-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TQUC/KoKgTLLGz5/XLPXzXxFuesq3C5d4nRCVl0CDK2h2fRZlPRH/+ksS1VzmMu5 EMbsYsTJM7roAuQ7q63Icg== 0001157523-07-009744.txt : 20071011 0001157523-07-009744.hdr.sgml : 20071011 20071011091413 ACCESSION NUMBER: 0001157523-07-009744 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20071011 DATE AS OF CHANGE: 20071011 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ENERGY GROUP LTD CENTRAL INDEX KEY: 0000843212 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 870448843 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26402 FILM NUMBER: 071166404 BUSINESS ADDRESS: STREET 1: P O BOX 489 STREET 2: 1861 BROWN BLVD,STE 655 CITY: SIMONTON STATE: TX ZIP: 77476 BUSINESS PHONE: 2813462652 MAIL ADDRESS: STREET 1: PO BOX 489 CITY: SIMONTON STATE: TX ZIP: 77476 FORMER COMPANY: FORMER CONFORMED NAME: BELIZE AMERICAN CORP INTERNATIONALE DATE OF NAME CHANGE: 19941004 FORMER COMPANY: FORMER CONFORMED NAME: DIM INC DATE OF NAME CHANGE: 19920703 10KSB 1 a5515535.txt THE AMERICAN ENERGY GROUP, LTD. 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED JUNE 30, 2007 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ Commission file number: 0-26402 THE AMERICAN ENERGY GROUP, LTD. (Name of small business issuer in its charter) Nevada 87-0448843 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Gorham Island, Suite 303 Westport, Connecticut 06880 (Address of principal executive offices) (Zip code) (Issuer's telephone number 203/222-7315) --------------------------- Securities registered under Section 12(b) of the Exchange Act: None Securities registered under section 12(g) of the Act: Common Stock, Par Value $.001 Per Share --------------------------- Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-KSB. [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No X The issuer had no revenues for the year ended June 30, 2007. 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 September 26, 2007, was $20,446,150. (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes _X__ No ___ (APPLICABLE ONLY TO CORPORATE REGISTRANTS) As of October 10, 2007, the number of Common shares outstanding was 30,584,120 DOCUMENTS INCORPORATED BY REFERENCE - None 1
THE AMERICAN ENERGY GROUP, LTD. INDEX TO FORM 10-KSB PART 1 PAGE Items 1 and 2. Business and Properties....................................... 3 Item 3. Legal Proceedings............................................. 8 Item 4. Submission of Matters to a Vote of Security Holders........... 9 PART II Item 5. Market For Common Equity and Related Stockholder Matters...... 9 Item 6. Management's Discussion and Analysis or Plan of Operation.......................................... 10 Item 7. Financial Statements ......................................... 14 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 14 Item 8A Controls and Procedures....................................... 14 Item 8B Other Information............................................. 14 PART III Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act............. 14 Item 10. Executive Compensation........................................ 16 Item 11. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters............................... 17 Item 12. Certain Relationships and Related Transactions................ 18 PART IV Item 13. Exhibits ..................................................... 19 Item 14. Principal Accountant Fees and Services........................ 19 SIGNATURES...................................................................... 19
2 PART I ITEMS 1 AND 2 - BUSINESS AND PROPERTIES. Overview--Post-Bankruptcy Until our 2002 bankruptcy filing, we were an independent oil and natural gas company engaged in the exploration, development, acquisition and production of crude oil and natural gas properties in the Texas gulf coast region of the United States and in the Jacobabad area of the Republic of Pakistan. We emerged from bankruptcy in January 2004 with two assets, an 18% gross overriding royalty in the Yasin Concession in Pakistan, and a working interest in an oil and gas lease in Galveston County, Texas. While the bankruptcy proceedings were pending, our producing oil and gas leases in Fort Bend County, Texas were foreclosed by a secured lender. Our non-producing Galveston County, Texas oil and gas lease rights were not affected by the foreclosure. In November 2003, we sold the capital stock of our then existing subsidiary, Hycarbex, which held the exploration license in Pakistan, to Hydro Tur (Energy) Ltd., a company organized under the laws of the Republic of Turkey ("Hydro Tur"). We retained an 18.0% overriding royalty interest in the production which may be derived in the future from drilling operations. We emerged from bankruptcy in January 2004 with these two assets intact and with our sole business being the maintenance and management of these assets. Acquisition of the Original Pakistan Concession and the 18% Royalty Interest in the Yasin Concession In April 1995, our wholly owned subsidiary at the time, Hycarbex-American Energy, Inc., acquired an exploration license for the Jacobabad (2768-4) Block in the Sindh Province of the Middle Indus Basin of Pakistan, approximately 230 miles northeast of the port city of Karachi. At that time, our assets and the assets of our subsidiaries included both North American and Pakistan development properties. Original exploration efforts on the Jacobabad Block indicated the presence of commercially viable natural gas in the area, but a commercial well was not achieved. On August 11, 2001, Hycarbex was awarded a new exploration license on the Yasin (2768-7) Block. Hycarbex was, at the time, required to relinquish some of its Jacobabad Concession acreage (the "Concession"). Due to management's belief that the acreage held great potential based upon geologic analysis and gas shows which appeared in the drilling of the Jacobabad wells, Hycarbex negotiated a simultaneous surrender of some of the Jacobabad acreage while retaining the desired acreage as part of the new Yasin Concession. As indicated below, in the latter stages of our bankruptcy proceedings, we sold all of the stock of our Hycarbex subsidiary to Hydro Tur and received an 18% gross royalty in the future production of the Yasin Concession. 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 high quality 3D seismic data covering the leases, and a stipulation by Smith Energy that we can operate all wells drilled by us or our agents in the deep zones and, where needed, utilize existing Smith Energy roads, water injection wells, and other facilities. 3 Our management is exploring the various opportunities to realize value from these deep rights, including potential farmout or sale. The best course for these assets has not been determined, but the leases are held in force by third party production and, therefore, do not require development of these rights by a certain date. Bankruptcy Proceedings and Sale of Hycarbex Subsidiary On June 28, 2002, involuntary bankruptcy proceedings were initiated against us in the Southern District of Texas, which were converted to Chapter 11 debtor-in-possession proceedings in December 2002. In the first quarter of 2003, our primary secured lender obtained the approval of the Bankruptcy Court to foreclose all of the Texas-based oil and gas leases except the leases in Galveston County, Texas. At the time, the status of the exploration license for the Yasin Concession was also under close governmental scrutiny due to the financial and continuous drilling requirements imposed under the terms of the license by the Pakistan Government. In November 2003, after management concluded negotiations with several interested prospective purchasers, we reached an agreement with Hydro Tur to sell to Hydro Tur all of our interest in our then-existing subsidiary, Hycarbex-American Energy, Inc. Hydro Tur was selected as the purchaser due to its strong financial background, its commitment to implement a multiple well development of the Yasin Concession and its willingness to assign to us an 18% gross royalty on oil and gas production from all acreage in the concession for as long as the concession exists. Pursuant to our Second Amended Plan of Reorganization which was approved by the Bankruptcy Court on September 3, 2003, all outstanding shares of common and preferred stock were cancelled and the issuance of new shares of common stock to the bankruptcy creditors was authorized by the Court. We emerged from bankruptcy in January 2004 with new management, virtually debt-free, and with our outstanding common stock reduced to almost one third of pre-bankruptcy level. We emerged from bankruptcy as a restructured company, focused upon acquiring and developing new oil and gas-based projects through prudent management of our two assets, the 18% royalty interest in the Yasin Concession in Pakistan and our working interests in our oil and gas leases in Galveston County, Texas. American Energy Operating Corp. Our 2002 bankruptcy proceedings did not include our inactive subsidiary, American Energy Operating Corp. ("AEOC"), our operating subsidiary which became inactive after certain producing oil and gas leases in Fort Bend County, Texas were foreclosed by the first lien creditor in early 2003. However, at the time of the initiation of our bankruptcy proceedings, AEOC carried on its books in excess of $250,000 in operating liabilities related to its operations on these oil and gas leases in Fort Bend County, Texas. In 2003, AEOC received notice from the enforcement division of the Railroad Commission of Texas ("Railroad Commission") that three (3) abandoned wells in the North Dayton Field previously operated by AEOC several years prior to 2003 were required to be plugged in accordance with Railroad Commission procedures and rules. We were not made a party to the proceedings by the Railroad Commission to enforce the plugging obligations. At that time, the plugging costs were estimated at less than $50,000 based upon estimates made by the Railroad Commission. These uncertain plugging costs, including potential daily penalties for non-compliance by AEOC, together with the high liabilities previously carried on our books related to AEOC's prior operations, formed the basis for us to cause AEOC to file for a voluntary Chapter 7 bankruptcy liquidation on April 14, 2005 in the Southern District of Texas, Houston Division in Cause No. 05-35757. These proceedings did not involve the Company. In January 2006, the Railroad Commission of Texas plugged the three wells with State of Texas funds and thereafter demanded from AEOC reimbursement of the costs from AEOC based upon federal bankruptcy statutory exclusions to discharge in bankruptcy related to environmental matters. In July, 2006, these bankruptcy proceedings were closed by the acting Trustee. The closure of the proceedings did not eliminate the plugging responsibility assigned by the State of Texas to AEOC due to these statutory exclusions. In order to resolve the liability of AEOC and to avoid potential claims against the former officers of AEOC, on July 28, 2006, we agreed to a settlement with the Railroad Commission under which $57,701.21 will be paid by us to the Railroad Commission of Texas in equal installments over eighteen months beginning August 28, 2006. (See also, "Legal Proceedings" herein). Pakistan Activities and Additional Opportunities Pakistan has a very large sedimentary area of 827,268 square kilometers (319,325 square miles). Most of this area remains virgin and unexplored as current cumulative drilling efforts total one exploratory well for every 1,370 square kilometers (529 square miles). According to the Ministry of Petroleum and Natural Resources ("MPNR"), cumulative drilling within Pakistan has resulted in a very encouraging success ratio of 1:3.5 based upon 177 commercial discoveries out of 620 wells drilled. The MPNR estimates Pakistan's current potential at 27 billion barrels of oil and 282 trillion cubic feet of gas. Since approximately 884 million barrels of oil and 52 trillion cubic feet of gas have been allocated to new discoveries, there are many undeveloped regions holding these estimated but untapped reserves. The Pakistani government's current liberal policies toward foreign investment and development of these resources have fostered a great deal of activity and opportunities for us to acquire exploration rights in these undeveloped areas. 4 Relevant Features of Pakistan Oil and Gas Laws In Pakistan, exploration licenses are awarded directly by the office of the President. Under the current rules, the term of each concession is twenty five (25) years with the opportunity for a five (year) extension. The rules are silent as to extensions beyond 30 years, but recent aggressive efforts by the government to privatize the oil and gas industry have resulted in requests from potential private bidders to clarify the possibility of additional extensions if wells continue to produce. At the time of a concession award, the recipient is awarded a 95% working interest and the remaining 5% is awarded to the government-owned Government Holdings (Private) Limited ("GHPL"). A twelve and one half percent (12.5%) royalty is also retained by the government of Pakistan. The 5% working interest held by GHPL is a "carried interest" and thus does not share in the costs of drilling and completion of the wells. Production profits and gains (as determined by a 1979 Income Tax Ordinance) are subject to a forty percent (40%) income tax. The working interest owners (other than GHPL) are also required to pay the President a production bonus should the production achieve certain milestones. A bonus of $500,000 is the first threshold at commencement of Commercial Production, then $1,000,000 upon achieving 30 million barrels of oil equivalent ("BPOE"), then $1,500,000 upon achieving 60 million BPOE, then $3,000,000 upon achieving 80 million BPOE and finally $5,000,000 upon achieving 100 million BPOE. Under the concession agreement, the production bonuses are required to be expended upon infrastructure in the area. The term "Commercial Production" is defined as production of petroleum from a Commercial Discovery which ensures at least the recovery of all expenses attributable to the discovery within a reasonable time and the earning of a reasonable profit. The term Commercial Discovery refers to a discovery well which is declared by the operator, then verified by an appraisal well, with the concurrence of the Operating Committee and the government, and which would justify economic development. If the operator believes that an appraisal well is not justified, then the working interest owners have the right to seek Commercial Discovery status on a one-well basis. At such time as the operator achieves a Commercial Discovery, GHPL has the right to increase its 5% working interest up to a maximum of 25% in the discovery area by reimbursing to the operator out of GHPL's share of production 5% of the costs of drilling and completion. Thereafter, GHPL must pay its proportionate share of all development costs. In the last several years, the government of Pakistan has not exercised its rights to increase its working interest when Commercial Discoveries occurred, but the option to do so is nevertheless included within each concession agreement. The concession agreements contain acreage relinquishment provisions which require relinquishment of 20% of the undeveloped acreage at the end of the initial term of the license and an additional 30% of the undeveloped acreage at the end of the second renewal period. The area surrounding producing wells may be retained, as determined by the government at the time of relinquishment. However, there is no relinquishment requirement if upon the Commercial Discovery, the operator applies for and is granted a "Lease". Such an application for Lease must be accompanied by a development plan disclosing how the operator intends to develop the acreage, equip the wells, and transport the resulting production. The Lease has a duration equivalent to the duration of the license. Under the current rules, working interests can be transferred with the approval of the Government. For example, in January 2005, Hycarbex transferred a ten percent (10%) working interest to Techno Petroleum (Private) Limited. There is, however, no existing registry for a non-cost bearing royalty carved from the working interest and transferred to a private party. Contracts which create such interests are legal and enforceable in Pakistan, just as in United States' venues, under the Pakistan law titled: Specific Relief Act of 1887. Like royalties in the United States, the royalty assigned to us is free of the costs of development and exploration and thus does not have the financial exposure associated with a working interest. However, title to the royalty interest is not registered similar to an interest in real estate as it would be in the United States. An overriding royalty interest in Pakistan is dependent upon the viability of the concession to continue in force. Therefore, forfeiture or surrender of the concession will result in elimination of the overriding royalty. Gas Pricing in Pakistan The Oil and Gas Regulatory Authority ("OGRA") is the agency with jurisdiction over wellhead and consumer gas pricing. According to the OGRA, the pricing is directly linked to the international prices for crude oil and furnace oil. Prices are based upon a baseline of 1,000 British Thermal Units ("BTU"). If the gas which is sold has a BTU content which is less than or greater than 1,000 BTUs, the negotiated price is proportionately decreased or increased, respectively. The gas prices for each producing concession are published by the OGRA. 5 Early Drilling Efforts on Concession Acreage In the 1950's, Burmah Oil Company (predecessor to Pakistan Petroleum Ltd. ("PPL") drilled two wells on concession acreage to just over 5,800 feet, each of which indicated gas and oil. In the 1970's, Amoco Oil drilled a 15,000 feet well which also demonstrated gas and oil. The seismic database acquired in 1995 with the original Jacobabad Concession was extremely limited, consisting of only a few old Amoco vibroseis lines. In 1997, Hycarbex shot 262 km of new 2-D date and acquired the P9222 2-D line running north-south, just outside the eastern boundary of the concession and this data was processed. The remaining Amoco vibroseis data and all the remaining ODGC 2-D lines (approximately 600 km) were not processed when acquired. Hycarbex originally drilled four exploratory wells on the Jacobabad concession. The first well was drilled in 1998 to a depth sufficient to test the primary producing zone in the region. This well found natural gas in several zones and a drill stem test confirmed the presence of high-quality gas before operations were suspended. At the time, equipment available on the well site was inadequate to deal with downhole problems. We believe that this well could be redrilled. The second well, drilled in a different portion of the concession, encountered mechanical problems and did not reach sufficient depth to test any targeted formations. The third well encountered large quantities of hydrogen sulfide and carbon dioxide, which appeared to be confined to a relatively small area around the wellbore. In July 2000, approximately 40km of new seismic was shot and processed, but the acreage comprising the concession was so vast that early drillsite selection still involved some degree of speculation. In 2001, Hycarbex drilled its fourth well which likewise indicated natural gas in the Sui Main and upper Chiltan formations, but did not result in a commercial completion. The Haseeb No. 1 Well The Haseeb No. 1 Well was drilled on the Yasin Concession by the Polish Oil and Gas Company for Hycarbex during March and April 2005 to a total depth of 4,945 feet (1,507 meters). The well is located approximately 9 miles from the Hassan No. 1 well drilled by PPL and 5.6 miles from the City of Shikapur in the Sindh Province. Open hole logs performed on the well demonstrated gas shows from 3,543 feet to 3,688 feet and a net pay thickness of 82 feet. The drill stem test conducted over a short duration on a one-half inch choke indicated a production rate form the Sui Main Limestone equivalent to approximately 7.3 MM cubic feet of 805 BTU gas per day. The gas was tested for carbon dioxide and water content and was found to have low levels of each, indicating a likelihood that processing will not be required prior to pipeline transmission. In the fall of 2005, Hycarbex completed the acidization of the Haseeb No. 1. Post-treatment testing by Schlumberger Oilfield Services indicated an increase in the natural gas flow rate originally calculated at the time of the drill stem test at 7.3 million cubic feet per day. Schlumberger further concluded that the 10 million cubic feet rate could be potentially increased to as high as 25-28 million cubic feet per day if the existing production tubing is replaced with higher diameter production tubing and if the wellhead pressure is maintained at approximately 1,000 psi. The Yasin Concession has access to pipeline infrastructure. The 12-inch Quetta gas line runs NW-SE through the concession and connects to the 20-inch Sui-Karachi gas line. The Karachi-Muzaffargarh oil line also runs through the southern portion of the concession. The most recent estimates for pipeline connection received from Hycarbex indicate a connection during the first six (6) months of 2008 after completion of contractual documents, gas allocation, and construction of surface facilities. These contractual and construction matters have caused Hycarbex to modify its previous estimates as to the timing of pipeline connection and there can be no assurance that the current timing estimates will be met. Hycarbex transfer of working interest to Techno Petroleum (Pvt) Limited Hycarbex (our former subsidiary) is the operator of the Yasin Concession and has been active in Pakistan since 1995. Hycarbex has expended over $20,000,000 in Pakistan in the drilling of five (5) exploration wells, and in generating 700 kilometers (435 miles) of high resolution 2D seismic data. Hycarbex employs 12 experienced technical, financial and energy professionals as its professional operations team. In January, 2005, Techno Petroleum (Pvt) Limited ("Techno") acquired ten percent (10%) of the Yasin Concession from Hycarbex with the approval of the Pakistan government. Techno is headquartered in Islamabad Pakistan and is a subsidiary of Techno Engineering Services (Private) Limited ("Techno Engineering") a large engineering and construction concern. Techno Engineering recently constructed a 500 mile, 26 inch diameter, white oil pipeline from Karachi to Mahmood Kot in cooperation with China Petroleum Engineering & Construction Corporation at an approximate cost of $400,000,000. 6 Seismic Database The efforts by Hycarbex to substantially expand the seismic database in 2004 and 2005 resulted in several miles of additional seismic being shot on the concession. Currently, Hycarbex has captured approximately 700 kilometers (435 miles) of high resolution 2D seismic raw data. This seismic raw data has been processed with the old seismic data using current techniques and has been analyzed by highly experienced geophysicists. The results have not only verified geologic structures with closure and high likelihood of gas productivity, but have also delineated drillsite locations which are likely to enhance drilling success. The technical staff at Hycarbex has identified at least ten (10) areas to date which are recommended for drilling. The Al-Ali No. 1 Well Hycarbex commenced the Al-Ali No. 1 Well on the Yasin Concession on or about April 30, 2006. The well is being drilled by Oil & Gas Exploration Company Krakow Limited Poland, which also drilled the Haseeb No. 1 Well. The target Sui Main Limestone is expected to be encountered at 3,789 feet (1,155 kilometers) and the total depth is expected to be 5,577 feet (1,700 kilometers). The drillsite was selected using seismic data obtained by Hycarbex in the latter part of 2005 showing a 4-way closure for the target structure. The drilling of Al-Ali #1 Well as an exploratory well was undertaken to fulfill the work obligations for the third contract year under the Concession License. While gas shows were encountered during drilling, the gas volumes, on preliminary analysis, did not appear to be commercially viable and the well was plugged. The drilling data is being studied by Hycarbex, together with a review of the logging data by Schlumberger Oilfield Services, in order to determine if further operations would likely yield commercial volumes of gas. Other Factors Affecting Pakistan Exploration Opportunities With regard to Pakistan in-country opportunities, experts view Pakistan as a country with realistic potential for the discovery of large oil and gas reserves. Previously perceived as containing far less oil and gas potential than the Arabian Peninsula countries, Pakistan has never received the extensive exploration efforts required to fully explore the vast and numerous structures warranting such attention. However, in recent years, a significant number of well known international oil and gas operators have moved into Pakistan, and their efforts have met with a high degree of success. These operators include BP Amoco and Premier from the United Kingdom, BHP from Australia, China Oil from China, OMV from Austria, Petronas from Malasia, MOL from Hungary and Shell Oil from the Netherlands. A number of new commercial discoveries have been announced in recent years. There is also geological data which suggests nearly identical structures with those of the Arabian Peninsula. Of the comparatively few (883) exploratory wells drilled, an above-average number have succeeded and this degree of success supports the position that Pakistan is a good location in which to focus exploration efforts. The MPNR openly states in its website that the agency felt a need to move toward a more liberalized and deregulated framework, with the government limiting its role to policy formulation and implementation. In its website under the section "Strategy to Achieve Mission", the Ministry states that its strategies will include deregulation, liberalization and privatization of oil, gas and mineral sectors. Exploration and production opportunities in Pakistan are attractive for a number of additional reasons. One such reason is high demand relative to the available supply. Domestic demand for natural gas greatly exceeds supply in Pakistan, and is expected to continue to do so for the foreseeable future. Pakistan is undergoing rapid economic growth. Energy represents a significant percentage of total Pakistani imports and the country currently imports over 80% of the oil it consumes, all at a significant cost. In 2001, the Pakistan government launched a new Petroleum Exploration and Production Policy which offers efficient procedures complimented by a liberal policy framework for obtaining and developing concessions. The concessions are awarded by an open and fair bidding process which does not exempt the state-owned oil companies. Operators conduct regular meetings with ministry officials but the regulatory involvement is relaxed and on a par with international standards. The licenses are granted directly by the President of Pakistan through his oil ministry officials. Foreign investors are permitted unrestricted expatriation of funds, including profits. The sales markets are unregulated and producers may sell to state marketing organizations or third parties. Current efforts are underway to get the market prices on a par with international prices. Energy Information Administration (EIA) reports, and Pakistani sources confirm, that future commercial discoveries will have a ready market at favorable pricing. Imports of goods, including vehicles and equipment is also simplistic, with no tariffs. 7 Pakistan sits in a strategic location geographically. The Republic of China has been aggressive in identifying potential sources of energy, including Pakistan, to fuel its exploding industrial economy. Several extremely large pipeline projects are in the planning stages. The World Bank compares Pakistan's economic energy intensity per GDP to its neighbors, China and India and rates Pakistan as the third fastest growing economy. Natural resources often provide a developing country with a significant portion of its hard currency reserves and therefore contribute to economic development in a material fashion. Pakistan's government has demonstrated a strong commitment to economic development and is working cooperatively with the oil and gas industry to further this agenda. These cooperative efforts will accelerate foreign investment in Pakistan, accelerate the development of additional oil and gas reserves, and reduce Pakistan's dependency upon imported sources of energy. Private investment is highly regarded as evidenced by the current efforts of Pakistan Petroleum Limited (PPL), which is state owned, to sell 51 percent of the company and to transfer management control to a strategic investor. (See discussion below regarding proposed changes to exploration rules to lengthen the terms of exploration licenses). While the region has shown some political instability and violence, including inside Pakistan's borders, the Government of Pakistan has proven to be an ally on the war against global terrorism. Office Facilities In April, 2006, we relocated our principal executive offices are located at 1 Gorham Island, Suite 303, Westport, Connecticut. The office space contains approximately 3,574 square feet and is leased under a 5-year lease commencing April 1, 2006, at a rate of $11,913.33 per month for the initial year, $12,211.17 per month for the second year, $12,509.00 per month for the third year, $12,806.83 per month for the fourth year, and $13,104.67 per month for the final year. The lease contains a 5-year option period with base rental ranging from $13,402.50 in the first year of the option period to $14,593.83 in the final option year. For the year ending June 30, 2007, office rentals totaled $126,396. Commencing with the original execution of the lease, we subleased a portion of the leased premises to third parties. Subsequent to the current fiscal year, the number of subleases was increased and some existing subleases were extended such that there are now four subleases with two years remaining on their term and one sublease with one year remaining on its term. The combined rentals attributable to the subleases is now $14,300 per month which approximately matches our monthly rental burden for the entire premises. We have subleased approximately eighty percent (80%) of our space and believe the retained space is adequate for our needs. Employees As of June 30, 2007, we had three full-time employees, which include the President, Pierce Onthank, and two administrative assistants in the corporate office. ITEM 3 - LEGAL PROCEEDINGS On January 12, 2006, a lawsuit was filed in the 281st Judicial District Court of Harris County, Texas against the Company, the Company's subsidiary, The American Energy Operating Corp., Hycarbex-American Energy, Inc., Pierce Onthank, individually, Iftikhar Zahid, individually, and Georg Friedher Von Canal, individually, titled: M.S. Moin Hussain, Saleem Z. Khan and Khan & Piracha vs. The American Energy Group, Ltd., The American Energy Operating Corp., Hycarbex-American Energy, Inc. f/k/a Hycarbex, Inc., Pierce Onthank, Iftikhar Ahmed Zahid and Georg Friedher Von Canal. American Energy Operating Corp. was dismissed from the suit by the Plaintiffs very soon after the filing. The plaintiffs' primary allegation was that a written document signed by Georg Von Canal, while claiming to be the President of Hycarbex, promised Khan & Piracha, a Pakistani law firm, a twenty percent (20%) carried working interest in the Yasin Concession for allegedly providing assistance to Hycarbex in extending the exploration license for the Concession in 2003. American Energy, Hycarbex and Pierce Onthank filed a counterclaim against Saleem Khan and Khan & Piracha. During the quarter ended December 31, 2006, the lawsuit was settled. All claims of every character asserted against Pierce Onthank and Iftikhar Zahid were dismissed. The parties, while denying liability to one another, executed mutual, general releases, but the settlement documentation specifically excluded a release of Georg Friedher Von Canal by any party. Hycarbex further agreed to pay $800,000 to the plaintiffs upon execution of the settlement agreement. American Energy guaranteed collection from Hycarbex of this sum by plaintiffs and the sum was fully paid by Hycarbex as agreed. Additionally, under the settlement terms, Hycarbex and American Energy agreed, jointly and severally, to pay $450,000 to the plaintiffs by September 12, 2007, supported by an agreed judgment which was to remain in place until the $450,000 payment was made. Hycarbex timely paid the $450,000 sum and the agreed judgment was fully released subsequent to the fiscal year end. 8 During the period ended June 30, 2004, The American Energy Operating Corp. ("AEOC"), our operating subsidiary which has been inactive since the producing Fort Bend County, Texas oil and gas leases were foreclosed in 2003, received notice from the enforcement division of the Railroad Commission of Texas, the agency responsible for regulating oil and gas activities in the State of Texas, that three (3) abandoned wells in the North Dayton Field previously operated by AEOC many years ago were required to be plugged in accordance with Commission procedures and rules. At that time, the plugging costs were estimated at less than $50,000 based upon estimates made by the Railroad Commission. At the time of the initiation of our bankruptcy proceedings in 2002, AEOC carried on its books in excess of $250,000 in operating liabilities related to its operations on these South Texas oil and gas leases. These uncertain plugging costs, including potential daily penalties for non-compliance by AEOC, together with the high liabilities previously carried on our books related to AEOC's prior operations, formed the basis for us to cause AEOC to file for a voluntary Chapter 7 bankruptcy liquidation on April 14, 2005 in the Southern District of Texas, Houston Division in Cause No. 05-35757. These proceedings did not involve us. In January 2006, the Railroad Commission of Texas plugged the three wells with State of Texas funds and thereafter demanded from AEOC reimbursement of the costs from AEOC based upon federal bankruptcy statutory exclusions to discharge in bankruptcy related to environmental matters. In July 2006, the acting Trustee for AEOC fully administered and closed the bankruptcy case. The closure of the proceedings did not eliminate the plugging responsibility assigned by the State of Texas to AEOC due to the statutory exclusions for environmental matters. In order to resolve the liability of AEOC and to avoid potential claims against the former officers of AEOC, on July 28, 2006, we agreed to a settlement with the Railroad Commission under which we agreed to pay $57,701.21 to the Railroad Commission of Texas in equal installments over eighteen months beginning August 28, 2006. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not submit any matters to a vote of security holders during the year ended June 30, 2007. ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Our common stock is traded on the over-the-counter bulletin board under the symbol AEGG. The trading market began during the quarter ending December 31, 2004. The following table sets forth the quarterly high and low bid prices for each quarter since the inception of trading. Such prices represent quotations between dealers, without dealer markup, markdown or commissions, and may not represent actual transactions.
---------------------------------------------- ---------------------------------- -------------------------------- Quarter High Low ---------------------------------------------- ---------------------------------- -------------------------------- December 31, 2004 $0.55 $0.20 ---------------------------------------------- ---------------------------------- -------------------------------- March 31, 2005 $1.50 $0.75 ---------------------------------------------- ---------------------------------- -------------------------------- June 30, 2005 $3.03 $0.50 ---------------------------------------------- ---------------------------------- -------------------------------- September 30, 2005 $1.82 $1.15 ---------------------------------------------- ---------------------------------- -------------------------------- December 31, 2005 $1.90 $1.01 ---------------------------------------------- ---------------------------------- -------------------------------- March 31, 2006 $1.98 $1.30 ---------------------------------------------- ---------------------------------- -------------------------------- June 30, 2006 $2.00 $1.45 ---------------------------------------------- ---------------------------------- -------------------------------- September 30, 2006 $1.45 $0.60 ---------------------------------------------- ---------------------------------- -------------------------------- December 31, 2006 $1.40 $0.40 ---------------------------------------------- ---------------------------------- -------------------------------- March 31, 2007 $1.60 $1.03 ---------------------------------------------- ---------------------------------- -------------------------------- June 30, 2007 $1.49 $0.85 ---------------------------------------------- ---------------------------------- --------------------------------
As of June 29, 2007, the final trading day of the fiscal year, the closing price for shares of our common stock in the over-the-counter market, as reported by the OTC Bulletin Board, was $1.18. As of June 29, 2007, we had approximately 56 registered holders of our common stock (excluding holders in "street name"). As of June 30, 2007, there were 30,512,121 shares of common stock issued and outstanding. As of October 10, 2007, there were 30,584,120 shares of common stock issued and outstanding. Dividend Policy 9 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, 2007.
Equity Compensation Plan Information ======================================================================================================== Plan category Number of securities to Weighted-average Number of securities be issued upon exercise exercise price of remaining available for of outstanding options, outstanding options, future issuance under warrants and rights warrants and rights equity compensation plans (excluding securities (a) (b) reflected in column (a)) (c) ======================================================================================================== Equity compensation plans -0- -0- -0- approved by security holders ======================================================================================================== Equity compensation plans 2,000,000 Common $1.00 -0- not approved by security holders ======================================================================================================== Total 2,000,000 $1.00 -0- ========================================================================================================
Recent Sales of Unregistered Securities We did not sell any unregistered securities during the fiscal year. However, during the fiscal year we issued 644,416 shares registered under our 2005 Form S-8 in payment of services and payables. ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Forward-Looking Statements 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: 10 .. 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. Forward-Looking Statements This report contains statements about the future, sometimes referred to as "forward-looking" statements. Forward-looking statements are typically identified by the use of the words "believe," "may," "will," "should," "expect," "anticipate," "estimate," "project," "propose," "plan," "intend" and similar words and expressions. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that describe our future strategic plans, goals or objectives are also forward-looking statements. Readers of this report are cautioned that any forward-looking statements, including those regarding the Company or its management's current beliefs, expectations, anticipations, estimations, projections, proposals, plans or intentions, are not guarantees of future performance or results of events and involve risks and uncertainties, such as: -- The future results of drilling individual wells and other exploration and development activities; -- Future variations in well performance as compared to initial test data; -- Future events that may result in the need for additional capital; -- Fluctuations in prices for oil and gas; -- Future drilling and other exploration schedules and sequences for various wells and other activities; -- Uncertainties regarding future political, economic, regulatory, fiscal, taxation and other policies in Pakistan; -- Our future ability to raise necessary operating capital. The forward-looking information is based on present circumstances and on our predictions respecting events that have not occurred, which may not occur or which may occur with different consequences from those now assumed or anticipated. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors detailed in this report. The forward-looking statements included in this report are made only as of the date of this report. We are not obligated to update such forward-looking statements to reflect subsequent event or circumstances. Overview Prior to our bankruptcy proceedings initiated on June 28, 2002, we were an active oil and gas exploration and development company. The foreclosure of our Fort Bend County, Texas oil and gas leases by the secured creditor in early calendar 2003 resulted in the loss of our only revenue producing asset. We intend to initiate new business activities by prudent management of our Pakistan overriding royalty interest and our Galveston, Texas interests and if we are successful in generating working capital from these investments or from sales of securities, we intend to pursue investment opportunities in the oil and gas business. 11 Drilling of the first well in Pakistan as to which our overriding royalty pertains, named the Haseeb No. 1 Well, was successfully completed by Hycarbex-American Energy, Inc. ("Hycarbex"), the owner and operator of the Yasin 2768-7 Block, in the fourth quarter of the fiscal year ended June 30, 2005. All testing to date by Hycarbex indicates that the Haseeb No. 1 well will be a significant commercial gas well. Hycarbex's current revised estimates of the commencement of gas sales indicate that sales into the pipeline are expected to begin during the first six (6) months of 2008 based upon the timing estimates for the completion of contractual documents, gas allocation notification, construction of the surface facilities and physical connection to the gas sales line. These contractual and construction matters have caused Hycarbex to modify its previous estimates as to the timing of pipeline connection and there can be no assurance that the current timing estimates will be met. The drilling of Al-Ali #1 Well, the second well to which our overriding royalty pertains, was undertaken by Hycarbex to fulfill the work obligations for the third contract year under the Concession License and was not commercially successful. The well was plugged. The drilling data is being studied by Hycarbex, together with a review of the logging data by Schlumberger Oilfield Services, in order to determine if further operations would likely yield commercial volumes of gas. Additional wells and seismic operations are currently planned by Hycarbex. Results of Operations Our operations for the period ending June 30, 2007 reflected a net operating loss of $1,610,897 as compared to $903,066 for the period ending June 30, 2006. The net operating loss for the current year increased by $707,831 for legal and professional fees related to the Moin Hussain/Khan & Piracha lawsuit and professional services related to the filing of our SB-2 Registration Statement during the first quarter. The current year's general and administrative expenses increased by $329,830 to $859,162 as a result of office rental and overhead charges and salaries paid to the President and to Dr. Iftikhar Zahid. There were no revenues from operations and our sole business during the fiscal year consisted of management of our Pakistan and Texas assets. All of our previously owned producing oil and gas leases were foreclosed by the first lien lender in early calendar 2003. As a result, since emerging from bankruptcy, we have had no recurring income stream and have been solely dependent upon cash infusion from the sale of securities and loans. These proceeds have been and will continue to be used to finance salaries, legal and accounting expenses and administrative overhead until the commencement of royalty revenues from gas sales from the Haseeb No. 1 Well. Liquidity and Capital Resources After emerging from bankruptcy, we funded our operations through private loans, all of which have been repaid, and through the private sale of securities. During the fourth quarter of the prior fiscal year, we sold $3.95M of our Common stock. Of this amount, we deposited $2,100,000 with Hycarbex in trust for future acquisitions of additional royalty interests in Pakistan. Based upon prior estimates received from Hycarbex, we previously anticipated that gas sales from the Haseeb No. 1 Well would begin by mid-calendar 2007, which did not occur. The most recent estimates for pipeline connection received from Hycarbex indicate a connection during the first six (6) months of 2008 after completion of contractual documents, gas allocation, and construction of surface facilities. These contractual and construction matters have caused Hycarbex to modify its previous estimates as to the timing of pipeline connection and there can be no assurance that the current timing estimates will be met. The depletion of available cash on hand resulting from the delay in the royalty stream from gas sales has created the need for additional operating capital to meet future requirements. We expect to meet these operating capital requirements in the near term by withdrawing a portion of the $2,100,000 deposit in escrow with Hycarbex in Pakistan which is sufficient to meet our needs. We expect to replenish the escrow deposit with funds derived from future royalty sales. During the fourth quarter of the fiscal year ended June 30, 2005, we registered 2,000,000 Common shares on a Form S-8 Registration Statement for issuance to key consultants. We anticipate that some critical services rendered by third party consultants during the 2008 fiscal year will be paid with common stock instead of cash assets. Business Strategy and Prospects 12 We believe that there have been positive developments resulting from the bankruptcy proceedings. We have eliminated our debt burden, diminished our labor force and significantly reduced all facets of general and administrative overhead. The cancellation and reissuance of new securities have reduced the outstanding shares from over sixty six million shares to just over thirty million shares, a number which both permits the issuance of additional securities in the future as needed to obtain strategic assets or funding from investors, and which provides an opportunity for enhanced shareholder value if the current assets become cash generating assets, as anticipated. Our registration of 2,000,000 Common shares on Form S-8 during the fiscal year ended June 30, 2005 continues to provide a means of compensating key consultants. On April 20, 2006, we executed a Compromise Settlement Agreement with Smith Energy 1986A Partnership ("Smith Energy") and Howard A. Smith pertaining to our Galveston County, Texas oil and gas leases. Under the terms of the Compromise Settlement Agreement, American Energy Group acquired all of Smith Energy's 3% overriding royalty interest in the deep zones greater than 10,000 feet as well as the right to review valuable 3D seismic data covering the leases. American Energy also acquired from Smith Energy affirmation of American Energy's right to operate the oil and gas leases as to wells drilled to depths greater than 10,000 feet. The Agreement also affords American Energy access under mutually agreed terms to existing Smith Energy facilities in connection with American Energy's future operations, such as roads and salt water disposal facilities. American Energy Group relinquished to Smith Energy Group under the agreement its claims to the 15% back-in interest in the zones above 10,000 feet. This settlement provides us the opportunity to deal in the sale or exploration of the deeper zones under the oil and gas leases. On May 12, 2006, we entered into a Non-exclusive Agency Agreement with Hycarbex - American Energy, Inc.. an entity for which our Director, Dr. Iftikhar Zahid, serves as president, under which Hycarbex will attempt to locate for the Company, and to negotiate on behalf of the Company, royalty purchase opportunities within the Republic of Pakistan. The Agreement provides for a finder's fee to Hycarbex equal to $50,000 for each royalty purchase which is actually consummated. We may, in our discretion, deposit funds with Hycarbex which are to be used solely for such acquisition purposes and subject to our approval of the transaction. As of June 30, 2007, we had deposited a total of $2,100,000 with Hycarbex for application solely to possible royalty or concession purchases which may be consummated in Pakistan. In the event that no acquisitions are consummated, then we are entitled, at any time, to terminate the agency relationship and the funds will be returned. We will continue to manage our Pakistan royalty and our Galveston County, Texas oil and gas leases. While we await production revenues from the sale of gas from the Haseeb No. 1 well in Pakistan and the results of other exploration projects initiated by Hycarbex on the Yasin 2768-7 Block. We have also begun efforts to locate and acquire other royalty interests on one or more additional oil and gas concessions in Pakistan, using a portion of the proceeds of the $3.95M institutional private offering consummated in the fourth quarter of the prior fiscal year, and to locate an industry participant in our Galveston County, assets. Pakistan Overriding Royalty Through our former Hycarbex subsidiary (before the sale of that subsidiary), we expended in excess of $10,000,000.00 on drilling and seismic on the Jacobabad and Yasin Concessions in the Republic of Pakistan comprised of over 2,200 square kilometers. The structure, to date, has no Proved Reserves as that term and the calculation for discounted future net cash flows for reporting purposes is mandated by the Financial Accounting Standards Board in Statement of Financial Accounting Standards No. 69, titled "Disclosures About Oil and Natural Gas Producing Activities". While we did not obtain a commercial discovery well in any of our previous Pakistan drilling efforts, we have announced the success of the Haseeb No. 1 well drilled in the fourth quarter of 2005 based upon all available test results. We further announced during the fiscal year the completion of 110 kilometers of additional seismic research by Hycarbex-American Energy, Inc. which should provide valuable data for selection of future wells. We strongly believe that the concession acreage contains oil and gas producing physical structures which are worthy of further exploration. If successfully developed, our reserved 18% overriding royalty interest will likely be a good source of cash revenues because the royalty, by its nature, entitles us to share in gross, rather than net, production. We expect to use these anticipated revenues for further investment in other revenue generating assets or business activities. The financial risks inherent in oil and gas drilling in Pakistan will no longer be borne by us because an overriding royalty interest is not subject to such costs. While continuous production and favorable hydrocarbon prices are necessary for the overriding royalty interest to demonstrate real value, we are optimistic that the recent successful drilling of the Haseeb No. 1 Well, the proximity of a pipeline for gas sales and the additional seismic and technical data collected will enhance the chances of continued success on the concession despite the customary risks inherent with oil and gas drilling in general. 13 Galveston County, Texas Leases We believe that the deeper zones which we currently hold may have development potential. We are exploring the various opportunities to realize value from these deep rights, including potential sale. We have not yet determined the best course for these assets. These leases are held in force by third party production and, therefore, the leases do not require development of these rights by a certain date. Off-Balance Sheet Arrangements We had no off-balance sheet arrangements during the fiscal year ended June 30, 2007. ITEM 7-FINANCIAL STATEMENTS 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 7. The Supplementary Data requirement as set forth in Item 302 of Regulation S-K is inapplicable to the Company. ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have neither changed nor had disagreements with our accountants regarding accounting and financial disclosure. ITEM 8A-CONTROLS AND PROCEDURES In conjunction with this Annual Report on Form 10-KSB and the certification of the disclosures herein, the Company's principal executive officer and principal financial officer, Pierce Onthank, evaluated the effectiveness of the Company's disclosure controls and procedures. This review, which occurred as of June 30, 2007, found the disclosure controls and procedures to be effective. There have been no changes in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 which occurred during the fourth fiscal quarter that have materially affected or are reasonably likely to materially affect these internal controls over financial reporting subsequent to June 30, 2007. ITEM 8B-OTHER INFORMATION None. PART III ITEM 9-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Directors and Executive Officers The directors and executive officers of the Company at June 30, 2007, included the following persons, each of whom serves on the audit committee of the Company:
------------------------------------ ------------- ----------------------------------------------------- Name Age Position ------------------------------------ ------------- ----------------------------------------------------- R. Pierce Onthank 47 Director, President, CEO, CFO and Secretary-Treasurer ------------------------------------ ------------- ----------------------------------------------------- Iftikhar Ahmed Zahid 48 Director ------------------------------------ ------------- ----------------------------------------------------- Karl Welser 53 Director ------------------------------------ ------------- -----------------------------------------------------
14 R. Pierce Onthank, age 47, serves as President, CEO, Secretary-Treasurer. Mr. Onthank has also served as our Director since 2003. Mr. Onthank received a BA in economics from Denison University in 1983. He served as the investment broker for the Company from 1998 until 2001. In addition to serving American Energy Group Ltd. as one of its prior investment bankers, Mr. Onthank has specialized in oil and gas investments for his previous clients. With over 20 years of experience in the securities business, Mr. Onthank has held senior positions in investment banking firms and has managed high yield net worth and institutional portfolios. Mr. Onthank began his career in the Merrill Lynch training program and subsequently was employed by Bear Stearns in 1985 where he became a limited partner in 1987. In 1988, he became a Senior Vice President at Drexel Burnham Lambert, where his primary responsibilities were to manage the private client group, which was involved in both public and private investments for individual and institutional accounts. Mr. Onthank served as a Senior Vice President at Paine Webber from 1990 to 1993. From 1993 to 1995, he was employed by Smith Barney Shearson where he managed the investments of institutional and individual clients. Before becoming a director and an executive officer of The American Energy Group Ltd., he co-founded Crary Onthank & O'Neill, an investment banking company, in 1998. Dr. Iftikhar Zahid, age 48, has served as our Director since 2001. Dr. Zahid was educated at Murray College in Sailkot, Pakistan where he received a Degree in Science in 1976. Dr. Zahid received his degree in medicine from the Dow Medical College at Karachi University in 1979. In 1981, he joined the police services of Pakistan. In 1988, he resigned from governmental services as a Superintendent of Police. Between 1988 and 1996, Dr. Zahid served as an advisor and consultant to several multi-national organizations doing business in Pakistan. In 1996, Dr. Zahid became Resident Director/Country Manager of the Pakistan Office of Hycarbex, our then-existing subsidiary. In June 2001, he was promoted to Vice-President and Resident Director of Hycarbex and joined us as a director. Since our sale of Hycarbex in November 2003, Dr. Zahid has been managing our 18% royalty interest in the Yasin Block Concession. In April 2004, Dr. Zahid was appointed President of Hycarbex and in November 2005, Dr. Zahid was appointed as a director of Hycarbex. Karl Welser, age 53, has been our Director since May, 2005. Mr. Welser has been actively involved in private real estate and finance ventures for family interests since 1999. After graduating from the Dr. Raeber/ZH &KV/ZH business school in Zurich in 1972, Mr. Welser joined Bank J. Vontobel which specialized in private financial management. From 1977-1980, Mr. Welser attended the Zurich Management School where he obtained his Economist KSZH degree. From 1980 through 1998, while employed at Zurcher Kantonalbank, Bankinstitut and UBS in Zurich, Switzerland, respectively, Mr. Welser's primary activities included analysis of the securities markets. From 1999 forward, Mr. Welser has managed family financial interests outside of the public sector. Board of Directors We held two physical meetings and eight telephonic meetings of the Board of Directors during the fiscal year ended June 30, 2007, and the Board of Directors took action at Board meetings or by unanimous written consent 18 times during that period. Mr. Onthank and Dr. Zahid are our only Directors who are also our officers and/or operations executives. We do not have any standing committees of the Board of Directors, which we believe is adequate based on the size of our business. We do not currently have a process for security holders to send communications to the Board of Directors. However, we welcome comments and questions from our shareholders. Shareholders can direct communications to our Chief Executive Officer, Pierce Onthank, at our executive offices, 1 Gorham Island, Suite 303, Westport, Connecticut 06880. While we appreciate all comments from shareholders, we may not be able to individually respond to all communications. We attempt to address shareholder questions and concerns in our press releases and documents filed with the SEC so that all shareholders have access to information about the Company at the same time. Mr. Onthank collects and evaluates all shareholder communications. If the communication is directed to the Board of Directors generally or to a specific director, Mr. Onthank will disseminate the communications to the appropriate party at the next scheduled Board of Directors meeting. If the communication requires a more urgent response, Mr. Onthank will direct that communication to the appropriate executive officer. All communications addressed to our directors and executive officers will be reviewed by those parties unless the communication is clearly frivolous. Nomination and/or Appointment of Directors 15 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 not otherwise provided any remuneration for their services as our Directors. Compliance with Section 16(A) of the Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock file with the Securities and Exchange Commission various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on information provided to management, we believe that our officers and directors have complied with all filing requirements under Section 16(a) of the Securities Exchange Act of 1934. Code of Ethics In September 2004, we adopted a Code of Ethics that is applicable to all directors, officer and employees. A copy of the Code of Ethics may be obtained without charge by writing to: The American Energy Group, Ltd., 1 Gorham Island Suite 303, Westport, Connecticut 06880. ITEM 10-EXECUTIVE COMPENSATION Summary Compensation Table The following table reflects all forms of compensation for the fiscal years ended June 30, 2005, 2006 and 2007 for services provided by our executive officers and directors.
SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------------------------------------ ANNUAL COMPENSATION LONG TERM COMPENSATION - ------------------------------------------------------------------------------------------------------------------------ Awards Payouts ----------------------------- Other Options/ Annual Restricted SARs LTIP All Other Comp- Stock Warrants payouts Comp- Name Title Year Salary Bonus ensation Awarded (#) ($) ensation - ------------------------------------------------------------------------------------------------------------------------ R.Pierce Onthank(1) President, CEO 2007 $204,000 $75,000 -0- -0- -0- -0- -0- and Sec. 2006 $192,000 -0- -0- -0- -0- -0- -0- Treas. 2005 $192,000 -0- -0- -0- 1,000,000 -0- -0- - ------------------------------------------------------------------------------------------------------------------------ Dr. Iftikhar A. Zahid(1) (2) 2007 $180,000 $75,000 -0- -0- -0- -0- -0- 2006 $180,000 -0- -0- -0- -0- -0- -0- 2005 $180,000 -0- -0- -0- 1,000,000 -0- -0- - ------------------------------------------------------------------------------------------------------------------------
16 Notes to Summary Compensation Table: (1) Between July 1, 2003 and January 31, 2004, neither Mr. Onthank nor Dr. Zahid received any cash compensation. Beginning February 1, 2004, each was paid $10,000 per month. Beginning April 1, 2004, Mr. Onthank's cash salary was increased to $16,000 per month and Dr. Zahid's cash salary was increased to $15,000 per month. Beginning April 1, 2007, Mr. Onthank's salary was increased to $20,000 per month. (2) Dr. Zahid manages our assets in Pakistan. He holds no formal officer title with us. Stock Option/SAR and Warrant Grants There were no grants of stock options, SAR's or Warrants to executive officers or directors during the fiscal year ended June 30, 2006. There are currently no outstanding stock options or SAR's.
Aggregated Option/SAR/Warrant Exercises In Last Fiscal Year and FY-End Option/SAR Values - ----------------------------- ------------------ ----------------------- ---------------------- ---------------------- Number of Value of Unexercised Unexercised In-The-Money Underlying Options/SARs/ Shares Acquired Options/SARs/ Warrants at FY end Name on Exercise (#) Value Realized ($) Warrants at FY end ($); (#); Exercisable/ Exercisable/ Unexercisable Unexercisable - ----------------------------- ------------------ ----------------------- ---------------------- ---------------------- Pierce Onthank -0- -0- 1,000,000/0 $510,000/0 - ----------------------------- ------------------ ----------------------- ---------------------- ---------------------- Iftikhar Zahid -0- -0- 1,000,000/0 $510,000/0 - ----------------------------- ------------------ ----------------------- ---------------------- ----------------------
There were no stock options, SAR's or warrants exercised by any of our named executive officers during our most recent fiscal year ended June 30, 2007. Long-Term Incentive Plans We currently have no Long-Term Incentive Plans. Employment contracts and change-in-control arrangements There are no employment contracts or change-in-control agreements between us and our executive officers or directors. ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of October 3, 2006, 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 3, 2006, we had 29,867,705 shares of common stock issued and outstanding.
- --------------------------------------- ------------------ -------------------------- ----------------------------- Name and address of beneficial owner Title of Class Number of Shares of Percentage of Common Stock of Stock Common Stock (1) - --------------------------------------- ------------------ -------------------------- ----------------------------- R. Pierce Onthank 1 Gorham Island Suite 303 Westport, Common stock 2,500,000 (2) 7.9% (2) Connecticut 06680 - --------------------------------------- ------------------ -------------------------- ----------------------------- Dr. Iftikhar A. Zahid 1 Gorham Island Suite 303 Common stock 2,780,000 (2) 8.8%(2) Westport, Connecticut 06680 - --------------------------------------- ------------------ -------------------------- ----------------------------- Karl Welser 1 Gorham Island Suite 303 Westport, Common stock 353,000 1.1% Connecticut 06680 - --------------------------------------- ------------------ -------------------------- ----------------------------- All Officers and Directors as a group Common stock 5,539,000 (3) 17.3% (total of three) - --------------------------------------- ------------------ -------------------------- -----------------------------
17 (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, 2007. As of June 30, 2007 there were 30,512,121 shares of our common stock issued and outstanding. (2) Includes 1,000,000 shares issuable upon the exercise of warrants to purchase shares of common stock. (3) Includes 2,000,000 shares issuable upon the exercise of warrants to purchase shares of common stock. ITEM 12-CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS On May 12, 2006, we entered into a non-exclusive Agency Agreement with Hycarbex - American Energy, Inc., an entity for which our director, Dr. Iftihhar Zahid, serves as President, under which Hycarbex will attempt to locate for the Company, and negotiate on behalf of the Company, royalty purchase opportunities within the Republic of Pakistan. The Agreement provides for a finder's fee to Hycarbex equal to $50,000 for each royalty purchase which is actually consummated. Under the terms of the Agency Agreement, we may, in our discretion, deposit funds with Hycarbex which are to be used solely for such acquisition purposes and subject to our approval of the transaction. As of June 30, 2007, we had on deposit a total of $2,100,000 with Hycarbex for application solely to potential royalty or concession purchases which may be consummated in Pakistan. In the event that no acquisitions are consummated, then we may, at any time, terminate the agency relationship and the funds will be returned to us. Other than the foregoing agency agreement, none of the following persons has any direct or indirect material interest in any transaction to which we were or are a party during the past two years, or in any proposed transaction to which we propose to be a party: (A) any of our directors or executive officers; (B) any nominee for election as one of our directors; (C) any person who is known by us to beneficially own, directly or indirectly, shares carrying more than 5% of the voting rights attached to our common stock; or (D) any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons named in paragraph (A), (B) or (C) above. PART IV ITEM 13-EXHIBITS The following documents are filed as Exhibits to this report: Exhibit 23.1 - Consent of Independent Auditor; 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 18 ITEM 14-PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees Audit fees billed by the Company's Principal Accountant were $12,418 during the year ended June 30, 2007. Audit Related Fees There have been no audit related fees billed by the Company's Principal Accountant as of the date of this report. 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. The Registrant's audit committee is comprised solely of its Board of Directors. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE AMERICAN ENERGY GROUP, LTD. By:/s/ R. Pierce Onthank --------------------------------- R. Pierce Onthank, President, Secretary, Director Chief Financial Officer and Principal Accounting Officer DATED: October 10, 2007 19 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS June 30, 2007 and 2006
C O N T E N T S Report of Independent Registered Public Accounting Firm..................................................... F-3 Consolidated Balance Sheets................................................................................. F-4 Consolidated Statements of Operations....................................................................... F-5 Consolidated Statements of Stockholders' Equity............................................................. F-6 Consolidated Statements of Cash Flows....................................................................... F-9 Notes to the Consolidated Financial Statements............................................................. F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Board of Directors and Shareholders of The American Energy Group, Ltd. and Subsidiaries Westport, CT. We have audited the accompanying consolidated balance sheets of The American Energy Group, Ltd. and Subsidiary as of June 30, 2007 and 2006 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The American Energy Group, Ltd. and Subsidiary as of June 30, 2006 and 2005 and the consolidated results of their operations and their cash flows for the years then ended, in conformity accounting principles generally accepted in the United States of America. Chisholm, Bierwolf & Nilson, LLC Bountiful, Utah September 25, 2007 F-3
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Balance Sheets For the Years Ended June 30, Assets 2007 2006 ----------- ---------- Current Assets Cash (Note 1) $ 112,957 $ 1,138,209 Funds reserved for acquisitions 2,100,000 2,000,000 Prepaid expenses - 39,318 ------------ ------------ Total Current Assets 2,212,957 3,177,527 ------------ ------------ Property and Equipment Office equipment 16,261 6,786 Leasehold improvements 26,458 - Accumulated depreciation (5,615) (966) ------------ ------------ Net Property and Equipment 37,104 5,820 ------------ ------------ Other Assets Security deposit 20,209 22,209 ------------ ------------ Total Assets $ 2,270,270 $ 3,205,556 ========== ========== Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 41,650 $ 46,030 Accrued liabilities 139,595 15,000 ------------ ------------ Total Current Liabilities 181,245 61,030 ------------ ------------ Liabilities Not Subject to Compromise Accrued postpetition expenses - 57,701 ------------ ------------ Liabilities Subject to Compromise Prepetition trade accounts payable - 238,588 Prepetition accrued liabilities - 45,500 Current portion of capital lease obligation - 679 ------------ ------------ Total Liabilities Subject to Compromise - 284,767 ------------ ------------ Total Liabilities 181,245 403,498 ------------ ------------ Stockholders' Equity (Notes 7 & 8) - ---------------------------------- Common stock, par value $0.001 per share; authorized 80,000,000 shares; 30,512,121 and 29,867,705 shares issued and outstanding, respectively 30,512 29,868 Capital in excess of par value 8,325,802 7,610,563 Accumulated deficit (6,267,289) (4,838,373) ----------- ------------ Total Stockholders' Equity 2,089,025 2,802,508 ------------ ------------ Total Liabilities and Stockholders' Equity $ 2,270,270 $ 3,205,556 =========== ============ The accompanying notes are an integral part of these consolidated financial statements. F-4
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Statements of Operations For the Years Ended June 30, 2007 2006 ------------ ------------ Revenue $ - $ - - ------- ------------ ----------- General and Administrative Expenses Legal and professional 747,086 373,014 Depreciation and amortization expense 4,649 720 General and administrative 859,162 529,332 ------------ ------------ Total Expenses 1,610,897 903,066 ------------ ------------ Net Operating Loss 1,610,897 903,066 ------------ ------------ Other Income and (Expense) Interest income 22,795 2,865 Interest expense (118) (38,806) Forgiveness of debt income 284,767 - Plugging expense settlement (125,463) (57,701) Warrant issuance - (1,396,199) ------------ ------------ Total Other Income and (Expense) 181,981 (1,487,841) ------------ ------------ Net Loss before Federal Income Tax (1,428,916) (2,390,907) Federal Income Tax - - ------------ ------------ Net Loss $ (1,428,916) $ (2,390,907) =========== ============ Basic Loss per Common Share $ (0.05) $ (0.09) ============ ============= Weighted Average Number of Shares Outstanding 30,158,934 27,624,094 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-5
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity For the Period July 1, 2005 through June 30, 2007 Common Stock ------------ Capital in Excess Prepaid Accumulated Shares Amount of Par Value Expenses Deficit Totals ------ ------ ------------ -------- ------- ------ Balance, June 30, 2005 27,139,584 $ 27,140 $ 1,860,545 $ (31,382) $ (2,447,466) $ (591,163) Amortization of expenses prepaid with common stock - - - 31,382 - 31,382 September 2005, conversion of debt upon issuance of 100,000 warrants - - 50,000 - - 50,000 September 2005, issuance of 160,000 warrants for cash at $0.50 per share - - 80,000 - - 80,000 September 2005, valuation expense for 260,000 warrants issued - - 88,714 - 88,714 Warrants issued for services rendered - - 67,446 - 67,446 November 2005, new shares issued for payables at $1.49 per share 22,500 22 33,625 - 33,647 December 2005, new shares issued for services at $1.42 per share 75,000 75 106,425 - 106,500 December 2005, new shares issued for cash at $0.90 per share 122,222 122 109,878 - 110,000 January 2006, new shares issued for cash at $1.35 per share 100,000 100 134,900 - 135,000 January 2006, new shares issuedfor services at $1.95 per share 1,000 1 1,949 - 1,950 January 2006, new shares issued for payables incurred for services rendered during July 2005 through December 2005 at a weighted average price of $1.49 per share 26,107 26 38,974 - 39,000 February 2006, new shares issued for services at $1.37 per share 35,000 35 47,915 - 47,950 The accompanying notes are an integral part of these consolidated financial statements. F-6
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity For the Period July 1, 2005 through June 30, 2007 Common Stock ------------ Capital in Excess Prepaid Accumulated Shares Amount of Par Value Expenses Deficit Totals ------ ------ ------------ -------- ------- ------ April 2006, new shares issued for payables at $1.60 per share 12,181 12 19,488 - 19,500 April 2006, new shares issued for payables at $1.89 per share 10,582 11 19,989 - 20,000 May and June 2006, new shares Through private placement at $1.70 per share 2,323,529 2,324 3,947,676 - 3,950,000 May 2006, valuation expense for 1,161,766 warrants issued in accordance with terms of private placement - - 1,240,039 - 1,240,039 Offering costs related to private placement - - (237,000) - (237,000) Net (loss) for the year ended June 30, 2006 (2,390,907) (2,390,907) -------------- ------------ -------------- ----------- ------------ ------------ Balance June 30, 2006 29,867,705 $ 29,868 $ 7,610,563 $ -- $ (4,838,373) $ 2,802,058 --------------- ------------- --------------- ----------- ------------- ------------ September 2006, new shares issued for payables incurred for services rendered during July 2006 through September 2006 at a weighted average price of $1.27 per share 50,000 50 63,695 - - 63,745 November 2006, new shares issued for payables incurred for services rendered during October 2006 through December 2006 at a weighted average price of $0.76 per share 110,000 110 83,490 - - 83,600 December 2006, new shares issued for payables incurred for services rendered during December 2005 through October, 2006 at a weighted average price of $1.19 per share 51,477 51 61,596 - - 61,647 January 2007, new shares issued for services at $1.10 per share 205,000 205 225,295 - - 225,500 January, 2007, new shares issued for services at $1.35 per share 3,000 3 4,047 - - 4,050 The accompanying notes are an integral part of these consolidated financial statements. F-7
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity For the Period July 1, 2005 through June 30, 2007 Common Stock ------------ Capital in Excess Prepaid Accumulated Shares Amount of Par Value Expenses Deficit Totals ------ ------ ------------ -------- ------- ------ March, 2007, new shares issued for services at $1.25 per share 175,000 175 218,575 - - 218,750 March, 2007, new shares issued for payables at $1.27 per share 5,118 5 6,495 - - 6,500 March, 2007, new shares issued for payables at $1.24 per share 26,100 26 32,565 - - 32,591 June, 2007, new shares issued for services at $1.05 per share 18,721 19 19,481 - - 19,500 Net (loss) for the year ended June 30, 2007 (1,428,916) (1,428,916) ------------ ---------- ----------- ----------- ------------ ------------ Balance June 30, 2007 30,512,121 $ 30,512 $ 8,325,802 $ - $ (6,267,289) $ 2,089,025 ============= =========== =========== =========== ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-8
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Years Ended June 30, 2007 2006 ----------- ---------- Cash Flows From Operating Activities - ------------------------------------ Net loss $ (1,428,916) $ (2,390,907) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 4,649 720 Common stock issued for current debt and services 692,819 259,511 Debt forgiven on liabilities subject to compromise (284,767) - Additional expense for warrant issuance - 1,396,199 Changes in operating assets and liabilities (Increase) decrease in prepaid expenses 39,318 20,860 Increase (decrease) in deposits 2,000 (22,209) Increase (decrease) in accounts payable 18,684 28,398 Increase (decrease) in accrued postpetition liabilities (28,856) 57,701 Increase (decrease) in accrued expenses and other current liabilities 95,750 20,209 ------------ ------------ Net Cash (Used In) Operating Activities (889,319) (629,518) ------------ ------------ Cash Flows From Investing Activities - ------------------------------------ Funds reserved for acquisitions (100,000) (2,000,000) Expenditures for property and equipment (35,933) (3,500) ------------- ------------ Net Cash (Used In) Investing Activities (135,933) (2,003,500) ------------- ------------ Cash Flows From Financing Activities - ------------------------------------ Proceeds from convertible debt - 25,000 Principal payments on long term debt - (292,000) Proceeds from the issuance of common stock - 4,195,000 Offering costs of common stock issuance - (237,000) Proceeds from the issuance of warrants - 80,000 ------------ ------------ Net Cash Provided By Financing Activities - 3,771,000 ------------ ------------ Net Increase (Decrease) in Cash (1,025,252) 1,137,982 Cash and Cash Equivalents, Beginning of Year 1,138,209 227 ------------ ------------ Cash and Cash Equivalents, End of Year $ 112,957 $ 1,138,209 =========== =========== Cash Paid For: - -------------- Interest $ 118 $ 43,195 Taxes $ - $ - Non-Cash Financing Activities: - ------------------------------ Common stock issued in satisfaction of accounts payable $ 23,064 $ 14,597 Common stock issued for services rendered $ 692,819 $ 259,511 Warrants issued for payment of debt $ - $ 50,000 The accompanying notes are an integral part of these consolidated financial statements. F-9
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies - -------------------------------------------------------------------- a. Organization The American Energy Group, Ltd. (the Company) was incorporated in the State of Nevada on July 21, 1987 as Dimension Industries, Inc. Since incorporation, the Company has had several name changes including DIM, Inc. and Belize-American Corp. Internationale with the name change to The American Energy Group, Ltd. effective November 18, 1994. During the year ended June 30, 1995, the Company incorporated additional subsidiaries including American Energy-Deckers Prairie, Inc., The American Energy Operating Corp., Tomball American Energy, Inc., Cypress-American Energy, Inc., Dayton North Field-American Energy, Inc. and Nash Dome Field-American Energy, Inc. In addition, in May 1995, the Company acquired all of the issued and outstanding common stock of Hycarbex, Inc. (Hycarbex), a Texas corporation, in exchange for 120,000 shares of common stock of the Company, a 1% overriding royalty on the Pakistan Project (see Note 2) and a future $200,000 production payment if certain conditions are met. The acquisition was accounted for as a pooling-of-interests on the date of the acquisition. The fair value of the assets and liabilities assumed approximated the fair value of the 120,000 shares issued of $60,000 as of the date of the acquisition. Accordingly, book value of the assets and liabilities assumed was $60,000. In April 1995, the name of that company was changed to Hycarbex-American Energy, Inc. The American Energy Group, Ltd., The American Energy Operating Corp. and Hycarbex-American Energy, Inc., were the only operating entities during the years ended June 30, 2005 and for the periods January 30, 2004 to June 30, 2004 and July 1, 2003 to January 29, 2004. The Company and its subsidiaries were principally in the business of acquisition, exploration, development and production of oil and gas properties. On June 28, 2002, the Company was placed into involuntary Chapter 7 bankruptcy by three creditors, including Georg von Canal, an officer and director who was then involved in litigation with the Company to invalidate an attempt to remove him from his management positions. The bankruptcy filing followed an unsuccessful effort by management to resolve both the litigation and the need for a substantial cash infusion through a stock sale to a German-based investor which would have simultaneously resulted in a restructure of management. Shortly after this bankruptcy filing, the secured creditor holding a first lien on the Company's only producing oil and gas leases in Fort Bend County, Texas, sought permission from the bankruptcy court to foreclose on those assets. The Company responded by converting the Chapter 7 bankruptcy proceedings to a Chapter 11 reorganization proceeding. The company obtained approval of a plan or reorganization in September 2002, but the secured creditor was nevertheless permitted to foreclose upon the Fort Bend County oil and gas leases. Subsequent to the approval of the foreclosure of the oil and gas producing properties, the Company abandoned the remaining oil and gas properties except for one lease in southeast Texas. For the year ended June 30, 2003, the Company recognized a loss of $13,040,120 on the foreclosure and abandonment of the oil and gas properties and the sale of the fixed assets. On October 26, 2003, the Company sold its wholly-owned subsidiary, Hycarbex-American Energy, Inc., for an 18% overriding royalty interest in the Exploration License No. 2768-7 dated August 11, 2001, of the Yasin Exploration Block. On January 29, 2004, the Company was released from bankruptcy. Pursuant to the plan, all of the existing 66,318,037 shares of common stock and 41,499 shares of preferred stock were cancelled. The Company issued 18,898,518 new shares of common stock to creditors. Also, the Company adopted the provisions for fresh-start reporting. Accordingly, the accumulated deficit accumulated through January 29, 2004 has been eliminated. The Company is considered to have a fresh-start due to the cancellation of the prior shareholders' common stock and the subsequent issuance of common stock to creditors, the new shareholders. F-10 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies (continued) - -------------------------------------------------------------------------------- a. Organization (continued) On April 14, 2005, the Company's wholly owned inactive subsidiary, American Energy Operating Corp (AEOC) filed for a voluntary bankruptcy liquidation. AEOC does not have any assets but had liabilities in the amount of $334,927 as of June 30, 2006, which were segregated on the consolidated balance sheets as prepetition liabilities subject to compromise in the amount of $284,476 and accrued postpetition liabilities in the amount of $57,701. On July 24, 2006, the American Energy Operating Corp. received a final decree from the United States Bankruptcy Court - Southern District of Texas that the Company's estate had been fully administered and that the Chapter 7 was closed. As a result, the consolidated financial statements for the year ended June 30, 2007, include $284,767 of income related to debt discharged in bankruptcy. b. Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. These factors raise substantial doubt about the Company's ability to continue as going concerns. The Company has no operations and is dependent upon financing to continue its operations. It is management's plan to manage and maintain its two core assets and to develop these assets where possible to generate cash for further investment and growth. In the case of the southeast Texas oil and gas lease, generation of cash will likely require an outright sale or a partial sale with a retained interest in production, as the company does not have sufficient cash assets to conduct drilling operations or the bonding capacity to obtain operating authority under Texas regulations. With regard to the Pakistan royalty, the company does not have development rights or obligations and is dependent upon the success of the drilling program implemented by Hydro Tur (Energy) Ltd. During the year ended June 30, 2005, Hydro Tur (Energy) Ltd. announced the successful completion of its initial well, the Haseeb No. 1, which is anticipated to begin generating cash flows in the third quarter of calendar 2007. Hydro Tur (Energy) Ltd. has also expressed their commitment to accelerate their development activities in Pakistan as a result of the success of the Haseeb No.1 well. If either activity is successful in generating cash assets, management plans to seek out investment opportunities compatible with its focus upon oil and gas properties. The recovery of assets and continuation of future operations are dependent upon the Company's ability to obtain additional debt or equity financing, and their ability to generate revenues sufficient to continue pursuing their business purpose. These financial statements do not include any adjustments that might result from the outcome of these uncertainties. Subsequent to the date of these financial statements the Company has raised $240,000 from private parties and an existing shareholder through the issuance of warrants to purchase common stock and through the direct issuance of common shares. c. Accounting Methods The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a June 30 year-end. d. Principles of Consolidation The consolidated financial statements include the Company and its wholly-owned subsidiary as detailed previously. All significant intercompany accounts and transactions have been eliminated in consolidation. F-11 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies (continued) - -------------------------------------------------------------------------------- e. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. f. 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, 2007 and 2006, the Companies incurred total depreciation of $4,649 and 720, respectively. g. Basic Loss Per Share of Common Stock
For the Year For the Year Ended June 30, Ended June 30, 2007 2006 ------------- ------------- Loss (numerator) $ (1,428,916) $(2,390,907) Shares (denominator) 30,158,934 27,624,094 ---------- ---------- Per Share Amount $ (0.05) $ (0.09) ----------- ------------
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 consolidated financial statements. Stock warrants convertible into 3,942,326 shares of common stock are not included in the basic calculation because their inclusion would be antidilutive, thereby reducing the net loss per common share. h. 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. i. Long Lived Assets All long lived assets are evaluated for impairment per SFAS 144 whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Any impairment in value is recognized as an expense in the period when the impairment occurs. j. Equity Securities Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of issuance. F-12 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies (continued) - -------------------------------------------------------------------------------- k. Income Taxes At June 30, 2007, the Company had net operating loss carryforwards of approximately $46,923,484 that may be offset against future taxable income from the year 2007 through 2026. No tax benefit has been reported in the June 30, 2007 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The income tax benefit differs from the amount computed at federal statutory rates of approximately 38% as follows:
Year Ended June 30, 2007 2006 ----------- ---------- Income tax benefit at statutory rate $ 542,988 $ 908,545 Change in Valuation allowance (542,988) (908,545) ============= ============ Income Tax Expense $ - $ - ============= ============ Deferred tax assets are comprised of the following: Year Ended June 30, 2007 2006 ----------- ---------- Federal tax benefit of net operating loss carryforward $ 17,830,924 $ 17,287,936 Valuation allowance (17,830,924) (17,287,936) ============= ============ $ - $ - ============= ============
l. Fair Value of Financial Instruments The Company includes fair value information in the notes to the financial statements when the fair value of its financial statements is different from the book value. When the book value approximates fair value, no additional disclosure is made. The Company assumes the book value of those financial instruments that are classified as current approximates fair value because of the short maturity of those instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments. m. 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 regularly exceed the $100,000 federal deposit insurance limit. The Company has not experience any losses on deposits. F-13 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies (continued) - -------------------------------------------------------------------------------- n.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, 2007, the Company believes it has no such liabilities. o. New Accounting Pronouncements In February 2006, the FASB issued Statement No. 155, "Accounting for Certain Hybrid Financial Instruments", an amendment of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for accounting changes and corrections of errors made in fiscal periods that begin after September 15, 2006. Management does not anticipate this Statement will impact the Company's consolidated financial position or consolidated results of operations and cash flows. In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of Financial Assets", an amendment of FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement amends Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement is effective for accounting changes and corrections of errors made in fiscal periods that begin after September 15, 2006. Management does not anticipate this Statement will impact the Company's consolidated financial position or consolidated results of operations and cash flows. In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material impact on its financial reporting, and the Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its disclosure requirements. F-14 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 1 - Organization and Summary of Significant Accounting Policies (continued) - -------------------------------------------------------------------------------- o. New Accounting Pronouncements (continued) In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures regarding fair value measurements. SFAS 157 does not add any new fair value measurements, but it does change current practice and is intended to increase consistency and comparability in such measurement. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007. Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. Management does not anticipate this Statement will impact the Company's consolidated financial position or consolidated results of operations and cash flows. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R" ("SFAS 158"). SFAS 158 requires employers that sponsor defined benefit pension and postretirement plans to recognize previously unrecognized actuarial losses and prior service costs in the statement of financial position and to recognize future changes in these amounts in the year in which changes occur through comprehensive income. As a result, the statement of financial position will reflect funded status of those plans as an asset or liability. Additionally, employers are required to measure the funded status of a plan as of the date of their year-end statements of financial position and provide additional disclosures. SFAS 158 is effective for financial statements issued for fiscal years ending after December 15, 2006 for companies whose securities are publicly traded. The Company does not expect the adoption of SFAS 158 to have a significant effect on its financial position or results of operations. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a significant effect on its financial position or results of operations 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, 2007, the Company does not have any proved reserves as defined under Statement of Financial Accounting Standard 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. In addition, the Company holds an 18% gross royalty interest in the Yasin Concession in Pakistan. As of June 30, 2007, the Company had not received any royalties from their interest in this concession. The concession was acquired in 2003 through the sale of a wholly owned subsidiary of the Company. Revenues to be derived from this interest are overriding in nature and there are no future financial obligations or commitments required of the Company to secure this royalty interest. F-15 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 3 - Lease Commitments - -------------------------- The Company entered into a long term lease for office space in June, 2006. The original lease term is 5 years with a 5 year extension term. The lease requires monthly rentals of $11,913, $12,211, $12,509, $12,807 and $ 13,105 for the twelve months ended May 31, 2007, 2008, 2009, 2010 and 2011, respectively. The president of the Company personally guaranteed $75,000 of obligations under this lease As of June 30, 2007, minimum future lease payments under this lease are as follows: Year ended June 30, 2008 $ 146,830 Year ended June 30, 2009 153,386 Year ended June 30, 2010 156,958 Year ended June 30, 2011 144,155 ---------- $ 601,329 ========== The Company incurred $126,396 of rent expense under this lease for the year ended June 30, 2007. Upon entering into the lease described above, the Company simultaneously executed three separate leases to sublet a portion of the office space obtained in the lease. The original lease terms of two of the sub leases are 2 years with combined monthly payments of $3,500 due the Company. The third sub lease is on a month to month basis and is for $2,000 per month. The Company is currently pursuing additional tenants to sub lease available space and anticipates that upon expiration of the above sub leases that either the current sub lease will renew or other tenants will then occupy the space. As of June 30, 2007, minimum future lease payments due the Company under these sub leases are as follows: Year ended June 30, 2008 $ 42,000 ======== The Company received $56,000 from these sub-leases for the year ended June 30, 2007. Note 4 - Common Stock - --------------------- During November 2005, the Company issued 22,500 shares of common stock for payables valued at $33,647. During December 2005, the Company issued 75,000 shares of common stock for services valued at $106,500. During December 2005, the Company issued 122,222 shares of common stock for $110,000 cash. During January 2006, the Company issued 100,000 shares of common stock for $135,000 cash. During January 2006, the Company issued 27,107 shares of common stock for services and payables valued at $40,950. During February 2006, the Company issued 35,000 shares of common stock for services valued at $47,950. During April 2006, the Company issued 22,763 shares of common stock for payables valued at $39,500. During May and June, 2006 the Company issued 2,323,529 shares of common stock through a private placement for $3,950,000 cash. F-16 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 4 - Common Stock (continued): - ---------------------------------- During September 2006, the Company issued 50,000 shares of common stock for services and payables valued at $63,745. During November 2006, the Company issued 110,000 shares of common stock for services and payables valued at $83,600. During December 2006, the Company issued 51,477 shares of common stock for services and payables valued at $61,647. During January 2007, the Company issued 208,000 shares of common stock for services valued at $229,550. During March 2007, the Company issued 206,218 shares of common stock for services valued at $257,841. During June 2007, the Company issued 18,721 shares of common stock for services and payables valued at $19,500. Note 5 - Common Stock Warrants - ------------------------------ Prior to July 1, 2005, the Company accounted for stock compensation plans under the recognition and measurement provisions of Accounting Principles Board ("APB") 25, "Accounting for Stock Issued to Employees," and related interpretations ("APB 25"), as permitted by FASB Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). No stock-based employee compensation cost was recognized for stock option awards in the statement of operations for the periods prior to July 1, 2005, as all options granted under those plans had an exercise price equal to or greater than the market value of the common stock on the date of the grant in accordance with APB 25. FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires the Company to provide proforma information regarding net income and net income per share as if compensation costs for the Company's stock option plans and other stock awards had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model. The warrants granted for the years ended June 30, 2007 and 2006 were based on the following assumptions:
June 30, ---------------------------- 2007 2006 ----------- ---------- Dividend yield NA 0 Expected volatility NA 100% Risk free interest NA 3.90 to 5.0.0% Expected lives NA 3-5 years
For purposes of proforma disclosures, the estimated fair value of the warrants are included in expense over the vesting period or expected life of the warrant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), "Share Based Payment" ("SFAS 123R"), using the modified-prospective-transition method. Under this transition method, total compensation cost recognized in the statement of operations for the years ended June 30, 2007 and 2006 includes compensation costs for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. The Company did not grant any stock-based compensation option awards during the years ended June 30, 2007 and 2006. F-17 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006
Note 5 - Common Stock Warrants (continued) - ------------------------------------------ 2007 2006 ----------- ---------- Net loss as reported $ (1,428,916) $ (2,390,907) Adjustment calculated in accordance with SFAS 123 (-) (500,000) -------------- -------------- Proforma net loss $ (1,428,916) $ (2,890,907) ============== =============== Net loss per common share as reported $ (0.05) $ (0.09) ============== =============== Proforma net loss per common share $ (0.05) $ (0.12) =============== ===============
No tax effects were included in the determination of proforma net loss because the deferred tax asset resulting from stock-based employee compensation would be offset by an additional valuation allowance for deferred taxes. A summary of the status of the Company's stock warrants as of June 30, 2007 and 2006 is presented below:
Weighted Ave. Stock Exercise Exercise Warrants Price Price -------------------------------------------- Outstanding and Exercisable, June 30, 2005 2,000,000 $ 1.00 $ 1.00 Granted 1,942,326 1.50-1.75 1.70 Expired/Canceled - - - Exercised - - - -------------------------------------------- Outstanding and Exercisable, June 30, 2006 3,942,326 $ 1.00-1.70 $ 1.34 -------------------------------------------- Granted - - - Expired/Canceled - - - Exercised - - - -------------------------------------------- Outstanding and Exercisable, June 30, 2007 3,942,326 $ 1.00-1.70 $ 1.34 --------------------------------------------
A summary of outstanding stock warrants at June 30, 2007 follows:
Number of Remaining Weighted Common Stock Contracted Exercise Ave Exer. Equivalents Expir. Date Life (Years) Price Price ----------- ----------- ------------ -------------------- 160,000 September 2008 1.250 $1.50 $1.50 100,000 September 2008 1.250 $1.75 $1.75 75.000 December 2008 1.500 $1.50 $1.50 1,000,000 December 2010 3.875 $0.75 $0.75 500,000 December 2010 3.875 $1.00 $1.00 500,000 December 2010 3.875 $1.50 $1.50 1,607,326 May 2011 4.917 $1.70 $1.70
F-18 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2007 and 2006 Note 6 - Related Party Transactions - ----------------------------------- On May 12, 2006, the Company entered into a non-exclusive Agency Agreement with Hycarbex - American Energy, Inc., an entity for which our Director, Dr. Iftikhar Zahid, serves as president, under which Hycarbex will attempt to locate for the Company, and to negotiate on behalf of the Company, royalty purchase opportunities within the Republic of Pakistan. The Agreement provides for a finder's fee to Hycarbex equal to $50,000 for each royalty purchase which is actually consummated. The Company, in its discretion, may deposit funds with Hycarbex which are to be used solely for such acquisition purposes and subject to the Company's approval of the transaction. As of June 30, 2007 and 2006, the Company had on deposit a total of $2,100,000 and $2,000,000, respectively, with Hycarbex for these potential acquisitions. In the event that no acquisitions are consummated, then the Company may, at any time, terminate the agency relationship and the funds will be returned to the Company. F-19 EX-31.1 2 a5515535ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, R. PIERCE ONTHANK, President and Chief Financial Officer of The American Energy Group, Ltd., certify that: 1. I have reviewed this Annual Report on Form 10-KSB for the fiscal year ended June 30, 2007 of The American Energy Group, Ltd.. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. I am the small business issuer's sole certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f), and 15d-15(f) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure the material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I am the small business issuer's sole certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: October 10, 2007 /s/ R. Pierce Onthank R. ------------------------ PIERCE ONTHANK President, Chief Executive Officer, Acting Chief Financial Officer and Principal Accounting Officer 33 EX-32.1 3 a5515535ex32_1.txt EXHIBIT 32.1 EXHIBIT 32.1 THE AMERICAN ENERGY GROUP, LTD. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the accompanying Annual Report on Form 10-KSB of The American Energy Group, Ltd. (the "Corporation") for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I R. Pierce Onthank, President, CEO and Chief Financial Officer of the Corporation, certify, to the best of my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that: (a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); and (b) The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. Date: October 10, 2007 By: /s/ R. Pierce Onthank ------------------------- R. Pierce Onthank President, Chief Executive Officer, Acting Chief Financial Officer and Principal Accounting Officer 34 -----END PRIVACY-ENHANCED MESSAGE-----