10-Q 1 a6292998.txt THE AMERICAN ENERGY GROUP, LTD. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF --- 1934 For the quarterly period ended March 31, 2010 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT --- OF 1934 For the transition period from _____________ to _______________ Commission file number: 0-26402 THE AMERICAN ENERGY GROUP, LTD. (Exact name of Registrant as specified 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) 203-222-7315 (Registrant's telephone number including area code) ___________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to 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 --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING 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 ISSUERS As of May 17, 2010, the number of Common shares outstanding was 33,157,911 Transitional Small Business Issuer Format (Check one) Yes No [X] --- --- THE AMERICAN ENERGY GROUP, LTD. INDEX TO FORM 10-Q
PART I-FINANCIAL INFORMATION PAGE Item 1. Financial Statements............................................. 3 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations........................................ 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 12 Items 4 and 4T. Controls and Procedures.......................................... 12 PART II-OTHER INFORMATION Item 1. Legal Proceedings................................................ 12 Item 1A Risk Factors..................................................... 12 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 12 Item 3. Defaults Upon Senior Securities.................................. 13 Item 4. Submission of Matters to a Vote of Security Holders.............. 13 Item 5. Other Information................................................ 13 Item 6. Exhibits......................................................... 13
-2- PART I-FINANCIAL INFORMATION THE AMERICAN ENERGY GROUP, LTD. Balance Sheets
Assets ------ March 31, June 30, 2010 (Unaudited) 2009 ------------ ------------ Current Assets -------------- Cash $ 4,430 $ 33,879 Funds reserved for acquisitions - related party 602,500 1,139,500 ------------ ------------ Total Current Assets 606,930 1,173,379 ------------ ------------ Property and Equipment ---------------------- Office equipment 27,421 27,421 Leasehold improvements 26,458 26,458 Accumulated depreciation (24,569) (19,341) ------------ ------------ Net Property and Equipment 29,310 34,538 ------------ ------------ Other Assets ------------ Investment in oil and gas working interest - related party 1,564,431 - Security deposit 26,209 26,209 ------------ ------------ Total Other Assets 1,590,640 26,209 ------------ ------------ Total Assets $ 2,226,880 $ 1,234,126 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current Liabilities ------------------- Accounts payable $ 61,942 $ 65,519 Security deposits 13,200 13,200 Accrued liabilities 622,940 490,900 ------------ ------------ Total Current Liabilities 698,082 573,619 ------------ ------------ Total Liabilities 698,082 573,619 ------------ ------------ Stockholders' Equity -------------------- Common stock, par value $0.001 per share; authorized 80,000,000 shares; 33,118,773 and 31,019,255 shares issued and outstanding, respectively 33,119 31,019 Capital in excess of par value 10,256,616 8,722,826 Accumulated deficit (8,760,937) (8,093,338) ------------ ------------ Total Stockholders' Equity 1,528,798 660,507 ------------ ------------ Total Liabilities and Stockholders' Equity $ 2,226,880 $ 1,234,126 ============ ============
See accompanying unaudited notes to the financial statements. -3- THE AMERICAN ENERGY GROUP, LTD. Statements of Operations For the Three Months and Nine Months Ended March 31, 2010 and 2009 Unaudited
Three Months Ended Nine Months Ended ------------------------- ------------------------- March 31, March 31, March 31, March 31, 2010 2009 2010 2009 Revenue $ 0 $ 0 $ 0 $ 0 ------- Cost of Goods Sold 0 0 0 0 ------------------ ------------ ------------ ------------ ------------ Gross Profit 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Expenses -------- Administrative salaries 122,102 115,200 387,102 363,078 Legal and professional 30,068 149,622 102,188 215,733 General and administrative 51,567 36,785 125,321 94,076 Office overhead expenses 24,141 12,280 42,823 18.097 Depreciation 1,743 1,742 5,228 5,228 ------------ ------------ ------------ ------------ Total Expenses 229,621 315,629 662,662 696,212 ------------ ------------ ------------ ------------ Net Operating (Loss) (229,621) (315,629) (662,662) (696,212) ------------ ------------ ------------ ------------ Other Income and (Expense) ------------------------- Interest expense (1,629) (1,651) (4,776) (4,937) ------------ ------------ ------------ ------------ Total Other Income (Expense) (1,629) (1,651) (4,776) (4,937) ------------ ------------ ------------ ------------ Net (Loss) Before Tax (231,250) (317,280) (667,599) (700,988) Income Tax 0 0 0 0 ------------ ------------ ------------ ------------ Net (Loss) $ (231,250) $ (317,280) $ (667,599) $ (700,988) ============ ============ ============ ============ Basic Loss Per Common Share $ (.01) $ (.01) $ (.02) $ ( .02) ============ ============ ============ ============ Weighted Average Number Of Shares Outstanding 32,385,087 30,937,191 32,190,968 30,824,974 ============ ============ ============ ============
See accompanying unaudited notes to the financial statements. -4- THE AMERICAN ENERGY GROUP, LTD. Statements of Cash Flows For the Nine Months Ended March 31, 2010 and 2009 (Unaudited)
2010 2009 ----------- ---------- Cash Flows From Operating Activities ------------------------------------ Net loss $ (667,599) $(700,988) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation 5,228 5,228 Common stock issued for debt and services 140,860 71,460 Changes in operating assets and liabilities: Increase (decrease) in security deposits 0 4,000 Increase (decrease) in accounts payable (7,578) (39,160) Increase (decrease) in accrued expenses and other current liabilities 132,040 206,056 ----------- ---------- Net Cash (Used In) Operating Activities (466,449) (384,004) ----------- ---------- Cash Flows From Investing Activities ------------------------------------ Funds (reserved for) / released from acquisitions 537,000 371,945 Expenditures for oil and gas working interest (100,000) (0) ----------- ---------- Net Cash Provided By Investing Activities 437,000 371,945 ----------- ---------- Cash Flows From Financing Activities ------------------------------------ Net Cash Provided By (Used In) Financing Activities 0 0 ----------- ---------- Net Increase (Decrease) in Cash (29,449) (12,059) 33,879 26,984 ----------- ---------- Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period $ 4,430 $ 14,925 =========== ========== Cash Paid For: -------------- Interest $ 4,937 $ 4,776 Taxes $ 0 $ 0 Non-Cash Financing Activities: ------------------------------ Common stock issued for payment of debt $ 19,500 $ 60,748 Common stock issued for services rendered $ 51,960 $ 140,860 Common stock issued for oil and gas working interest $1,440,000 $ 0 Warrants issued for oil and gas working interest $ 24,431 $ 0
See accompanying unaudited notes to the financial statements. -5- THE AMERICAN ENERGY GROUP, LTD. Notes to the Financial Statements March 31, 2010 Note 1 - General ------------------- The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto included in its June 30, 2009 Annual Report on Form 10-K. Operating results for the three months and nine months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010. Note 2 - Basic Loss Per Share of Common Stock ------------------------------------------------------
Three Months Ended Nine Months Ended ------------------------- ------------------------- March 31, March 31, March 31, March 31, 2010 2009 2010 2009 Loss (numerator) $ (231,250) $ (317,280) $ (667,599) $ (700,988) ------------ ------------ ------------ ------------ Shares (denominator) 32,385,087 30,937,191 32,190,968 30,824,974 ------------ ------------ ------------ ------------ Per Share Amount $ (0.01) $ (0.01) $ (0.02) $ (0.02) ============ ============ ============ ============
The basic loss per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial statements. Stock warrants convertible into 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. Note 3 - Common Stock --------------------- During July, August and September 2009, the Company issued 8,025, 8,904 and 8,228 shares of common stock for payables valued at $6,500, $6,500 and $6,500, respectively. During October, November and December 2009, the Company issued 9,420, 10,156 and 9,848 shares of common stock for payables valued at $6,500, $6,500 and $6,500, respectively. During October, 2009 the Company issued 2,000,000 shares of common stock for oil and gas working interest investments. During December, 2009, the Company issued 14,280 shares of common stock for services valued at $10,000. During January, February and March 2010, the Company issued 8,025, 9,848 and 8,784 shares of common stock for payables valued at $6,500, $6,500 and $6,500, respectively. -6- THE AMERICAN ENERGY GROUP, LTD. Notes to the Financial Statements March 31, 2010 Note 3 - Common Stock (continued) -------------------------------------- During January, 2010, the Company issued 4,000 shares of common stock for services valued at $2,960. Note 4 - Investment in Oil and Gas Working Interest - Related Party ------------------------------------------------------------------------------- During the quarter ended December 31, 2009, the Company executed an agreement to acquire from Hycarbex - American Energy, Inc. (Hycarbex), a related party, a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan. In exchange for the working interest, the Company issued (1) 2,000,000 shares of common stock to Hycarbex, (2) 100,000 warrants with a three year duration to purchase an additional 100,000 shares at $1.75 per share and (3) $100,000 in cash. In addition, the purchase agreement requires Hycarbex to transfer $50,000 per month of the funds remaining in escrowed funds reserved for acquisitions to the Company until such time as the Company has received $200,000 in royalty payments from the Haseeb Exploratory Well No. 1. Once the Company has received $200,000 of royalty payments from the Haseeb Exploratory Well No. 1, any remaining balance in the funds reserved for acquisitions, currently $602,500, will be forfeited to Hycarbex for additional consideration of the acquisition of the oil and gas working interests. The Company has the option to convert the two and one half percent working interests described above to a one and one half percent gross royalty working interest at any time. Note 5 - Warrants -------------------- During the quarter ended December 31, 2009, the Company issued 100,000 warrants to purchase common stock pursuant to the terms of the Carried Working Interest Purchase and Sale Agreement entered into with Hycarbex - American Energy, Inc. on October 29, 2009. The warrants provide that up to 100,000 shares may be purchased at $1.75 per share during the three year period commencing October 29, 2009. The Company estimates the fair value of each stock award at grant date by using the Black-Scholes option pricing model. The warrants granted during the quarter ended December 31, 2009 were based on the following assumptions. Dividend yield 0 Expected volatility 83.902% Risk free interest 2.00% Expected lives 3 years As a result of the 100,000 warrants issued during the quarter ended December 31, 2009, the Company incurred $24,431 of costs which is included in the capitalized costs of the oil and gas working interests acquired during the quarter ended December 31, 2009. Note 6 - Subsequent Events ------------------------------ In accordance with ASC 855-10, management of the Company has reviewed all material events through the date of this report. Management considers the following subsequent event material. Subsequent to March 31, 2010, the Company extended the expiration date of outstanding warrants to purchase common stock originally issued to Iftikhar A. Zahid and Pierce Onthank. The warrants, which were originally issued on April 12, 2005 and were set to expire on April 12, 2010, have been extended for five years, resulting in a new expiration date of April 12, 2015. The extension covers 2,000,000 warrants to purchase common stock, 1,000,000 which shall be exercisable at seventy five cents ($.75), 500,000 which shall be exercisable at $1.00, and 500,000 exercisable at $1.50. -7- ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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. 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 in order to determine if further operations would likely yield commercial volumes of gas. In 2008, Hycarbex drilled the Yasin Exploratory Well #1. After drilling to the Sui Main Limestone, which was only one of the target zones for the well, mechanical difficulties were encountered in the hole. The Sui Main Limestone showed strong intermittent gas during the drilling, but a steady flow was not achieved. Hycarbex spent several months attempting to resolve the mechanical difficulties and considering alternative remedial operations while simultaneously evaluating the geologic data obtained from the drilling. After evaluation, Angular redrilling in the same wellbore and other remedial measures targeted at saving the wellbore were decided against because the preliminary data collected by Hycarbex indicates that the drilling placement was not at the optimum position on the producing structure. Hycarbex plans to perform additional seismic to refine the preliminary data obtained from the drilling process. Since the drilling reaffirmed Hycarbex's belief that the structure is very promising, a nearby replacement well is expected to be drilled after completion of the additional seismic. -8- On October 29, 2009, we executed an agreement to acquire from Hycarbex a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan. Each concession block is operated by Heritage Oil and Gas Limited. Heritage Oil and Gas Limited is an affiliate of Heritage Oil, plc, an independent oil and gas company which focuses its oil and gas operations on Africa, the Middle East, and Russia. In addition to Hycarbex, other working interest participants in the two Blocks are Sprint Energy (Private) Limited, an affiliate of Pakistan-based JS Group, and Trakker Energy (Private) Limited, an affiliate of Pakistan-based TPL Holdings, Ltd. Under the terms of the agreement, our 2-1/2% working interests will be deemed "carried" by Hycarbex for the initial two (2) wells on the Sanjawi Block and the initial three (3) wells on the Zamzama North Block. The term "carried" means that the costs associated with work programs, seismic, road preparation, drillsite preparation, rig and equipment mobilization, drilling, reworking, testing, logging completion and governmental fees (except taxes on production) shall be borne entirely by Hycarbex. Infrastructure costs such as pipelines and surface facilities constructed after the first discovery well on each Block are not carried. After the initial carried wells have been drilled, we are required to bear our proportionate share of drilling and exploration costs in subsequent wells. The agreement provides us with the option to convert our working interest in any well at any time to a 1.5% gross royalty interest free of any exploration costs, operating costs or deductions related to the well in which the conversion has been made other than applicable production taxes assessed against the royalty. Results of Operations Our operations for the three months and nine months ended March 31, 2010 reflected net operating losses of $229,621 and $662,662, respectively, as compared to $315,629 and $696,212 for the three months and nine months ended March 31, 2009, related to salaries, office rental and overhead charges and legal and professional fees. There were no revenues from operations and our sole business during the fiscal quarter consisted of management of our Pakistan and Texas assets. We have had no recurring income stream to date 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. Recent delays in the timing estimates have related to completion of the surface treatment facility for the produced gas. The Haseeb Gas Field processing facility is a high pressure installation which is intended to reduce CO2 and H2S which may be present in Haseeb raw gas down to pipeline quality gas specification. The main process train design pressure is 1200 psi (pounds per square inch) for an operating pressure of 990 psi. The facility consists of 5 pressure vessels consisting of (i) an inlet production separator where water is separated from the raw gas and any higher hydrocarbon liquids, resulting in the sour wet gas; (ii) an inlet filter separator where finite particles are filtered from the gas; (iii) an amine contractor (absorber) where the sour wet gas is brought into contact with amine, absorbing excess CO2 and H2S, resulting in sweet gas of pipeline quality but saturated with H2O; (iv) an amine stripper where contaminated amine is passed through to remove contaminants and the cleaned amine is re-circulated; and (v) a glycol contractor where the wet gas is brought into contact with glycol, removing saturated water and resulting in sweet and dry gas of pipeline quality. To ensure the highest level of quality assurance and control, the contractor was required to fabricate and test the vessels following ASME (American Society of Mechanical Engineers) Code VIII for Pressure Vessels and "U" stamp them as per physical inspection and certification by a third party inspector duly authorized by ASME (the "U" stamp is an internationally recognized hallmark of excellence for the pressure vessel). The inspection spreads over various stages in the fabrication and testing cycle. ONE/T V/BV, an Authorized Inspection Agency accredited by ASME was engaged for the inspection and certification, which included inspection of raw material (plates), fittings (nozzles), inspection of rolled and welded completed jobs, RT (X-ray films) and dye penetration test to determine integrity of welds, witnessing of the hydro test, and reviewing the various technical and test documents. We have been advised by Hycarbex that based upon the progress of this complex inspection and certification process, the well is expected to be connected to the gas marketing line in May or June, 2010, and production revenues are expected to be received during the third calendar quarter of 2010. 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 including the sale of $3,950,000 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 in 2007 and then again in 2008, which did not occur. In the prior report for the period ended December 31, 2009, the estimate for pipeline connection obtained from Hycarbex was the month ending February 28, 2010. However, updated estimates received from Hycarbex now indicate that the well is expected to be connected to the gas marketing line in May or June, 2010 to permit completion of all required outsided inspections, and production revenues are expected to be received during the third calendar quarter of 2010. -9- 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. The consideration to be paid by American Energy Group, Ltd. for the Sanjawi and Zamzama North carried working interests acquired after the end of the quarter includes 2,000,000 shares of Common Stock and 100,000 Warrants to purchase Common Stock with a 3-year duration and an exercise price of $1.75 per share and a commission of $100,000. We are entitled to redeem the Warrants in the event that our Common Stock trades at $2.00 or more for twenty (20) consecutive trading days by providing written notice to the Warrant holder, upon which notice, the holder shall have thirty (30) days to exercise the Warrant. We also agreed to pay to Hycarbex a contingent cash consideration to be derived from the funds on deposit with Hycarbex under the May 11, 2006 Non-Exclusive Agency Agreement in which we engaged Hycarbex to locate and assist in obtaining concession interests in Pakistan. The amount of the cash consideration will not be determined until we achieve $200,000 of aggregate royalty income from our 18% royalty in the Haseeb Exploratory Well No. 1 located on the Yasin Concession Block No. 2768-7. If and when the aggregate $200,000 sum is received from its royalty interest, then the remaining funds in escrow under the Non-Exclusive Agency Agreement shall be released to Hycarbex as its cash payment inclusive of a $100,000 commission as provided in the Non-Exclusive Agency Agreement. Until this royalty income threshold is achieved, we will withdraw from the funds on deposit $50,000 per month for operating capital. As of March 31, 2010, our funds on deposit with Hycarbex totaled $602,500. 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 2010 fiscal year will be paid with common stock instead of cash assets. Business Strategy and Prospects Our business strategy is to acquire royalty interests and carried working interests in key productive areas within Pakistan, thereby avoiding typical exploration-related cost uncertainties. The October 29, 2009 agreement to acquire from Hycarbex a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan is consistent with this strategy, as under the terms of the agreement, our 2-1/2% working interests will be deemed "carried" by Hycarbex for the initial two (2) wells on the Sanjawi Block and the initial three (3) wells on the Zamzama North Block. The term "carried" means that the costs associated with work programs, seismic, road preparation, drillsite preparation, rig and equipment mobilization, drilling, reworking, testing, logging completion and governmental fees (except taxes on production) shall be borne entirely by Hycarbex. Infrastructure costs such as pipelines and surface facilities constructed after the first discovery well on each Block are not carried. After the initial carried wells have been drilled, we are required to bear our proportionate share of drilling and exploration costs in subsequent wells, but the agreement provides an option to American Energy Group, Ltd. to convert our working interest in any well at any time to a 1.5% gross royalty interest free of any exploration costs, operating costs or deductions related to the well in which the conversion has been made other than applicable production taxes assessed against the royalty. Pakistan Royalty and Carried Working Interests/Recent Political Developments in Pakistan 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 blocks 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, as well as the completion of 110 kilometers of additional seismic research by Hycarbex-American Energy, Inc. and subsequent wells 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 are likewise optimistic that our carried working interest participation in the newly acquired Sanjawi and Zamzama North concessions operated by Heritage Oil and Gas Limited will yield positive financial returns. We expect to use these anticipated revenues for further investment in other revenue generating assets or business activities while limiting our exposure to the financial risks inherent in oil and gas drilling in Pakistan by adhering to our business plan of acquiring royalties and carried interests, which are not subject to such costs. -10- While continuous production and favorable hydrocarbon prices are necessary for the royalty and carried working interests held by the Company to demonstrate real value, we are optimistic that the imminent connection of the Haseeb No. 1 Well to the gas line to initiate the marketing of the gas produced will prove to be only one of several wells which will ultimately be drilled on the concession. We are likewise optimistic that the favorable exploration and development policies announced by the Pakistan Government, including those set forth in the Petroleum Policy of 2009 announced in April, 2009, will encourage Hycarbex-American Energy, Inc. and Heritage Oil, the respective operators of the Yasin, Sanjawi and Zamzama North blocks, to perform extensive drilling operations beneficial to the interests we retain. On February 18, 2008, Asif Ali Zardari succeeded Pervez Musharraf as President. This change in the political party in power has resulted in numerous personnel realignments within the several governmental ministries. Isolated incidents of violence and political protest continue to occur within the country according to international news sources. Other than previous delays encountered by Hycarbex in obtaining governmental approval of a surface facility construction contract for the Haseeb #1 Well, these political events have not impacted our ownership of the overriding royalty or the ongoing business practices within the country, including oil and gas exploration, development and production by Hycarbex and other major foreign and domestic operators doing business in Pakistan. We cannot predict the effect of future political events or political changes upon Hycarbex's operations and our expectations of deriving revenues from our overriding royalty through the sale of gas into Pakistan's pipeline infrastructure. Galveston County, Texas Leases We believe that the deeper zones which we currently hold may have development potential. We have not yet determined the best course for these assets and near term activity with respect to these assets is not planned. 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 nine months ended March 31, 2010. ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not a party to nor does it engage in any activities associated with derivative financial instruments, other financial instruments and/or derivative commodity instruments. ITEMS 4 AND 4T - CONTROLS AND PROCEDURES In conjunction with this Report on Form 10-Q and the certification of the disclosures herein, and as required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's principal executive officer and principal financial officer, Pierce Onthank, evaluated the effectiveness of the Company's disclosure controls and procedures and the Company's internal control over financial reporting as of March 31, 2010. The assessment was conducted in accordance with the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company's management concluded that there was no material weakness in the Company's internal control over financial reporting, and concluded that the Company's disclosure controls and procedures and the Company's financial control over financial reporting are effective as of March 31, 2010. The Company is extremely small and once the Company begins receiving increased revenues from gas royalties (expected to begin during the third calendar quarter of 2010), management believes that the internal control over financial reporting should be improved through an increase in staff size, segregation of financial duties and responsibilities and appointment of an audit committee by the Board of Directors. -11- 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 fiscal quarter ended March 31, 2010, that have materially affected or are reasonably likely to materially affect the internal control over financial reporting. This report does not include an attestation report of the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission because the attestation rules are not yet applicable to the Company. PART II-OTHER INFORMATION ITEM 1-LEGAL PROCEEDINGS There were no legal proceedings affecting the Company during the quarter ended March 31, 2010. ITEM 1A-RISK FACTORS Not applicable. ITEM 2-UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The consideration paid by American Energy Group, Ltd. for the Sanjawi and Zamzama North carried working interests includes 2,000,000 shares of Common Stock and 100,000 Warrants to purchase Common Stock with a 3-year duration and an exercise price of $1.75 per share. We are entitled to redeem the Warrants in the event that our Common Stock trades at $2.00 or more for twenty (20) consecutive trading days by providing written notice to the Warrant holder, upon which notice, the holder shall have thirty (30) days to exercise the Warrant. The parties have stipulated that the value of the Carried Working Interests to be purchased and the corresponding value of the securities given for the Carried Working Interests is equal to $3,500,000. Since the securities were issued to acquire oil and gas convertible working interests, the issuance did not result in any proceeds to the Company. ITEM 3-DEFAULTS UPON SENIOR SECURITIES None. ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended March 31, 2010. ITEM 5-OTHER INFORMATION None. ITEM 6-EXHIBITS The following documents are filed as Exhibits to this report: Exhibit 31.1 - Certification by R. Pierce Onthank, President, Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a); Exhibit 32.1 - Certification by R. Pierce Onthank, President, Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Section 1350(a) and (b). -12- 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, Chief Executive Officer, Principal Financial Officer and Director DATED: May 17, 2010 -13-