10-K 1 a50028179.htm THE AMERICAN ENERGY GROUP, LTD. 10-K a50028179.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 
(Mark One)
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
 
FOR FISCAL YEAR ENDED JUNE 30, 2011
o
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.)
   
1Gorham 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.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No X
The issuer had no revenues for the year ended June 30, 2011.

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of October 13, 2011, was $11,769,735.

(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 13, 2011, the number of Common shares outstanding was 34,385,333
 
DOCUMENTS INCORPORATED BY REFERENCE – None
 
 
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THE AMERICAN ENERGY GROUP, LTD.
INDEX TO FORM 10-K
 
PART 1
 
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15
     
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PART II
   
     
15
   
     
16
     
 
 
17
     
20
     
20
     
 
 
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PART III
   
     
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23
     
 
 
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PART IV
   
     
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27
 
 
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PART I


Overview

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, a non-producing 18% gross production royalty in the Yasin 2768-7 Block in Pakistan, and a non-producing 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-American Energy, Inc., 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 future production.  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.  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 (Energy) Ltd. and received an 18% gross royalty in the future production from the Yasin Concession.

Acquisition of Zamzama North and Sanjawi Working Interests

On October 29, 2009, we executed an agreement to acquire from Hycarbex a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan.    Each concession block is operated by Heritage Oil and Gas Limited.  Heritage Oil and Gas Limited is an affiliate of Heritage Oil, plc, an independent oil and gas company which focuses its oil and gas operations on Africa, the Middle East, and Russia.  Heritage Oil’s shares trade on the London Stock Exchange under the symbol HOIL with a secondary listing on the Toronto Stock Exchange under the symbol HOC.     Other working interest participants in the two Blocks are Sprint Energy (Private) Limited, an affiliate of Pakistan-based JS Group, and Trakker Energy (Private) Limited, an affiliate of Pakistan-based TPL Holdings, Ltd.  Under the terms of the agreement, our 2-1/2% working interests are “carried” by Hycarbex for the initial two (2) wells on the Sanjawi Block and the initial three (3) wells on the Zamzama North Block.  The term “carried” means that the costs associated with work programs, seismic, road preparation, drillsite preparation, rig and equipment mobilization, drilling, reworking, testing, logging completion and governmental fees (except taxes on production) shall be borne entirely by Hycarbex.  Infrastructure costs such as pipelines and surface facilities constructed after the first discovery well on each Block are not carried.  After the initial carried wells have been drilled, we will be required to bear our proportionate share of drilling and exploration costs.  The agreement provides an option to American Energy Group, Ltd. to convert our working interest in any well at any time to a 1.5% gross royalty interest free of any exploration costs or operating costs.

Galveston County, Texas Assets

In June 1997, we purchased the interests of Luck Petroleum Corporation (“Luck”) in two oil and gas leases in Galveston County, Texas.  The leases are 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.
 
 
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We previously notified Smith Energy of our claim that the 15% interest in the mid-range zones had matured and filed a bankruptcy proceeding against Smith Energy to obtain an accounting.  Smith Energy contested this assertion resulting in a dispute over relative rights of the parties.  We dismissed the suit in the bankruptcy court with the intention of pursuing civil litigation against Smith Energy in the Texas state court system.  However, on April 14, 2006, we entered into a Compromise Settlement Agreement with Smith Energy and Howard A. Smith, fully resolving the dispute without the need for further litigation.  Under the settlement terms, we have agreed to relinquish our 15% back in interest in the mid-range zones in exchange for Smith Energy’s overriding royalties in the deep zones, access to Smith Energy’s existing high quality 3D seismic data covering the leases, and a stipulation by Smith Energy that we can operate all wells drilled by us or our agents in the deep zones and, where needed, utilize existing Smith Energy roads, water injection wells, and other facilities.

Our management is exploring the various opportunities to realize value from these deep rights, including potential farmout or sale.  The best course for these assets has not been determined, but the leases are held in force by third party production and, therefore, do not require development of these rights by a certain date.

Bankruptcy Proceedings and Sale of Hycarbex Subsidiary

On June 28, 2002, involuntary bankruptcy proceedings were initiated against us in the Southern District of Texas, which were converted to Chapter 11 debtor-in-possession proceedings in December 2002.  In the first quarter of 2003, our primary secured lender obtained the approval of the Bankruptcy Court to foreclose all of the Texas-based oil and gas leases except the leases in Galveston County, Texas.  At the time, the status of the exploration license for the Yasin Concession was also under close governmental scrutiny due to the financial and continuous drilling requirements imposed under the terms of the license by the Pakistan Government.  In November 2003, after management concluded negotiations with several interested prospective purchasers, we reached an agreement with Hydro Tur (Energy) Ltd. (“Hydro Tur”) to sell to Hydro Tur all of our interest in the stock of our then-existing subsidiary, Hycarbex-American Energy, Inc. Hydro Tur was selected as the purchaser due to its strong financial background, its commitment to implement a multiple well development of the Yasin Concession and its willingness to assign to us an 18% gross royalty on oil and gas production from all acreage in the concession for as long as the concession exists.

Pursuant to our Second Amended Plan of Reorganization which was approved by the Bankruptcy Court on September 3, 2003, all outstanding shares of common and preferred stock were cancelled and the issuance of new shares of common stock to the bankruptcy creditors was authorized by the Court.  We emerged from bankruptcy in January 2004 with new management, virtually debt-free, and with our outstanding common stock reduced to almost one third of pre-bankruptcy level.  We emerged from bankruptcy as a restructured company, focused upon acquiring and developing new oil and gas-based projects through prudent management of our two assets, the 18% royalty interest in the Yasin Concession in Pakistan and our working interests in our oil and gas leases in Galveston County, Texas.

Pakistan Activities and Additional Opportunities

Pakistan has a very large sedimentary area of 827,268 square kilometers (319,325 square miles).  Most of this area remains virgin and unexplored. According to the Ministry of Petroleum and Natural Resources (“MPNR”), cumulative drilling within Pakistan has resulted in a very encouraging success ratio  Platts’ 2009 estimates indicate Pakistan’s proven gas reserves are at 885.3 cubic meters and proven oil reserves are at 339,000 bbls.  Annual demand for oil and gas equivalents is 400,000 barrels per day, of which only thirteen percent (13%) is being met by in-country production.  During fiscal year 2009-2010, 68 new wells were drilled in Pakistan.  During fiscal year 2010-2011,  42 new wells were drilled in Pakistan.     The Pakistani government’s current liberal policies toward foreign investment and development of these resources have fostered a great deal of activity and opportunities to acquire exploration rights in these undeveloped areas.
 
 
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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.  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.

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.
 
 
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The Haseeb No. 1 Well

The Haseeb No. 1 Well was drilled on the Yasin Concession by the Polish Oil and Gas Company for Hycarbex during March and April 2005 to a total depth of 4,945 feet (1,507 meters).  The well is located approximately 9 miles from the Hassan No. 1 well drilled by PPL and 5.6 miles from the City of Shikapur in the Sindh Province.  Open hole logs performed on the well demonstrated gas shows from 3,543 feet to 3,688 feet and a net pay thickness of 82 feet.  The drill stem test conducted over a short duration on a one-half inch choke indicated a production rate form the Sui Main Limestone equivalent to approximately 7.3 MM cubic feet of 805 BTU gas per day.  The gas was tested for carbon dioxide and water content and was found to have low levels of each, indicating a likelihood that processing will not be required prior to pipeline transmission.

In the fall of 2005, Hycarbex completed the acidization of the Haseeb No. 1.  Post-treatment testing by Schlumberger Oilfield Services indicated an increase in the natural gas flow rate originally calculated at the time of the drill stem test at 7.3 million cubic feet per day.  Schlumberger further concluded that the 10 million cubic feet rate could be potentially increased to as high as 25-28 million cubic feet per day if the existing production tubing is replaced with higher diameter production tubing and if the wellhead pressure is maintained at approximately 1,000 psi. In September, 2010, Hycarbex completed its pipe line connection and commenced gas sales to Sui Southern Gas Company under the Extended Well Test Gas Sales and Purchase Agreement covering the sale of gas from the Haseeb Gas Field on Yasin Block (2768-7) signed by the parties in December, 2009.  Initial production into the line quickly ceased due to mechanical difficulties encountered in the commissioning of the gas processing facility owned and operated by a third party.  In July, 2011, production into the line recommenced at a rate of approximately 3.5 million cubic feet of gas per day (MMCFD) and this rate is expected to be gradually increased under the Extended Well Test to approximately fifteen (15) MMCFD.

The Yasin Concession has access to pipeline infrastructure.  The 12-inch Quetta gas line runs NW-SE through the concession and connects to the 20-inch Sui-Karachi gas line.  The Karachi-Muzaffargarh oil line also runs through the southern portion of the concession.  The Haseeb #1 Well well was connected to the gas pipe line in September, 2010, but quickly ceased production due to mechanical problems in the commissioning of the surface facility owned by a third party.   These issues were resolved and the well recommenced production into the gas pipe line in July, 2011 at an initial rate of 3.5 MMCFD under the Extended Well Test relating to the well.  Production is expected to be gradually increased to 15 MMCFD under the Extended Well Test in the future.   

Seismic Database

The efforts by Hycarbex to substantially expand the seismic database in 2004 and 2005 resulted in several miles of additional seismic being shot on the concession.  Currently, Hycarbex has captured approximately 700 kilometers (435 miles) of high resolution 2D seismic raw data.  This seismic raw data has been processed with the old seismic data using current techniques and has been analyzed by highly experienced geophysicists.  The results have not only verified geologic structures with closure and high likelihood of gas productivity, but have also delineated drillsite locations which are likely to enhance drilling success.  The technical staff at Hycarbex has identified at least ten (10) areas to date on the Yasin Concession which are recommended for drilling.
 
 
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The Al-Ali No. 1 Well
 
Hycarbex drilled the Al-Ali No. 1 Well on the Yasin Concession in 2006. The drilling of Al-Ali #1 Well as an exploratory well was undertaken to fulfill the work obligations for the third contract year under the Concession License. While gas shows were encountered during drilling, the gas volumes, on preliminary analysis, did not appear to be commercially viable and the well was plugged.

The Yasin Exploratory Well No. 1

The Yasin Exploratory Well No. 1 was commenced in November, 2008.  On September 28, 2009, Hycarbex announced the results of the drilling and its drilling analysis to date.  After drilling to the Sui Main Limestone, which was only one of the target zones for the well, mechanical difficulties were encountered in the hole.  The Sui Main Limestone showed strong intermittent gas during the drilling, but a steady flow was not achieved.  Hycarbex spent several months attempting to resolve the mechanical difficulties and considering alternative remedial operations while simultaneously evaluating the geologic data obtained from the drilling.  After evaluation, angular redrilling in the same wellbore and other remedial measures targeted at saving the wellbore were decided against because  the preliminary data collected by Hycarbex indicates that the drilling placement was not at the optimum position on the producing structure.  According to Hycarbex, the drilling reaffirmed Hycarbex’s belief that the structure is very promising.

Other Factors Affecting Pakistan Exploration Opportunities

With regard to Pakistan in-country opportunities, experts view Pakistan as a country with realistic potential for the discovery of large oil and gas reserves.  Previously perceived as containing far less oil and gas potential than the Arabian Peninsula countries, Pakistan has never received the extensive exploration efforts required to fully explore the vast and numerous structures warranting such attention.  However, in recent years, a significant number of well known international oil and gas operators have moved into Pakistan, and their efforts have met with a high degree of success.  These operators include BP Amoco and Premier from the United Kingdom, BHP from Australia, China Oil from China, OMV from Austria, Petronas from Malasia, MOL from Hungary and Shell Oil from the Netherlands.  A number of new commercial discoveries have been announced in recent years.   There is also geological data which suggests nearly identical structures with those of the Arabian Peninsula.  Of the 725 exploratory wells drilled through 2008 (15 of which have been offshore), an above-average number (i.e. 1:3.3) have succeeded and this degree of success supports the position that Pakistan is a good location in which to focus exploration efforts.
 
The MPNR openly states in its website that the agency felt a need to move toward a more liberalized and deregulated framework, with the government limiting its role to policy formulation and implementation.   In its website under the section “Strategy to Achieve Mission”, the Ministry states that its strategies will include deregulation, liberalization and privatization of oil, gas and mineral sectors.

Exploration and production opportunities in Pakistan are attractive for a number of additional reasons. One such reason is high demand relative to the available supply.  Domestic demand for natural gas greatly exceeds supply in Pakistan, and is expected to continue to do so for the foreseeable future.  Pakistan is undergoing rapid economic growth. Energy represents a significant percentage of total Pakistani imports and the country currently imports over 80% of the oil it consumes, all at a significant cost.

In 2001, the Pakistan government launched a new Petroleum Exploration and Production Policy which offers efficient procedures complimented by a liberal policy framework for obtaining and developing concessions. On November 6, 2007, the Ministry of Petroleum & Natural Resources approved the new Petroleum and Exploration Policy of 2007 (the “2007 Exploration Policy”).   Under existing policies, the concessions are awarded by an open and fair bidding process which does not exempt the state-owned oil companies.  Operators conduct regular meetings with ministry officials but the regulatory involvement is relaxed and on a par with international standards. The licenses are granted directly by the President of Pakistan through his oil ministry officials.  Foreign investors are permitted unrestricted expatriation of funds, including profits.  The sales markets are unregulated and producers may sell to state marketing organizations or third parties. Current efforts are underway to get the market prices on a par with international prices.  Energy Information Administration (EIA) reports, and Pakistani sources confirm, that future commercial discoveries will have a ready market at favorable pricing.   Imports of goods, including vehicles and equipment is also simplistic, with no tariffs.  The  2007 Exploration Policy contained several incentives to induce foreign investment and accelerate in-country exploration activities, including new petroleum pricing policies which increased the gas pricing available for the Yasin Block (2768-7).  The 2007 Exploration Policy was revised in 2009 to further increase competitive pricing.   The increased gas prices will materially benefit The American Energy Group, Ltd. due to its 18% royalty in the Yasin Block (2768-7), which includes the Haseeb #1 Well. The New Exploration Policy is published in its entirety at the website for the Ministry of Petroleum & Natural Resources, the internet address for which is www.mpnr.gov.pk.
 
 
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Pakistan sits in a strategic location geographically.  The Republic of China has been aggressive in identifying potential sources of energy, including Pakistan, to fuel its exploding industrial economy.  Several extremely large pipeline projects are in the planning stages.  The World Bank compares Pakistan’s economic energy intensity per GDP to its neighbors, China and India and rates Pakistan as the third fastest growing economy.  Natural resources often provide a developing country with a significant portion of its hard currency reserves and therefore contribute to economic development in a material fashion.  Pakistan’s government has demonstrated a strong commitment to economic development and is working cooperatively with the oil and gas industry to further this agenda.  These cooperative efforts will accelerate foreign investment in Pakistan, accelerate the development of additional oil and gas reserves, and reduce Pakistan’s dependency upon imported sources of energy.  Private investment is highly regarded as evidenced by the current efforts of Pakistan Petroleum Limited (PPL), which is state owned, to sell 51 percent of the company and to transfer management control to a strategic investor. (See discussion below regarding proposed changes to exploration rules to lengthen the terms of exploration licenses).

While the region has shown political instability and violence, including inside Pakistan’s borders, the Government of Pakistan has proven to be an ally on the war against global terrorism.

Office Facilities

In April, 2006, we relocated our principal executive offices are located at 1 Gorham Island, Suite 303, Westport, Connecticut.  The office space contains approximately 3,574 square feet and was leased under a 5-year lease which expired in March 31, 2011, and became a month-to-month lease.  Commencing with the original execution of the lease, we subleased a portion of the leased premises to third parties. For the year ending June 30, 2011, office rental expenditures totaled $148,846, while income from the sublessees totaled $35,500, resulting in a net expenditure for the fiscal period equal to $108,346.  We anticipate negotiating a renewal lease for this facility during the next fiscal year.

Employees

As of June 30, 2011, we had two (2) full-time employees, which include the President, Pierce Onthank, and an administrative assistant in the corporate office.

Company-related Risks

An investment in our Common Stock involves a high degree of risk.  You should carefully consider the risks described below before deciding to purchase shares of our Common Stock.  If any of the events, contingencies, circumstances or conditions described in the risks below actually occur, our business, financial condition or results of third party operations upon which our royalty interests depend could be seriously harmed.  The trading price of our Common Stock could, in turn, decline and you could lose all or part of your investment.

The Company’s limited history and prior bankruptcy proceedings make an evaluation of us and our future extremely difficult, and profits are not assured.

In view of our limited history in the oil and gas exploration business, our prior bankruptcy proceedings between June 2002 and January 2004, and the fact that we do not have a current revenue stream from operations, it may be difficult for investors to evaluate our business and prospects.  Each investor must consider our business and prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development.  For our business plan to succeed, we must successfully undertake most of the following activities:

 
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Find and acquire rights in attractive oil and gas properties including the ability to successfully negotiate with foreign governments to obtain these rights;
 
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Develop or cause third parties to develop the oil and gas projects to a stage at which oil and gas are being produced in commercially viable quantities;
 
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Procure purchasers of commercial production of oil and gas;
 
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Comply with applicable laws and regulations;
 
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Identify and enter into binding agreements with suitable joint venture partners for future projects;
 
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Raise a sufficient amount of funds to continue acquisition, exploration and development programs;
 
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Implement and successfully execute its business strategy;
 
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Respond to competitive developments and market changes; and
 
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Attract, retain and motivate qualified personnel.

 
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There can be no assurance that we will be successful in undertaking any or all of such activities.  A failure to undertake successfully most, if not all, of the activities described above could materially and adversely affect our business, prospects, financial condition and results of operations.  In addition, there can be no assurance that exploration and production activities, if any, will produce oil and gas in commercially viable quantities, if any at all.  There can be no assurance that sales of oil and gas production will generate significant revenues for a sustained period or that we will be able to achieve or sustain profitability in any future period.

Cumulative voting is not available to stockholders.
 
 
Cumulative voting in the election of directors is expressly denied in our Articles of Incorporation.  Accordingly, the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors.  Management's large percentage ownership of the outstanding common stock helps enable them to maintain their positions as such and thus control of our business and affairs.

The trading price of the common stock entails additional regulatory requirements, which may negatively affect such trading price.

The trading price of our common stock is below $5.00 per share.  As a result of this price level, trading in our common stock is subject to the requirements of certain rules promulgated under the Exchange Act.  These rules require additional disclosure by broker-dealers in connection with any trades generally involving any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions.  Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions).  For these types of transactions, the broker-dealer must determine the suitability of the penny stock for the purchaser and receive the purchaser's written consent to the transaction before sale.  The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock.  As a consequence, the market liquidity of our common stock could be severely affected or limited by these regulatory requirements.

The Company will incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as rules subsequently implemented by the SEC, have imposed various new requirements on public companies, including requiring changes in corporate governance practices. The Company’s management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase the Company’s legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these new rules and regulations are expected to make it more difficult and more expensive to obtain director and officer liability insurance, and the Company may be required to incur substantial costs to maintain the same or similar coverage.

In addition, the Sarbanes-Oxley Act requires, among other things, that the Company maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, the Company must perform system and process evaluation and testing of our internal controls over financial reporting to allow management and the independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The testing, or the subsequent testing by its independent registered public accounting firm, may reveal deficiencies in internal controls over financial reporting that are deemed to be material weaknesses. Compliance with Section 404 will require that the Company incur substantial accounting expense and expend significant management efforts. The Company currently does not have an internal audit group, and will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if the Company is unable to comply with the requirements of Section 404 in a timely manner, or if the independent registered public accounting firm identifies deficiencies in the Company’s internal controls over financial reporting that are deemed to be material weaknesses, the market price of the stock could decline, and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
 
 
9

 

Management controls a significant percentage of our current outstanding common stock and their interests may conflict with those of our shareholders.
 
As of June 30, 2011, the directors and executive officers and their respective affiliates collectively and beneficially owned approximately 6.7% of the outstanding common stock, including all warrants exercisable within 60 days.  This concentration of voting control gives the Directors and executive officers and their respective affiliates substantial influence over any matters which require a shareholder vote, including, without limitation, the election of directors, even if their interests may conflict with those of other shareholders.  It could also have the effect of delaying or preventing a change in control of or otherwise discouraging a potential acquirer from attempting to obtain control.  This could have a material adverse effect on the market price of the common stock or prevent the shareholders from realizing a premium over the then prevailing market prices for their shares of common stock.

The Company is dependent on key personnel.

We depend to a large extent on the services of certain key management personnel, including R. Pierce Onthank, our President and Chief Executive Officer.  Also, historically, we have relied upon Dr. Iftikhar A. Zahid as the key liaison officer in Pakistan, but Dr. Zahid is no longer a member of our board of directors.   The future loss of Mr. Onthank and/or the recent resignation of Dr. Zahid could have a material adverse effect on our operations. We do not maintain key-man life insurance with respect to any of our officers or directors.

The further development of the Yasin Block may depend upon Hycarbex’s ability to secure a strategic development partner.

Hycarbex Asia Pte. Ltd., and its subsidiary firm, Hycarbex-American Energy, Inc., the operator of the Yasin 2768-7 Block petroleum concession,  have engaged Macquarie Capital (Europe) Ltd. to serve as their financial advisor to locate a strategic partner for the further development of the Haseeb Gas Field and the Yasin Block based upon severe cash liquidity constraints resulting from delays and interruptions to first production from the Haseeb Gas Field.  The historical and recent issues relating to the gas processing facility, which is owned and operated by a  third party, include construction and third party certification delays, monsoon rains during 2010, and problems during plant commissioning.

The favorable policies toward foreign investment in Pakistan oil and gas exploration could change.

Future governmental enactments or changes to existing policies could impact our ownership or asset value.  The royalty interest which we hold in the Yasin Block, the working interests we hold in the Sanjawi and Zamzama North Blocks and other interests which we will seek to acquire in other concession opportunities could be adversely affected by future regulatory and/or policy changes. Since the value of these interests is derived from the actual net proceeds of production, changes to the duration of the exploration license, applicable taxes or tariffs, or commodity purchase prices could significantly affect our interests in the region.

We may experience potential fluctuations in results of operations.
 
Our future revenues may be affected by a variety of factors, many of which are outside our control, including (a) the success of project results; (b) swings in availability of services needed to implement projects and the pricing of such services; (c) a volatile oil and gas pricing market which may make certain projects that we undertake uneconomic; (d) the ability to develop infrastructure to accommodate growth; (e) the ability to attract new independent producers with prospects in a timely and effective manner; and (f) the amount and timing of operating costs and capital expenditures relating to establishing our business operations and infrastructure.  As a result of our limited operating history and the emerging nature of our business plan, it is difficult to forecast  revenues or earnings accurately, which may fluctuate significantly from quarter to quarter.
 
The issuance of additional authorized shares of our common and preferred stock or the exercise of stock options and warrants may dilute our investors and adversely affect the market for our common stock.
 
 
10

 
 
We are authorized to issue 80,000,000 shares of our common stock. The 34,385,333 shares of our common stock issued and outstanding does not include shares reserved in anticipation of the conversion of notes or the exercise of options or warrants.  As of June 30, 2011, we had outstanding warrants to purchase shares of our common stock, the exercise price of which range between $0.75 and $1.70 per share, and we have reserved shares of our common stock for issuance in connection with the potential exercise thereof.  To the extent such options or warrants are exercised, the holders of our common stock will experience further dilution. In addition, in the event that any future financing should be in the form of, be convertible into or exchangeable for, equity securities, and upon the exercise of options and warrants, investors may experience additional dilution.

Possible or actual sales of a substantial number of shares of common stock by the selling stockholders in this offering could have a negative impact on the market price of our common stock.  No prediction can be made as to the effect, if any, that sales of shares of common stock or the availability of such shares for sale will have on the market prices prevailing from time to time.  Nevertheless, the possibility that substantial amounts of common stock may be sold in the public market would likely have a material adverse effect on prevailing market prices for the common stock and could impair our ability to raise capital through the sale of our equity securities.

The exercise of the outstanding convertible securities will reduce the percentage of common stock held by our stockholders. Further, the terms on which we could obtain additional capital during the life of the convertible securities may be  adversely  affected,  and it should be expected  that the holders of the convertible  securities  would  exercise them at a time when we would be able to obtain equity  capital on terms more  favorable  than those provided for by such convertible securities. As a result, any issuance of additional shares of common stock may cause our current stockholders to suffer significant dilution which may adversely affect the market. 

In addition to our shares of common stock which may be issued without stockholder approval, we have 20,000,000 shares of authorized preferred stock, the terms of which may be fixed by our Board of Directors.  We presently have no issued and outstanding shares of preferred stock and while we have no present plans to issue any shares of preferred stock, our Board of Directors has the authority, without stockholder approval, to create and issue one or more series of such preferred stock and to determine the voting, dividend and other rights of holders of such preferred stock. The issuance of any of such series of preferred stock may have an adverse effect on the holders of common stock.

The Company and the operators of projects in which it participates depend on industry vendors and may not be able to obtain adequate services.
 
Our third party oil and gas operators are largely dependent on industry vendors for our success.  These contracted services include, but are not limited to, accounting, drilling, completion, workovers and reentries, geological evaluations, engineering, leasehold acquisition (landmen), operations, legal, investor relations/public relations, and prospect generation.  We could be harmed if the operators of our projects fail to attract quality industry vendors to participate in the drilling of prospects or if industry vendors do not perform satisfactorily.  We have little control over factors that influence the performance of such vendors.
 
The Company relies on third parties for production services and processing facilities.
 
The marketability of the our production depends upon the proximity of our projects’ reserves to, and the capacity of, facilities and third party services, including oil and natural gas gathering systems, pipelines, trucking or terminal facilities, and processing facilities.  The unavailability or lack of capacity of such services and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties.  A shut-in or delay or discontinuance could materially adversely affect our financial condition.
 
The Company’s Directors and Officers have limited liability and have rights to indemnification.

Our Articles of Incorporation and Bylaws provide, as permitted by governing Nevada law, that our directors and officers shall not be personally liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions.  The Articles further provide that we will indemnify our directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil litigation or criminal action brought against them on account of their being or having been its directors or officers unless, in such action, they are adjudged to have acted with gross negligence or willful misconduct.
 
 
11

 

The inclusion of these provisions in the Articles may have the effect of reducing the likelihood of derivative litigation against directors and officers, and may discourage or deter stockholders or management from bringing a lawsuit against directors and officers for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders.

The Articles provide for the indemnification of our officers and directors, and the advancement to them of expenses in connection with any proceedings and claims. The Articles include related provisions meant to facilitate the indemnitee's receipt of such benefits. These provisions cover, among other things: (i) specification of the method of determining entitlement to indemnification and the selection of independent counsel that will in some cases make such determination, (ii) specification of certain time periods by which certain payments or determinations must be made and actions must be taken, and (iii) the establishment of certain presumptions in favor of an indemnitee.

General Risks of the Oil and Gas Business

Investment in the oil and gas business is risky.

Oil and gas exploration and development is an inherently speculative activity.  There is no certain method to determine whether or not a given prospect will produce oil or gas or yield oil or gas in sufficient quantities and quality to result in commercial production.  There is always the risk that development of a prospect may result in dry holes or in the discovery of oil or gas that is not commercially feasible to produce.  There is no guarantee that a producing asset will continue to produce.  Because of the high degree of risk involved, there can be no assurance that the Company will recover any portion of its investment or that its investment in oil and gas exploration activities will be profitable.

The oil and gas business is subject to drilling and operational hazards.

The oil and gas business involves a variety of operating risks, including:
 
           blowouts, cratering and explosions;
           mechanical and equipment problems;
           uncontrolled flows of oil and gas or well fluids;
           fires;
           marine hazards with respect to offshore operations;
           formations with abnormal pressures;
           pollution and other environmental risks; and
           natural disasters.

Any of these events could result in loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses.  Locating pipelines near populated areas, including residential areas, commercial business centers and industrial sites, could increase these risks.  In accordance with customary industry practice, our operators will maintain insurance against some, but not all, of these risks and losses.  The occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and the results of operations.
 
The Company will face fierce competition from other companies in the acquisition of development opportunities.

A large number of companies and individuals engage in drilling for gas and oil, and there is competition for the most desirable prospects.  This is likewise the case in Pakistan where foreign investment is accelerating at a tremendous pace.  We will encounter intense competition from other companies and other entities in the pursuit of quality prospects for investment.  We may be competing with numerous gas and oil companies which may have financial resources significantly greater than ours.

Oil and gas properties are subject to unanticipated depletion.

The acquisition of oil and gas prospects is almost always based on available geologic and engineering data, the extent and quality of which vary in each case.  Successful wells may deplete more rapidly than the available geological and engineering data originally indicated.  Unanticipated depletion, if it occurs, would result in a lower return for the Company or a loss to the shareholders.
 
 
12

 

Oil and gas prices are volatile.
 
Our revenues, cash flow, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on the prices that we receive for oil and gas production.  Declines in oil and gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results.  Lower oil and gas prices also may reduce the amount of oil and gas that we can produce economically.  High oil and gas prices could preclude acceptance of our business model.  Depressed prices in the future would have a negative effect on our future financial results.
 
Historically, oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile.  Prices for oil and gas are subject to wide fluctuations in response to relatively minor changes in supply of and demand, market uncertainty and a variety of additional factors that are beyond our control.  These factors include:
 
 
the threat of global terrorism;
 
regional political instability in areas where the exploratory wells are drilled;
 
the available supply of oil;
 
the level of consumer product demand;
 
weather conditions;
 
political conditions and policies in the greater oil producing regions, including the Middle East;
 
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
 
the price of foreign imports;
 
actions of governmental authorities;
 
domestic and foreign governmental regulations;
 
the price, availability and acceptance of alternative fuels; and
 
overall economic conditions.

These factors and the volatile nature of the energy markets make it impossible to predict with any certainty future oil and gas prices.  Our inability to respond appropriately to changes in these factors could negatively affect our profitability.
 
Terrorist attacks and continued hostilities in the Middle East or other sustained military campaigns may adversely impact the industry and us.

The terrorist attacks that took place in the United States on September 11, 2001, were unprecedented events that have created many economic and political uncertainties, some of which may materially adversely impact us. The long-term impact that terrorist attacks and the threat of terrorist attacks may have on the oil and gas business is not known at this time. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may adversely impact us in unpredictable ways.

Political instability both internal and external to Pakistan could adversely affect drilling operations and gas marketing.

Pakistan is geographically positioned in a region which has experienced a great deal of political instability and violence.  The current regime is viewed as pro-western, but a change in government in Pakistan, such as an Islamic fundamentalist government, could have many wide-ranging adverse effects upon the validity of existing exploration licenses and concession agreements and upon our ability to enforce our contractual agreements.  Additionally, with or without such governmental changes, recurring incidents of violence could adversely affect oil and gas exploration and marketing operations which would, in turn, adversely affect our ability to receive royalty payments derived from those operations.  Examples of regional conflicts, incidents and political unrest inside Pakistan’s borders include the following:

 
the Kashmir region bordering India, Pakistan, Afghanistan and China, has been a continuing source of tension and armed conflict between India and Pakistan since 1947;
 
 
Baluchistan Province tribesmen have previously attacked the Sui gas fields in Balochistan in Southwest Pakistan generally as a protest for more jobs and higher royalty payments; and
 
 
13

 
 
 
Pakistan has experienced violence along its Afghanistan border as well as incidents of internal urban violence from fundamentalist militant Islamic groups who oppose governmental ties with the United States.

Continued incidents of political unrest and violence in the future could interrupt drilling operations and gas marketing of our projects.

The Company’s domestic assets are subject to domestic governmental regulations and hazards related to environmental issues.

Gas and oil operations in the United States are subject to extensive government regulation and to interruption or termination by governmental authorities on account of ecological and other considerations. The Environmental Protection Agency of the United States and the various state departments of environmental affairs closely regulate gas and oil production effects on air, water and surface resources.  Furthermore, proposals concerning regulation and taxation of the gas and oil industry are constantly before Congress.  It is impossible to predict future proposals that might be enacted into law and the effect they might have on the Company.  Thus, restrictions on gas and oil activities, such as production restrictions, price controls, tax increases and pollution and environmental controls may have a material adverse effect on the Company.

Hazards in the drilling and/or the operation of gas and oil properties, such as accidental leakage or spillage, are sometimes encountered.  Such hazards may cause substantial liabilities to third parties or governmental entities, the payment of which could reduce distributions or result in the loss of Company leases.  Although it is anticipated that insurance will be obtained by third-party operators for the benefit of the Company, we may be subject to liability for pollution and other damages due to environmental events which cannot be insured against due to prohibitive premium costs, or for other reasons.  Environmental regulatory matters also could increase substantially the cost of doing business, may cause delays in producing oil and gas or require the modification of operations in certain areas.  Operations are subject to numerous stringent and complex laws and regulations at the federal, state and local levels governing the discharge of materials into the environment or otherwise relating to environmental protection. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial requirements, and the imposition of injunctions to force future compliance.

The Oil Pollution Act of 1990 (“OPA 90”) and its implementing regulations impose a variety of requirements related to the prevention of oil spills, and liability for damages resulting from such spills in United States waters. OPA 90 imposes strict joint and several liability on responsible parties for oil removal costs and a variety of public and private damages, including natural resource damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operation regulation. If a party fails to report a spill or to cooperate fully in a cleanup, liability limits likewise do not apply. Even if applicable, the liability limits for offshore facilities require the responsible party to pay all removal costs, plus up to $75 million in other damages. For onshore facilities, the total liability limit is $350 million. OPA 90 also requires a responsible party at an offshore facility to submit proof of its financial ability to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill.

The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as the “Superfund” law, and analogous state laws impose strict, joint and several liability on certain classes of persons that are considered to have contributed to the release of a “hazardous substance” into the environment. These parties include the owner or operator of the site where the release occurred, and those that disposed or arranged for the disposal of hazardous substances found at the site. Responsible parties under CERCLA may be subject to joint and several liability for remediation costs at the site, and may also be liable for natural resource damages. Additionally, it is not uncommon for neighboring landowners and other third parties to file tort claims for personal injury and property damage allegedly caused by hazardous substances released into the environment.

State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and gas properties, establishment of maximum rates of production from oil and gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from the Company’s properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field.
 
 
14

 


There were no unresolved staff comments as of June 30, 2011 or the date of this report.


There were no legal proceedings pending against the Company as of June 30, 2011 or the date of this report.


We did not submit any matters to a vote of security holders during the year ended June 30, 2011.

PART II


Our common stock is traded on the over-the-counter pink sheets (previously the over the counter bulletin board through February 22, 2011) under the symbol AEGG.PK.  The trading market began during the quarter ending December 31, 2004.  The following table sets forth the quarterly high and low bid prices for each quarter since the inception of trading.  Such prices represent quotations between dealers, without dealer markup, markdown or commissions, and may not represent actual transactions.
 
Quarter
High
Low
December 31, 2004
$0.55
$0.20
March 31, 2005
$1.50
$0.75
June 30, 2005
$3.03
$0.50
September 30, 2005
$1.82
$1.15
December 31, 2005
$1.90
$1.01
March 31, 2006
$1.98
$1.30
June 30, 2006
$2.00
$1.45
September 30, 2006
$1.45
$0.60
December 31, 2006
$1.40
$0.40
March 31, 2007
$1.60
$1.03
June 30, 2007
$1.49
$0.85
September 30, 2007
$1.21
$0.70
December 31, 2007
$1.04
$0.42
March 31, 2008
$0.95
$0.51
June 30, 2008
$1.06
$0.56
September  30, 2008
$0.88
$0.53
December 31, 2008
$1.17
$0.51
March 31, 2009
$1.00
$0.45
June 30, 2009
$0.85
$0.60
September  30, 2009
$0.86
$0.61
December 31, 2009
$0.76
$0.52
March 31, 2010
$0.94
$0.63
June 30, 2010
$0.90
$0.65
September 30, 2010
$0.85
$0.64
December 31, 2010
$1.04
$0.60
March 31, 2011
$0.71
$0.45
June 30, 2011
$0.57
$0.35
 
As of June 30, 2011, the final trading day of the fiscal year, the closing price for shares of our common stock in the over-the-counter market, as reported by the OTC Pink Sheets, was $0.57.   As of June 30, 2011, we had approximately 40 registered holders of our common stock (excluding holders in “street name”).  As of both June 30, 2011, and October 13, 2011, there were 34,385,333 shares of common stock issued and outstanding.
 
 
15

 
 
Dividend Policy
 
There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends.   The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

 
1.
We would not be able to pay our debts as they become due in the usual course of business; or

 
2.
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.  Our current policy is to retain any earnings in order to finance the expansion of our operations. Our Board of Directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes.
 
Equity Compensation Plan Information

The following table sets forth all equity compensation plans as of June 30, 2011.
 
Equity Compensation Plan Information
Plan category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 
 
 
 
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
 
 
 
(b)
Number of securities
remaining available
for future issuance under
equity compensation
plans (excluding
securities reflected in column
(a))
 
(c)
Equity compensation
plans approved by
security holders
-0-
-0-
-0-
Equity compensation
plans not approved by
security holders
2,000,000 Common
$1.00
-0-
Total
2,000,000
$1.00
-0-
 
Recent Sales of Unregistered Securities

During the fiscal year ending June 30, 2010, we issued 2,000,000 shares of Common Stock as a portion of the consideration for acquisition of the Sanjawi and Zamzama North working interests.  Also included in the consideration paid was 100,000 Warrants to purchase Common Stock with a 3-year duration and an exercise price of $1.75.  During the third quarter we sold 1,000,000 unregistered shares of Common Stock for a cash consideration of $500,000 which we used for general working capital.   During the fourth quarter we issued 75,000 restricted Common shares to Karl Welser, our retiring director.  During the fourth quarter we also issued 46,875 Common S-8 registered shares to third party professionals for services rendered and 5,000 shares to an employee administrative assistant as a bonus.
 
 
16

 
 

The following table sets forth in dollars selected financial data regarding the Company as of and for each of the annual periods (each ending June 30) indicated.   The following data should be read in conjunction with Items 7 and 8 herein.
 
   
2011
   
2010 restated
   
2009
   
2008
   
2007
 
Revenue
                             
Oil and Gas Sales
    -0-       -0-       -0-       -0-       -0-  
                                         
General and Administrative Expenses
                                       
                                         
Legal and Professional
    191,879       144,562       201,887       241,785       747,086  
Depreciation and Amortization Expense
    6,561       6,642       6,971       6,755       4,649  
General and Administrative
    772,504       780,545       677,873       681,265       859,162  
Total Expenses
    970,944       931,749       886,731       929,805       1,610,897  
Net Operating Loss
    970,944       931,749       886,731       929,805       1,610,897  
                                         
Other Income and (Expense)
                                       
                                         
Interest Income
                    -0-       1,742       22,795  
Interest Expense
    (15,620 )     (7,960 )     (6,465 )     (4,790 )     (118 )
Total Other Income and (Expense)
    (20,840 )     (11,043 )     (6,465 )     (3,048 )     181,981  
Net Loss Before Federal Income Tax
    (991,784 )     (942,792 )     (893,196 )     (932,853 )     (1,428,916 )
Federal Income Tax
    -0-       -0-       -0-       -0-       -0-  
                                         
Net Loss
    (991,784 )     (942,792 )     (893,196 )     (932,853 )     (1,428,916 )
                                         
Basic Loss Per Common Share
    (0.03 )     (0.03 )     (0.03 )     (0.03 )     (0.05 )
                                         
Weighted Average Number of Shares Outstanding
    33,539,434       32,441,034       30,863,760       30,605,335       30,158,934  
 
 
17

 
 

               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

In November, 2003, we sold our Hycarbex-American Energy, Inc. (“Hycarbex”) subsidiary, which was the owner and operator of the Yasin 2768-7 Petroleum Concession Block in the Republic of Pakistan, to a foreign corporation.  We retained in the sale an 18% overriding royalty interest in the Yasin Block.  Drilling of the first well in Pakistan as to which our overriding royalty pertains, named the Haseeb No. 1 Well, was successfully completed by Hycarbex-American Energy, Inc. (“Hycarbex”), in the fourth quarter of the fiscal year ended June 30, 2005.  A state-of-the-art, third party owned, surface facility for the well was constructed for Hycarbex after well completion.  During September 2010, Hycarbex connected the well to the Sui Southern Gas Company pine line, and commenced gas sales under an Extended Well Test but the production quickly ceased due to mechanical difficulties encountered in the commissioning of the surface facility owned by the third party.  The production re-commenced into the pipe line in July, 2011, at the initial rate of 3.5 million cubic feet of gas per day (MMCFD).  Hycarbex has advised that this rate is expected to be gradually increased to 15 MMCFD during the Extended Well Test.  Such production can likewise experience temporary interruptions to permit testing, calibration and other activities common with an extended well test.

We received our initial royalty payment for Yasin production in September, 2011, in the amount of $9,745.05.  Although the well production is still producing under the Extended Well Test, periodic royalty production payments are expected to be received hereafter as the well continues to produce with regularity and increasing volume.  Since we are paid by Hycarbex out of its production revenues as they are received by Hycarbex from Sui Southern Gas Company, the regularity and predictability of our payments is dependent upon the regularity and frequency of Hycarbex’s invoicing to Sui Southern Gas Company under the terms of its Extended Well Test gas sales agreement covering the sales into the gas pipe line.

On October 29, 2009, we executed an agreement to acquire from Hycarbex  a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan is consistent with this strategy, as under the terms of the agreement, our 2-1/2% working interests will be deemed “carried” by Hycarbex for the initial two (2) wells on the Sanjawi Block and the initial three (3) wells on the Zamzama North Block.  The term “carried” means that the costs associated with work programs, seismic, road preparation, drillsite preparation, rig and equipment mobilization, drilling, reworking, testing, logging completion and governmental fees (except taxes on production) shall be borne entirely by Hycarbex.  Infrastructure costs such as pipelines and surface facilities constructed after the first discovery well on each Block are not carried.  After the initial carried wells have been drilled, we are required to bear our proportionate share of drilling and exploration costs in subsequent wells, but the agreement provides an option to us to convert our working interest in any well at any time to a 1.5% gross royalty interest free of any exploration costs, operating costs or deductions related to the well in which the conversion has been made other than applicable production taxes assessed against the royalty.

Results of Operations

Our operations for the twelve months ended June 30, 2011 reflected a net operating loss of $970,944 as compared to $931,749 for the twelve months ended June 30, 2010, related to salaries, office rental and overhead charges and legal and professional fees.  The total net loss for these same periods were $991,784 and $942,792, respectively.  Prior to the September, 2011, we had no recurring income stream and relied upon the proceeds of securities sales and loans.   The initial production royalty payment in the amount of $9,745.05 received in September, 2011, is anticipated to signal the continuing periodic royalty payments from the Haseeb No. 1 Well.  Based upon initial 3.5 MMCFD production rates under the Extended Well Test and the anticipated gradual increase to 15 MMCFD under the Extended Well Test over the succeeding months are expected to be sufficient to meet all salaries, legal and accounting expenses and administrative overhead for the current fiscal year and beyond.

Liquidity and Capital Resources

Prior to the connection of the Haseeb No. 1 to the gas marketing pipe line, we funded our operations through private loans, all of which have been repaid, and through the private sale of securities.  The re-connection to the marketing pipe line and resulting gas sales under the Extended Well Test in July, 2011 are expected to provide future cash flow sufficient to meet the Company’s ongoing expenses as well as to make investment in other oil and gas opportunities.
 
 
18

 

Business Strategy and Prospects
 
In September, 2010, Hycarbex completed its initial pipe line connection and commenced gas sales to Sui Southern Gas Company under the Extended Well Test Gas Sales and Purchase Agreement covering the sale of gas from the Haseeb Gas Field on Yasin Block (2768-7) signed by the parties in December, 2009.   However, such sales quickly ceased due to mechanical difficulties encountered in the commissioning of the surface facility owned by a third party.  In July, 2011, the Haseeb #1 Well again began producing into the Sui Southern Gas Company line.  In September, 2011, we received our initial production royalty payment from Hycarbex in the amount of $9,745.05 and periodic monthly payments are expected to continue and expected to increase as the sale volume under the Extended Well Test is gradually increased to the target daily production level of 15 MMCD.   Our business strategy is to meet our administrative expenditure requirements from this production and to seek similar non-cost bearing royalty purchase opportunities in Pakistan and other petroleum producing regions.

The Yasin Block, to date, has no reported Proved Reserves as that term and the calculation for discounted future net cash flows for reporting purposes is mandated by the Financial Accounting Standards Board in Statement of Financial Accounting Standards No. 69, titled “Disclosures About Oil and Natural Gas Producing Activities”.  However, based upon test results upon the Haseeb No. 1 and other data collected by Hycarbex from its drilling and seismic activities, we strongly believe that the Yasin Block acreage contains oil and gas producing physical structures which are worthy of further exploration.  If successfully developed, our reserved 18% overriding royalty interest will likely be a good source of cash revenues because the royalty, by its nature, entitles us to share in gross, rather than net, production.  We expect to use these anticipated revenues for further investment in other revenue generating assets or business activities.

On October 29, 2009, the Company executed an agreement to acquire from Hycarbex a two and one half percent (2-1/2%) working interest in each of the 2,258 square kilometer Sanjawi Block No. 3068-2, Zone II, Baluchistan Province, Pakistan, and 1,229 square kilometer Zamzama North Block No. 2667-8, Zone III, Sindh Province, Pakistan, concessions, each of which is operated by Heritage Oil and Gas Limited. Heritage is an affiliate of Heritage Oil, PLC, an independent oil and gas company which focuses its oil and gas operations in Africa, the Middle East, and Russia. Heritage’s shares trade on the London Stock Exchange under the symbol HOIL with a secondary listing on the Toronto Stock Exchange under the symbol HOC. Heritage owns a 54% interest in the Zamzama North Block and a 48% interest in the Sanjawi Block.  Other working interest participants in the two Blocks are Sprint Energy (Private) Limited, an affiliate of Pakistan-based JS Group, and Tracker Energy (Private) Limited, an affiliate of Pakistan-based TPL Holdings, Ltd.  Under the terms of the agreement with Hycarbex, the American Energy Group, Ltd’s 2-1/2% working interests are “carried” by Hycarbes 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 and production) shall be borne by Hycarbex. Infrastructure costs such as pipelines and surface facilities constructed after the first discovery well on each Block are not carried. After the initial carried wells have been drilled, American Energy Group, Ltd. shall bear its proportionate share of drilling and exploration costs. The agreement provides and option to American Energy group, Ltd. to convert its working interest in any well at any time to a 1.5% gross royalty interest free of any exploration costs or operating costs.
 
According to information set forth on Heritage’s website [www.heritageoilplc.com], the Sanjawi Block is considered a very viable prospect due to the recent oil discovery to the West, a number of gas fields to the Southeast and the presence of oil seeps. The Sanjawi Block is dominated by a series of broad East-West trending surface features including the Dabbar and Warkan Shah anticlines. These are large structures, with the Dabbar anticline being some 300 square kilometers in area.  The Zamzama North Block is immediately to the North of the Zamzama Gas Field, a major Upper Cretaceous gas accumulation.  Heritage has acquired approximately 750 kilometers of fair to good quality, 2D seismic and has mapped a number of structural leads. According to Heritage, further seismic is being acquired and a new well on the Zamzama North Block is planned during the latter part of 2011 after the challenges created by the devasting July and August, 2010 floods are resolved.  If such development activities occur and are successful, then our Zamzama North interest would also be a source of revenue in the future.
 
Recent Pakistan Political Developments

On October 6, 2007, President Pervez Musharraf was reelected. On November 3, 2007, President Musharraf declared a state of emergency in Pakistan.  The declaration was accompanied by a suspension of the constitution.  The state of emergency was lifted and the constitution was reinstated on December 15, 2007.  The Parliamentary elections originally slated for January, 2008, were postponed after the death of Benazir Bhutto on December 27, 2007 until February 18, 2008.   The opposition parties assumed control through these elections and President Pervez Musharraf later resigned on August 19, 2008.  He was succeeded on September 6, 2008 by President Asif Ali Zardari, the widower of Benazir Bhutto. President Zardari made numerous cabinet and ministry appointments in the latter part of 2008 and the early part of 2009, including the Ministry of Petroleum and Natural Resources.
 
 
19

 

Incidents of violence and political protest continue to occur within the country according to international news sources.  These political events have not impacted our ownership of the overriding royalty or the ongoing business practices within the country, including oil and gas exploration, development and production by Hycarbex and other major operators doing business in Pakistan.  We cannot predict the effect of future political events or political changes upon Hycarbex’s operations and our expectations of deriving revenues from our interests through the sale of gas into Pakistan’s pipeline infrastructure.

Galveston County, Texas Leases

We believe that the deeper zones which we currently hold may have development potential.  We are exploring the various opportunities to realize value from these deep rights, including potential sale.  We have not yet determined the best course for these assets.  These leases are held in force by third party production and, therefore, the leases do not require development of these rights by a certain date.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements during the fiscal year ended June 30, 2011.


We are not exposed to market risk from changes in interest rates and commodity prices.

The consolidated financial statements required to be filed pursuant to this Item 7 begin on Page F-1 of this report.  Such consolidated financial statements are hereby incorporated by reference into this Item 8.  The Supplementary Data requirement as set forth in Item 302 of Regulation S-K is inapplicable to the Company.


  On May 6, 2011, our previous independent accountant, Chisholm, Bierwolf, Nilson & Morrill, LLC (hereafter “CBNM”), was dismissed due to the revocation of CBNM’s registration with the Public Company Accounting Oversight Board effective April 8, 2011.  Our board of directors approved the dismissal of CBNM.  The revocation of CBNM’s registration is not in any way related to the auditing services previously performed for the Company.  Further, the revocation of CBNM’s registration resulted from the actions and/or inactions of two of its former partners, but not in any way to Mr. Douglas Morrill who has left the CBNM firm and organized a new accounting firm, Morrill & Associates, LLC.  The reports of CBNM regarding the Company’s financial statements for the fiscal years ended June 30, 2009 and 2010 did not contain any adverse opinion or a disclaimer of opinion.  The reports were modified only as to the uncertainty of the Company’s ability to continue as a going concern.

During the fiscal years ended June 30, 2009, 2010 and 2011, there were no disagreements with CBNM on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of CBNM would have caused it to make reference to the subject matter of the disagreements in connection with its report.


Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2009, these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
 
20

 
 
There have been no material changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
 
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting.  Based on our evaluation, management concluded that our internal control over financial reporting was ineffective as of December 31, 2009 due to two significant deficiencies.  A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
 
Management’s assessment identified the following material weakness in internal control over financial reporting:
 
 
o
Incomplete recording of warrant expense associated with the Common stock issued as part of the Working Interest agreement (See Note 7 to the consolidated financial statements) prior to the audit conducted by our principal independent accounting firm.
  
In light of the significant deficiencies described above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
 
Management intends to mitigate the risk of significant deficiencies going forward by utilizing external financial consulting services prior to the review by our principal independent accounting firm to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the Commission’s rule and forms.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
 
Inherent Limitations Over Internal Controls
 
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls.  Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
 

In September, 2011, we received our initial royalty production payment in the amount of $9,745.05 from Hycarbex relating to the sale of gas into the Sui Southern Gas Company pipe line connection at the Haseeb #1 Well under the Extended Well Test for that facility.  Production revenues are expected on a periodic basis going forward.
 
 
21

 

PART III


Directors and Executive Officers

The directors and executive officers of the Company at June 30, 2011, included the following persons, each of whom serves on the audit committee of the Company:
 
Name
Age
Position
     
R. Pierce Onthank
51
Director, President, CEO, CFO & Secretary-Treas.
John S. Gebhardt
64
Director
 
R. Pierce Onthank, age 51, 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.

John S. Gebhardt, age 64, became a member of the Board of Directors upon the April, 2011 retirement of Karl Welser.  Mr. Gebhardt resides in Celebration, Florida.  Mr. Gebhardt studied economics at both the Lubin School of Business at Pace University and the Stern School of Business at New York University.   Mr. Gebhardt was previously employed as a Managing Director at Paine Webber in New York City from 1981 to 1998, and as a Managing Director at Knight Capital Markets in Purchase, New York from 1998 to 2001.  Since 2001, Mr. Gebhardt has been self employed as a manager of securities portfolios for private clients and as a consultant to companies as to exchange listing matters.  Mr. Gebhardt has also served on many civic and educational boards, including twelve years on the Byram Hills Board of Education, Armonk, New York, eleven years on the Board of the Westchester-Putnam School Boards Association, and two terms on the Board of Directors of the New York State School Boards Association.

Board of Directors

We held no physical meetings and three telephonic meetings of the Board of Directors during the fiscal year ended June 30, 2011, and the Board of Directors took action at Board meetings or by unanimous written consent thirteen (13) times during that period.   Mr. Onthank and Mr. Gebhardt are our only Directors who are also our officers and/or operations executives.  Mr. Onthank and Mr. Gebhardt serve upon the audit committee.  There are not any other standing committees of the Board of Directors based on the size of our business.
 
 
22

 

We do not currently have a process for security holders to send communications to the Board of Directors.  However, we welcome comments and questions from our shareholders.  Shareholders can direct communications to our Chief Executive Officer, Pierce Onthank, at our executive offices, 1 Gorham Island, Suite 303, Westport, Connecticut  06880.  While we appreciate all comments from shareholders, we may not be able to individually respond to all communications.  We attempt to address shareholder questions and concerns in our press releases and documents filed with the SEC so that all shareholders have access to information about the Company at the same time.  Mr. Onthank collects and evaluates all shareholder communications.  If the communication is directed to the Board of Directors generally or to a specific director, Mr. Onthank will disseminate the communications to the appropriate party at the next scheduled Board of Directors meeting.  If the communication requires a more urgent response, Mr. Onthank will direct that communication to the appropriate executive officer.  All communications addressed to our directors and executive officers will be reviewed by those parties unless the communication is clearly frivolous.

Nomination and/or Appointment of Directors

The Board of Directors has not adopted a formal policy with regard to the process to be used for identifying and evaluating nominees for director.  The consideration of candidates nominated by directors is at the Board’s discretion. We believe this practice is adequate based on the size of our business and current Board member qualifications.  Our Bylaws do not contain a specific procedure for nomination of persons to serve for election to the Board of Directors.  Our Bylaws provide that the number of Directors shall be not less than two nor more than seven.  Vacancies in the Board of Directors may be filled by a majority of remaining Directors.

Compensation of Directors

Our Directors are reimbursed for reasonable out-of-pocket expenses in connection with their services as members of the Board including attendance at Board of Director meetings, and may be granted options to purchase shares of our common stock at the discretion of our Board of Directors.  Directors are given common stock remuneration for their services as our Directors.

Compliance with Section 16(A) of the Exchange Act of 1934
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock file with the Securities and Exchange Commission various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.  The initial reporting on behalf of our new director, John S. Gebhardt, was not filed within the timing prescribed by Section 16(a), but based on information provided to management, we believe that our officers and directors have now 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.
 
 
23

 
 

Summary Compensation Table

The following table reflects all forms of compensation for the fiscal years ended June 30, 2008, 2009, 2010 and 2011 for services provided by our executive officers and directors.
 
SUMMARY COMPENSATION TABLE
     
ANNUAL COMPENSATION
LONG TERM COMPENSATION
Name
Title
Year
Salary
Bonus
Other Annual Comp-
ensation
Awards
Payouts
All Other Comp-
ensation
Restricted
Stock
Awarded
Options/ SARs
Warrants (#)
LTIP
payouts ($)
R.Pierce Onthank
President, CEO and Sec. Treas.
2011
2010
2009
2008
 
$240,000
$240,000
$192,000
$241,311
 
-0-
-0-
-0-
 
$29,673
$74,214
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
Dr. Iftikhar A. Zahid(1)
Director
2011
2010
2009
2008
 
$165,000
$180,000
$180,000
$180,000
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
-0-
-0-
-0-
-0-
 
 
Notes to Summary Compensation Table:

 
(1)
Dr. Zahid previously managed our assets in Pakistan.  He resigned in June, 2011, effective May 31, 2011.
 
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, 2011.  There are currently no outstanding stock options or SAR’s.

Aggregated Option/SAR/Warrant Exercises In
Last Fiscal Year and FY-End Option/SAR Values

Name
Shares Acquired on Exercise (#)
 
 
 
 
Value Realized ($)
Number of Unexercised Underlying Options/SARs/ Warrants at FY end (#);
Exercisable/ Unexercisable
Value of Unexercised In-The-Money Options/SARs/ Warrants at FY end ($);
Exercisable/ Unexercisable
Pierce Onthank
-0-
-0-
1,000,000/0
$0/0
John S. Gebhardt
-0-
-0-
150,000/0
$0/0

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, 2011.

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.
 
 
24

 
 

The following table sets forth certain information as of October 13, 2011, 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 13, 2011, we had 34,385,333 shares of common stock issued and outstanding.
 
Name and address of beneficial owner
Title of Class of Stock
Number of Shares of Common Stock
Percentage of Common Stock (1)
R. Pierce Onthank
1 Gorham Island Suite 303 Westport, Connecticut 06680
 
 
Common stock
 
2,220,169 (1,2)
 
6.3% (1,2)
John S. Gebhardt
509 Longmeadow
Celebration, Florida 34747
 
 
Common stock
 
  150,000 (1,3)
 
0.4%(1,3)
All Officers and Directors as a group (total of two)
Common stock
2,370,169 (1)
6.7%(1)
 
(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, 2011.  As of June 30, 2011 there were 34,385,333 shares of our common stock issued and outstanding disregarding shares which may be acquired upon exercise of outstanding warrants.

(2)  Includes 1,000,000 shares issuable upon the exercise of warrants to purchase shares of common stock.

(3)  Includes 150,000 shares issuable upon the exercise of warrants to purchase shares of common stock.


On May 12, 2006, we entered into a non-exclusive Agency Agreement with Hycarbex – American Energy, Inc., an entity for which our director, Dr. Iftihhar Zahid, serves as President, under which Hycarbex agreed to locate for the Company, and negotiate on behalf of the Company, royalty purchase opportunities within the Republic of Pakistan. The Agreement provided for a finder’s fee to Hycarbex equal to $50,000 for each royalty purchase which is actually consummated.  Under the terms of the October 29, 2009 acquisition, in addition to stock and warrants issued to purchase the interests, we agreed to pay a future cash consideration equal to the remaining funds on deposit with Hycarbex less an amount equal to $50,000 per month until such time as American Energy Group, Ltd. is paid an aggregate $200,000 in royalties from the Haseeb No. 1 Well.  This Well was initially connected to the gas marketing pipe line during September, 2010, then ceased production due to mechanical difficulties encountered in the commissioning of the surface processing facility owned by a third party, and then recommenced production into the pipe line in July, 2011.    Dr. Zahid resigned as a director in June, 2011, effective May 31, 2011. 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.
 

Audit Fees

Audit fees billed by the Company’s Principal Accountant were $8,087.50 during the year ended June 30, 2011.

Audit Related Fees

There have been no audit related fees billed by the Company’s Principal Accountant as of the date of this report.

               The Company’s  audit committee is comprised solely of its Board of Directors.

Tax Fees

There have been no tax fees billed by the Company’s Principal Accountant as of the date of this report.

All Other Fees

There have been no other fees billed by the Company’s Principal Accountant as of the date of this report.

 
25

 

PART IV


The following documents are filed as Exhibits to this report:

Exhibit 31.1 – Certification by R. Pierce Onthank, President and Acting Chief Financial and Principal Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a);

Exhibit 32.1 – Certification by R. Pierce Onthank, President and Acting Chief Financial and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Section 1350(a) and
 
 
26

 


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
THE AMERICAN ENERGY GROUP, LTD.
 
       
 
By:
/s/ R. Pierce Onthank  
       
   
R. Pierce Onthank, President, Secretary, Director
 
   
Chief Financial Officer and Principal Accounting Officer
 
       
       
DATED:  October 13, 2011.
     
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.
 
     
       
 
By:
/s/ John S. Gebhardt  
   
John S. Gebhardt, Director
 
   
Date signed: October 13, 2011
 
 
 
27

 
 
THE AMERICAN ENERGY GROUP, LTD.

FINANCIAL STATEMENTS

June 30, 2011 and 2010
 
 
 

 
 
C O N T E N T S
 
Report of Independent Registered Public Accounting Firm
 F-2
   
Balance Sheets
 F-3
   
Statements of Operations
 F-4
   
Statements of Stockholders’ Equity
 F-5
   
Statements of Cash Flows
 F-8
   
Notes to the Financial Statements
 F-9
 
 
 

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of
The American Energy Group, Ltd.
Westport, CT.

We have audited the accompanying balance sheets of The American Energy Group, Ltd. as of June 30, 2011 and 2010 and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The American Energy Group, Ltd. as of June 30, 2011 and 2010 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has no revenues which raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 8 to the financial statements, certain errors resulting in the understatement of previously reported accrued expenses as of June 30, 2010, were discovered by management of the Company during the current year. Accordingly, the June 30, 2010 financial statements have been restated to correct the errors.






Morrill & Associates
Bountiful, Utah
October 11, 2011
 
 
F-2

 
 
THE AMERICAN ENERGY GROUP, LTD.
Balance Sheets
For the Years Ended June 30,
 
Assets            
 
       
2010
 
   
2011
   
(Restated)
 
Current Assets
           
Cash (Note 1)
  $ 246,061     $ 25,585  
Prepaid expenses
    47,955       -  
Funds reserved for acquisitions (Note 6)
    -       392,500  
                 
Total Current Assets
    294,016       418,085  
                 
Property and Equipment
               
Office equipment
    29,265       27,421  
Leasehold improvements
    26,458       26,458  
Accumulated depreciation
    (32,544 )     (25,983 )
                 
 Net Property and Equipment     23,179       27,896  
                 
Other Assets                
Investment in oil & gas working interest      1,583,914       1,583,914  
Security deposit
     26,209       26,209  
                 
Total Other Assets
    1,610,123       1,610,123  
                 
Total Assets
  $ 1,927,318     $ 2,056,104  
                 
Liabilities and Stockholders’ Equity
               
Current Liabilities                
Accounts payable
  $ 64,336     $ 62,757  
Security deposits
    13,200       13,200  
Note payable
    19,811       -  
Accrued liabilities
    889,840       668,332  
                 
Total Current Liabilities
    987,187       744,289  
                 
Total Liabilities
    987,187       744,289  
                 
Stockholders’ Equity (Notes 7 & 8)                
Preferred Stock, 20,000,000 authorized (none issued)
    -       -  
                 
Common stock, par value $0.001 per share;
               
authorized 80,000,000 shares; 34,385,333 and
               
33,195,286 shares issued and outstanding, respectively
    34,353       33,195  
Capital in excess of par value
    10,948,465       10,329,523  
Accumulated deficit
    (10,042,687 )     (9,050,903 )
                 
Total Stockholders’ Equity
    940,131       1,311,815  
                 
Total Liabilities and Stockholders’ Equity
  $ 1,927,318     $ 2,056,104  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-3

 
 
THE AMERICAN ENERGY GROUP, LTD.
Statements of Operations
For the Years Ended June 30,
 
           
         
2010
 
   
2011
   
(Restated)
 
             
             
Revenue
  $ -     $ -  
                 
General and Administrative Expenses
               
Legal and professional
    191,879       144,562  
Depreciation and amortization expense
    6,561       6,642  
General and administrative
    772,504       780,545  
                 
 Total Expenses
    970,944       931,749  
                 
 Net Operating Loss
    (970,944 )     (931,749 )
                 
Other Income and (Expense)
               
Interest expense
    (15,620 )     (7,960 )
Taxes – other
    (5,220 )     (3,083 )
                 
Total Other Income and (Expense)
    (20,840 )     (11,043 )
                 
Net Loss before Federal Income Tax
    (991,784 )     (942,792 )
Federal Income Tax
    -       -  
                 
Net Loss
  $ (991,784 )   $ ( 942,792 )
                 
Basic Loss per Common Share
  $ (0.03 )   $ (0.03 )
                 
Weighted Average Number of Shares Outstanding
    33,539,434       32,441,034  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-4

 
 
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders’ Equity
For the Period July 1, 2009 through June 30, 2010
(Restated)
 
                                                                         
 
Common Stock
   
Capital in Excess
   
Accumulated
   
(Restated)
 
 
 
Shares
   
Amount
   
of Par Value
   
Deficit
   
Totals
 
                               
Balance June 30, 2009
    31,019,255     $ 31,019     $ 8,722,826     $ (8,108,111 )   $ 645,734  
                                         
July, 2009, new shares issued
                                       
for payables at $0.81 per share
    8,025       8       6,492       -       6,500  
                                         
July, 2009, new shares issued
                                       
for services at $0.62 per share
    9,772       9       5,991       -       6,000  
                                         
August, 2009, new shares issued
                                       
for payables at $0.73 per share
    8,904       9       6,491       -       6,500  
                                         
September 2009, new shares issued
                                       
for payables at $0.79 per share
    8,228       8       6,492       -       6,500  
                                         
October, 2009, new shares issued
                                       
for payables at $0.69 per share
    9,420       9       6,491       -       6,500  
                                         
October, 2009, new shares issued
                                       
to acquire oil & gas working
                                       
interest investment at $0.72 per share
    2,000,000       2,000       1,438,000       -       1,440,000  
                                         
November, 2009, new shares issued
                                       
for payables at $0.64 per share
    10,156       10       6,490       -       6,500  
                                         
December 2009, new shares issued
                                       
for payables at $0.66 per share
    9,848       10       6,490       -       6,500  
                                         
December, 2009, 100,000 warrants
                                       
in connection with oil and gas
                                       
working interest acquisition
    -       -       43,913       -       43,913  
                                         
December, 2009, new shares issued
                                       
for services at $0.70 per share
    14,280       14       9,986 -               10,000  
                                         
January, 2010, new shares issued
                                       
for payables at $0.81 per share
    8,025       8       6,492       -       6,500  
                                         
January, 2010, new shares issued
                                       
for services at $0.74 per share
    4,000       4       2,956       -       2,960  
                                         
February, 2010, new shares issued
                                       
for payables at $0.66 per share
    9,848       10       6,490               6,500  
                                         
March 2010, new shares issued
                                       
for payables at $0.74 per share
    8,784       9       6,491       -       6,500  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-5

 
 
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders’ Equity
For the Period July 1, 2009 through June 30, 2010
(Restated)
 
 
 
Common Stock
   
Capital in Excess
   
Accumulated
     
 
 
Shares
   
Amount
   
of Par Value
   
Deficit
 
Totals
 
                             
                             
April 2010, new shares issued
                           
for payables at $0.71 per share
    9,155       9       6,491       -     6,500  
                                       
April 2010, new shares issued
                                     
for services at $0.73 per share
    13,707       14       9,986       -     10,000  
                                       
May, 2010, new shares issued
                                     
for payables incurred for services
                                     
rendered June 2009 through May
                                     
2010 at a weighted average
                                     
price of $0.71 per share
    25,431       26       17,974       -     18,000  
                                       
June, 2010, new shares issued
                                     
for payables at $0.69 per share
    18,448       19       12,981       -     13,000  
                                       
Net (loss) for the year ended
                                     
June 30, 2010
 
-
   
-
   
-
      ( 942,792 )   (942,792 )
                                       
Balance June 30, 2010
    33,195,286     $ 33,195     $ 10,329,523     $ (9,050,903 )       $ 151,311,8  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-6

 
 
THE AMERICAN ENERGY GROUP, LTD.
Statements of Stockholders’ Equity
For the Period July 1, 2010 through June 30, 2011
 
 
 
Common Stock
   
Capital in Excess
   
Accumulated
     
 
 
Shares
   
Amount
   
of Par Value
   
Deficit
 
Totals
 
                             
Balance June 30, 2010 (Restated)
    33,195,286     $ 33,195     $ 10,329,523     $ (9,050,903 ) $ 1,311,815  
                                       
July 2010, new shares issued
                                     
for payables at $0.71 per share
    9,155       9       6,491       -     6,500  
                                       
September 2010, new shares issued
                                     
for payables at $0.74 per share
    17,514       18       12,982       -     13,000  
                                       
October 2010, new shares issued
                                     
for payables at $0.85 per share
    15,350       15       12,985 -             13,000  
                                       
January, 2011, new shares issued
                                     
for payables incurred for services
                                     
rendered July 2010 through December
                                     
2010 at a weighted average
                                     
price of $0.76 per share
    21,153       21       11,979       -     12,000  
                                       
March 2011, new shares issued
                                     
for cash at $0.50 per share
    1,000,000       1,000       499,000       -     500,000  
                                       
May, 2011, new shares issued
                                     
for payables incurred for services
                                     
rendered June 2010 through May
                                     
2011 at a weighted average
                                     
price of $0.76 per share
    23,554       24       17,976       -     18,000  
                                       
June, 2011, new shares issued
                                     
for payables incurred for services
                                     
rendered January 2011 through
                                     
June 2011 at a weighted average
                                     
price of $0.51 per share
    23,321       23       11,977       -     12,000  
                                       
June, 2011, new shares issued
                                     
for services at $0.57 per share
    5,000       5       2,845       -     2,850  
                                       
June, 2011, new shares issued
                                     
for services at $0.57 per share
    75,000       43       42,707       -     42,750  
                                       
Net (loss) for the year ended
                                     
June 30, 2011
 
-
   
-
   
-
      (991,784 )   (991,784 )
                                       
Balance June 30, 2011
    34,385,333     $ 34,353     $ 10,948,465     $ (10,042,687 )       $ 940,131  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-7

 
 
THE AMERICAN ENERGY GROUP, LTD.
Statements of Cash Flows
For the Years Ended June 30,
 
 
       
(Restated)
 
   
2011
   
2010
 
             
Cash Flows From Operating Activities
           
Net loss
  $ (991,784 )   $ (942,792 )
Adjustments to reconcile net loss to net cash
               
provided by (used in) operating activities:
               
Depreciation
    6,561       6,642  
Prior period adjustment
    -       (14,773 )
Common stock issued for current debt, services
    120,100       124,960  
Changes in operating assets and liabilities
               
(Increase) decrease in prepaid expenses
    (28,144 )     -  
Increase (decrease) in accounts payable
    1,579       (6,763 )
Increase (decrease) in accrued expenses
               
and other current liabilities
    221,508       177,432  
                 
Net Cash Used In Operating Activities
    (670,180 )     (655,294 )
                 
Cash Flows From Investing Activities
               
Cash paid for equipment acquisitions
    (1,844 )     -  
Funds reserved for acquisitions
    392,500       747,000  
Expenditures for working interest investment
    -       (100,000 )
                 
 Net Cash Provided By Investing Activities
    390,656       647 000  
                 
Cash Flows From Financing Activities
               
Cash received from stock issuance
    500,000       -  
 
               
 Net Cash Provided by Financing Activities
    500,000       -  
                 
 Net Increase (Decrease) in Cash
    220,476       (8,294 )
                 
 Cash and Cash Equivalents, Beginning of Year
    25,585       33,879  
                 
 Cash and Cash Equivalents, End of Year
  $ 246,061     $ 25,585  
                 
                 
Cash Paid For:
               
Interest
  $ 15,620     $ 6,465  
Taxes
  $ -     $ -  
 
               
Non-Cash Financing Activities:
               
Common stock issued in satisfaction of
               
accounts payable
  $ 8,500     $ 24,500  
Common stock issued for services rendered
  $ 111,600     $ 100,460  
Common stock issued for oil and gas working interest
  $ -     $ 1,440,000  
Warrants issued for oil and gas working interest
  $ -     $ 43,913  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-8

 
 
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2011 and 2010

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.

On January 29, 2004, the Company was released from bankruptcy.  Pursuant to the plan, all of the existing 66,318,037 shares of common stock and 41,499 shares of preferred stock were cancelled.  The Company issued 18,898,518 new shares of common stock to creditors.  Also, the Company adopted the provisions for fresh-start reporting.  Accordingly, the accumulated deficit accumulated through January 29, 2004 has been eliminated.  The Company is considered to have a fresh-start due to the cancellation of the prior shareholders’ common stock and the subsequent issuance of common stock to creditors, the new shareholders.
 
 
F-9

 
 
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Financial Statements
June 30, 2011 and 2010


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

a. Organization (continued)

On April 14, 2005, the Company’s wholly owned inactive subsidiary, American Energy Operating Corp (AEOC) filed for a voluntary bankruptcy liquidation. On July 24, 2006, the American Energy Operating Corp. received a final decree from the United States Bankruptcy Court – Southern District of Texas that the Company’s estate had been fully administered and that the Chapter 7 was closed.
 
b. Accounting Methods

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

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

Property and equipment are stated at cost.  Depreciation on drilling and related equipment, vehicles and office equipment is provided using the straight-line method over expected useful lives of five to ten years.  For the years ended June 30, 2011 and 2010, the Companies incurred total depreciation of $6,561 and $6,642, respectively.
 
e. Basic Loss Per Share of Common Stock
 
 
       
(Restated)
 
 
 
For the Year
   
For the Year
 
 
 
Ended June 30,
   
Ended June 30,
 
   
2011
   </