Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
For the quarterly period ended September 30, 2011
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o
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For the transition period from ____to____
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Commission File Number: 333-169014
American Energy Development Corp.
(Exact name of registrant as specified in its charter)
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27-2304001
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1230 Avenue of the Americas, 7th Floor, New York, NY 10020
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(Address of principal executive offices) (Zip Code)
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(888) 542-7720
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(Registrant’s telephone number, including area code)
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Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. xYes oNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). oYes oNo
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes xNo
As of November 8, 2011, there were 87,107,100 shares of the issuer's $.001 par value common stock issued and outstanding.
1
PART I - FINANCIAL INFORMATION
TABLE OF CONTENTS
2
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly, LJM Energy Corp.)
(An Exploration Stage Company)
ASSETS
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September 30, 2011
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June 30,
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|||||||
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(Unaudited)
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2011
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|||||||
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Current assets
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||||||||
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Cash
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$
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704
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$
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208,523
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||||
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Total current assets
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704
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208,523
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||||||
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Oil and Gas Property
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||||||||
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Unproved
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1,288,266
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1,288,266
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||||||
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Total assets
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$
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1,288,970
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$
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1,496,789
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||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current liabilities
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||||||||
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Accounts payable and accrued expenses
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$
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189,068
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$
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279,959
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||||
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Loans from stockholders
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30,000
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30,000
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||||||
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Total current liabilities
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219,068
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309,959
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||||||
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Stockholders’ equity (deficit)
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||||||||
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Preferred stock, $.001 par value; 5,000,000 shares authorized,
no share issued and outstanding
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-
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-
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||||||
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Common stock, $.001 par value; 3,000,000,000 shares authorized,
171,257,100 and 171,167,100 shares issued and outstanding,
respectively
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171,257
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171,167
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||||||
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Additional paid-in capital
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1,153,900
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1,152,190
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Deficit accumulated during the exploration stage
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(255,255
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)
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(136,527
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)
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Total stockholders’ equity (deficit)
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1,069,902
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1,186,830
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Total liabilities and stockholders’ equity (deficit)
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$
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1,288,970
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$
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1,496,789
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||||
See accompanying notes to financial statements.
3
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
(UNAUDITED)
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From Inception
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||||||||||||
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For the Three
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For the Three
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(March 10, 2010)
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||||||||||
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Months Ended
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Months Ended
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Through
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||||||||||
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September 30, 2011
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September 30, 2010
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September 30, 2011
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||||||||||
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Net revenue
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$
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-
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$
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-
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$
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-
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||||||
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Operating expenses
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||||||||||||
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General and administrative
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117,972
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22,147
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250,743
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|||||||||
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Total operating expenses
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117,972
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22,147
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250,743
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Loss from operations
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(117,972
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)
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(22,147
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)
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(250,743
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)
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Interest expense
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(756
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)
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(756
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)
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(4,512
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)
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Loss before income taxes
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(118,728
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)
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(22,903
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)
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(255,255
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)
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Provision for income taxes
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-
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-
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-
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Net loss
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$
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(118,728
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)
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$
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(22,903
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)
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$
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(255,255
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)
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Net loss per common share – basic and diluted
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$
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(0.00
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)
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$
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(0.00
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)
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||||||
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Weighted average of common
shares – basic and diluted
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171,176,883
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90,000,000
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See accompanying notes to financial statements.
4
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
FOR THE PERIOD FROM INCEPTION (MARCH 10, 2010) THROUGH SEPTEMBER 30, 2011
(UNAUDITED)
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Deficit
Accumulated
During
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Total Stockholders’ | ||||||||||||||||||
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Common Stock
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Paid-In | Exploration |
Equity
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Number of Shares
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Amount
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Capital
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Stage
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(Deficit)
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||||||||||||||||
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Balance, March 10, 2010
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- | $ | - | $ | - | $ | - | $ | - | |||||||||||
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Issuance of common stock for
services, March 11, 2010
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90,000,000 | 90,000 | (87,000 | ) | - | 3,000 | ||||||||||||||
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Additional paid-in capital in
exchange for facilities
provided by related party
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- | - | 1,200 | - | 1,200 | |||||||||||||||
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Balance, June 30, 2010
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90,000,000 | 90,000 | (85,800 | ) | (11,083 | ) | (6,883 | ) | ||||||||||||
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Issuance of common stock,
March 28, 2011
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64,007,100 | 64,007 | 149,350 | - | 213,357 | |||||||||||||||
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Issuance of common stock for
cash, April 12, 2011
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2,700,000 | 2,700 | 6,300 | - | 9,000 | |||||||||||||||
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Issuance of common stock for
cash, May 3, 2011
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1,110,000 | 1,110 | 2,590 | - | 3,700 | |||||||||||||||
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Issuance of common stock for
cash, May 12, 2011
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1,350,000 | 1,350 | 3,150 | - | 4,500 | |||||||||||||||
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Issuance of common stock for
oil and gas properties,
June 14, 2011
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12,000,000 | 12,000 | 1,073,000 | - | 1,085,000 | |||||||||||||||
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Additional paid-in capital in
exchange for facilities
provided by related party
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- | - | 3,600 | - | 3,600 | |||||||||||||||
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Net loss
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- | - | - | (125,444 | ) | (125,444 | ) | |||||||||||||
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Balance, June 30, 2011
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171,167,100 | $ | 171,167 | $ | 1,152,190 | $ | (136,527 | ) | $ | 1,186,830 | ||||||||||
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Issuance of common stock for services,
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90,000 | 90 | 890 | - | 900 | |||||||||||||||
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September 20, 2011
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Additional paid-in capital in exchange for
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- | - | 900 | - | 900 | |||||||||||||||
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facilities provided by related party
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Net loss
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- | - | - | (118,728 | ) | (118,728 | ) | |||||||||||||
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Balance, September 30, 2011
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171,257,100 | $ | 171,257 | $ | 1,153,900 | $ | (255,255 | ) | $ | 1,069,902 | ||||||||||
See accompanying notes to financial statements.
5
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
(UNAUDITED)
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From Inception
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For the Three
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For the Three
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(March 10, 2010)
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Months Ended
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Months Ended
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Through
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September 30, 2011
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September 30, 2010
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September 30, 2011
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Cash flows from operating activities
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Net loss
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$
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(118,728
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)
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$
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(22,903
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)
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$
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(255,255
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)
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Adjustments to reconcile net loss to net cash used
in operating activities
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||||||||||||
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Additional paid-in capital in exchange for facilities
provided by related party
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900
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900
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5,700
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Common stock issued for services
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900
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-
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3,900
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Changes in operating assets and liabilities
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Increase (decrease) in accounts payable and accrued
expenses
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(90,891)
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16,479
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189,068
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Net cash used in operating activities
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(207,819
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)
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(5,524
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)
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(56,587
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)
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Cash flows from investing activities
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Investment in oil and gas properties
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-
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-
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(203,266
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)
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Net cash used by investing activities
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-
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-
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(203,266
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)
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Cash flows from financing activities
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Proceeds from issuance of common stock
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-
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-
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230,557
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Proceeds from issuance of stockholder loan
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-
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-
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30,000
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Net cash provided by financing activities
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-
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-
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260,557
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Net increase (decrease) in cash
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(207,819)
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(5,524)
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704
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Cash, beginning of period
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208,523
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7,983
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-
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|||||||||
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Cash, end of period
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$
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704
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$
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2,459
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$
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704
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Supplemental disclosure of cash flow
information
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Income taxes paid
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$
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-
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$
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-
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$
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-
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||||||
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Interest paid
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$
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-
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$
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-
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$
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-
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||||||
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Non-cash transactions
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||||||||||||
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Common stock for services
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$
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900
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$
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3,000
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$
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3,900
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||||||
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Common stock for oil and gas properties
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$
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-
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$
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-
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$
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1,085,000
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||||||
See accompanying notes to financial statements.
6
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
American Energy Development Corp. (the "Company") is currently an exploration stage company under the provisions of Accounting Standards Codification (ASC) No. 915, Development Stage Entities, and was incorporated under the laws of the State of Nevada on March 10, 2010. Since inception, the Company has produced no revenues and will continue to report as an exploration stage company until significant revenues are produced.
The Company’s principal activity is the exploration and development of oil and gas properties.
On July 12, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to change its name from “LJM Energy Corp.” to “American Energy Development Corp.” (the “Name Change”). The effective date of the Name Change with the Nevada Secretary of State is July 14, 2011.
Exploration Stage
The Company is engaged in the acquisition, exploration and development of producing oil and gas properties. As of September 30, 2011, the Company owns acreage in the State of Michigan which includes a 43.75% working interest in three separate oil and gas leases in Ingham County, Michigan (the “Dansville Prospect”) totaling approximately 1,298 acres along with option rights to acquire a 50% working interest in three (3) prospects located in Trenton Township, Washtenaw County, Trenton Township, Jackson County, and Kinneville Township, Ingham County, Michigan (the “Option Prospects”), and seismic data for certain properties located in Ingham and Calhoun Counties, Michigan for further exploration and analysis. The Company also owns a 1.4% working interest in certain oil and gas leases in Pottawatomie County, Oklahoma (the “Magnolia Prospect”).
The Company’s success will depend in large part on its ability to obtain and develop oil and gas interests within the United States. There can be no assurance that oil and gas properties obtained by the Company will contain reserves or that properties with reserves will be profitable to extract. The Company will be subject to local and national laws and regulations which could impact the Company’s ability to execute its business plan.
As discussed in Note 2, the accompanying financial statements have been prepared assuming the Company will continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported periods. Actual results could materially differ from those estimates.
7
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
SEPTEMBER 30, 2011
(UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company is required to estimate the fair value of all financial instruments included on its balance sheet under ASC 825, Financial Instruments. The carrying value of cash, accounts payable and accrued expenses approximate their fair value due to the short period to maturity of these instruments.
Oil and Gas Properties
The Company follows the full cost method of accounting for crude oil and natural gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized crude oil and natural gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method based on proved reserves.
The cost of investments in unproved properties and major development projects are excluded from capitalized costs to be amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.
For each cost center, capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized; plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed during the period in which the excess occurs.
8
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Asset Retirement Obligation
The Company accounts for its future asset retirement obligations by recording the fair value of the liability, if any, during the period in which it was incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in carrying value of a property associated with the capitalization of an asset retirement cost is included in proved oil and gas properties within the Company’s balance sheets. The Company depletes the amount added to proved oil and gas property costs using the units-of-production method and the straight-line basis over the life of the assets.
The Company’s asset retirement obligation consists of costs related to the plugging of wells, removal of facilities and equipment and site restoration on its oil and gas properties and gathering assets. The asset retirement liability, if any, will be allocated to operating expense using a systematic and rational method.
Revenue Recognition
Working interest, royalty and net profit interests are to be recognized as revenue when oil and gas are sold. The Company records the sale of its interests in prospects generally as a reduction to the cost pool without gain or loss recognition unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to a cost center. A significant alteration would typically involve a sale of 25% or more of the proved reserves related to a single full cost pool. All terms of the sale are to be finalized and price readily determinable.
Value of Stock Issued for Services
The Company periodically issues shares of its common stock in exchange for, or in settlement of, services. The Company’s management values the shares issued in such transactions at either the then market price of the Company’s common stock after taking into consideration factors such as volume of shares issued or trading restrictions, or the value of the services rendered, whichever is more readily determinable.
Recent Accounting Pronouncements
There are no recently issued accounting standards with pending adoptions that the Company’s management currently anticipates will have any material impact upon its financial statements.
9
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
2. GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred a net operating loss of ($255,255) from inception (March 10, 2010) through September 30, 2011. The Company is subject to those risks associated with exploration stage companies. The Company has sustained losses since inception and additional debt and equity financing will be required by the Company to fund its development activities and to support operations. However, there is no assurance that the Company will be able to obtain additional financing. Furthermore, the Company's existence is dependent upon management's ability to develop profitable operations. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern.
Management is currently devoting substantially all of its efforts to develop its existing oil and gas properties. The Company also continues to search for additional productive properties. There can be no assurance that the Company's efforts will be successful, or that those efforts will translate in a beneficial manner to the Company. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
3. INVESTMENTS IN OIL AND GAS PROPERTIES
Magnolia Prospect
On March 31, 2010, the Company paid $18,266 for a 3% undivided interest in the Magnolia Prospect, including but not limited to the interests in the oil and gas leases currently held by Mid-OK Energy Partners in an area of mutual interest. The Magnolia Prospect is a three well developmental drilling project in Pottawatomie County, Oklahoma. In addition, the Company maintained its future proportionate share of drilling and completion costs pursuant to its participation agreement with Mid-OK Energy Partners.
On September 16, 2011, the Company entered into a participation agreement (“Crown Participation Agreement”) with Crown Energy Company (“Crown”), the current operator of the Magnolia Prospect, pursuant to which the Company agreed to reduce its working interest in the Magnolia Prospect to 1.4% in exchange for a proportionate reduction in future additional drilling and completion costs requirements and for the payments that were made to Mid-OK Energy Partners, which transferred those payments to Crown. The Company also entered into an operating agreement with Crown (“Crown Operating Agreement”), which provides that Crown would be the operator of the Magnolia Prospect.
Dansville Prospect
On June 14, 2011, the Company entered into and closed an omnibus agreement (“Omnibus Agreement”) with Range Michigan LLC, a Wyoming limited liability company (“Range”), pursuant to which the Company acquired interests in certain oil and gas drilling areas and land leases located in Ingham County, Michigan and seismic data relating to such areas and leases for the total purchase price of 12,000,000 shares of the Company’s common stock valued at $1,085,000 which was the cost to date of the development and seismic data. The Omnibus Agreement required the Company to effect a 30-to-1 forward stock split of all shares of Common Stock within 30 days of the effective date of the Omnibus Agreement (“Forward Split”). The forward stock split occurred on July 14, 2011. In the event the Company issues additional shares of common stock after July 31, 2011 and during the two years following the Forward Split and the purchase price per share for such additional shares is less than $0.30 per share, the Company will issue Range additional shares of common stock in an amount which maintains Range’s ownership percentage of the Company prior to the issuance of the additional shares. The Omnibus Agreement further requires the Company and Range to enter into the Participation Agreement, Assignment and Bill of Sale, Seismic Data Assignment and Option Agreement, as described below, concurrently with the Omnibus Agreement.
10
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
3. INVESTMENTS IN OIL AND GAS PROPERTIES (Continued)
Participation Agreement
In connection with the Omnibus Agreement, the Company entered into a participation agreement with Range (the “Participation Agreement”) pursuant to which the Company will participate in certain wells (“Required Wells”) located in the Dansville Prospect as defined in the Participation Agreement by December 31, 2011. The first Required Well will be spudded on or before September 30, 2011 and each of the remaining two of the Required Wells to be spudded prior to December 31, 2011. The Company will pay approximately 70% of the drilling costs and prospect fees associated with each of the Required Wells, with the First Required Well requiring the Company to pay $185,000 within 15 business days of the execution of the Participation Agreement and $185,000 within 10 business days following delivery of the Authorization for Expenditure (“AFE”) by Range. The Company paid its first $185,000 on July 1, 2011. Upon spudding of the First Required Well, the Company will pay 50% of the Company’s 70% share of drilling costs for the Second Required Well. Upon spudding of the Second Required Well, the Company will pay 50% of the Company’s 70% share of drilling costs for the Third Required Well. Within 10 business days following delivery of the AFE for the Second or Third Required Well, the Company will pay the remaining percentage of drilling costs and prospect fee for such well, in accordance with the Participation Agreement. Within 3 days of Range’s receipt of the full payment for each Required Well, Range will assign to the Company 43.75% of Range’s interest in such Required Well. Upon final reconciliation of drilling, completion and equipment costs for the Required Wells, Range will assign to the Company a 43.75% interest in the oil and gas leases owned by Range located in Ingham County, Michigan. The Required Wells and all other wells subject to the Participation Agreement will be operated by Range pursuant to a joint operating agreement. The term of the Participation Agreement will be two years from the effective date of the Agreement and continuing from year-to-year until cancelled by either party. This brief description of the Participation Agreement is only a summary of the material terms and is qualified in its entirety by reference to the full text of the Participation Agreement in the Company’s Current Report on Form 8-K dated June 14, 2011.
Assignment and Bill of Sale
In connection with the Omnibus Agreement, the Company entered into an assignment and bill of sale with Range (the “Assignment Agreement”) pursuant to which Range granted the Company an undivided 43.75% interest in and to certain oil and gas leases located in Ingham County, Michigan and the oil and gas substances produced from the leases.
Seismic Data Assignment and Bill of Sale
In connection with the Omnibus Agreement, the Company entered into a seismic data assignment and bill of sale with Range (the “Seismic Data Assignment”) pursuant to which Range granted all right, title and interest in and to certain three-dimensional seismic information, surveys, mapping and data in connection with certain properties located in Ingham and Calhoun Counties, Michigan (“Seismic Data”). Range reserves an irrevocable license to assess, view, copy, publish, create derivative works, analyze, map or otherwise use the Seismic Data for Range’s own use or benefit and in the event the Company sells or transfers the Seismic Data, Range will ensure the transferee is aware of Range’s irrevocable license to the Seismic Data.
11
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
3. INVESTMENTS IN OIL AND GAS PROPERTIES (Continued)
Option Agreement
In connection with the Omnibus Agreement, the Company entered into an option agreement with Range (the “Option Agreement”) pursuant to which Range granted the Company a two-year option to acquire up to 50% of Range’s then-existing working interest in any well developed on any of the three prospects owned by Range located in Trenton Township, Washtenaw County, Trenton Township, Jackson County, and Kinneville Township, Ingham County, Michigan (“Option Prospects”) in exchange for an option fee of $100,000, originally payable in two installments of $25,000 before July 31, 2011 for the two Option Prospects in Trenton Township and one installment of $50,000 on or before August 31, 2011 for the Option Prospect in Kinneville Township. In the event the Company exercises the option, the Company will pay Range $150,000 for each Option Prospect No less than 30 days prior to a planned spudding of a well by Range within an Option Prospect, Range will provide the Company with a proposal regarding development of the well, to which the Company must exercise the Option for the Option Prospect and provide notice of the Company’s participation within 10 days of the proposal. The Company will provide payment of 80% of Range’s proportionate share of the Authorization for Expenditure amount, additional development costs, and operating costs in exchange for 50% of Range’s working interest in such well.
Amendment to Omnibus Agreement, Participation Agreement and Option Agreement with Range Michigan LLC
On September 19, 2011, the Company entered into a First Amendment to Omnibus Agreement (“Omnibus Amendment”) with Range Michigan LLC, a Wyoming limited liability company (“Range”), pursuant to which the Omnibus Agreement dated June 14, 2011 between the parties was amended to reflect the Company’s name change to American Energy Development Corp. and extend the participation date for the wells from December 31, 2011 to July 1, 2012.
In connection with the Omnibus Amendment, the Company entered into a First Amendment to Participation Agreement (“Participation Amendment”) with Range, pursuant to which the Participation Agreement dated June 14, 2011 between the parties was amended to, among other things, (i) reflect the Company’s name change to American Energy Development Corp., (ii) extend the date in which the Company is required to participate in the Required Wells from December 31, 2011 to July 1, 2012, (iii) provide that it is anticipated that each of the two remaining two of the Required Wells will be spudded by July 1, 2012, and (iv) authorize Range to withhold the first $100,000 from the Company’s share of the proceeds from the production of the first Required Well for the payment of the option fee specified Option Agreement and Option Amendment as described below.
In connection with the Omnibus Amendment, the Company entered into a First Amendment to Option Agreement (“Option Amendment”) with Range, pursuant to which the Option Agreement dated June 14, 2011 between the parties was amended to, among other things, reflect the Company’s name change to American Energy Development Corp. and provide that, in the event the Brown #2-12 Well is a producing well, Range will withhold the first $100,000 of the Company’s share of production proceeds for payment of the option fee and if the Company’s share of the proceeds from the Brown #2-12 Well are insufficient to pay the entire amount of the option fee on or before February 1, 2012, then the Company shall pay Range the remaining balance of the option fee on or before February 5, 2012. In the event that the Brown #2-12 Well is not capable of production, the option fee shall be due on January 1, 2012.
12
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
4. ADVISOR AGREEMENT
On September 20, 2011, the Company entered into an Advisory Board Member Agreement (“Advisor Agreement”) with Desmond Oswald, pursuant to which the Company appointed Mr. Oswald to serve as an advisor to the Company continuing indefinitely, until terminated at any time by Mr. Oswald or the Company. The Advisor Agreement provides that Mr. Oswald will be available at a minimum of one time per quarter a year for advisory board meetings to (i) facilitate introductions to potential partners, suppliers, customers and investors, (ii) provide opinions to assist the Company in identify and recruiting potential technical, strategic and other partners or individuals, and (iii) apprise the Company of technological, competitive and other changes and developments that he may from time to time become aware of. The Advisor Agreement also provides that Mr. Oswald will be paid $900 for the preparation and attendance of each advisory board meeting and Mr. Oswald will be issued 90,000 shares of the Company’s common stock as compensation subject to certain vesting requirements as specified in the Advisor Agreement.
5. ACCRUED EXPENSES
Accrued Wages and Compensated Absences
At September 30, 2011, the Company owed two employees $25,500 in compensation for services rendered.
6. LOAN FROM STOCKHOLDER
The Company has an outstanding note payable with a stockholder in the amount of $30,000. Per the terms of the note, this loan is due upon demand together with interest that accrues at the rate of 10% per annum. The loan funds have been used for working capital purposes.
7. COMMON STOCK
On July 12, 2011, the Company filed a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes (the “Certificate of Change”) with the Nevada Secretary of State to effect a thirty for one forward stock split of the Company’s common stock (the “Forward Stock Split”). The Certificate of Change increased the number of authorized shares of the Company’s common stock from 100,000,000 to 3,000,000,000 and the number of issued and outstanding shares of common stock for shareholders of record as of July 13, 2011, from 5,705,570 shares to 171,167,100 shares. The Company’s common stock will continue to be $.001 par value. Fractional shares will be rounded upward. The effective date of the Forward Stock Split with the Nevada Secretary of State is July 14, 2011. These financial statements reflect the Forward Stock Split in historical and current numbers and disclosures.
On March 11, 2010, the Company issued 90,000,000 shares of its common stock to its officer for services valued at of $3,000 which was considered a reasonable estimate of fair value.
On March 28, 2011, the Company issued 64,007,100 shares of its common stock to unrelated investors at $0.003 per share for a total of $213,357.
On April 12, 2011, the Company issued 2,700,000 shares of its common stock to unrelated investors at $0.003 per share for a total of $9,000.
13
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
7. COMMON STOCK (Continued)
On May 3, 2011, the Company issued 1,110,000 shares of its common stock to unrelated investors at $0.003 per share for a total of $3,700.
On May 12, 2011, the Company issued 1,350,000 shares of its common stock to unrelated investors at $0.003 per share for a total of $4,500.
On June 14, 2011, the Company issued 12,000,000 shares of its common stock in connection with the Omnibus Agreement as discussed in Note 3.
On September 20, 2011, the Company issued 90,000 shares of its common stock pursuant to the Advisory Agreement discussed in Note 4.
8. PROVISION FOR INCOME TAXES
Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
As of September 30, 2011, the Company had federal net operating loss carryforwards of approximately ($250,000), which can be used to offset future federal income tax. The federal and state net operating loss carryforwards expire at various dates through 2030. Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.
A summary of the Company’s deferred tax assets as of September 30, 2011 are as follows:
|
2010
|
|||||
|
Federal net operating loss (@ 34%)
|
$
|
85,000
|
|||
|
Less: valuation allowance
|
(85,000
|
)
|
|||
|
Net deferred tax asset
|
$
|
---
|
|||
The valuation allowance increased $50,875 for the three months ended September 30, 2011.
14
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
9. RELATED PARTY TRANSACTIONS
From the Company’s inception (March 10, 2010) through September 30, 2011, the Company utilized office space of an officer and stockholder at no charge. The Company treated the usage of the office space as additional paid-in capital and charged the estimated fair value rent of $300 per month to operations. For the three months ended September 30, 2011 and 2010 rent expense was $900 and $900, respectively.
10. SUBSEQUENT EVENTS
Securities Purchase Agreement
On October 3, 2011, the Company entered into a Securities Purchase Agreement (the “Financing Agreement”) with an investor (the “Investor”) pursuant to which the Company, at its sole and exclusive option, may issue and sell to the Investor, and the Investor shall purchase up to $7,800,000 of the Company’s $0.001 par value common stock (the “Common Stock”) and five-year warrants to purchase Common Stock (the “Warrants”) from time to time over a two year period at a purchase price (the “Purchase Price”) of the higher of (i) $0.40 per share, and (ii) eighty percent (80%) of the 10-day volume weighted average price (VWAP) of the Company’s Common Stock. The Company shall have sole discretion to issue and sell the Common Stock and Warrants pursuant to the Financing Agreement and the Investor shall have no right to acquire the Common Stock and Warrants from the Company until a drawdown notice is received from the Company. The Investor shall have sole discretion in determining whether the proposed use of proceeds as provided by the Company in the drawdown notice is acceptable to the Investor.
The Company received an initial drawdown of Two Hundred Thousand Dollars ($200,000) (“First Drawdown”) on October 3, 2011. In exchange for the First Drawdown, the Company issued 500,000 shares of Common Stock at a purchase price of $0.40 per share and Warrants to purchase 500,000 shares of Common Stock at an exercise price of 120% of the purchase price, or $0.48 per share. The Warrants expire five years from the date of the investment.
On October 12, 2011, the Company received an additional $200,000 drawdown and issued 500,000 shares of the Company’s common stock (“Shares”) at a purchase price of $0.40 per share and warrants to purchase 500,000 of the Company’s common stock (“Warrants”) at an exercise price of 120% of the purchase price, or $0.48 per share, pursuant to the Financing Agreement. The Warrants expire five years from the date of the investment.
Stock Cancellation Agreement
In connection with the Financing Agreement, on October 3, 2011, the Company also entered into a Stock Cancellation Agreement (the “Cancellation Agreement”) with Joel Felix, pursuant to which the Company and Mr. Felix agreed to cancel 85,000,000 shares of common stock held by Mr. Felix as consideration for the Investor’s willingness to enter into and as a condition of the Financing Agreement.
On October 17, 2011, the Company canceled and retired 150,000 shares of Common Stock from an unrelated third party.
As of November 1, 2011 and following the issuance of 1,000,000 shares of Common Stock pursuant to the draw downs and after giving effect to the stock cancellation pursuant to the Cancellation Agreement, the Company has an aggregate of 87,107,100 shares of Common Stock issued and outstanding.
15
AMERICAN ENERGY DEVELOPMENT CORP.
(Formerly LJM Energy Corp.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
10. SUBSEQUENT EVENTS (Continued)
Purchase Agreement
In October 2011, the Company entered into a Purchase Agreement with Pepper Canister Nominees Limited (the “Seller”) pursuant to which Company will acquire all of the issued and outstanding shares of the Seller’s wholly-owned subsidiary, Reservoir Resources Limited (“Reservoir Resources”), which, through its wholly-owned subsidiary, owns an oil and gas exploration and development license in the United Kingdom in exchange for 12,500,000 shares of the Company’s common stock (the “Purchase Price”). The Company is subject to development requirements whereby the Company must drill at least one well in the licensed area to a depth of 400 meters to be spudded by December 31, 2012 (“Target Date”), failure of which will result in the Seller being granted the option to cancel the Purchase Agreement within 60 days of the Target Date, re-acquire all shares of Reservoir Resources and retain 50% of the Company’s shares received as the Purchase Price. The Company will remit to the Seller an overriding royalty interest of 2.5% of the overall gross market value at the time of production of all oil and gas produced from the licensed areas from proceeds of the sale of oil and gas produced. The Purchase Agreement contains customary representations and warranties by the Company and the Seller and the closing of the Purchase Agreement will take place 10 days following the date the United Kingdom Department of Energy and Climate Control issues an agreement not to revoke the oil and gas exploration license.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Quarterly Report on Form 10-Q for the period ended September 30, 2011.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the year ended June 30, 2011, together with notes thereto, as previously filed with our Annual Report on Form 10-K, and our financial statements for the period ended September 30, 2011, together with notes thereto, which are included in this Quarterly Report.
Overview. American Energy Development Corp. (“AEDC,” “We,” or the “Company”) was incorporated in the State of Nevada on March 10, 2010 as “LJM Energy Corp.” On July 12, 2011, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to change its name from “LJM Energy Corp.” to “American Energy Development Corp.” (the “Name Change”). The effective date of the Name Change with the Nevada Secretary of State was July 14, 2011.
On July 12, 2011, we filed a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes (the “Certificate of Change”) with the Nevada Secretary of State to effectuate a thirty for one forward stock split of our common stock (the “Forward Stock Split”). The Certificate of Change increased the number of authorized shares of our common stock from 100,000,000 to 3,000,000,000 and the number of issued and outstanding shares of common stock for shareholders of record as of July 13, 2011, from 5,705,570 shares to 171,167,100 shares. The effective date of the Forward Stock Split with the Nevada Secretary of State was July 14, 2011. The Forward Stock Split took effect in the OTC markets at the open of business on July 15, 2011.
17
Our Business. We are an exploration stage company focused on exploration, production and development of oil and natural gas. Our business plan is to acquire oil and gas properties for exploration, appraisal and development with the intent to bring the projects to feasibility at which time we will either contract out the operations or joint venture the project with qualified interested parties. Our main priority will be given to projects with near term cash flow potential, although consideration will be given to projects that may not be as advanced from a technical standpoint but demonstrate the potential for significant upside.
We currently own interests in certain oil and gas drilling areas and land leases located in Ingham County, Michigan, known as the Dansville Prospect, and seismic data relating to such areas and leases. One of the wells in the Dansville Prospect has recently been drilled and we anticipate it will be put into production in the near future, We also own a working interest in a three well developmental drilling project in Pottawatomie County, Oklahoma, known as the Magnolia Prospect. Two of the wells in Magnolia Prospect have been drilled and were recently put into production.
For the three months ended September 30, 2011, as compared to the three months ended September 30, 2010.
Revenues. We had no revenues for the three months ended September 30, 2011, as compared to no revenues for the three months ended September 30, 2010. We anticipate we will begin generating revenues from oil and gas sales from our interest in both the Dansville Prospect and the Magnolia Prospect.
To implement our business plan during the next twelve months, we need to begin generating revenues from the Dansville Prospect and the Magnolia Prospect. Our failure to do so will hinder our ability to increase the size of our operations. If we are not able to generate revenues to cover our operating costs, we may not be able to expand our operations.
Operating Expenses. For the three months ended September 30, 2011, our total operating expenses were $117,972, as compared to total operating expenses of $22,147 for the three months ended September 30, 2010. Our operating expenses were solely comprised of general and administrative expenses and primarily relate to those costs associated with us becoming a public company. The overall increase of $95,825 in total operating expenses from the same three-month period in the prior year was primarily attributable to our acquisition and integration of additional oil and gas interests and the expansion of our personnel and further development of our oil and gas operations.
We expect that our future monthly operating expenses for fiscal year 2012 will increase from our current expense levels, plus we expect to incur additional direct costs relating to drilling the Dansville Prospect in Michigan. We will continue to incur significant general and administrative expenses, but we also expect to begin generating revenues from oil and gas sales at the Dansville Prospect and the Magnolia Prospect.
Net Loss. For the three months ended September 30, 2011, our net loss was $118,728, as compared to our net loss of $22,903 for the three months ended September 30, 2010. Our net loss was comprised of interest expense of $756 and operating expenses of $117,972. We expect to begin generating revenues from oil and gas sales at the Dansville Prospect and the Magnolia Prospect which we hope will cover our operating costs and reduce our net losses in the future. We cannot guaranty that we will be able to generate revenues or, if that we do generate revenues, that such revenues will cover our operating costs and reduce our net loss in future periods.
Financial Condition, Liquidity and Capital Resources. We have cash of $704 as of September 30, 2011. Our total assets of $1,288,970 as of September 30, 2011 consist of cash of $704 and oil and gas property of $1,288,266, which includes our interests in the Dansville Prospect and the Magnolia Prospect.
As of September 30, 2011, we had total liabilities of $219,068, of which $189,068 was represented by accounts payable and accrued expenses and $30,000 was represented by a loan from Joel Felix, our Chief Financial Officer and director. This loan is due upon demand together with interest that accrues at the rate of 10% per annum. The loan funds were used for working capital purposes and to fund the acquisition of the working interest in the Magnolia Prospect. We had no other long term liabilities, commitments or contingencies
We filed a Registration Statement on Form S-1 to sell 10,000,000 shares of our common stock at a purchase price of $0.10 per share in a direct public offering. The Registration Statement on Form S-1 became effective on January 19, 2011. We sold 2,133,570 shares our common stock to unrelated investors for cash of $213,357 pursuant to that offering and closed the offering. We have used those proceeds for working capital and as part of the compensation paid to Range Michigan LLC for our rights in the Dansville Prospect.
18
On October 3, 2011, we entered into a Securities Purchase Agreement (“Financing Agreement”) with an investor pursuant to which we may issue and sell to the investor, and the investor shall purchase up to $7,800,000 of our common stock and five-year warrants to purchase common stock (the “Warrants”) from time to time over a two year period at a purchase price of the higher of (i) $0.40 per share, and (ii) eighty percent (80%) of the 10-day volume weighted average price (VWAP) of our common stock. We received an initial drawdown of $200,000 on October 3, 2011, and we issued 500,000 shares of common stock at a purchase price of $0.40 per share and Warrants to purchase 500,000 shares of common stock at an exercise price of 120% of the purchase price, or $0.48 per share. The Warrants expire five years from the date of the investment. In connection with the Financing Agreement, on October 3, 2011, we entered into a Stock Cancellation Agreement with Joel Felix, pursuant to which Mr. Felix agreed to cancel 85,000,000 shares of common stock held by him as consideration for the investor’s willingness to enter into and as a condition of the Financing Agreement. On October 12, 2011, we issued an additional 500,000 shares of our common stock and Warrants to purchase 500,000 shares of our common stock to the investor in exchange for a second drawdown of $200,000.
During 2012, we expect to incur significant accounting costs associated with the audit and review of our financial statements. We expect that the legal and accounting costs of being a public company will be significant and will continue to impact our liquidity. Those fees will be higher as our business volume and activity increases. We expect to make future payments to Range Michigan LLC of our proportional share of the drilling and completion costs in the Dansville Prospect, which will continue to affect our liquidity. For the Magnolia Prospect, we have paid the total drilling and completion costs and are not obligated to make any future payments of our proportional share of drilling and completion costs in the project. However, if the actual costs exceed the initial authority for expenditure, then we will be obligated to pay our proportional share of the overrun. We may also incur additional expenses related to the acquisition of additional oil and gas rights. Other than the anticipated increases in legal and accounting costs due to the reporting requirements of being a reporting company, and future payments related to certain of our oil and gas projects and costs related to potential acquisitions of oil and gas rights, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
We have cash of $704 as of September 30, 2011. In the opinion of management, available funds and funds received to date from the Financing Agreement as discussed above will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. We will need additional cash to expand our operations, including the development of the Dansville Prospect and other properties. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.
We have been, and intend to continue, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.
We are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near future. We do not currently own any equipment. Our management believes that we do not require the services of independent contractors to operate at our current level of activity. However, if our level of operations increases beyond the level that our current staff can provide, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective.
19
Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
None.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
None.
None.
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101.ins
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XBRL Instance Document
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101.sch
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XBRL Taxonomy Schema Document
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101.cal
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XBRL Taxonomy Calculation Linkbase Document
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| 101.def | XBRL Taxonomy Definition Linkbase Document |
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101.lab
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XBRL Taxonomy Label Linkbase Document
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101.pre
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XBRL Taxonomy Presentation Linkbase Document
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20
SIGNATURES
Pursuant to the requirements 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.
|
American Energy Development Corp.,
a Nevada corporation
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||||
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November 9, 2011
|
By:
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/s/ Herold Ribsskog
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||
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Herold Ribsskog
|
||||
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Its:
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Chief Executive Officer, President, and a director
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|||
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(Principal Executive Officer)
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||||
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November 9, 2011
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By:
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/s/ Joel Felix
|
||
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Joel Felix
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||||
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Its:
|
Chief Financial Officer, Secretary, Treasurer, and a director
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|||
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(Principal Financial and Accounting Officer)
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||||
21