which it held in calendar 2003. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees were to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by the Company. The International Chamber of Commerce Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Partial Final Award made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex. In response to the April 15 Partial Final Award, the Company effected the shareholder and management registration changes ordered by the ICC and caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. The Government of Pakistan, including the Ministry of Petroleum, the Director General Petroleum Concessions, the Securities and Exchange Commission of Pakistan and the Pakistan Board of Investment have each advised that they view the Company as the legal owner of Hycarbex. Since the delivery of the Partial Final Award, new management of Hycarbex also assumed control of Hycarbex’s Pakistan personnel and began efforts to assume complete control of the Pakistan-based assets, including review, appraisement and investigation of the asset value and potential benefits and the existing, asserted and potential liabilities related to each asset. While Hycarbex has interfaced with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and has continued and/or initiated legal proceedings where necessary to enforce and/or defend Hycarbex’s positions in Pakistan, the jurisdiction of its operations, and in Nevis, West Indies, the jurisdiction of its corporate domicile, as of the date of this report, we have not fully investigated nor determined the value of the Hycarbex assets nor its existing, asserted and potential liabilities. We have not accrued the costs incurred in connection with such review, appraisement, investigation, maintenance, defense and enforcement as of the date of this report.

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

On May 11, 2018, the Director General Petroleum Concessions of Pakistan granted to Hycarbex an extension to the Yasin Exploration License through December 31, 2018, and relating back to the date of the request for extension in March, 2013. The extension letter required Hycarbex’s performance within the extension period of various obligations, including seismic, rework of the Haseeb No. 1 Well, work program financial obligations, and procurement of a bank guarantee. In August, 2018, Hycarbex successfully revived the productivity of the Haseeb No. 1 Well through workover activities necessitated by the 2015 intrusion of formation water into the wellbore. Prior to the water intrusion, the Haseeb No. 1 Well produced gas under an Extended Well Test between July 2011 and May 2015. Hycarbex is currently investigating the availability of gas processing services in the area in order to render the gas suitable for sale to the pipeline and, alternatively, the availability of industrial gas customers who do not require processed gas for their operations. The Company anticipates that Hycarbex will begin marketing gas within the first quarter of calendar 2019. Planning has been initiated toward further development and exploration activities for the Yasin Exploration License based on the May 11 extension and the successful revival of the Haseeb No. 1 Well, but the seismic and financial conditions of the extension letter have not been completed. Hycarbex continues to discuss and has requested adjustment to the timetable for these additional obligations with the Director General Petroleum Concessions but has not received a government response as of the date of this report.

 

 
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Zamzama North and Sanjawi Working Interests and other Pakistan-based Exploration Licenses

 

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. 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. The Company had 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. As of June 30, 2018, the Company has capitalized $0 related to these working interests. The April 15, 2015, Arbitration Award granted to us 100% ownership of the Hycarbex subsidiary. As a result, rather than these smaller carried working interests, the Company, through its subsidiary, now owns the larger working interest percentages registered to Hycarbex, subject to the possible Sanjawi Concession License termination described above. Additionally, we now own through our subsidiary interests in two additional concessions. These interests are Block No. 2466-8 (Karachi), 851 square miles; and Block No. 3371-13 (Peshawar), 960 square miles. Hycarbex is the registered owner of a 95% working interest in the Karachi and Peshawar Exploration Blocks.

 

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 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 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 has explored some of the opportunities to realize value from these deep rights, including potential farmout or sale. The best course for these assets has not been determined.

 

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.

 

 
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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. 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. The production interest assigned to us is free of the costs of development and exploration and thus does not have the financial exposure associated with a traditional working interest. However, title to the production interest is not registered similar to an interest in real estate as it would be in the United States. A production interest in Pakistan is dependent upon the viability of the concession to continue in force. Therefore, any future forfeiture or surrender of the concession will result in elimination of the American Energy interest.

 

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 and current pricing is now more favorable than the price applicable to the gas sold from the Haseeb No. 1 Well Extended Well Test.

 

Other Factors Affecting Pakistan Exploration Opportunities

 

With regard to Pakistan in-country opportunities, 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.

 

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. This policy framework was further updated in 2007, 2009 and 2012. 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 are also simplistic, with no tariffs. The current 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.

 

 
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Pakistan sits in a strategic location geographically. 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. Pakistan currently meets 15% of its energy needs from domestic production according to the Ministry of Petroleum and Natural Resources. 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

 

Our principal executive offices are now located at 20 Nod Hill Road, Wilton, Connecticut under a three (3) year lease commencing July 1, 2017, from the President and Chief Executive Officer who is the owner of the property. The current office space contains approximately 1,444 square feet and the rental obligations (including utilities, internet and other amenities with varying costs) equal approximately $3,500 per month.

 

Employees

 

As of June 30, 2018, we had two (2) full-time employees, which include the President, Pierce Onthank, and an administrative assistant in the corporate office. The Hycarbex subsidiary maintains approximately 14 in-country employees.

 

ITEM 1-RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item.

 

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.

 

 
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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, 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 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.

 

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 to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. 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, 2018, the directors and executive officers and their respective affiliates collectively and beneficially owned approximately 13.24% 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 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. The future loss of Mr. Onthank could adversely affect the implementation of the Company’s business plan. We do not maintain key-man life insurance with respect to any officer or director.

 

The Company’s revenues from production are derived from a single well.

 

The revenues previously accrued to us from the Yasin Block were derived from a single well, the Haseeb No. 1. Formation water intrusion at the well caused production of hydrocarbons to temporarily cease. Hycarbex management has completed repairs to the well and has successfully revived the productivity of the well but future reliance upon a single well which may encounter natural or mechanical decline or cessation of production creates a risk that the Company will not be able to meet all of its financial obligations.

 

The retention of ownership and the entitlement and ability to develop the Yasin and other Pakistan-based concessions will depend upon Hycarbex’s ability to meet the seismic, drilling and financial obligations imposed by the Government of Pakistan.

 

The Yasin exploration license and the exploration licenses for each other Pakistan-based concession operated by Hycarbex are subject to performance requirements imposed by the Government of Pakistan, including seismic, drilling and financial guarantees. The Company’s lack of available financial resources to timely meet one or more of the requirements could result in a governmental forfeiture of a particular exploration license or a portion of the acreage covered by the exploration license. In addition, the Company’s ongoing appraisement and investigation of the existing and potential third party liabilities associated with each concession could result in the discovery of liabilities which further hinder the ability to meet these governmental requirements.

 

 
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The further development of the Yasin Block and development of the other Pakistan-based concessions will depend upon Hycarbex’s ability to secure a strategic development partner or its ability to sell selected assets.

 

The proceeds of stock sales and loans utilized to date to fund the administrative costs of the Company, including legal fees, are not sufficient to meet the anticipated costs of operating or developing the Pakistan-based assets owned by Hycarbex. The anticipated capital costs for operating or developing the Pakistan-based concessions can only be met by securing a strategic development partner and/or the sale of selected Hycarbex assets.

 

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 working interests held by our Hycarbex subsidiary 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 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 71,904,290 shares of our common stock issued and outstanding does not include shares reserved in anticipation of the exercise of options or warrants. As of June 30, 2018, we had outstanding warrants to purchase shares of our common stock 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 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.

 

 
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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 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.

 

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.

 

 
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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.

 

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.

 

 
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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:

 

 

· 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 previously 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.

 

 
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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.

 

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 2 – UNRESOLVED STAFF COMMENTS

 

There were no unresolved staff comments as of June 30, 2018 or the date of this report.

 

ITEM 3 – LEGAL PROCEEDINGS

 

On April 15, 2015, the International Chamber of Commerce (ICC) Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 sale of 100% of the stock of Hycarbex is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thereby returning the Company to its 100% ownership position of the common stock of Hycarbex. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees are to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by AEGG. The ICC Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Award made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex.

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

 
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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 pink sheets (previously the over the counter bulletin board through February 22, 2011) 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 for the five (5) most recent fiscal years. Such prices represent quotations between dealers, without dealer markup, markdown or commissions, and may not represent actual transactions.

 

Quarter

 

High

 

 

Low

 

September 30, 2016

 

$ 0.16

 

 

$ 0.03

 

December 31, 2016

 

$ 0.13

 

 

$ 0.04

 

March 31, 2017

 

$ 0.07

 

 

$ 0.02

 

June 30, 2017

 

$ 0.07

 

 

$ 0.03

 

September 30, 2017

 

$ 0.06

 

 

$ 0.02

 

December 31, 2017

 

$ 0.05

 

 

$ 0.04

 

March 31, 2018

 

$ 0.05

 

 

$ 0.03

 

June 30, 2018

 

$ 0.07

 

 

$ 0.03

 

 

As of June 30, 2018, 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 Pink Sheets, was $0.07. As of June 30, 2018, we had approximately 47 registered holders of our common stock (excluding holders in “street name”). As of June 30, 2018, there were 71,904,290 shares of common stock issued and outstanding and as of October 22, 2018, there were 71,904,290 shares of common stock issued and outstanding.

 

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, 2018.

 

Equity Compensation Plan Information

Plan category

 

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

(a)

 

 

Weighted-average exercise price of outstanding options, warrants and rights

(b)

 

 

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

(c)

 

Equity compensation plans approved by security holders

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

Equity compensation plans not approved by security holders

 

3,650,000 Common

 

 

$ 0.15

 

 

 

-0-

 

Total

 

 

-

 

 

$ 0.15

 

 

 

-0-

 

 

 
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Recent Sales of Unregistered Securities

 

During the fiscal year commencing July 1, 2017 and ending June 30, 2018, we sold 1,785,714 unregistered shares of Common Stock for a cash consideration of $125,000 which we used for general working capital, including attorneys’ fees incurred in the pending litigation with Hycarbex.

 

ITEM 6 – SELECTED FINANCIAL DATA

 

The registrant is a smaller reporting company, pursuant to Rule 229.10(f)(1), and is not required to report this information.

 

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.

 

Results of Operations

 

Our operations for the twelve months ended June 30, 2018 reflected a net operating loss of $1,137,816 as compared to a net operating loss of $794,803 for the twelve months ended June 30, 2017. The increase in net operating loss from the prior year is predominately the result of a net increase in salaries of $296,608, a net increase in compensation related to the extension of stock warrants of $64,044, and a decrease in legal and professional fees in the amount of $42,432.

 

 
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Liquidity and Capital Resources

 

We have funded our operations through private loans and the private sale of securities. We sold 1,785,714 shares during the year ended June 30, 2018 for $125,000. We sold 4,688,095 shares during the year ended June 30, 2017 for $372,000. During the years ended June 30, 2018 and 2017, we obtained unsecured loans from an existing shareholder for $412,000 and $155,000, respectively. We also obtained $4,000 and $117,000, respectively, from individual investors during the years ended June 30, 2018 and 2017. In addition an officer of the Company loaned $87,816 at 0% interest during the year ended June 30, 2018. Subsequent to the year ending June 30, 2018, we obtained an unsecured loan from an existing shareholder for $85,000. The funds have been and will continue to be utilized for general and administrative expenses incurred by the Company, including the non-recurring legal and accounting costs associated with the pending litigation and the administrative expenses incurred by the newly acquired subsidiary, Hycarbex.

 

In August, 2018, Hycarbex successfully revived the productivity of the Haseeb No. 1 Well through workover activities. Hycarbex is currently investigating the availability of gas processing services in the area in order to render the gas suitable for sale to the pipeline and, alternatively, the availability of industrial gas customers who do not require processed gas for their operations. The Company anticipates that Hycarbex will begin marketing gas within the first quarter of calendar 2019. Management is likewise optimistic that its ongoing negotiations with potential strategic development partners will result in the consummation of a transaction which will provide needed capital for the development of the other Hycarbex exploration licenses and funding of future administrative costs. We will seek additional loans or make additional sales of securities in the future, as necessary, to fund the Company’s working capital needs as they arise in the event that the anticipated results are not achieved. There is no assurance of management’s ability to secure loans or consummate securities sales to meet working capital requirements. (See Note 10 – Going Concern footnote to Financial Statements above).

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements during the fiscal year ended June 30, 2018.

 

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is not a party to nor does it engage in any activities associated with derivative financial instruments, other financial instruments and/or derivative commodity instruments.

 

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

 

None.

 

 
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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 and 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 and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective 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 rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2018, these disclosure controls and procedures were not effective.

 

There have been material changes in internal control over financial reporting that occurred during the year ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

  

Management’s Annual Report on Internal Control On Financial Reporting

 

Management used the Internal Control – Integrated Framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on management’s assessment, the Company determined the following material weaknesses: timely reconciliation and preparation of financial information, insufficient complex debt and equity accounting expertise, incomplete records and documentation of subsidiary.

 

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

 

Management does not expect to continue this course of raising capital through securities sales due to the limitation in the number of authorized shares. With the recent cessation in the production from the Haseeb No. 1 well, management believes that the securing of a strategic development partner and/or the sale of selected Hycarbex assets will be necessary to meet our capital needs for future administrative expenses and legal fees and the anticipated operating and development capital costs associated with the Hycarbex assets.

 

 
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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, 2018, included the following persons, each of whom serves on the audit committee of the Company:

 

Name

 

Age

 

Position

R. Pierce Onthank

 

58

 

Director, President, CEO, CFO & Secretary-Treas.

John S. Gebhardt

 

71

 

Director

 

R. Pierce Onthank, age 58, 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 The American Energy Group, Ltd. as one of its prior investment bankers, Mr. Onthank has 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.

 

John S. Gebhardt, age 71, became a member of the Board of Directors upon the April, 2011 retirement of Karl Welser. Mr. Gebhardt resides in Celebration, Florida. Mr. Gebhardt studied economics at both the Lubin School of Business at Pace University and the Stern School of Business at New York University. Mr. Gebhardt was previously employed as a Managing Director at Paine Webber in New York City from 1981 to 1998, and as a Managing Director at Knight Capital Markets in Purchase, New York from 1998 to 2001. Since 2001, Mr. Gebhardt has been self employed as a manager of securities portfolios for private clients and as a consultant to companies as to exchange listing matters. Mr. Gebhardt has also served on many civic and educational boards, including twelve years on the Byram Hills Board of Education, Armonk, New York, eleven years on the Board of the Westchester-Putnam School Boards Association, and two terms on the Board of Directors of the New York State School Boards Association.

 

Board of Directors

 

We held one physical meeting and five (5) telephonic meetings of the Board of Directors during the fiscal year ended June 30, 2018, and the Board of Directors took action at Board meetings or by unanimous written consent twice during that period. Mr. Onthank and Mr. Gebhardt are our only Directors who are also our officers and/or operations executives. Mr. Onthank and Mr. Gebhardt serve upon the audit committee. There are not any other standing committees of the Board of Directors 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, 20 Nod Hill Road, Wilton, Connecticut 06897. 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.

 

 
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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 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 given common stock 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. Our officers and directors are currently compliant 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., 20 Nod Hill Road, Wilton, Connecticut 06897.

 

ITEM 11 - EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table reflects all forms of compensation for the fiscal years ended June 30, 2017 and 2018 for services provided by our executive officers and directors.

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

ANNUAL COMPENSATION

 

 

LONG TERM COMPENSATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards

 

 

Payouts

 

 

 

 

Name

 

 Title

 

 Year

 

Salary

 

 

Bonus

 

 

Other Annual Comp-ensation

 

 

Restricted Stock Awarded

 

 

Options/ SARs

Warrants
(#)

 

 

LTIP
payouts
($)

 

 

All Other Comp-ensation

 

R.Pierce Onthank

 

President, CEO and

 

 2018

 

$ 360,000

(1) 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

Sec. Treas. 

 

 2017

 

$ 68,967

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John S. Gebhardt

 

Director

 

 2018

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

 

 

 2017

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

 

-0-

 

 

Notes to Summary Compensation Table:

 

 

(1) Director, President and CEO Onthank is still owed $197,467 of his annual compensation as of 6/30/18.

 

 
18
 
Table of Contents

 

Stock Option/SAR and Warrant Grants

 

During the fiscal year ended June 30, 2018 there were not any grants of warrants, stock options or SAR’s to executive officers or directors. 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

 

Name

 

Shares Acquired on Exercise

(#)

 

 

Value Realized

($)

 

 

Number of Unexercised Underlying Options/SARs/ Warrants at FY end (#);

Exercisable/ Unexercisable

 

Value of Unexercised In-The-Money Options/SARs/ Warrants at FY end ($);

Exercisable/ Unexercisable

 

Pierce Onthank

 

 

-0-

 

 

 

-0-

 

 

0/0/3,250,000

 

$0/0/585,000

 

John S. Gebhardt

 

 

-0-

 

 

 

-0-

 

 

0/0/400,000

 

$0/0/72,000

 

 

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, 2018.

 

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.

 

 
19
 
Table of Contents

  

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information as of October 22, 2018, 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 22, 2018, we had 71,904,290 shares of common stock issued and outstanding.

 

Name and address of beneficial owner

 

Title of Class
of Stock

 

Number of Shares of Common Stock

 

 

Percentage of Common Stock (1)

 

R. Pierce Onthank

20 Nod Hill Rd.

Wilton, Connecticut 06897

 

Common stock

 

 

9,013,561 (1,2)

 

11.99

%(1,2) 

 

 

 

 

 

 

 

 

 

 

John S. Gebhardt

509 Longmeadow

Celebration, Florida 34747

 

Common stock

 

 

993,392 (1,3)

 

1.37

%(1,3) 

 

 

 

 

 

 

 

 

 

 

All Officers and Directors as a group (total of two)

 

Common stock

 

 

10,006,953 (1)

 

13.24

%(1,2,3) 

_____________

(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, 2018. As of October 22, 2018 there were 71,904,290 shares of our common stock issued and outstanding disregarding shares which may be acquired upon exercise of outstanding warrants.

 

 

(2) Includes 3,250,000 shares issuable upon the exercise of warrants to purchase shares of common stock.

 

 

(3) Includes 400,000 shares issuable upon the exercise of warrants to purchase shares of common stock.

 

 
20
 
Table of Contents

 

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

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 member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons named in paragraph (A) or (B) above.

 

However, the Company did borrow $115,000 from a more than 5% shareholder, and the Company also issued $125,000 in common stock to that same shareholder during the year ended June 30, 2018.

 

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

Audit fees billed by the Company’s current Principal Accountant were $5,000 during the year ended June 30, 2018. Audit fees billed by the Company’s previous Principal Accountant were $28,223 and $17,500, respectively, during the years ended June 30, 2018 and 2017.

 

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.

 

 
21
 
Table of Contents

 

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 of 2002, Section 1350(a) and

 

 

101

Interactive data files pursuant to Rule 405 of Regulation S-T.

 

 
22
 
Table of Contents

 

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.
       
Dated: October 22, 2018 By: /s/ R. Pierce Onthank

 

 

R. Pierce Onthank  
    President, Secretary, Director  
    Chief Financial Officer and Principal Accounting Officer  

 

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.

 

       
Date signed: October 22, 2018 By: /s/ John S. Gebhardt

 

 

John S. Gebhardt  
    Director  

 

 
23
 
 

 

CONTENTS

 

Reports of Independent Registered Public Accounting Firms

 

F-2

 

 

 

 

 

Balance Sheets

 

F-4

 

 

 

 

 

 

Statements of Operations

 

F-5

 

 

 

 

 

 

Statements of Stockholders’ Equity

 

F-6

 

 

 

 

 

 

Statements of Cash Flows

 

F-7

 

 

 

 

 

 

Notes to the Financial Statements

 

F-8

 

 

 
F-1
 
Table of Contents

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

The American Energy Group, Ltd.

 

Opinion on the Financial Statements

We have audited the accompanying balance sheet of The American Energy Group, Ltd. (the Company) as of June 30, 2018 and the related statements of operations, stockholders' deficit and cash flows for the year ended June 30, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its cash flows for the year ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited the adjustments to the 2017 financial statements to correct the errors, as described in Note 1. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2017 financial statements of the Company and other than with respect to the adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2017 financial statements taken as a whole.

 

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company has incurred losses and has negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

HAYNIE & COMPANY

 

Salt Lake City, Utah

October 22, 2018

 

We have served as the Company’s auditor since 2018.

 

 
F-2
 
Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

The American Energy Group, Ltd.

 

We have audited the accompanying balance sheet of The American Energy Group, Ltd. as of June 30, 2017 and the related statements of operations, stockholders' equity and cash flows for the year then ended. The American Energy Group, Ltd.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 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 audit provides 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, 2017 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming The American Energy Group, Ltd. will continue as a going concern. As discussed in Note 10 to the financial statements, The American Energy Group, Ltd. has incurred losses and negative cash flows from operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

PRITCHETT, SILER & HARDY, P.C.

 

Salt Lake City, Utah

October 13, 2017

 

 
F-3
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.
Balance Sheets
June 30, 2018 and 2017

 

 

 

2018

 

 

2017

 

 

 

 

 

 

(As Revised -
See Note 1)

 

Assets

Current Assets

 

 

 

 

 

 

Cash

 

$ 32,738

 

 

$ 70,254

 

Prepaid expenses

 

 

-

 

 

 

27,801

 

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

32,738

 

 

 

98,055

 

 

 

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

 

 

 

Office equipment

 

 

25,670

 

 

 

25,670

 

Accumulated depreciation

 

 

(24,462 )

 

 

(24,012 )

 

 

 

 

 

 

 

 

 

Net Property and Equipment

 

 

1,208

 

 

 

1,658

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 33,946

 

 

$ 99,713

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 65,124

 

 

$ 57,013

 

Note payable

 

 

-

 

 

 

25,833

 

Derivative liability

 

 

84,821

 

 

 

78,084

 

Accrued liabilities

 

 

1,118,507

 

 

 

646,146

 

Notes payable – related parties

 

 

100,000

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

1,368,452

 

 

 

907,076

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

Notes payable – related parties, less current portion

 

 

2,150,816

 

 

 

1,647,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

3,519,268

 

 

 

2,554,076

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share; authorized 80,000,000 shares; 71,904,290 and 70,118,576 shares issued and outstanding, respectively

 

 

71,905

 

 

 

70,119

 

Additional paid in capital

 

 

18,741,671

 

 

 

18,507,864

 

Accumulated deficit

 

 

(22,298,898 )

 

 

(21,032,346 )

 

 

 

 

 

 

 

 

 

Total Stockholders’ Deficit

 

 

(3,485,322 )

 

 

(2,454,363 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 33,946

 

 

$ 99,713

 

 

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

 

 
F-4
 
Table of Contents

  

THE AMERICAN ENERGY GROUP, LTD.

Statements of Operations

For the Years Ended June 30, 2018 and 2017

 

 

 

2018

 

 

2017

 

 

 

 

 

 

(As Revised -
See Note 1)

 

 

 

 

 

 

 

 

General and Administrative Expenses

 

 

 

 

 

 

Legal and professional

 

$ 402,001

 

 

$ 444,433

 

Depreciation and amortization expense

 

 

450

 

 

 

509

 

General and administrative

 

 

735,365

 

 

 

349,861

 

 

 

 

 

 

 

 

 

 

Total Expenses

 

 

(1,137,816 )

 

 

(794,803 )

 

 

 

 

 

 

 

 

 

Net Operating (Loss)

 

 

(1,137,816 )

 

 

(794,803 )

 

 

 

 

 

 

 

 

 

Other Income and (Expense)

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

-

 

 

 

(258,183 )

Change in fair value of derivative

 

 

(6,736 )

 

 

(78,084 )

Interest expense

 

 

(121,750 )

 

 

(106,341 )

Other

 

 

(250 )

 

 

(250 )

 

 

 

 

 

 

 

 

 

Total Other Income and (Expense)

 

 

(128,736 )

 

 

(442,858 )

 

 

 

 

 

 

 

 

 

Net Loss before Income Taxes

 

 

(1,266,552 )

 

 

(1,237,661 )

 

 

 

 

 

 

 

 

 

Income Taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,266,552 )

 

$ (1,237,661 )

 

 

 

 

 

 

 

 

 

Basic Loss per Common Share

 

$ (0.02 )

 

$ (0.02 )

 

 

 

 

 

 

 

 

 

Weighted Average Number of Shares Outstanding

 

 

71,188,830

 

 

 

67,331,791

 

 

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

 

 
F-5
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Statements of Stockholders’ Equity

For the Years Ended June 30, 2018 and 2017

 

 

 

Common Stock

 

 

Capital

in Excess

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

of Par Value

 

 

Deficit

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2016

 

 

66,518,674

 

 

$ 66,519

 

 

$ 17,834,731

 

 

$ (19,794,685 )

 

$ (1,893,435 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New shares issued for cash

 

 

4,688,095

 

 

 

4,688

 

 

 

367,312

 

 

 

-

 

 

 

372,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 2016, cancelled shares previously issued for services rendered

 

 

(1,088,193 )

 

 

(1,088 )

 

 

1,088

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 2016, 2,000,000 warrants extended in connection with debt issuance

 

 

-

 

 

 

-

 

 

 

258,183

 

 

 

-

 

 

 

258,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 2016, 1,260,000 warrants extended in connection with stock options

 

 

-

 

 

 

-

 

 

 

46,550

 

 

 

-

 

 

 

46,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the year ended June 30, 2017

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,237,661 )

 

 

(1,237,661 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2017

 

 

70,118,576

 

 

$ 70,119

 

 

$ 18,507,864

 

 

$ (21,032,346 )

 

$ (2,454,363 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New shares issued for cash

 

 

1,785,714

 

 

 

1,786

 

 

 

123,214

 

 

 

-

 

 

 

125,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 2018, 3,860,000 warrants extended in connection with stock options

 

 

-

 

 

 

-

 

 

 

110,593

 

 

 

-

 

 

 

110,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the year ended June 30, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,266,552 )

 

 

(1,266,552 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2018

 

 

71,904,290

 

 

$ 71,905

 

 

$ 18,741,671

 

 

$ (22,298,898 )

 

$ (3,485,322 )
 

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

 

 
F-6
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Statements of Cash Flows

For the Years Ended June 30, 2018 and 2017

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

 

Net loss

 

$ (1,266,552 )

 

$ (1,237,661 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

450

 

 

 

509

 

Loss on extinguishment of debt

 

 

-

 

 

 

258,183

 

Non-cash expense related to commitment of common

 

 

 

 

 

 

 

 

stock in excess of authorized shares

 

 

6,737

 

 

 

78,084

 

Share-based compensation expense

 

 

110,593

 

 

 

46,550

 

Amortization of debt discount

 

 

-

 

 

 

17,865

 

Changes in operating assets and liabilities

 

 

27,801

 

 

 

(121 )

(Increase) decrease in prepaid expenses

 

 

8,111

 

 

 

(1,364 )

Increase (decrease) in accounts payable

 

 

 

 

 

 

 

 

Increase (decrease) in accrued expenses and other current liabilities

 

 

472,361

 

 

 

266,817

 

 

 

 

 

 

 

 

 

 

Net Cash (Used In) Operating Activities

 

 

(640,499 )

 

 

(571,138 )

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds from the issuance of note payable – related party

 

 

503,816

 

 

 

272,000

 

Principal payments on notes payable

 

 

(25,833 )

 

 

(2,821 )

Proceeds from the issuance of common stock

 

 

125,000

 

 

 

372,000

 

 

 

 

 

 

 

 

 

 

Net Cash Provided By Financing Activities

 

 

602,983

 

 

 

641,179

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash

 

 

(37,516 )

 

 

70,041

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, Beginning of Year

 

 

70,254

 

 

 

213

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, End of Year

 

$ 32,738

 

 

$ 70,254

 

 

 

 

 

 

 

 

 

 

Cash Paid For:

 

 

 

 

 

 

 

 

Interest

 

$ 7,996

 

 

$ 6,958

 

 

 

 

 

 

 

 

 

 

Non-Cash Financing Activities:

 

$ -

 

 

$ -

 

 

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

 

 
F-7
 
Table of Contents

 

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. The Company’s authorized common stock, par value $0.001 is 80,000,000 shares. The Company’s authorized preferred stock, par value $0.001, is 20,000,000 shares. There is no preferred stock issued and outstanding.

 

These financial statements do not include the consolidation of its recently re-acquired wholly owned subsidiary, Hycarbex American Energy, Inc as the Company had not yet received full access to the historical financial records, nor full control of its operations, as of June 30, 2018.

 

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, 2018 and 2017, the Company incurred total depreciation of $450 and $509, respectively.

 

e. Basic Loss Per Share of Common Stock

 

 

 

For the Year

 

 

For the Year

 

 

 

Ended June 30,

 

 

 Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Loss (numerator)

 

$ (1,266,552 )

 

$ (1,237,661 )

 

 

 

 

 

 

 

 

 

Shares (denominator)

 

 

71,188,830

 

 

 

67,331,791

 

 

 

 

 

 

 

 

 

 

Per Share Amount

 

$ (0.02 )

 

$ (0.02 )

 

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 12,193,334 and 12,193,334 shares of common stock for the years ended June 30, 2018 and 2017, respectively, are not included in the basic calculation because their inclusion would be antidilutive, thereby reducing the net loss per common share.

 

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 360 whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company recognized no impairment loss during the year ended June 30, 2018.

 

 
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Table of Contents

 

Note 1 - Organization and Summary of Significant Accounting Policies (continued)

 

h. Stock Based Compensation

 

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

 

The Company accounts for corporate income taxes in accordance with FASB ASC 740-10 “Income Taxes”. FASB ASC 740-10 requires an asset and liability approach for financial accounting and reporting for income tax purposes.

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Tax Cuts and Jobs Act was enacted on December 22, 2017 which reduced the U.S. corporate statutory tax rate from 35% to 21% beginning on January 1, 2018. We used a blended rate as an effective rate.

 

The Company’s total deferred tax liabilities, deferred tax assets, and deferred tax asset valuation allowances at June 30, 2018 and June 30, 2017 are as follows:

 

 

 

2018

 

 

2017

 

Net Operating Losses:

 

 

 

 

 

 

Federal

 

$

(58,145,400

)

 

$ (57,201,767 )

State

 

 

-

 

 

 

-

 

Total net operating losses

 

$ (58,145,400 )

 

$ (57,201,767 )

 

 

 

 

 

 

 

 

 

Deferred Tax Asset:

 

 

 

 

 

 

 

 

NOL Carryover

 

 

10,451,834

 

 

 

19,406,225

 

Less valuation allowance

 

 

(10,451,834 )

 

 

(19,406,225 )

 

 

 

 

 

 

 

 

 

Net Deferred Tax Asset

 

$ -

 

 

$ -

 

  

The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.

 

Net operating loss carryovers of the Company may be used to offset against future taxable income from the year 2018 through 2038 and will begin expiring in the year ended June 30, 2019. No tax benefit has been reported since the potential tax benefit is offset by a valuation allowance of the same amount.

 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended June 30, 2018 and 2017 due to the following:

 

 

 

2018

 

 

2017

 

Book Loss

 

$ (241,468 )

 

$ (38,429 )

Warrant Expense

 

 

19,644

 

 

 

-

 

Extended Warrants

 

 

8,368

 

 

 

-

 

Loss on Derivatives

 

 

15,247

 

 

 

-

 

Meals & Entertainment

 

 

833

 

 

 

-

 

Change in Depreciation

 

 

53

 

 

 

-

 

Valuation allowance

 

 

197,323

 

 

 

38,429

 

Income tax provision

 

$ -

 

 

$ -

 

 

 
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Note 1 - Organization and Summary of Significant Accounting Policies (continued)

 

 i. Income Taxes (continued)

 

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes.

 

The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended June 30, 2018, 2017, 2016 and 2015.

 

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 the promissory notes approximates fair value because negotiated terms and conditions are consistent with current market rates as of June 30, 2018 and 2017.

 

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, 2018, the Company believes it has no such liabilities.

 

m. New Accounting Pronouncements

 

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ ("ASC") is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. 

 

In February 2016, the FASB issued ASU No. 2016-02: Leases (Topic 842) (ASU 2016‑02). The main objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 requires lessees to recognize assets and liabilities arising from leases on the balance sheet. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. For public entities, ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; early application is permitted. This standard is not expected to have a significant impact on the Company as it does not currently engage in significant leasing activity. The Company will continue to assess the impact this may have on its financial position, results of operations, and cash flows.

 

 
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Table of Contents

 

Note 1 - Organization and Summary of Significant Accounting Policies (continued)

  

n. Basis of Presentation

 

Our financial statements for the year ended June 30, 2017, include an immaterial revision to liabilities, additional paid in capital as well as retained earnings related to the over commitment of shares and the extension of stock warrants to the shares issuable on the exercise of outstanding debentures, stock options and warrants. In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), the Company has evaluated this error and, based on an analysis of quantitative and qualitative factors, has determined that it was not material to any of the reporting periods affected and no amendments to previously filed 10-Q or 10-K reports with the SEC are required.

 

Impact of Errors on the Balance Sheet

 

 

 

As of

 

 

 

 

 

As of

 

 

 

June 30, 2017

 

 

 

 

 

June 30, 2017

 

 

 

As Presented

 

 

Adjustment

 

 

As Revised

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

$ -

 

 

$ 78,084

 

 

$ 78,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

70,119

 

 

 

-

 

 

 

70,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid in Capital

 

 

18,461,314

 

 

 

46,550

 

 

 

18,507,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Deficit

 

 

(20,907,712 )

 

 

(124,634 )

 

 

(21,032,346 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Deficit

 

$ (2,376,279 )

 

$ (78,084 )

 

$ (2,454,363 )

  

Impact of Errors on the Statement of Operations

 

 

 

For the Year Ended

 

 

 

 

 

For the Year Ended

 

 

 

June 30, 2017

 

 

 

 

 

June 30, 2017

 

 

 

As Presented

 

 

Adjustment

 

 

As Revised

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,113,027 )

 

$ (124,634 )

 

$ (1,237,661 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share

 

$ (.02 )

 

 

-

 

 

$ (.02 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Calculation

 

 

67,331,791

 

 

 

-

 

 

 

67,331,791

 

 

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, 2018 and 2017, 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. The carrying value of these leases is $0.

 

 
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Note 2 - Oil and Gas Properties (continued)

 

Subsequent to the year ended June 30, 2018, the Company was awarded 100% of the stock of its previously wholly owned subsidiary, Hycarebex American Energy, Inc. Prior to the year ended June 30, 2018, the Company held an 18% gross royalty interest in the Yasin Concession in Pakistan, which was received in exchange for the original sale of Hycarbex. Revenues to have been derived from this interest were overriding in nature and there were no future financial obligations or commitments required of the Company to secure this royalty interest.

 

The Company has not yet received full access to the historical financial and property records of Hycarbex since receiving the judgment award of the ICC subsequent to the year ended June 30, 2018, and as a result the Company has been unable to consolidate the accounting of Hycarbex into these financial statements. Oil and Gas properties currently determined to be owned by Hycarbex include working interests in five (5) large exploration blocks within Pakistan. These interests include: Block No. 2768-7 (Yasin), 673 square miles; Block No. 2667-8 (Zamzama North), 474 square miles; Block No. 3068-2 (Sanjawi), 871 square miles; Block No. 2466-8 (Karachi), 851 square miles; and Block No. 3371-13 (Peshawar), 960 square miles. Hycarbex is the registered owner of a 75% working interest in the Yasin Exploration Block, 95% working interest in the Karachi and Peshawar Exploration Blocks, 20% working interest in Zamzama North and Sanjawi Exploration Blocks, of which 10% is carried as to exploration costs with back-in rights to acquire an additional 10% working interest upon commercial discovery.

 

Note 3 – Notes Payable – Related Party

 

During the years ended June 30, 2018 and 2017, the Company borrowed $412,000 and $255,000, respectively, from a current shareholder. Interest on these notes accrues at 5% and is payable in full at maturity. The notes mature in February of 2020. The Company has accrued interest expense of $92,509 and $81,414 during the years ended June 30, 2018 and June 30, 2017, respectively, on these notes. The oil and gas properties in Southeast Texas serve as collateral on these notes.

 

An officer of the Company loaned an additional $87,816 at 0% interest during the year ended June 30, 2018 resulting in a total balance of $87,816 as of June 30, 2018.

 

In addition during the year ended June 30, 2018, the Company borrowed $4,000 from an individual investor. Interest on these notes accrues at 2.50% and is payable in full at maturity. The notes mature in April of 2019. The Company has accrued interest expense of $478 during the year ended June 30, 2018 on these notes.

 

Note 4 – Derivative Liability

 

The Company computes the fair value of the derivative liability arising from the over commitment of shares at each reporting period with the change in the fair value recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under the Company’s control. Therefore, the resulting effect on net loss is subject to significant fluctuation and will continue to be so until the Company’s outstanding warrants are converted into common stock, or paid in full of cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.

 

Since the number of shares issuable under the Variable Debentures is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised warrants, the derivatives must be valued using the Black Scholes option pricing model and a liability is recorded as though the obligations would be settled using some means other than stock. As of June 30, 2018 and 2017, the Company determined that it was over committed to the number of shares issuable on the exercise of outstanding debentures and warrants for approximately 4,097,624 shares and 2,311,910, respectively, resulting in the recognition of non-cash expenses of $6,736 and $78,084, respectively, for the years ended June 30, 2018 and 2017.

 

 
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Note 5 - Common Stock

 

During the year ended June 30, 2017, the Company cancelled 1,088,193 shares previously issued in exchange for services in 2011.

 

During the year ended June 30, 2017, the Company issued 4,688,095 shares of common stock for cash in the amount of $372,000.

 

During the year ended June 30, 2018, the Company issued 1,785,714 shares of common stock for cash in the amount of $125,000.

 

Note 6 - Common Stock Warrants

 

During the year ended June 30, 2018, the Company extended 3,860,000 warrants. During the year ended June 30, 2017, the Company extended 5,333,334 warrants in connection with the financing addressed in Note 3. The warrants can be purchased at $0.10 per share. The Company reported a $258,183 loss on extinguishment of debt related to the extension of these warrant issuances. The expense of these warrants was calculated using the Black-Scholes option pricing model using the following assumptions:

 

Dividend yield

 

 

0

 

Expected volatility

 

 

1.20 %

Risk free interest

 

 

0.50 %

Expected life

 

 3.5 years

 

 

A summary of the status of the Company’s stock warrants as of June 30, 2018 and 2017 is presented below:

 

 

 

 

 

 

 

 

 

Weighted Ave.

 

 

 

Stock

 

 

Exercise

 

 

Exercise

 

 

 

Warrants

 

 

Price

 

 

Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable, June 30, 2016

 

 

12,193,334

 

 

$

 0.10-0.15

 

 

$ 0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Expired/Canceled

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable, June 30, 2017

 

 

12,193,334

 

 

$

 0.10–0.15

 

 

$ 0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Expired/Canceled

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable, June 30, 2018

 

 

12,193,334

 

 

$

 0.10–0.15

 

 

$ 0.12

 

  

A summary of outstanding stock warrants at June 30, 2018 follows:

  

Number of

 

 

 

Remaining

 

 

 

 

Weighted

 

Common Stock

 

 

 

Contracted

 

 

Exercise

 

 

Ave Exer.

 

Equivalents

 

 

Expir. Date

 

Life (Years)

 

 

Price

 

 

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,860,000

 

 

June 2020

 

 

2.000

 

 

$ 0.15

 

 

$ 0.15

 

 

8,333,334

 

 

February 2020

 

 

1.750

 

 

$ 0.10

 

 

$ 0.10

 

  

Note 7 – Warrant Modification

 

During the year ended June 30, 2018, the Company extended 3,860,000 warrants. In accordance with ASC 718-20-35-3 a modification of the terms or conditions of an equity award shall be treated as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. During the years ended June 30, 2018 and 2017, the Company recognized $110,593 and $46,550, respectively, in compensation expense and additional paid in capital related to the extension of these warrants.

 

 
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Note 8 – Subsequent Events

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

The Company has evaluated subsequent events from June 30, 2018 through the date the financial statements were issued and determined there were no additional items to report.

 

Note 9 – Other Contingencies

 

Litigation

 

On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 sale of 100% of the stock of Hycarbex is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thereby returning the Company to its 100% ownership position of the common stock of Hycarbex. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees are to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by AEGG. The ICC Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Award made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex.

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

The Company has effected the shareholder and management registration changes ordered by the ICC and has caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. New management of Hycarbex has also assumed control of Hycarbex’s Pakistan personnel. New Hycarbex management has begun its efforts to assume complete control of the Pakistan-based assets, including review and appraisement of each asset, interfacing with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and continuation of legal proceedings where necessary to enforce its rights. The Government of Pakistan, including the Ministry of Petroleum, the Director General of Petroleum Concessions, the Securities and Exchange Commission of Pakistan and the Pakistan Board of Investment have each advised that they view the Company as the legal owner of Hycarbex. Further, subsequent to March 31, 2018, the Government of Pakistan granted to Hycarbex an extension to the Yasin Exploration License relating back to the date of the request for extension in March, 2013. Planning has been initiated toward development and exploration activities for the Yasin Exploration License based on this extension. The extension is subject to performance requirements pertaining to seismic, rework of the Haseeb #1 Well and the work program financial obligations which are being reviewed by Management and which will be discussed with the Government of Pakistan as the work at the site moves forward. Management intends to conduct a detailed review of the benefits and obligations associated with these Pakistan-based assets.

 

Note 10 – Going Concern

 

The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. At June 30, 2018, the Company’s current liabilities exceeded its current assets and it has recorded negative cash flows from operations. The preceding circumstances combine to raise substantial doubt about the Company’s ability to continue as a going concern. Management has been successful in capital raises in the past to continue operations, but there can be no assurance that success will continue in the future.

 

 

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