Organization and Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Note 1 - Organization and Summary of Significant Accounting Policies

a. Organization

The American Energy Group, Ltd. (the Company) was incorporated in the State of Nevada on July 21, 1987 as Dimension Industries, Inc. Since incorporation, the Company has had several name changes including DIM, Inc. and Belize-American Corp. Internationale with the name change to The American Energy Group, Ltd. effective November 18, 1994. The Company’s authorized common stock, par value $0.001 is 80,000,000 shares. The Company’s authorized preferred stock, par value $0.001, is 20,000,000 shares. There is no preferred stock issued and outstanding.

During the year ended June 30, 1995, the Company incorporated additional subsidiaries including American Energy-Deckers Prairie, Inc., The American Energy Operating Corp., Tomball American Energy, Inc., Cypress-American Energy, Inc., Dayton North Field-American Energy, Inc. and Nash Dome Field-American Energy, Inc. In addition, in May 1995, the Company acquired all of the issued and outstanding common stock of Hycarbex, Inc. (Hycarbex), a Texas corporation, in exchange for 120,000 shares of common stock of the Company, a 1% overriding royalty on the Pakistan Project (see Note 2) and a future $200,000 production payment if certain conditions are met. The acquisition was accounted for as a pooling-of-interests on the date of the acquisition. The fair value of the assets and liabilities assumed approximated the fair value of the 120,000 shares issued of $60,000 as of the date of the acquisition. Accordingly, book value of the assets and liabilities assumed was $60,000. In April 1995, the name of that company was changed to Hycarbex-American Energy, Inc. The Company and its subsidiaries were principally in the business of acquisition, exploration, development and production of oil and gas properties.

On June 28, 2002, the Company was placed into involuntary Chapter 7 bankruptcy by three creditors, including Georg von Canal, an officer and director who was then involved in litigation with the Company to invalidate an attempt to remove him from his management positions. The bankruptcy filing followed an unsuccessful effort by management to resolve both the litigation and the need for a substantial cash infusion through a stock sale to a German-based investor which would have simultaneously resulted in a restructure of management. Shortly after this bankruptcy filing, the secured creditor holding a first lien on the Company’s only producing oil and gas leases in Fort Bend County, Texas, sought permission from the bankruptcy court to foreclose on those assets. The Company responded by converting the Chapter 7 bankruptcy proceedings to a Chapter 11 reorganization proceeding. The Company obtained approval of a plan of reorganization in September 2002, but the secured creditor was nevertheless permitted to foreclose upon the Fort Bend County oil and gas leases. Subsequent to the approval of the foreclosure of the oil and gas producing properties, the Company abandoned the remaining oil and gas properties except for one lease in southeast Texas. For the year ended June 30, 2003, the Company recognized a loss of $13,040,120 on the foreclosure and abandonment of the oil and gas properties and the sale of the fixed assets.

On October 26, 2003, the Company sold its wholly-owned subsidiary, Hycarbex-American Energy, Inc., for an 18% overriding royalty interest in the Exploration License No. 2768-7 dated August 11, 2001, of the Yasin Exploration Block. During the year ended June 30, 2015, the Company was awarded 100% of the stock of Hycarbex in the final decision of the ICC Tribunal on April 15, 2015, voiding the previous sale of the Hycarbex subsidiary, more fully discussed in Note 9 to these financial statements.

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.

On April 14, 2005, the Company’s wholly owned inactive subsidiary, The American Energy Operating Corp. (AEOC) filed for voluntary bankruptcy liquidation. On July 24, 2006, The American Energy Operating Corp. received a final decree from the United States Bankruptcy Court – Southern District of Texas that the Company’s estate had been fully administered and that the Chapter 7 was closed. The Company no longer has any subsidiaries.

These financial statements do not include the consolidation of its recently re-acquired wholly owned subsidiary, Hycarbex American Energy, Inc as the Company had not yet received full access to the historical financial records, nor full control of its operations, as of June 30, 2015.

b. Accounting Methods

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a June 30 year-end.

c. Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

d. Property and Equipment and Depreciation

Property and equipment are stated at cost. Depreciation on drilling and related equipment, vehicles and office equipment is provided using the straight-line method over expected useful lives of five to ten years. For the years ended June 30, 2017 and 2016, the Company incurred total depreciation of $509 and $801, respectively.

e. Basic Loss Per Share of Common Stock

	For the Year			For the Year
	Ended June 30,			Ended June 30,
	2017			2016
Loss (numerator)	$	(1,113,027	)	$	(3,468,720	)
Shares (denominator)		67,331,791			62,002,533
Per Share Amount	$	(0.02	)	$	(0.06	)

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 11,193,334 and 11,193,334 shares of common stock for the years ended June 30, 2017 and 2016, respectively, are not included in the basic calculation because their inclusion would be antidilutive, thereby reducing the net loss per common share.

f. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

g. Long Lived Assets

All long-lived assets are evaluated for impairment per FASB ASC 360 whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. During the third quarter the Company was made aware that Heritage Oil and Gas Limited (Heritage), the operator of both the Zamzama North Exploration and the Sanjawi Exploration Licenses, was given a Notice of Termination (Sanjawi Petroleum Concession Agreement – notice dated February 12, 2016) and a Notice of Breach (Zamzama North Petroleum Concession Agreement – notice dated February 22, 2016) by the Director General of Petroleum Concessions of the Government of Pakistan. Heritage has acknowledged and accepted the notice of termination in regard to the Sanjawi Petroleum Concession Agreement. Although Heritage has refuted the basis of the claim of breach in regard to the Zamzama North Petroleum Concession Agreement asserting that all reasonable efforts have been made to fulfill its work commitments and financial obligations under this agreement but was prevented from doing so for reasons outside its control, the Company has determined that it is reasonably possible that the working interest investment in the Zamzama North Block will also not be recovered. As a result, the Company recorded an impairment loss in the amount of $1,583,914 in relation to these oil and gas interests.

h. Oil and Gas Sales Receivable and Revenue Recognition

Prior to the year ended June 30, 2015, the Company recognized revenue in accordance with SEC SAB 104 which stipulates that pervasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collection is reasonably assured. Prior to the year ended June 30, 2015, our revenue was derived exclusively from an overriding royalty interest. The Company recognized royalty revenues when production had occurred and royalties were due and payable under its contract with Hycarbex (Note 9 – Other Contingencies). During the year ended June 30, 2015, the Company was awarded 100% of the stock of our previously wholly owned Hycarbex subsidiary. Our prior oil and gas receivable earned through our ownership of the 18% overriding royalty interest in the Yasin Concession was due from Hycarbex and was not collected prior to our successful litigation results and being awarded 100% of the actual stock of the Hycarbex entity. Future oil and gas revenues will continue to be recorded in accordance with SEC SAB 104, upon obtaining full control of the entity.

i. Concentrations

The Company’s revenue and receivable is derived solely from its overriding royalty interest in the Yasin Concession which is located in the country of Pakistan.

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.

k. Income Taxes

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

The tax provision (benefit) for the year-ended June 30, 2017 and the year ended June 30, 2016 consisted of the following:

	2017		2016
Current:
Federal	$	-	$	-
State		-		-
Deferred
Federal		-		-
State		-		-
Total tax provision (benefit)	$	-	$	-

Deferred income taxes reflect the net tax effects of net operating losses and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Net operating loss carryovers of the Company will begin expiring in the year ended June 30, 2019. The Company’s total deferred tax liabilities, deferred tax assets, and deferred tax asset valuation allowances at June 30, 2017 and June 30, 2016 are as follows:

	2017			2016
Net Operating Losses:
Federal	$	(57,077,133	)	$	(55,964,106	)
State		-			-
Total net operating losses	$	(57,077,133	)	$	(55,964,106	)
Deferred Tax Provision:
Total tax provision (benefit)		(19,406,225	)		(19,027,796	)
Less valuation allowance		19,406,225			19,027,796
Deferred tax asset	$	-		$	-

The reconciliation of income tax computed at statutory rates of income tax benefits is as follows:

	2017			2016
Expense (benefit) at federal statutory rate	$	(378,429	)	$	(1,179,365	)
State tax effects		-			-
Non deductible expenses		-			-
Deferred tax asset valuation allowance		378,429			1,179,365
Income tax provision (benefit)	$	-		$	-

The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)). FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.

At the adoption date of July 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of June 30, 2017, the Company had no accrued interest or penalties.

The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended June 30, 2017, 2016, 2015 and 2014.

l. Fair Value of Financial Instruments

On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

· Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

· Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of the promissory notes approximates fair value because negotiated terms and conditions are consistent with current market rates as of June 30, 2017.

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 occasionally exceed the $250,000 federal deposit insurance limit. The Company has not experienced any losses on deposits.

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, 2017, the Company believes it has no such liabilities.

o. New Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ ("ASC") is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.