Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2018
¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM                               TO

 

Commission file number: 0-26402

 

THE AMERICAN ENERGY GROUP, LTD.

(Name of registrant as specified in its charter)

 

Nevada		87-0448843
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

20 Nod Hill Road Wilton, Connecticut		06897
(Address of principal executive offices)		(Zip code)

 

  203/222-7315

(Issuer’s telephone number)

___________________________

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes  x No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of February 19, 2019, the number of Common shares outstanding was 71,904,290

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x
Emerging growth company	¨

 

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

 

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

 

 

 

THE AMERICAN ENERGY GROUP, LTD.

INDEX TO FORM 10-Q

 

		PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Items 4 and 4T.	Controls and Procedures	12
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	14

 

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PART I - FINANCIAL INFORMATION

 

THE AMERICAN ENERGY GROUP, LTD.

Condensed Balance Sheets

(Unaudited)

 

		December 31,				June 30,
		2018				2018
Assets
Current Assets
Cash		$	8,561			$	32,738
Property and Equipment
Office equipment			25,670				25,670
Accumulated depreciation			(24,687	)			(24,462	)
Net Property and Equipment			983				1,208
Total Assets		$	9,544			$	33,946
Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable		$	68,060			$	65,124
Derivative liability			8,011				84,821
Accrued liabilities			1,311,762				1,118,507
Notes payable – related parties			100,000				100,000
Total Current Liabilities			1,487,833				1,368,452
Non-Current Liabilities
Notes payable – related parties, less current portion			2,287,603				2,150,816
Total Liabilities			3,775,436				3,519,268
Stockholders’ Deficit
Common stock, par value $0.001 per share; authorized 80,000,000 shares; 71,904,290 shares issued and outstanding			71,905				71,905
Capital in excess of par value			18,741,671				18,741,671
Accumulated deficit			(22,579,468	)			(22,298,898	)
Total Stockholders’ Deficit			(3,765,892	)			(3,485,322	)
Total Liabilities and Stockholders’ Deficit		$	9,544			$	33,946

  

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

 

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THE AMERICAN ENERGY GROUP, LTD.

Condensed Statements of Operations

For the Three and Six Months Ended December 31, 2018 and 2017

(Unaudited)

 

		Three Months Ended								Six Months Ended
		December 31,				December 31,				December 31,				December 31,
		2018				2017				2018				2017
Revenue		$	-			$	-			$	-			$	-
Expenses
Administrative salaries			48,762				34,156				138,762				86,824
Legal and professional			106,056				109,563				272,947				153,789
General and administrative			44,482				43,551				99,928				82,079
Depreciation			112				112				225				225
Total Expenses			199,412				187,382				511,862				322,917
Net Operating (Loss)			(199,412	)			(187,382	)			(511,862	)			(322,917	)
Other Income and (Expense)
Change in fair value of derivative liability			4,481				-				76,810				-
Gain on legal settlement			-				-				213,800				-
Interest expense			(29,960	)			(24,352	)			(59,318	)			(48,478	)
Total Other Income (Expense)			(25,479	)			(24,352	)			231,292				(48,478	)
Net (Loss) Before Taxes			(224,891	)			(211,734	)			(280,570	)			(371,395	)
Income Taxes			-				-				-				-
Net (Loss)		$	(224,891	)		$	(211,734	)		$	(280,570	)		$	(371,395	)
Earnings (Loss) per Share
Basic and Fully Diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.01	)
Weighted Average Number of Shares Outstanding
Basic and Fully Diluted			71,904,290				70,849,943				71,904,290				70,635,657

  

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

 

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THE AMERICAN ENERGY GROUP, LTD.

Condensed Statements of Cash Flows

For the Six Months Ended December 31, 2018 and 2017

(Unaudited)

 

		2018				2017
Cash Flows From Operating Activities
Net (Loss)		$	(280,570	)		$	(371,395	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation			225				225
Change in fair value of derivative liability			(76,810	)			-
Changes in operating assets and liabilities:
Decrease in prepaid expenses			-				16,938
Increase in accounts payable			2,936				1,737
Increase in accrued liabilities			193,255				120,676
Net Cash (Used In) Operating Activities			(160,964	)			(231,819	)
Cash Flows From Investing Activities			-				-
Cash Flows From Financing Activities
Proceeds from the issuance of notes payable – related party			150,000				123,389
Principal payments on notes payable - related party			(13,213	)			-
Principal payments on notes payable			-				(17,737	)
Proceeds from the issuance of common stock			-				60,000
Net Cash Provided By Financing Activities			136,787				165,652
Net (Decrease) in Cash			(24,177	)			(66,167	)
Cash and Cash Equivalents, Beginning of Period			32,738				70,254
Cash and Cash Equivalents, End of Period		$	8,561			$	4,087
Cash Paid For:
Interest		$	3,223			$	4,302
Taxes		$	-			$	-

  

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

 

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THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Condensed Financial Statements

December 31, 2018

 

Note 1 - General

 

The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto included in its June 30, 2018 Annual Report on Form 10-K. Operating results for the three months and six months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019.

 

Note 2 - Basic Loss Per Share of Common Stock  

 

		For the six				For the six
		months ended,				months ended,
		Dec 31, 2018				Dec 31, 2017
Loss (numerator)		$	(280,570	)		$	(371,395	)
Shares (denominator)			71,904,290				70,635,657
Per Share Amount		$	(0.00	)		$	(0.01	)

 

The basic loss per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial statements. Stock warrants convertible into 8,333,334 shares of common stock have not been included in the fully diluted income per share calculation for the three or six months ended December 31, 2018 or the three and six months ended December 31, 2017, because their inclusion would be anti-dilutive, thereby reducing the net loss per common share.

 

Note 3 - Use of Estimates

 

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

 

Note 4 - Derivative Liability

 

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

 

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THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Condensed Financial Statements

December 31, 2018

 

Since the number of shares issuable under the convertible related party notes payable is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised warrants, the derivatives must be valued using the Black Scholes option pricing model and a liability is recorded as though the obligations would be settled using some means other than stock. The inputs used in the calculation include the stock price at period end, the exercise price, the risk free rate corresponding to the years left to maturity, the volatility and the variance of the stock price. For the six months ended December 31, 2018, the Company determined that it was over-committed to the number of shares issuable on the exercise of outstanding debentures, stock options and warrants for approximately 237,624 shares. The derivative liability balance decreased from $84,821 as of June 30, 2018 to $8,011 as of December 31, 2018 resulting in the recognition of non-cash income of $76,810 during the six months ended December 31, 2018.

 

The Black-Scholes option pricing model used the following assumptions:

 

Dividend yield		$	0.00
Exercise price		$	0.10
Stock price		$	0.071
Expected volatility			2.27
Risk free interest			2.70	%
Expected life		1.10 years

 

Note 5 - Common Stock

 

During the six months ended December, 2018, the Company did not issue any shares of stock.

 

Note 6 - Notes Payable - Related Parties

 

During the six months ended December 31, 2018, the Company borrowed $150,000 from a current shareholder with interest at 5%, payable in full at maturity on February 5, 2020.

 

During the six months ended December 31, 2018, the Company paid off $13,213 of the related party loans.

 

For the three and six months ended December 31, 2018, the Company incurred interest expense on these notes payable in the amount of $28,338 and $56,095, respectively, as compared to $22,445 and $44,176, respectively, for the three and six months ended December 31, 2017. At December 31, 2018 and June 30, 2018, there was $336,149 and $280,054, respectively, of accrued interest on notes payable included in accrued liabilities.

 

Note 7 - Warrants

 

During the six months ended December 31, 2018, no stock warrants were issued.

 

A summary of the status of the Company’s stock warrants as of December 31, 2018 is presented below:

 

										Weighted Ave.
		Stock				Exercise				Exercise
		Warrants				Price				Price
Outstanding and Exercisable, June 30, 2018			12,193,334			$	0.10			$	0.10
Granted			-			$	-			$	-
Expired/Canceled			-			$	-				-
Exercised		$	-				-				-

Outstanding and Exercisable, December 31, 2018

12,193,334

$

0.10

$

0.10

 

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THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Condensed Financial Statements

December 31, 2018

 

  

A summary of outstanding stock warrants at December 31, 2018 follows:

 

Number of						Remaining								Weighted
Common Stock						Contracted				Exercise				Ave Exer.
Equivalents				Expir. Date		Life (Years)				Price				Price
	2,333,334			February 2020			1.250			$	0.10			$	0.10
	1,500,000			February 2020			1.250			$	0.10			$	0.10
	2,600,000			February 2020			1.250			$	0.10			$	0.10
	2,000,000			February 2020			1.250			$	0.10			$	0.10
	1,260,000			February 2020			1.250			$	0.10			$	0.10
	1,000,000			February 2020			1.250			$	0.10			$	0.10
	500,000			February 2020			1.250			$	0.10			$	0.10
	1,000,000			February 2020			1.250			$	0.10			$	0.10

 

Note 8 - Other Contingencies - Litigation

 

On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 Stock Purchase Agreement between the Company, Hycarbex and Hydro-Tur, which was amended on February 16, 2004, and December 15, 2009, is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia and that the Company is thus the 100% owner of the common stock of Hycarbex relating back to the original Stock Purchase Agreement date of November 9, 2003. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees are to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by AEGG. The ICC Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Award makes moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex.

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. As of the date of these financial statements, US$213,800 has been remitted to the Company and reported as a gain on legal settlement in the Company’s statement of operations for the six months ended December 31, 2018. The International Chamber of Commerce “ICC” authorized a refund of $212,000, but the Company received a deposit of $213,800. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether any additional financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

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THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Condensed Financial Statements

December 31, 2018

 

The Company has effected the shareholder and management registration changes ordered by the ICC and has caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. The new management of Hycarbex has also assumed control of Hycarbex’s Pakistan personnel. Finally, the new management of Hycarbex has begun its efforts to assume complete control of the Pakistan-based assets, including review and appraisement of each asset and interfacing with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance. The Government of Pakistan, including the Ministry of Petroleum, the Director General of Petroleum Concessions, the Securities and Exchange Commission of Pakistan and the Pakistan Board of Investment have each advised that they view the Company as the legal owner of Hycarbex. Further, on May 11, 2018, the Government of Pakistan granted to Hycarbex an extension to the Yasin Exploration License relating back to the date of the request for extension in March 2013. Planning has been initiated toward development and exploration activities for the Yasin Exploration License based on this extension. The extension is subject to performance requirements pertaining to seismic, rework of the Haseeb #1 Well and the work program financial obligations which are being reviewed by Management and which will be discussed with the Government of Pakistan as the work at the site moves forward. Due to the December 31, 2018 expiration date stated in the May 11, 2018 letter, the Company has requested a further extension from the Government.Management intends to conduct a detailed review of the benefits and obligations associated with these Pakistan-based assets.

 

Note 9 - Going Concern

 

The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. At December 31, 2018, the Company’s current liabilities exceeded its current assets, it has accumulated losses from inception totaling $22,579,468, and it has recorded negative cash flows from operations. The preceding circumstances combine to raise substantial doubt about the Company’s ability to continue as a going concern. Management has been successful in capital raises in the past to continue operations, but there can be no assurance that success will continue in the future.

 

Note 10 - Subsequent Events

 

In accordance with ASC 855-10, management of the Company has reviewed all material events from December 31, 2018 through the date the financial statements were issued. There were no other material events that warrant any additional disclosure.

 

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains statements about the future, sometimes referred to as “forward-looking” statements. Forward-looking statements are typically identified by the use of the words “believe,” “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “project,” “propose,” “plan,” “intend” and similar words and expressions. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that describe our future strategic plans, goals or objectives are also forward-looking statements.

 

Readers of this report are cautioned that any forward-looking statements, including those regarding the Company or its management’s current beliefs, expectations, anticipations, estimations, projections, proposals, plans or intentions, are not guarantees of future performance or results of events and involve risks and uncertainties, such as:

 

	·	The future results of drilling individual wells and other exploration and development activities;
	·	Future variations in well performance as compared to initial test data;
	·	Future events that may result in the need for additional capital;
	·	Fluctuations in prices for oil and gas;
	·	Future drilling and other exploration schedules and sequences for various wells and other activities;
	·	Uncertainties regarding future political, economic, regulatory, fiscal, taxation and other policies in Pakistan;
	·	Our future ability to raise necessary operating capital.

 

The forward-looking information is based on present circumstances and on our predictions respecting events that have not occurred, which may not occur or which may occur with different consequences from those now assumed or anticipated. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors detailed in this report. The forward-looking statements included in this report are made only as of the date of this report. We are not obligated to update such forward-looking statements to reflect subsequent events or circumstances.

 

Overview

 

On April 15, 2015, the International Chamber of Commerce Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 sale of 100% of the stock of Hycarbex is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thereby returning the Company to its 100% ownership position of the common stock of Hycarbex which it held in calendar 2003. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees were to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by the Company. The International Chamber of Commerce Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Partial Final Award made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex. In response to the April 15 Partial Final Award, the Company effected the shareholder and management registration changes ordered by the ICC and caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. The Government of Pakistan, including the Ministry of Petroleum, the Director General Petroleum Concessions, the Securities and Exchange Commission of Pakistan and the Pakistan Board of Investment have each advised that they view the Company as the legal owner of Hycarbex. Since the delivery of the Partial Final Award, new management of Hycarbex also assumed control of Hycarbex’s Pakistan personnel and began efforts to assume complete control of the Pakistan-based assets, including review, appraisement and investigation of the asset value and potential benefits and the existing, asserted and potential liabilities related to each asset. While Hycarbex has interfaced with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and has continued and/or initiated legal proceedings where necessary to enforce and/or defend Hycarbex’s positions in Pakistan, the jurisdiction of its operations, and in Nevis, West Indies, the jurisdiction of its corporate domicile, as of the date of this report, we have not fully investigated nor determined the value of the Hycarbex assets nor its existing, asserted and potential liabilities. (See Item 1. Legal Proceedings ) We have not accrued the costs incurred in connection with such review, appraisement, investigation, maintenance, defense and enforcement as of the date of this report because those costs could not be reasonably estimated.

 

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On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. The Company received a deposit in the amount of $213,800 which is reported on the statement of operations as a gain on legal settlement. Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd.

 

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

 

Results of Operations

 

Our operations for the three months and six months ended December 31, 2018 reflected net (losses) of $(224,891) and $(280,570), respectively, as compared to net losses of $(211,734) and $(371,395), respectively, for the three and six months ended December 31, 2017. The decrease in net loss from the prior year is predominately the result of a current adjustment to the fair value of a derivative liability in the amount of $76,810 related to the over issuance of shares.

 

Liquidity and Capital Resources

 

We have funded our operations through private loans and the private sale of securities due to the non-payment by Hycarbex of the 18% of production revenues from the Haseeb #1 Well while the litigation and arbitration proceedings with the Hycarbex parties was ongoing. The funds have been and will continue to be utilized for general and administrative expenses incurred by the Company, including the non-recurring legal and accounting costs associated with the pending litigation in Pakistan and, where necessary, the administrative expenses incurred by the newly acquired subsidiary, Hycarbex.

 

In August, 2018, Hycarbex successfully revived the productivity of the Haseeb No. 1 Well through workover activities. Hycarbex is currently investigating the availability of gas processing services in the area in order to render the gas suitable for sale to the pipeline and, alternatively, the availability of industrial gas customers who do not require processed gas for their operations. The Company anticipates that Hycarbex will begin marketing gas within the second quarter of calendar 2019. Management is likewise optimistic that its ongoing negotiations with potential strategic development partners will result in the consummation of a transaction which will provide needed capital for the development of the other Hycarbex exploration licenses and funding of future administrative costs. We will seek additional loans or make additional sales of securities in the future, as necessary, to fund the Company’s working capital needs as they arise in the event that the anticipated results are not achieved. There is no assurance of management’s ability to secure loans or consummate securities sales to meet working capital requirements. (See Note 9 - Going Concern footnote to Financial Statements above).

 

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Off Balance Sheet Arrangements

 

We had no off balance sheet arrangements during the six months ended December 31, 2018.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company engages in activities associated with derivative financial instruments as a result of a prior over issuance of authorized shares.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, these disclosure controls and procedures were not effective.

 

There have been no material changes in internal control over financial reporting that occurred during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

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.

 

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PART II - OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

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

 

On August 31, 2018, the International Chamber of Commerce Arbitration Tribunal issued its unanimous Final Award completing the arbitration proceeding. The Final Award decrees that: (1) Hycarbex Asia Pte. Ltd. pay to the Company US$527,293 as reimbursement for legal fees and costs; (2) Hycarbex Asia Pte. Ltd. pay to the Company US$597,100 as reimbursement for the costs of arbitration; and (3) Hycarbex Asia Pte. Ltd. return to the Company 1.5 million of the company’s common shares, or if such shares are no longer held by Hycarbex Asia Pte. Ltd., authorizing the cancellation of the shares. The International Chamber of Commerce further authorized a refund to the Company of US$212,000 in filing and hearing fees deposited by the Company. The Company received a deposit in the amount of $213,800 which is reported on the statement of operations as a gain on legal settlement Hycarbex Asia Pte. Ltd. is currently in liquidation proceedings in Singapore and thus the Company is uncertain whether the financial awards to the Company will be recovered from Hycarbex Asia Pte. Ltd. The Company has effected the shareholder and management registration changes ordered by the ICC and has caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. New management of Hycarbex has also assumed control of Hycarbex’s Pakistan personnel. New Hycarbex management has begun its efforts to assume complete control of the Pakistan-based assets, including review and appraisement of each asset, interfacing with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and continuation of legal proceedings where necessary to enforce its rights. The Government of Pakistan, including the Ministry of Petroleum, the Director General of Petroleum Concessions, the Securities and Exchange Commission of Pakistan and the Pakistan Board of Investment have each advised that they view the Company as the legal owner of Hycarbex. On May 11, 2018, the Government of Pakistan granted to Hycarbex an extension to the Yasin Exploration License relating back to the date of the request for extension in March 2013. The extension provided for an expiration of December 31, 2018, and the Company has requested a further extension but has not received a Government reply.

 

The Company’s re-acquired subsidiary, Hycarbex, is a named defendant in two (2) lawsuits in the jurisdiction of its domicile, Nevis, West Indies. The first lawsuit was filed in 2015 by South Asia Energy Ltd. seeking damages of $34,993,167 plus interest or, alternatively, a declaration that the claimant is entitled to Hycarbex’s interests in the Zamzama North, Sanjawi and Karachi petroleum concessions. Hycarbex has vigorously defended this matter to date. The matter is currently at a pre-trial status review stage by the applicable Nevis court. The second lawsuit was filed in 2016 by South East Asia Energy Holding, AG seeking damages of $20,325,462 plus interest or, alternatively, a declaration that the claimant is entitled to Hycarbex’s interests in the Yasin petroleum concession. Hycarbex has vigorously defended this matter to date and previously obtained a trial court ruling in its favor denying the claimants requests. Hycarbex likewise obtained an affirmation of that favorable ruling in the claimant’s initial appeal proceeding. The claimant has requested the opportunity for a second appellate proceeding before Her Majesty in Council.

  

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ITEM 1A - RISK FACTORS

 

Not applicable.

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the six months ended December 31, 2018, the Company sold no shares. Management does not expect to continue this course of raising capital through securities sales due to the limitation in the number of authorized shares. With the recent cessation in the production from the Haseeb No. 1 well, management believes that the securing of a strategic development partner and/or the sale of selected Hycarbex assets will be necessary to meet our capital needs for future administrative expenses and legal fees and the anticipated operating and development capital costs associated with the Hycarbex assets.  

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

ITEM 6 - EXHIBITS

 

The following documents are filed as Exhibits to this report:

 

31.1		Certification by R. Pierce Onthank, President, Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a);
32.1		Certification by R. Pierce Onthank, President, Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Section 1350(a) and (b).
101		Interactive data files pursuant to Rule 405 of Regulation S-T

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	THE AMERICAN ENERGY GROUP, LTD.
Dated: February 19, 2019	By:	/s/ R. Pierce Onthank
		R. Pierce Onthank President Chief Executive Officer
		Principal Financial Officer and Director

 

  

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