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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

 

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

 

 

FOR THE TRANSITION PERIOD FROM ________ TO _________

 

Commission file number: 0-26402

 

THE AMERICAN ENERGY GROUP, LTD.

(Exact name of registrant as specified in its charter)

 

Nevada

 

87-0448843

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

20 Nod Hill Road

Wilton, Connecticut

 

06897

(Address of principal executive offices)

 

(Zip code)

 

(Registrant’s telephone number 203/222-7315)

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under section 12(g) of the Act:

Common Stock, Par Value $.001 Per Share

 

Indicate by check mark 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 ¨

 

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). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions 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 ¨

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of May 15, 2017, the number of Common shares outstanding was 68,690,005

 

 
 
 
 

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

 

11

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

14

 

 

 

 

Items 4 and 4T.

Controls and Procedures

 

14

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

15

 

 

 

 

Item 1A.

Risk Factors

 

17

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

17

 

 

 

 

Item 4.

Mine Safety Disclosures

 

17

 

 

 

 

Item 5.

Other Information

 

17

 

 

 

 

Item 6.

Exhibits

 

18

 

 

 
2
 
 

 

PART I - FINANCIAL INFORMATION

 

THE AMERICAN ENERGY GROUP, LTD.

Balance Sheets (Unaudited)

 

 

 

March 31,

 

 

June 30,

 

 

 

2017

 

 

 2016

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 9,471

 

 

$ 213

 

Prepaid expenses

 

 

2,454

 

 

 

27,680

 

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

11,925

 

 

 

27,893

 

 

 

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

 

 

 

Office equipment

 

 

25,670

 

 

 

25,670

 

Accumulated depreciation

 

 

(23,885 )

 

 

(23,503 )

 

 

 

 

 

 

 

 

 

Net Property and Equipment

 

 

1,785

 

 

 

2,167

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 13,710

 

 

$ 30,060

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 58,362

 

 

$ 58,377

 

Note payable

 

 

-

 

 

 

28,654

 

Accrued liabilities

 

 

514,295

 

 

 

379,329

 

Notes payable – related parties

 

 

100,000

 

 

 

1,457,135

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

672,657

 

 

 

1,923,495

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

Notes payable – related parties, less current portion

 

 

1,595,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

2,267,657

 

 

 

1,923,495

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share; authorized 80,000,000 shares; 67,975,719 and 66,518,674 shares issued and outstanding, respectively

 

 

67,976

 

 

 

66,519

 

Common stock subscribed – 714,286 shares

 

 

714

 

 

 

-

 

Subscriptions receivable

 

 

(50,000 )

 

 

-

 

Capital in excess of par value

 

 

18,362,743

 

 

 

17,834,731

 

Accumulated deficit

 

 

(20,635,380 )

 

 

(19,794,685 )

 

 

 

 

 

 

 

 

 

Total Stockholders’ Deficit

 

 

(2,253,947 )

 

 

(1,893,435 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 13,710

 

 

$ 30,060

 

 

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

 

 
3
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Statements of Operations

For the Three Months and Nine Months Ended March 31, 2017 and 2016

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative salaries

 

 

23,367

 

 

 

14,673

 

 

 

81,804

 

 

 

177,785

 

Legal and professional

 

 

61,557

 

 

 

186,532

 

 

 

292,494

 

 

 

318,086

 

General and administrative

 

 

39,749

 

 

 

35,859

 

 

 

124,284

 

 

 

138,682

 

Office overhead expenses

 

 

-

 

 

 

-

 

 

 

687

 

 

 

8,028

 

Depreciation

 

 

127

 

 

 

200

 

 

 

382

 

 

 

601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expenses

 

 

124,800

 

 

 

237,264

 

 

 

499,651

 

 

 

643,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Income (Loss)

 

 

(124,800 )

 

 

(237,264 )

 

 

(499,651 )

 

 

(643,182 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment loss

 

 

(- )

 

 

(1,583,914 )

 

 

(- )

 

 

(1,583,914 )

Loss on extinguishment of debt

 

 

(- )

 

 

(- )

 

 

(258,183 )

 

 

(- )

Interest expense

 

 

(21,434 )

 

 

(80,862 )

 

 

(82,861 )

 

 

(349,506 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Income (Expense)

 

 

(21,434 )

 

 

(1,664,776 )

 

 

(341,044 )

 

 

(1,933,420 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Before Taxes

 

 

(146,234 )

 

 

(1,902,040 )

 

 

(840,695 )

 

 

(2,576,602 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$ (146,234 )

 

$ (1,902,040 )

 

$ (840,695 )

 

$ (2,576,602 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ .00

 

 

$ .00

 

 

$ .00

 

 

$ .00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully Diluted

 

$ .00

 

 

$ .00

 

 

$ .00

 

 

$ .00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Fully Diluted

 

 

66,986,830

 

 

 

62,720,879

 

 

 

66,823,854

 

 

 

61,543,064

 

 

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

 

 
4
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Statements of Cash Flows

For the Nine Months Ended March 31, 2017 and 2016

(Unaudited)

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

 

Net Income (Loss)

 

$ (840,695 )

 

$ (2,576,602 )

Adjustments to reconcile net loss to net cash (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

382

 

 

 

601

 

Impairment loss

 

 

-

 

 

 

1,583,914

 

Loss on extinguishment of debt

 

 

258,183

 

 

 

-

 

Amortization of debt discount

 

 

17,865

 

 

 

298,031

 

Common stock issued for current debt, services

 

 

-

 

 

 

144,903

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in prepaid expenses

 

 

25,226

 

 

 

36,043

 

Increase (decrease) in accounts payable

 

 

(15 )

 

 

(3,905 )

Increase (decrease) in overdrawn cash

 

 

-

 

 

 

79

 

Increase (decrease) in accrued expenses and other current liabilities

 

 

134,966

 

 

 

(175,877 )

 

 

 

 

 

 

 

 

 

Net Cash (Used In) Operating Activities

 

 

(404,088 )

 

 

(692,813 )

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds from the issuance of note payable – related party

 

 

220,000

 

 

 

500,000

 

Principal payments on notes payable

 

 

(28,654 )

 

 

(26,686 )

Proceeds from the issuance of common stock

 

 

222,000

 

 

 

196,500

 

 

 

 

 

 

 

 

 

 

Net Cash Provided By Financing Activities

 

 

413,346

 

 

 

667,814

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash

 

 

9,258

 

 

 

(24,999 )

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, Beginning of Period

 

 

213

 

 

 

24,999

 

Cash and Cash Equivalents, End of Period

 

$ 9,471

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Cash Paid For:

 

 

 

 

 

 

 

 

Interest

 

$ 4,829

 

 

$ 6,017

 

Taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-Cash Financing Activities:

 

 

 

 

 

 

 

 

Common stock issued in satisfaction of accounts payable and accrued expenses

 

$ -

 

 

$ -

 

Common stock issued for services rendered

 

$ -

 

 

$ -

 

 

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

 

 
5
 
Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Financial Statements

March 31, 2017

 

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, 2016 Annual Report on Form 10-K. Operating results for the three months and nine months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending June 30, 2017.

 

Note 2 – Basic Loss Per Share of Common Stock

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) (numerator)

 

$ (146,234 )

 

$ (1,902,040 )

 

$ (840,695 )

 

$ (2,576,602 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Fully Diluted Shares (denominator)

 

 

66,986,830

 

 

 

62,720,879

 

 

 

66,823,854

 

 

 

61,543,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Income (Loss) Per Share

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

The basic loss per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial statements. Stock warrants convertible into 11,193,334 shares of common stock are included in the fully diluted income per share calculation for the nine months ended March 31, 2017, because their inclusion would be anti-dilutive, thereby reducing the net loss per common share.

 

Note 3 - Common Stock

 

During July, 2016, the Company issued 516,667 shares of common stock for cash at $0.12 per share.

 

During August, 2016, the Company issued 600,000 shares of common stock at $.10 per share.

 

During August, 2016, the Company also cancelled 1,088,193 shares previously issued in exchange for services in 2011.

 

During December, 2016, the Company issued 428,571 shares of common stock for cash at $0.07 per share.

 

During February, 2017, the Company entered into a stock purchase agreement with an individual investor to acquire 1,714,286 shares of common stock for a total of $120,000 ($0.07 per share). As of March 31, 2017 the Company received $70,000 in relation to this stock purchase agreement. The remaining balance of $50,000 was received in April, 2017.

 

 
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Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Financial Statements

March 31, 2017

 

Note 4 – Income Taxes

 

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

 

As of March 31, 2017, the Company had net operating loss carryovers of $56,804,801 which can be used to reduce future taxable income. No deferred tax benefit has been recorded related to these carryovers as utilization cannot be reasonably assured.

 

Note 5 – Notes Payable – Related Parties

 

During the nine months ended March 31, 2017, $1,275,000 in related party notes with an original maturity date of August 31, 2016 were extended to February 5, 2020.

 

During the nine months ended March 31, 2017, the Company borrowed an additional $100,000 from an individual investor with interest at 5%, payable in full in three years.

 

During the nine months ended March 31, 2017, the Company borrowed $110,000 from a current shareholder with interest at 5%, payable in full at maturity

 

During the nine months ended March 31, 2017, the Company borrowed an additional $10,000 from an individual investor with interest at 2.5%, payable in full in one year.

 

The Company incurred $21,125 and $60,166 of interest expense on notes payable during the three and nine months ended March 31, 2017, respectively.

 

Warrants to acquire additional shares of common stock issued in connection with $825,000 of related party notes payable were extended from August 31, 2016 to February 5, 2020. Amortization of related debt discount resulted in $17,865 of interest expense for the three months ended September 30, 2016.

 

Note 6 – Warrants

 

During the nine months ended March 31, 2017, the Company extended 5,333,334 warrants in connection with the financing addressed in Note 5. The warrants can be purchased at $0.10 per share. The Company reported a $258,183 loss on extinguishment of debt related to the extension of these warrant issuances. The expense of these warrants was calculated using the Black-Scholes option pricing model using the following assumptions:

 

Dividend yield

 

 

0

 

Expected volatility

 

 

1.20 %

Risk free interest

 

 

0.50 %

Expected life

 

3.5 years

 

 

Note 7 – Other Contingencies – Litigation

 

In December, 2011, we initiated civil legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan. Our pleadings with respect to the 2.5% carried working interest positions in the Sanjawi and Zamzama North concessions sought a registration of those interests with the Government of Pakistan and simultaneously sought the imposition of an injunction preventing the transfer of the working interest in those concessions until the registration can be effected, thereby protecting our interests. In our pleadings with respect to the Yasin concession and the right to receive 18% of the gross production revenues, our pleadings sought a referral to arbitration based upon ownership of, in effect, a 25% carried working interest to which is attributed 18% of gross production revenues and the right to receive pertinent records and data, the appointment of a receiver to both protect and cause disbursement of the 18% of gross revenues since the inception of production in April, 2011, and the imposition of an injunction against the transfer of the working interest in the Yasin concession. The Court immediately issued two injunction orders preserving the status quo as to the Company’s interests in each of the Yasin, Sanjawi and Zamzama North petroleum concessions.

 

 
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Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Financial Statements

March 31, 2017

 

Note 7 – Other Contingencies – Litigation (continued)

 

On March 27, 2012, the Islamabad High Court issued its final order (later clarified as to certain arbitration procedures by a clarification Order dated April 4, 2012). The Court directed the parties to proceed to arbitration in London, UK under the ICC Rules of Arbitration and further reaffirmed the continuation of the pending temporary injunctions against Hycarbex’s potential transfer of interests in the concessions prior to final resolution in the arbitration forum. Our application for the appointment of a receiver was neither granted nor denied, but was instead deferred by the Court to the arbitration forum. Hycarbex appealed the March 27, 2012 Order asserting that litigation should not have been initiated by American Energy without first going to arbitration, asserting that our claims to 18% of gross production revenues were premature (despite already having made some payments toward that production interest) because a “commercial discovery” had not yet been declared, and asserting that the injunctions had the effect of enjoining all of the working interest, not just a portion. American Energy countered with an appeal that the Court should reconsider the application for a receiver due to an existing arbitration rule which would prevent the arbitration forum from granting interim relief of that type, irrespective of the merits of such an application. These appeals have become moot by virtue of the ICC Partial Final Award described below.

 

On April 10, 2012, pursuant to the terms of the March 27, 2012, Islamabad High Court Order, we filed our claim with the International Chamber of Commerce (“ICC”) International Court of Arbitration seeking an order which voids, ab initio, the original 2003 Stock Purchase Agreement under which Hycarbex’s parent company acquired the stock of Hycarbex (and thus the underlying Yasin concession owned by Hycarbex) and in conjunction therewith, seeks the recovery of any financial dividends or advances which may have been made by Hycarbex to its shareholders based upon our assertions in the claim that Hydro Tur, Ltd., the original purchaser of the Hycarbex stock under the 2003 Stock Purchase Agreement, fraudulently misrepresented to American Energy that “no current or past shareholders, officers and/or directors of American Energy or Hycarbex have any interest, direct or indirect, in the ownership of Hydro Tur, Ltd.”

 

In February, 2013, we filed an Application For Interim Relief with the ICC which was heard by the tribunal on June 13, 2013. By Order dated September 25, 2013, the ICC granted all requests made by the Company against Hycarbex American Energy, Inc. (“Hycarbex”), Hycarbex Asia Pte, Ltd. (“Hycarbex Asia”) and Hydro Tur, Ltd. (“Hydro Tur”) in its Application For Interim Relief filed with the ICC in February, 2013 and presented to the ICC in a hearing conducted June 13, 2013. By Order dated September 25, 2013, the ICC granted to the Company all requested relief and therein ordered Hycarbex, Hycarbex Asia and Hydro Tur to do the following within fourteen (14) days of the Order: (1) to produce to the Company the records of production and sales from the Yas in petroleum concession in Pakistan for the period August 2011 through the date of the Order and to continue to do so pending further order, (2) to pay to the Company 18% of all sales proceeds of hydrocarbons received by such parties between August 2011 through December 2012, (3) to pay to the Company 18% of all sale proceeds of hydrocarbons received by such parties between December 2012 and the date of the Order, and (4) to direct the purchaser of the hydrocarbons to pay direct to the Company 18% of all future sale proceeds during the pendency of the arbitration proceedings. The ICC further ordered that in the event that Hycarbex, Hycarbex Asia and Hydro Tur fail to produce to the Company the production and sales records for the period August 2011 through December 2012 within the fourteen (14) days following the Order, that such parties are ordered to pay to the Company $1,436,138 as an approximate interim amount pending the determination of actual sales proceeds from the actual records. The ICC further ordered that in the event that Hycarbex, Hycarbex Asia and Hydro Tur fail to produce to the Company the production and sales records for the period December 2012 through the date of the Order and continue to do so, that the arbitration tribunal will consider an application from the Company for a further Order as to an approximate interim monetary amount pending the determination of actual sale proceeds for such period. The Order granting interim relief is not appealable to a court or other tribunal and under Pakistan’s Arbitration Act of 1940, international arbitration orders are enforceable in the Pakistan courts.

 

 
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Table of Contents

 

THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Financial Statements

March 31, 2017

 

Note 7 – Other Contingencies – Litigation (continued)

 

Subsequent to the ICC Order, Hycarbex produced certain sales records and other records of Hycarbex but Hycarbex and Hycarbex Asia failed to pay the ordered monetary sum. Hycarbex and Hycarbex Asia also requested a modification of the Order granting interim relief. The Order was not suspended by the ICC while this request was under consideration. By communication from the ICC dated February 4, 2014, the modification requested by Hycarbex and Hycarbex Asia was denied by the arbitration tribunal. The Liquidators for Hycarbex Asia appointed in 2013 in the pending insolvency proceedings for Hycarbex Asia in Singapore replaced their legal counsel and then requested a stay of the arbitration proceedings on February 12, 2014 from the English High Court of Justice, Chancery Division. However, this request for stay of the arbitration proceedings was promptly denied by the English Court and Hycarbex Asia was directed by the Court to pay to the Company costs of £40,000, which have been paid.

 

On February 17, 2014, the arbitration proceedings commenced before the 3-arbitrator tribunal with the first order of business being consideration of another request to the arbitration tribunal by the Liquidators of Hycarbex Asia for suspension of the proceeding or, in the alternative, a postponement to permit newly appointed legal counsel to prepare a proper defense to the Company’s claims in arbitration. A complete suspension was rejected by the Tribunal. The Liquidators voluntarily offered to pay interim costs of $50,000 toward the actual costs determined by the Tribunal as caused by the request. We opposed the postponement and indicated that any consideration of same must be conditioned upon protection of the disputed assets and adequate measures to assure payment to us of the monies due to us under the September 25, 2013 Order granting interim relief. The tribunal adjourned the final hearing on the merits until June 16, 2014, based upon Hycarbex Asia’s assertion that the change of counsel was necessitated by a conflict arising out of a divergence of the respective interests of Hycarbex Asia and the other Defendants. We were awarded the $50,000 in inconvenience costs offered by Hycarbex Asia, which have been paid, and given the opportunity to request an increase in that sum based upon actual costs incurred. The Tribunal further issued an interim Order dated February 25, 2014, requiring Hycarbex to produce to us all records of production from August 2011 forward, including any production which occurs after the date of the Order. The Order further required Hycarbex to produce any future notices of regulatory action or default received from the Government of Pakistan. The Order further ordered that the parties prepare a joint letter to Sui Southern Gas Company Limited (the purchaser of the gas from the Haseeb #1 Well) withdrawing Hycarbex’s October 8, 2013 instruction letter to Sui Southern Gas Company and further ordered that the joint letter direct Sui Southern Gas Company Limited to pay 18% of the gross production proceeds directly to the Company going forward. The Order further directed that the joint letter be submitted to Sui Southern Gas Company Limited within 7 days after agreement is reached on the form of the letter. The Company and Hycarbex Asia reached agreement as to the form of the letter during the second week of May, 2014, and the joint letter was submitted to Sui Southern Gas Company Limited. The Order further authorized our use of any documents and transcripts from the arbitration proceedings in any ancillary proceeding initiated by the Company in Pakistan.

  

In August, 2014, we initiated separate legal actions in Pakistan for an injunction against Sui Southern Gas Company Limited (“Sui Southern”) and Hycarbex-American Energy, Inc. (“Hycarbex”), respectively, in furtherance of the prior interim orders of the Arbitration Tribunal. The action filed in the Sindh, Karachi High Court named as defendants Sui Southern, Hycarbex, its parent company, Hycarbex Asia Pte. Ltd. (“Hycarbex Asia”) and two additional pro forma defendants and requests an injunction against Sui Southern against payment to Hycarbex of 18% of the total proceeds of gas sales. The requested injunction was granted to us by the Karachi Court but later vacated by the Court as premature as it pertains to Sui Southern. The action filed in the Islamabad High Court named Hycarbex, Hycarbex Asia and Hydro Tur as defendants and sought injunctive relief against Hycarbex from interference with the Arbitration Tribunal-ordered notifications to Sui Southern to pay us directly our 18% of production, sought injunctive relief against Hycarbex from acceptance by Hycarbex of any production proceeds which may be paid by Sui Southern, and sought a deposit into the Court from Hycarbex of the sum of $1,436,137, which Hycarbex was ordered to pay to us by prior Interim Order of the Arbitration Tribunal dated September 25, 2013 as the sum due through December, 2012. The Arbitration Tribunal likewise ordered in that prior Interim Order that Hycarbex direct Sui Southern to pay to us directly 18% of production occurring after December, 2012. The April 15 Award from the ICC Arbitration Tribunal eliminates any further need for this injunctive relief. 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.

 

 
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THE AMERICAN ENERGY GROUP, LTD.

Notes to the Unaudited Financial Statements

March 31, 2017

 

Note 7 – Other Contingencies – Litigation (continued)

 

The Company has affected 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 assumption of complete control of the Hycarbex Pakistan-based assets is expected to take several months and not to be completed until calendar 2017.

 

Note 8 – 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 March 31, 2017, the Company’s current liabilities exceeded its current assets 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 expects to continue to be successful in future capital raises, if necessary, to continue operations.

 

Note 9 – Subsequent Events

 

In accordance with ASC 855-10, management of the Company has reviewed all material events from March 31, 2017 through the date the financial statements were issued. Subsequent to March 31, 2017 the Company received $50,000 from a current shareholder relating to a stock purchase agreement entered into during the quarter ended March 31, 2017 whereby the shareholder agreed to purchase 1,714,286 shares of common stock for a total purchase price of $120,000.

 

 
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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

 

In November, 2003, we sold our Hycarbex-American Energy, Inc. (“Hycarbex”) subsidiary, which was the owner and operator of the Yasin 2768-7 Petroleum Concession Block in the Republic of Pakistan, to a foreign corporation. We retained in the sale an 18% overriding royalty interest in the Yasin Block. Drilling of the first well in Pakistan as to which our overriding royalty pertains, named the Haseeb No. 1 Well, was successfully completed by Hycarbex-American Energy, Inc. (“Hycarbex”), in the fourth quarter of the fiscal year ended June 30, 2005. A state-of-the-art, third party owned, surface facility for the well was constructed for Hycarbex after well completion. During September 2010, Hycarbex connected the well to the Sui Southern Gas Company pine line, and commenced gas sales under an Extended Well Test but the production quickly ceased due to mechanical difficulties encountered in the commissioning of the surface facility owned by the third party. The production re-commenced into the pipe line in July, 2011, at the initial rate of 3.5 million cubic feet of gas per day (MMCFD) which gradually increased under the extended well test to over ten (10) million cubic feet of gas per day (MMCFD) before the water intrusion discussed below.

 

In the fall of 2011, we received the initial two production revenue payments for Yasin production, but in November, 2011, Hycarbex, the operator of the Yasin concession, suspended the monthly revenue payments due to Hycarbex’s financial difficulties and advised that it would continue to accrue the revenues to the Company until it resolved its alleged financial difficulties. Although the daily production rate has increased to over 10 million cubic feet per day under the Extended Well Test, the accrued production revenues due to the Company from August, 2011 through the date of this report have not been distributed to the Company. In December, 2011, we initiated legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan to enforce the revenue payment obligations. During 2012, 2013 and 2014, we sold shares of Common Stock to certain private investors to provide working capital to the Company and anticipate making future sales as needed for working capital requirements.

 

 

 
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On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declares 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 made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex. 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 Hycarbex management 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 assumption of complete control of the Hycarbex Pakistan-based assets is expected to take several months and to be completed in calendar 2017.

 

During the quarter ended March 31, 2016, the Company was made aware that Heritage Oil and Gas Limited (Heritage), the operator of both the Zamzama North Exploration and the Sanjawi Exploration Licenses was given a Notice of Termination (Sanjawi Petroleum Concession Agreement – notice dated February 12, 2016) and a Notice of Breach (Zamzama North Petroleum Concession Agreement – notice dated February 22, 2016) by the Director General of Petroleum Concessions of the Government of Pakistan. Heritage has acknowledged and accepted the notice of termination in regards to the Sanjawi Petroleum Concession Agreement. Although Heritage has refuted the basis of the claim of Breach in regards to the Zamzama North Petroleum Concession Agreement asserting that all reasonable efforts have been made to fulfill its work commitments and financial obligations under this agreement, but was prevented from doing so for reasons outside its control, the Company has determined that it is reasonably possible that the working interest investment in the Zamzama North Block will also not be recovered. As a result the Company recorded an impairment loss in the amount of $1,583,914 during the three months ended March 31, 2016 in relation to these oil and gas interests

 

Results of Operations

 

Our operations for the three months and nine months ended March 31, 2017 reflected net (losses) of $(146,234) and $(840,695), respectively, as compared to net losses of $(1,902,040) and $(2,576,602), respectively, for the three and nine months ended March 31, 2016.

 

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. We sold 1,545,238 shares during the nine months ended March 31, 2017 for $152,000 and subsequent to the quarter ended March 31, 2017 have received the balance of an additional $120,000 for which we will issue an additional 1,714,286 shares. 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.

 

 

 
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While the April 15 Arbitration Award decreed that we are the 100% owner of Hycarbex, the recent cessation of production from the Haseeb #1 Well due to water infusion into the wellbore will mean that production revenues will not be available as a source of capital unless and until the well is successfully reworked to correct the problem and re-establish commercial production. Based upon available cost estimates, management believes that Hycarbex can bear these workover costs with funds on hand and has formulated the workover plan. While a successful workover of the Haseeb #1 Well cannot be assured, due to the available technical data, management believes that the well can be repaired so as to re-establish commercial gas production. 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 8 – Going Concern footnote to Financial Statements above).

 

Business Strategy and Prospects

 

The Haseeb No. 1 Well was drilled on the Yasin Concession by the Polish Oil and Gas Company for Hycarbex during March and April 2005 to a total depth of 4,945 feet (1,507 meters). Open hole logs performed on the well demonstrated gas shows from 3,543 feet to 3,688 feet and a net pay thickness of 82 feet. The drill stem test conducted over a short duration on a one-half inch choke indicated a production rate from the Sui Main Limestone equivalent to approximately 7.3 MM cubic feet of 805 BTU gas per day. The gas was tested for carbon dioxide and water content and was found to have low levels of each, indicating a likelihood that processing will not be required prior to pipeline transmission. In the fall of 2005, Hycarbex completed the acidization of the Haseeb No. 1. Post-treatment testing by Schlumberger Oilfield Services indicated an increase in the natural gas flow rate originally calculated at the time of the drill stem test at 7.3 million cubic feet per day. Schlumberger further concluded that the 10 million cubic feet rate could be potentially increased to as high as 25-28 million cubic feet per day if the existing production tubing is replaced with higher diameter production tubing and if the wellhead pressure is maintained at approximately 1,000 psi. The Yasin Concession has access to pipeline infrastructure. The 12-inch Quetta gas line runs NW-SE through the concession and connects to the 20-inch Sui-Karachi gas line. The Karachi-Muzaffargarh oil line also runs through the southern portion of the concession. The Haseeb #1 Well was connected to the gas pipe line in September, 2010 and gas sales commenced to Sui Southern Gas Company under the Extended Well Test Gas Sales and Purchase Agreement covering the sale of gas from the Haseeb Gas Field on Yasin Block (2768-7) signed by the parties in December, 2009. In July, 2011, production into the line recommenced at a rate of approximately 3.5 million cubic feet of gas per day (MMCFD) and this rate gradually increased under the Extended Well Test to over ten (10) MMCFD. Recent formation water intrusion into the wellbore has rendered the well non-productive. After assuming control of Hycarbex personnel subsequent to the April 15, 2015 Arbitration Award, we directed Hycarbex management to investigate workover activities which could restore commercial production and the workover plan has been formulated based upon available technical data. However, as of the date of this report, the workover has not been performed and the well is not producing gas into the pipeline. Based upon test results upon the Haseeb No. 1 and other data collected by Hycarbex from its drilling and seismic activities, management also believes that the Yasin Block acreage contains oil and gas producing physical structures which are worthy of further exploration.

 

The April 15, 2015, Arbitration Award granted to us 100% ownership of the Hycarbex subsidiary. Our Hycarbex subsidiary owns working interests in four exploration blocks within the Republic of Pakistan other than the Yasin Block, being Block No. 2667-8 (Zamzama North), 474 square miles; Block No. 2466-8 (Karachi), 851 square miles; and Block No. 3371-13 (Peshawar), 960 square miles. Hycarbex is the registered owner of a 95% working interest in the Karachi and Peshawar Exploration Blocks, and 20% working interest in Zamzama North Exploration Block (which is operated by Heritage Oil and Gas Limited). If successfully developed, Hycarbex’s interests in one or more of these Blocks will likely be a good source of cash revenues. Due to our limited cash resources (See Note 8 – Going Concern footnote to Financial Statements above), development of the Hycarbex-operated Blocks would most likely be accomplished through a direct sale by Hycarbex with a retained interest or a strategic agreement with a development partner. Management is optimistic that such a strategic agreement can be secured due to available geologic analysis, the exploration activity ongoing on neighboring exploration blocks, and the interest demonstrated in recent negotiations. However, there can be no assurance that efforts to seek such a sale or strategic partner will be successful.

 

 
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Off Balance Sheet Arrangements

 

We had no off balance sheet arrangements during the three months ended March 31, 2017.

  

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is not a party to nor does it engage in any activities associated with derivative financial instruments, other financial instruments and/or derivative commodity instruments.

 

ITEMS 4 AND 4T - CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2016, these disclosure controls and procedures were not 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.

 

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

 

In December 2011, we initiated civil legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan. Our pleadings with respect to the 2.5% carried working interest positions in the Sanjawi and Zamzama North concessions sought a registration of those interests with the Government of Pakistan and simultaneously sought the imposition of an injunction preventing the transfer of the working interest in those concessions until the registration can be effected, thereby protecting our interests. In our pleadings with respect to the Yasin concession and the right to receive 18% of the gross production revenues, our pleadings sought a referral to arbitration based upon ownership of, in effect, a 25% carried working interest to which is attributed 18% of gross production revenues and the right to receive pertinent records and data, the appointment of a receiver to both protect and cause disbursement of the 18% of gross revenues since the inception of production in April 2011, and the imposition of an injunction against the transfer of the working interest in the Yasin concession. The Court immediately issued two injunction orders preserving the status quo as to the Company’s interests in each of the Yasin, Sanjawi and Zamzama North petroleum concessions.

 

On March 27, 2012, the Islamabad High Court issued its final order (later clarified as to certain arbitration procedures by a clarification Order dated April 4, 2012). The Court directed the parties to proceed to arbitration in London, UK under the ICC Rules of Arbitration and further reaffirmed the continuation of the pending temporary injunctions against Hycarbex’s potential transfer of interests in the concessions prior to final resolution in the arbitration forum. Our application for the appointment of a receiver was neither granted nor denied, but was instead deferred by the Court to the arbitration forum. Hycarbex appealed the March 27, 2012 Order asserting that our claims to 18% of gross production revenues were premature (despite already having made some payments toward that production interest) because a “commercial discovery” had not yet been declared, and asserting that the injunctions had the effect of enjoining all of the working interest, not just a portion. American Energy countered with an appeal that the Court should reconsider the application for a receiver due to an existing arbitration rule which would prevent the arbitration forum from granting interim relief of that type, irrespective of the merits of such an application. These appeals have become moot by virtue of the ICC Partial Final Award described below.

 

On April 10, 2012, pursuant to the terms of the March 27, 2012, Islamabad High Court Order, we filed our claim with the International Chamber of Commerce (“ICC”) International Court of Arbitration. In this claim, we sought an order which voids, ab initio, the original 2003 Stock Purchase Agreement under which Hycarbex’s parent company acquired the stock of Hycarbex (and thus the underlying Yasin concession owned by Hycarbex) and in conjunction therewith, seeks the recovery of any financial dividends or advances which may have been made by Hycarbex to its shareholders. Alternatively, our claim requests the declaration of a 25% carried working interest (and the in-country registration of same) to which is attributed 18% of gross production free of taxes and costs, plus the recovery from the respondents of all accrued, unpaid production revenues. The request in our arbitration claim for a voiding of the original Stock Purchase Agreement is based upon our assertions in the claim that Hydro Tur, Ltd., the original purchaser of the Hycarbex stock under the 2003 Stock Purchase Agreement, fraudulently misrepresented to American Energy that “no current or past shareholders, officers and/or directors of American Energy or Hycarbex have any interest, direct or indirect, in the ownership of Hydro Tur, Ltd.”

 

In February, 2013, we filed an Application For Interim Relief with the ICC which was heard by the tribunal on June 13, 2013. By Order dated September 25, 2013, the ICC granted all requests made by the Company against Hycarbex American Energy, Inc. (“Hycarbex”), Hycarbex Asia Pte, Ltd. (“Hycarbex Asia”) and Hydro Tur, Ltd. (“Hydro Tur”) in its Application For Interim Relief filed with the ICC in February, 2013 and presented to the ICC in a hearing conducted June 13, 2013. By Order dated September 25, 2013, the ICC granted to the Company all requested relief and therein ordered Hycarbex, Hycarbex Asia and Hydro Tur to do the following within fourteen (14) days of the Order: (1) to produce to the Company the records of production and sales from the Yasin petroleum concession in Pakistan for the period August 2011 through the date of the Order and to continue to do so pending further order, (2) to pay to the Company 18% of all sales proceeds of hydrocarbons received by such parties between August 2011 through December 2012, (3) to pay to the Company 18% of all sales proceeds of hydrocarbons received by such parties between December 2012 and the date of the Order, and (4) to direct the purchaser of the hydrocarbons to pay direct to the Company 18% of all future sale proceeds during the pendency of the arbitration proceedings. The ICC further ordered that in the event that Hycarbex, Hycarbex Asia and Hydro Tur fail to produce to the Company the production and sales records for the period August 2011 through December 2012 within the fourteen (14) days following the Order, that such parties are ordered to pay to the Company $1,436,138 as an approximate interim amount pending the determination of actual sale proceeds from the actual records. The ICC further ordered that in the event that Hycarbex, Hycarbex Asia and Hydro Tur fail to produce to the Company the production and sales records for the period December 2012 through the date of the Order and continue to do so, that the arbitration tribunal will consider an application from the Company for a further Order as to an approximate interim monetary amount pending the determination of actual sales proceeds for such period. The Order granting interim relief is not appealable to a court or other tribunal and under Pakistan’s Arbitration Act of 1940, international arbitration orders are enforceable in the Pakistan courts.

 

 
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Subsequent to the ICC Order, Hycarbex produced certain sales records and other records of Hycarbex but Hycarbex and Hycarbex Asia failed to pay the ordered monetary sum. Hycarbex and Hycarbex Asia also requested a modification of the Order granting interim relief. The Order was not suspended by the ICC while this request was under consideration. By communication from the ICC dated February 4, 2014, the modification requested by Hycarbex and Hycarbex Asia was denied by the arbitration tribunal. The Liquidators for Hycarbex Asia appointed in 2013 in the pending insolvency proceedings for Hycarbex Asia in Singapore replaced their legal counsel and then requested a stay of the arbitration proceedings on February 12, 2014 from the English High Court of Justice, Chancery Division. However, this request for stay of the arbitration proceedings was promptly denied by the English Court and Hycarbex Asia was directed by the Court to pay to the Company costs of £40,000, which have been paid.

 

On February 17, 2014, the arbitration proceedings commenced before the 3-arbitrator tribunal with the first order of business being consideration of another request to the arbitration tribunal by the Liquidators of Hycarbex Asia for suspension of the proceeding or, in the alternative, a postponement to permit newly appointed legal counsel to prepare a proper defense to the Company’s claims in arbitration. A complete suspension was rejected by the Tribunal. The Liquidators voluntarily offered to pay interim costs of $50,000 toward the actual costs determined by the Tribunal as caused by the request. We opposed the postponement and indicated that any consideration of same must be conditioned upon protection of the disputed assets and adequate measures to assure payment to us of the monies due to us under the September 25, 2013 Order granting interim relief. The tribunal adjourned the final hearing on the merits until June 16, 2014, based upon Hycarbex Asia’s assertion that the change of counsel was necessitated by a conflict arising out of a divergence of the respective interests of Hycarbex Asia and the other Defendants. We were awarded the $50,000 in inconvenience costs offered by Hycarbex Asia, which have been paid, and given the opportunity to request an increase in that sum based upon actual costs incurred. The Tribunal further issued an interim Order dated February 25, 2014, requiring Hycarbex to produce to us all records of production from August 2011 forward, including any production which occurs after the date of the Order. The Order further required Hycarbex to produce any future notices of regulatory action or default received from the Government of Pakistan. The Order further ordered that the parties prepare a joint letter to Sui Southern Gas Company Limited (the purchaser of the gas from the Haseeb #1 Well) withdrawing Hycarbex’s October 8, 2013 instruction letter to Sui Southern Gas Company and further ordered that the joint letter direct Sui Southern Gas Company Limited to pay 18% of the gross production proceeds directly to the Company going forward. The Order further directed that the joint letter be submitted to Sui Southern Gas Company Limited within 7 days after agreement is reached on the form of the letter. The Company and Hycarbex Asia reached agreement as to the form of the letter during the second week of May, 2014, and the joint letter was submitted to Sui Southern Gas Company Limited. The Order further authorized our use of any documents and transcripts from the arbitration proceedings in any ancillary proceeding initiated by the Company in Pakistan.

 

In August, 2014, we initiated separate legal actions in Pakistan for an injunction against Sui Southern Gas Company Limited (“Sui Southern”) and Hycarbex-American Energy, Inc. (“Hycarbex”), respectively, in furtherance of the prior interim orders of the Arbitration Tribunal. The action filed in the Sindh, Karachi High Court named as defendants Sui Southern, Hycarbex, its parent company, Hycarbex Asia Pte. Ltd. (“Hycarbex Asia”) and two additional pro forma defendants and requests an injunction against Sui Southern against payment to Hycarbex of 18% of the total proceeds of gas sales. The requested injunction has been granted to us by the Karachi Court but later vacated by the Court as premature as it pertains to Sui Southern. The action filed in the Islamabad High Court named Hycarbex, Hycarbex Asia and Hydro Tur as defendants and sought injunctive relief against Hycarbex from interference with the Arbitration Tribunal-ordered notifications to Sui Southern to pay us directly our 18% of production, sought injunctive relief against Hycarbex from acceptance by Hycarbex of any production proceeds which may be paid by Sui Southern, and sought a deposit into the Court from Hycarbex of the sum of $1,436,137, which Hycarbex was ordered to pay to us by prior Interim Order of the Arbitration Tribunal dated September 25, 2013 as the sum due through December, 2012. The Arbitration Tribunal likewise ordered in that prior Interim Order that Hycarbex direct Sui Southern to pay to us directly 18% of production occurring after December, 2012. The April 15 Award from the ICC Arbitration Tribunal eliminates any further need for this injunctive relief.

 

 
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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. This Award makes moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex. 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 assumption of complete control of the Hycarbex Pakistan-based assets is expected to take several months and to be completed in calendar 2017.

 

ITEM 1A - RISK FACTORS

 

Not applicable.

 

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

 

During the quarter ended March 31, 2017, we sold to a private investor 1,714,286 shares for $120,000. The funds raised were applied to salaries, office rent, legal and accounting expenses and other general and administrative expenses incurred, including the costs associated with our pending litigation with Hycarbex.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

 
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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

XBRL Interactive Data Files

 

 
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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: May 18, 2017 By: /s/ R. Pierce Onthank

 

 

R. Pierce Onthank  
    President, Chief Executive Officer,  
   

Principal Financial Officer and Director

 

 

 

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