U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
Commission File No. 333-141060
AMERICAN EXPLORATION CORP.
______________________________________________
(Name of small business issuer in its charter)
Nevada 98-0518266
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 2nd Street SW, Calgary, Alberta, Canada T2P 2Y3
___________________________________________________
(Address of principal executive offices)
(403) 233-8484
___________________________
(Issuer's telephone number)
Securities registered pursuant to Section Name of each exchange on which
12(b) of the Act: registered:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ] Check whether the issuer (i) 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 (ii) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuers revenues for its most recent fiscal year $ -0-.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. April 13, 2009: $45,225,000.00.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
N/A
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court. Yes[X] No[ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of April 14, 2009
Common Stock, $0.001 54,862,500*
* Increased from 36,575,000 shares of common stock to 54,862,500 shares of
common stock based upon the forward stock split of 1.5 shares for each one
share issued and outstanding effected on the market as of Monday, April 13,
2009.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (i) any annual report to security holders; (ii)
any proxy or information statement; and (iii) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The
listed documents should be clearly described for identification purposes (e.g.
annual reports to security holders for fiscal year ended December 24, 1990).
N/A
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
2
AMERICAN EXPLORATION CORP.
Form 10-K
INDEX
Item 1. Business 4
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 29
Item 8. Financial Statements and Supplemental Data 34
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 50
Item 9A. Controls and Procedures 50
Item 9A(T) Controls and Procedures 51
Item 9B. Other Information 51
Item 10. Directors, Executive Officers and Corporate Governance 51
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 57
Item 13. Certain Relationships and Related Transactions and Director
Compensation 58
Item 14. Exhibits 59
Item 15. Principal Accountant Fees and Services 60
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Statements made in this Form 10-K that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
AVAILABLE INFORMATION
American Exploration Corp. files annual, quarterly, current reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy documents referred to in this Annual
Report on Form 10-K that have been filed with the Commission at the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov
This Annual Report is being amended to revise the disclosure regarding our
property description in "Item 1. BUSINESS - CURRENT BUSINESS OPERATIONS -
Westrock Option Agreement", "Item 1A. RISK FACTORS" and Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA - Statement of Stockholders' Equity and Balance
Sheets."
PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
American Exploration Corp. was incorporated under the laws of the State of
Nevada on May 11, 2006 under the name of Minhas Energy Consultants, Inc.
Previously, we were engaged in the business of providing professional
engineering consulting services to the oil and gas industry, including clients
such as petroleum and natural gas companies, oil service companies, utilities
and manufacturing companies with petroleum and/or natural gas interests and
government agencies. After the effective date of March 14, 2007 of our
registration statement filed with the Securities and Exchange Commission on
March 5, 2007, we commenced trading on the Over-the-Counter Bulletin Board.
On August 6, 2008, with the approval of our Board of Directors, we merged with
our subsidiary, American Exploration Corporation, and amended our Articles of
Incorporation to change our name to "American Exploration Corporation". We
currently are a natural resource exploration and production company currently
engaged in the exploration, acquisition and development of oil and gas
properties in the United States and within North America. Effective at the
opening for trading on August 19, 2008, our trading symbol for our shares trade
on the Over-the-Counter Bulletin Board changed to "AEXP.OB".
4
Please note that throughout this Annual Report, and unless otherwise noted, the
words "we," "our," "us," the "Company," or "American Exploration," refers to
American Exploration Corp.
RECENT DEVELOPMENTS
AUGUST 18, 2008 FORWARD STOCK SPLIT
On August 18, 2008, our Board of Directors authorized and approved a forward
stock split of 14 for one (14:1) of our total issued and outstanding shares of
common stock (the "2008 Forward Stock Split").
The 2008 Forward Stock Split was effectuated based on market conditions and upon
a determination by our Board of Directors that the 2008 Forward Stock Split was
in our best interests and of the shareholders. Certain factors were discussed
among the members of the Board of Directors concerning the need for the 2008
Forward Stock Split, including the increased potential for financing. The intent
of the 2008 Forward Stock Split is to increase the marketability of our common
stock.
The 2008 Forward Stock Split was effectuated on August 18, 2008 upon filing the
appropriate documentation with NASDAQ. The 2008 Forward Stock Split increased
our total issued and outstanding shares of common stock from 6,475,000 to
approximately 90,650,000 shares of common stock. The common stock will continue
to be $0.001 par value.
CANCELLATION OF SHARES
On March 21, 2009, our prior executive officers and founders agreed to return an
aggregate 55,400,000 shares of our common stock. The executive officers did not
receive any compensation direct or indirect from us as a result of the
cancellation and return to treasury of the 55,400,000 shares of common stock.
Thus, our total issued and outstanding shares of common stock was reduced to
36,575,000 shares. See "Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities."
APRIL 2009 FORWARD STOCK SPLIT
On March 26, 2009, our Board of Directors authorized and approved a forward
stock split of 1.5 for one (1.5:1) of our total issued and outstanding shares of
common stock (the "2009 Forward Stock Split"). The 2009 Forward Stock Split will
be effectuated based on market conditions and upon a determination by our Board
of Directors that the 2009 Forward Stock Split was in our best interests and of
the shareholders. Certain factors were discussed among the members of the Board
of Directors concerning the need for the 2009 Forward Stock Split, including the
increased potential for financing. The intent of the 2009 Forward Stock Split is
to increase the marketability of our common stock.
5
The 2009 Forward Stock Split was effectuated on April 13, 2009 upon filing the
appropriate documentation with NASDAQ. The 2009 Forward Stock Split increased
our total issued and outstanding shares of common stock from 36,575,000 to
approximately 54,862,500 shares of common stock. The common stock will continue
to be $0.001 par value.
AMENDMENT TO ARTICLES OF INCORPORATION
On March 26, 2009, our Board of Directors approved the filing with the Nevada
Secretary of State an amendment to our Articles of Incorporation to increase our
authorized capital structure commensurate with the increase of our shares
pursuant to the Reverse Stock Split. Therefore, as of the date of this Annual
Report, our authorized capital structure has been increased from 100,000,000
shares of common stock to 150,000,000 shares of common stock, par value of
$0.001.
TRANSFER AGENT
Our transfer agent is Routh Stock Transfer Inc., 6860 N Dallas Parkway, Suite
200, Plano, Texas 75024.
CURRENT BUSINESS OPERATIONS
We are a start-up company which intends to engage in the acquisition,
exploration and development of oil and gas properties in North America,
primarily in the United States. Our primary focus is the proposed acquisition of
a 100% working interest and a 75% net revenue interest in certain leases located
Mississippi owned by Westrock Land Corp, a private Texas corporation
("Westrock"). We believe we have identified a prospect with an over-thickened
Haynesville Shale gas reservoir situated below the properties covered by these
leases.
WESTROCK OPTION AGREEMENT
Effective on November 3, 2008, our Board of Directors authorized the execution
of an option agreement (the "Option Agreement") with Westrock Land Corporation.
Westrock owns all right, title and interest in and to approximately 5,000 net
acres in oil and gas leases (the "leases"), located in Mississippi. We have an
option to acquire 100% of the working interest and 75% of the net revenue
interest in the leases at $625.00 per net acre for a total purchase price of
approximately $3,125,000. The effective date of the conveyance of the revenue
interest in the leases to us is no later than May 15, 2009 subject to a final
payment of the remaining balance of $2,018,750.Current terms of the Option
Agreement require spudding a well on or before October 1, 2009; The contiguous
acreage involves several landowners, with mineral lease expiry ranging from June
through September 2011.
The leases are located in the Gulf Coast Salt Basin trend, outside of the core
area initially exploited for the Haynesville Shale. Management believes that
over-thickened Haynesville Shale deposits can be isolated which are rich in
organic carbon, possess superior rock properties and are gas-charged. The
specific location of the leases is not identified within this document for
reasons of additional strategic land acquisition yet to be consummated in the
area. As of the date of this Private Placement Memorandum, we have not
consummated the Option Agreement nor acquired any interest in the leases.
OPERATING STRATEGY
Our strategy is to consummate the Option Agreement and with the assistance of
partners, drill wells on the leases. With the leases secured, we endeavor to
find a partner to drill a single well on the property, prior to October 1, 2009.
Management anticipates that we will need to bring in a partner who will pay for
the majority of at least the first well. Importantly, we do not see operating
properties for ourselves within the foreseeable future. Additional lands in the
area may be optioned and secured following success of the first producing well.
Additional prospective areas have been identified within the larger region,
which will be targeted for acquisition and development following and possibly
concurrent with the onset of commercial success.
PROPOSED FUTURE BUSINESS OPERATIONS
Our strategy is to consummate the acquisition of the Option Agreement and to
complete further acquisitions of additional oil and gas opportunities that fall
within the criteria of providing a geological basis for development of drilling
initiatives that can provide near term revenue potential and fast drilling
capital repatriation from production cash flows to create expanding reserves. We
anticipate that our ongoing efforts, subject to adequate funding being
available, will continue to be focused on successfully concluding negotiations
for additional tracts of prime acreage in the oil and gas producing domains, and
to implement the drilling of new wells to develop reserves and to provide
revenues. We plan to build a strategic base of proven reserves and production.
Our ability to continue to complete planned exploration activities and expand
land acquisitions and explore drilling opportunities is dependent on adequate
capital resources being available and further sources of debt and equity being
obtained. The two following alternatives provide the basis for business
development options:
DEVELOPMENT OF FUTURE LEASES
The requirement to raise further funding for oil and gas exploration beyond that
obtained for the next six month period continues to depend on the outcome of
geological and engineering testing occurring over this interval. Based upon
completion of the acquisition of the Leases and future property evaluations, and
if results provide the basis to continue development and geological studies
indicate high probabilities of sufficient production quantities, we will attempt
to raise capital to further our drilling program to establish wells on the
Leases in hand, build production infrastructure and pipeline, and raise
additional capital for drilling and further land acquisitions. This will include
the following activity:
o Site preparation for drilling new wellbores, logging and retrieving
other data from the wellbores, setting pipe as required and completing
those wellbores with hydraulic fracing if required
o If commercial production is achieved, the well can be tied into a
pipeline already on the property. If large produced gas volumes are
encountered additional compression may be required on this line.
Future wells may require additional pipeline capacity to be installed.
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o Create well development model and investment documents to develop
wells on subject leases including funding plan.
o Create investor communications materials, corporate identity.
o Raise funding for well development.
o Drill, complete, and produce from well drilling program and selective
re-entry programs.
o Target further leases for exploration potential and obtain further
funding to acquire new development targets.
New Lease Acquisition and Development
If oil and gas quality and quantities are not deemed sufficient from work to be
conducted on the Leases during the first six months of operation, additional
land acquisitions will be assessed and obtained subject to adequate capital
resources being available and further sources of debt and equity being obtained.
The following outlines anticipated activities pursuant to this business option.
o Site preparation for drilling new wellbores, logging and retrieving
other data from the wellbores, setting pipe as required and completing
those wellbores with hydraulic fracing if required
o If commercial production is achieved, the well can be tied into a
pipeline already on the property. If large produced gas volumes are
encountered additional compression may be required on this line.
Future wells may require additional pipeline capacity to be installed.
o If gas content not deemed conducive to production, target further
leases for exploration potential and obtain further funding to acquire
new development targets.
We will require additional funding to implement our proposed future business
activities. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation."
We do not expect to purchase any significant equipment or increase significantly
the number of our employees during the next twelve months. Our current business
strategy is to obtain resources under contract where possible because management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs, and
provides the best flexibility for our business operations.
COMPETITION
We operate in a highly competitive industry, competing with major oil and gas
companies, independent producers and institutional and individual investors,
which are actively seeking oil and gas properties throughout the world together
with the equipment, labor and materials required to operate properties. Most of
our competitors have financial resources, staffs and facilities substantially
greater than ours. The principal area of competition is encountered in the
financial ability to acquire good acreage positions and drill wells to explore
for oil and gas, then, if warranted, drill production wells and install
8
production equipment. Competition for the acquisition of oil and gas wells is
intense with many oil and gas properties and/or leases or concessions available
in a competitive bidding process in which we may lack technological information
or expertise available to other bidders. Therefore, we may not be successful in
acquiring and developing profitable properties in the face of this competition.
No assurance can be given that a sufficient number of suitable oil and gas wells
will be available for acquisition and development.
GOVERNMENT REGULATION
The production and sale of oil and gas are subject to various federal, state and
local governmental regulations, which may be changed from time to time in
response to economic or political conditions and can have a significant impact
upon overall operations. Matters subject to regulation include discharge permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, unitization and pooling of properties, taxation, abandonment
and restoration and environmental protection. These laws and regulations are
under constant review for amendment or expansion. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could require us to expend significant resources to comply with new
laws or regulations or changes to current requirements and could have a material
adverse effect on our future business operations.
REGULATION OF OIL AND NATURAL GAS PRODUCTION
Our future oil and natural gas exploration, production and related operations
will be subject to extensive rules and regulations promulgated by federal, state
and local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.
Many states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.
FEDERAL REGULATION OF NATURAL GAS
The Federal Energy Regulatory Commission ("FERC") regulates interstate natural
gas transportation rates and service conditions, which affect the marketing of
natural gas produced by us, as well as the revenues received by us for sales of
such production. Since the mid-1980's, FERC has issued a series of orders that
have significantly altered the marketing and transportation of natural gas.
These orders mandate a fundamental restructuring of interstate pipeline sales
and transportation service, including the unbundling by interstate pipelines of
the sale, transportation, storage and other components of the city-gate sales
9
services such pipelines previously performed. One of FERC's purposes in issuing
the orders was to increase competition within all phases of the natural gas
industry. Certain aspects of these orders may be modified as a result of various
appeals and related proceedings and it is difficult to predict the ultimate
impact of the orders on us and others. Generally, the orders eliminate or
substantially reduce the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only storage and transportation service,
and have substantially increased competition and volatility in natural gas
markets.
The price, which we may receive for the sale of oil, natural gas and natural gas
liquids, would be affected by the cost of transporting products to markets. FERC
has implemented regulations establishing an indexing system for transportation
rates for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. We are not able to predict with
certainty the effect, if any, of these regulations on any future operations.
However, the regulations may increase transportation costs or reduce wellhead
prices for oil and natural gas liquids.
ENVIRONMENTAL MATTERS
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may (i) require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; (ii)
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and (iii) impose substantial
liabilities for pollution resulting from our operations. The permits required
for several of our operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
or both. In the opinion of management, we are in substantial compliance with
current applicable environmental law and regulations, and we have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
business operations, as well as the oil and natural gas industry in general.
The Comprehensive Environmental, Response, Compensation, and Liability Act
("CERCL ") and comparable state statutes impose strict, joint and several
liability on owners and operators of sites and on persons who disposed of or
arranged for the disposal of "hazardous substances" found at such sites. It is
not uncommon for the neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The Federal Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes govern the disposal of
"solid waste" and "hazardous waste" and authorize the imposition of substantial
fines and penalties for noncompliance. Although CERCLA currently excludes
petroleum from its definition of "hazardous substance," state laws affecting our
operations impose clean-up liability relating to petroleum and petroleum related
products. In addition, although RCRA classifies certain oil field wastes as
10
"non-hazardous," such exploration and production wastes could be reclassified as
A hazardous wastes, thereby making such wastes subject to more stringent
handling and disposal requirements.
We intend to acquire leasehold interests in properties that for many years have
produced oil and natural gas. Although the previous owners of these interests
may have used operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties. In addition, some of our properties may be
operated in the future by third parties over which we have no control.
Notwithstanding our lack of control over properties operated by others, the
failure of the operator to comply with applicable environmental regulations may,
in certain circumstances, adversely impact our business operations.
The National Environmental Policy Act ("NEPA") is applicable to many of our
planned activities and operations. NEPA is a broad procedural statute intended
to ensure that federal agencies consider the environmental impact of their
actions by requiring such agencies to prepare environmental impact statements
("EIS") in connection with all federal activities that significantly affect the
environment. Although NEPA is a procedural statute only applicable to the
federal government, a portion of our properties may be acreage located on
federal land. The Bureau of Land Management's issuance of drilling permits and
the Secretary of the Interior's approval of plans of operation and lease
agreements all constitute federal action within the scope of NEPA. Consequently,
unless the responsible agency determines that our drilling activities will not
materially impact the environment, the responsible agency will be required to
prepare an EIS in conjunction with the issuance of any permit or approval.
The Endangered Species Act ("ESA") seeks to ensure that activities do not
jeopardize endangered or threatened animals, fish and plant species, nor destroy
or modify the critical habitat of such species. Under ESA, exploration and
production operation, as well as actions by federal agencies, may not
significantly impair or jeopardize the species or their habitat. ESA provides
for criminal penalties for willful violations of the Act. Other statutes that
provide protection to animal and plant species and that may apply to our
operations include, but are not necessarily limited to, the Fish and Wildlife
Coordination Act, the Fishery Conservation and Management Act, the Migratory
Bird Treaty Act and the National Historic Preservation Act. Although we believe
that our operations are in substantial compliance with such statutes, any change
in these statutes or any reclassification of a species as endangered could
subject us to significant expense to modify our operations or could force to
discontinue certain operations altogether.
Management believes that we are in substantial compliance with current
applicable environmental laws and regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
No research and development expenditures have been incurred, either on our
account or sponsored by customers, to the date of our inception.
11
EMPLOYEES
We do not employ any persons on a full-time or on a part-time basis. Steve
Harding is our President/Chief Executive Officer and Brian Manko is our Chief
Financial Officer. These individuals are primarily responsible for all of our
day-to-day operations. Other services are provided by outsourcing and consultant
and special purpose contracts.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in evaluating our company and its business before
purchasing shares of our common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.
The risks described below are all of the material risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also impair our business operations. You could lose all or part of your
investment due to any of these risks.
RISKS RELATED TO OUR BUSINESS
WE WILL NEED TO RAISE ADDITIONAL FINANCING TO COMPLETE FURTHER EXPLORATION.
We will require significant additional financing in order to commence and
continue our exploration activities and our assessment of the commercial
viability of our potential lease acquisition. . Furthermore, if the costs of our
planned exploration programs are greater than anticipated, we may have to seek
additional funds through public or private share offerings or arrangements with
corporate partners. There can be no assurance that we will be successful in our
efforts to raise these require funds, or on terms satisfactory to us. The
continued exploration of our oil and gas properties and the development of our
business will depend upon our ability to establish the commercial viability of
our oil and gas properties and to ultimately develop cash flow from operations
and reach profitable operations. We currently are in the exploration stage and
we have no revenue from operations and we are experiencing significant negative
cash flow.
Accordingly, the only other sources of funds presently available to us are
through the sale of equity. We presently believe that debt financing will not be
an alternative to us as all of our properties are in the exploration stage.
Alternatively, we may finance our business by offering an interest in our oil
and gas properties to be earned by another party or parties carrying out further
exploration and development thereof or to obtain project or operating financing
from financial institutions, neither of which is presently intended. If we are
unable to obtain this additional financing, we will not be able to continue our
exploration activities and our assessment of the commercial viability of our oil
and properties. Further, if we are able to establish that development of our oil
and gas properties is commercially viable, our inability to raise additional
financing at this stage would result in our inability to place our oil and gas
properties into production and recover our investment.
As our potential lease acquisition does not contain any proven or probable
reserves at this point, we may not discover commercially exploitable quantities
of oil or gas on our properties that would enable us to enter into commercial
production, achieve revenues and recover the money we spend on exploration.
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Our potential lease acquisition does not contain reserves in accordance with the
definitions adopted by the SEC and there is no assurance that any exploration
programs that we carry out will establish reserves. Our potential oil and gas
property is in the exploration state as opposed to the development stage and has
no known body or quantity of reserves. The reserves of this project, if any,
have not yet been determined to be economic, and may never be determined to be
economic. We plan to conduct exploration activities on our potential lease
acquisition, which future exploration may include the completion of feasibility
studies necessary to evaluate whether commercial reserves exist on the property.
There is a substantial risk that these exploration activities will not result in
discoveries of commercially recoverable reserves of oil or gas. Any
determination that our potential property contains commercially recoverable
quantities of oil or gas may not be reached until such time that final
comprehensive feasibility studies have been concluded that establish that
potential reserves are likely to be economic. There is a substantial risk that
any preliminary or final feasibility studies carried out by us will not result
in a positive determination that our potential oil and gas property can be
commercially developed.
OUR EXPLORATION ACTIVITIES ON OUR POTENTIAL LEASE ACQUISITION MAY NOT BE
COMMERCIALLY SUCCESSFUL, WHICH COULD LEAD US TO ABANDON OUR PLANS TO DEVELOP THE
PROPERTY AND OUR INVESTMENTS IN EXPLORATION.
Our long-term success depends on our ability to establish commercially
recoverable quantities of oil and natural gas on the property that constitutes
the Westrock lease and that it can then be developed into commercially viable
operations. Oil and gas exploration is highly speculative in nature, involves
many risks and is frequently non -productive. These risks include unusual or
unexpected geologic formations, and the inability to obtain suitable or adequate
machinery, equipment or labor. The success of oil and gas exploration is
determined in part by the following factors:
o identification of potential oil and natural gas reserves based on
technical analyses;
o availability of government-granted exploration permits;
o the quality of management and geological and technical expertise; and
o the capital available for exploration.
Substantial expenditures are required to establish proven and probable reserves
through drilling and analysis, to develop processes to extract oil and gas, and
to develop the drilling and processing facilities and infrastructure at any
chosen site. Whether an oil and gas reserve will be commercially viable depends
on a number of factors, which include, without limitation, the particular
attributes of the reserve; oil and natural gas prices, which fluctuate widely;
and government regulations, including, without limitation, regulations relating
to prices, taxes, royalties, land tenure, land use, importing and exporting of
oil and gas and environmental protection. We may invest significant capital and
resources in exploration activities and abandon such investments if we are
unable to identify commercially exploitable reserves. The decision to abandon a
project may reduce the trading price of our common stock and impair our ability
to raise future financing. We cannot provide any assurance to investors that we
will discover or acquire any oil or gas reserves in sufficient quantities on any
of our properties to justify commercial operations. Further, we will not be able
to recover the funds that we spend on exploration if we are not able to
establish commercially recoverable reserves of oil or natural gas on our
properties.
13
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
In considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance. Our inception was May 11,
2006 and, as a result, we have a limited operating history.
WE HAVE A HISTORY OF OPERATING LOSSES AND THERE CAN BE NO ASSURANCE WE WILL BE
PROFITABLE IN THE FUTURE.
We have a history of operating losses, expect to continue to incur losses, and
may never be profitable, and we must be considered to be in the exploration
stage. Further, we have been dependent on sales of our equity securities and
debt financing to meet our cash requirements. We have incurred losses totaling
approximately $164,861 from May 11, 2006 (inception) to December 31, 2008. As of
December 31, 2008, we had an accumulated deficit of $164,861 and had incurred
losses of approximately $95,728 during fiscal year ended December 31, 2008.
Further, we do not expect positive cash flow from operations in the near term.
There is no assurance that actual cash requirements will not exceed our
estimates. In particular, additional capital may be required in the event that:
(i) the costs to acquire additional leases are more than we currently
anticipate; (ii) drilling and completion costs for additional wells increase
beyond our expectations; or (iii) we encounter greater costs associated with
general and administrative expenses or our capital raising initiatives.
Our development of and participation in what could evolve into an increasing
number of oil and gas prospects may require substantial capital expenditures.
The uncertainty and factors described throughout this section may impede our
ability to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.
WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS' REPORT
ACCOMPANYING OUR DECEMBER 31, 2008 AND DECEMBER 31, 2007 FINANCIAL STATEMENTS.
The independent auditor's report accompanying our December 31, 2008 and 2007
audited financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements have been prepared "assuming that the Company
will continue as a going concern." Our ability to continue as a going concern is
dependent on raising additional capital to fund our operations and ultimately on
generating future profitable operations. There can be no assurance that we will
be able to raise sufficient additional capital or eventually have positive cash
flow from operations to address all of our cash flow needs. If we are not able
to find alternative sources of cash or generate positive cash flow from
operations, our business and shareholders will be materially and adversely
affected.
WE WILL REQUIRE ADDITIONAL FUNDING IN THE FUTURE.
Based upon our historical losses from operations, we will require additional
funding in the future. If we cannot obtain capital through financings or
otherwise, our ability to execute our development plans and achieve production
levels will be greatly limited. Our current development plans require us to make
capital expenditures for the exploration and development of our oil and natural
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gas properties. Historically, we have funded our operations through the issuance
of equity. We may not be able to obtain additional financing on favorable terms,
if at all. Our future cash flows and the availability of financing will be
subject to a number of variables, including potential production and the market
prices of oil and natural gas. Further, debt financing, if utilized, could lead
to a diversion of cash flow to satisfy debt-servicing obligations and create
restrictions on business operations. If we are unable to raise additional funds,
it would have a material adverse effect upon our operations.
AS PART OF OUR GROWTH STRATEGY, WE INTEND TO ACQUIRE ADDITIONAL OIL AND GAS
PROPERTIES.
As part of our growth strategy, we intend to acquire additional oil and gas
production properties. Current and subsequent acquisitions may pose substantial
risks to our business, financial condition, and results of operations. In
pursuing acquisitions, we will compete with other companies, many of which have
greater financial and other resources to acquire attractive properties. Even if
we are successful in acquiring additional properties, some of the properties may
not produce revenues at anticipated levels or failure to conduct drilling on
prospects within specified time periods may cause the forfeiture of the lease in
that prospect. There can be no assurance that we will be able to successfully
integrate acquired properties, which could result in substantial costs and
delays or other operational, technical, or financial problems. Further,
acquisitions could disrupt ongoing business operations. If any of these events
occur, it would have a material adverse effect upon our operations and results
from operations.
WE ARE A NEW ENTRANT INTO THE OIL AND GAS EXPLORATION AND DEVELOPMENT INDUSTRY
WITHOUT PROFITABLE OPERATING HISTORY.
Since inception, our activities have been limited to organizational efforts,
obtaining working capital and acquiring the Lease. As a result, there is limited
information regarding property related production potential or revenue
generation potential. Further, our potential Lease has no probable, proved or
developed producing reserves. As a result, our future revenues may be limited or
non-existent.
The business of oil and gas exploration and development is subject to many risks
and if oil and natural gas is found in economic production quantities, the
potential profitability of future possible oil and gas ventures depends upon
factors beyond our control. The potential profitability of oil and natural gas
properties if economic quantities are found is dependent upon many factors and
risks beyond our control, including, but not limited to: (i) unanticipated
ground conditions; (ii) geological problems; (iii) drilling and other processing
problems; (iv) the occurrence of unusual weather or operating conditions and
other force majeure events; (v) lower than expected reserve quantities; (vi)
accidents; (vii) delays in the receipt of or failure to receive necessary
government permits; (viii) delays in transportation; (ix) labor disputes; (x)
government permit restrictions and regulation restrictions; (xi) unavailability
of materials and equipment; and (xii) the failure of equipment or drilling to
operate in accordance with specifications or expectations.
OUR POTENTIAL DRILLING OPERATIONS MAY NOT BE SUCCESSFUL.
We intend to technically evaluate certain zones on the property and if results
are positive and capital is available, to drill wells and begin production
operations. There can be no assurance that our current acquisition activities or
future drilling activities will be successful, and we cannot be sure that our
15
overall future drilling success rate or our production operations within a
particular area will ever come to fruition, and if it does, will not decline
over time. We may not recover all or any portion of our capital investment in
the wells or the underlying leaseholds. Unsuccessful drilling activities would
have a material adverse effect upon our results of operations and financial
condition. The cost of drilling, completing, and operating wells is often
uncertain, and a number of factors can delay or prevent drilling operations
including: (i) unexpected drilling conditions; (ii) pressure or irregularities
in geological formations; (iii) equipment failures or accidents; (iv) adverse
weather conditions; and (iv) shortages or delays in availability of drilling
rigs and delivery of equipment.
OUR FUTURE PRODUCTION INITIATIVES MAY NOT PROVE SUCCESSFUL.
There is no guarantee that the potential future drilling locations we acquire
will ever produce natural gas or oil, which could have a material adverse effect
upon our results of operations.
PROSPECTS THAT WE DECIDE TO DRILL MAY NOT YIELD NATURAL GAS OR OIL IN
COMMERCIALLY VIABLE QUANTITIES.
We describe our current prospect in this Annual Report. Our prospect is in
various stages of consummation of acquisition, preliminary evaluation and
assessment and we have not reached the point where we have committed to drill on
the subject prospect. However, the use of seismic data, historical drilling
logs, offsetting well information, and other technologies and the study of
producing fields in the same area will not enable us to know conclusively prior
to drilling and testing whether natural gas or oil will be present in sufficient
quantities or quality to recover drilling or completion costs or to be
economically viable. In sum, the cost of drilling, completing and operating any
wells is often uncertain and new wells may not be productive.
WE MAY BE UNABLE TO IDENTIFY LIABILITIES ASSOCIATED WITH THE PROPERTIES OR
OBTAIN PROTECTION FROM SELLERS AGAINST THEM.
One of our growth strategies is to capitalize on opportunistic acquisitions of
oil and natural gas reserves. However, our reviews of future acquired properties
will be inherently incomplete because it generally is not feasible to review in
depth every individual property involved in each acquisition. A detailed review
of records and properties may not necessarily reveal existing or potential
problems, nor will it permit a buyer to become sufficiently familiar with the
properties to assess fully their deficiencies and potential. Further,
environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken. We may not be able to obtain
indemnification or other protections from the sellers against such potential
liabilities, which would have a material adverse effect upon our results of
operations.
THE POTENTIAL PROFITABILITY OF OIL AND GAS VENTURES DEPENDS UPON GLOBAL
POLITICAL AND MARKET RELATED FACTORS BEYOND OUR CONTROL.
World prices and markets for oil and gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
16
to worldwide economic uncertainty, the availability and cost of funds for
production and other expenses have become increasingly difficult, if not
impossible, to project. These and other changes and events may materially affect
our financial performance. The potential profitability of oil and gas properties
is dependent on these and other factors beyond our control.
PRODUCTION OR OIL AND GAS RESOURCES IF FOUND ARE DEPENDENT ON NUMEROUS
OPERATIONAL UNCERTAINTIES SPECIFIC TO THE AREA OF THE RESOURCE THAT AFFECTS ITS
PROFITABILITY.
Production area specifics affect profitability. Adverse weather conditions can
hinder drilling operations and ongoing production work. A productive well may
become uneconomic in the event water or other deleterious substances are
encountered which impair or prevent the production of oil and/or gas from the
well. Production and treatments on other wells in the area can have either a
positive or negative effect on our production and wells. In addition, production
from any well may be unmarketable if it is impregnated with water or other
deleterious substances. The marketability of oil and gas from any specific
reserve which may be acquired or discovered will be affected by numerous factors
beyond our control. These factors include, but are not limited to, the proximity
and capacity of oil and gas pipelines, availability of room in the pipelines to
accommodate additional production, processing and production equipment operating
costs and equipment efficiency, market fluctuations of prices and oil and gas
marketing relationships, local and state taxes, mineral owner and other
royalties, land tenure, lease bonus costs and lease damage costs, allowable
production, and environmental protection. These factors cannot be accurately
predicted and the combination of these factors may result in us not receiving an
adequate return on our invested capital.
IF PRODUCTION RESULTS FROM OPERATIONS, WE ARE DEPENDENT UPON TRANSPORTATION AND
STORAGE SERVICES PROVIDED BY THIRD PARTIES.
We will be dependent on the transportation and storage services offered by
various interstate and intrastate pipeline companies for the delivery and sale
of our gas supplies. Both the performance of transportation and storage services
by interstate pipelines and the rates charged for such services are subject to
the jurisdiction of the Federal Energy Regulatory Commission or state regulatory
agencies. An inability to obtain transportation and/or storage services at
competitive rates could hinder our processing and marketing operations and/or
affect our sales margins.
OUR RESULTS OF OPERATIONS ARE DEPENDENT UPON MARKET PRICES FOR OIL AND GAS,
WHICH FLUCTUATE WIDELY AND ARE BEYOND OUR CONTROL.
If and when production from oil and gas properties is reached, our revenue,
profitability, and cash flow depend upon the prices and demand for oil and
natural gas. The markets for these commodities are very volatile and even
relatively modest drops in prices can significantly affect our financial results
and impede our growth. Prices received also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that can be economically produced from reserves either discovered or
acquired. Factors that can cause price fluctuations include: (i) the level of
consumer product demand; (ii) domestic and foreign governmental regulations;
(iii) the price and availability of alternative fuels; (iv) technical advances
affecting energy consumption; (v) proximity and capacity of oil and gas
17
pipelines and other transportation facilities; (vi) political conditions in
natural gas and oil producing regions; (vii) the domestic and foreign supply of
natural gas and oil; (viii) the ability of members of Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production controls;
(ix) the price of foreign imports; and (x) overall domestic and global economic
conditions.
The availability of a ready market for our oil and gas depends upon numerous
factors beyond our control, including the extent of domestic production and
importation of oil and gas, the relative status of the domestic and
international economies, the proximity of our properties to gas gathering
systems, the capacity of those systems, the marketing of other competitive
fuels, fluctuations in seasonal demand and governmental regulation of
production, refining, transportation and pricing of oil, natural gas and other
fuels.
THE OIL AND GAS INDUSTRY IN WHICH WE OPERATE INVOLVES MANY INDUSTRY RELATED
OPERATING AND IMPLEMENTATION RISKS THAT CAN CAUSE SUBSTANTIAL LOSSES INCLUDING,
BUT NOT LIMITED TO, UNPRODUCTIVE WELLS, NATURAL DISASTERS, FACILITY AND
EQUIPMENT PROBLEMS AND ENVIRONMENTAL HAZARDS.
Our future drilling activities will be subject to many risks, including the risk
that we will not discover commercially productive reservoirs. Drilling for oil
and natural gas can be unprofitable, not only from dry holes, but from
productive wells that do not produce sufficient revenues to return a profit. In
addition, our drilling and producing operations may be curtailed, delayed or
canceled as a result of other drilling and production, weather and natural
disaster, equipment and service failure, environmental and regulatory, and site
specific related factors, including but not limited to: (i) fires; (ii)
explosions; (iii) blow-outs and surface cratering; (iv) uncontrollable flows of
underground natural gas, oil, or formation water; (v) natural disasters; (vi)
facility and equipment failures; (vii) title problems; (viii) shortages or
delivery delays of equipment and services; (ix) abnormal pressure formations;
and (x) environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result of:
(i) injury or loss of life; (ii) severe damage to and destruction of property,
natural resources or equipment; (iii) pollution and other environmental damage;
(iv) clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations; or (vii) repairs necessary to resume operations.
If we were to experience any of these problems, it could affect well bores,
gathering systems and processing facilities, any one of which could adversely
affect our ability to conduct operations. We may be affected by any of these
events more than larger companies, since we have limited working capital.
THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE
WILL BE SUCCESSFUL IN ACQUIRING LEASES.
The oil and natural gas industry is intensely competitive, and we compete with
other companies that have greater resources. Many of these companies not only
explore for and produce oil and natural gas, but also carry on refining
operations and market petroleum and other products on a regional, national or
18
worldwide basis. These companies may be able to pay more for productive oil and
natural gas properties and exploratory prospects or define, evaluate, bid for
and purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, these companies may have a greater ability
to continue exploration activities during periods of low oil and natural gas
market prices. Our larger competitors may be able to absorb the burden of
present and future federal, state, local and other laws and regulations more
easily than we can, which would adversely affect our competitive position. Our
ability to acquire additional properties and to discover reserves in the future
will be dependent upon our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In addition,
because we have fewer financial and human resources than many companies in our
industry, we may be at a disadvantage in bidding for exploratory prospects and
producing oil and natural gas properties.
THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECTED BY NUMEROUS FACTORS
BEYOND OUR CONTROL, WHICH MAY RESULT IN US NOT RECEIVING AN ADEQUATE RETURN ON
INVESTED CAPITAL TO BE PROFITABLE OR VIABLE.
The marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.
OIL AND GAS OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION WHICH MAY CAUSE
SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS OF THOSE ANTICIPATED
CAUSING AN ADVERSE EFFECT ON OUR BUSINESS OPERATIONS.
Oil and gas operations are subject to federal, state, and local laws relating to
the protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. To date we have not been required
to spend material amounts on compliance with environmental regulations. However,
we may be required to do so in future and this may affect our ability to expand
or maintain our operations.
In general, our future exploration and production activities will be subject to
certain federal, state and local laws and regulations relating to environmental
quality and pollution control. Such laws and regulations increase the costs of
these activities and may prevent or delay the commencement or continuance of a
19
given operation. Compliance with these laws and regulations has not had a
material effect on our operations or financial condition to date. Specifically,
we are subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.
We believe that our operations comply, in all material respects, with all
applicable environmental regulations. We need insurance to protect our self
against risks associated with the leases obtained. The leases allow for entry
onto the properties for the purposes of oil and gas exploration. The insurance
we require relates solely to developments on the properties for the purposes of
oil and gas exploration.
When and if we are convinced that our potential lease or those subsequently
acquired are capable of production and sales, and we plan to drill more than one
well, we intend to maintain a $2,000,000 per year limit policy on bodily injury
and general liability with regard to risks incurred for the drilling of up to 25
wells. This will allow for our growth to contain non contract labor that would
require us to carry such additional insurance for risks pertaining to oil and
gas exploration conducted directly by us. Such a policy would include coverage
for numerous locations for pollution, environmental damage, chemical spills and
commercial general liability, fire, and personal injury. Such a policy will not
be required until such time and date as we believe that we will begin a
sustained drilling and operating program, and that at least one well has been
drilled and is producing to justify and warrant further drilling and a sustained
drilling and operating program.
ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A NEGATIVE
IMPACT ON OUR ABILITY TO OPERATE AND OUR PROFITABILITY.
The laws, regulations, policies or current administrative practices of any
government body, organization or regulatory agency in the United States or any
other jurisdiction, may be changed, applied or interpreted in a manner which
will fundamentally alter our ability to carry on business. The actions, policies
or regulations, or changes thereto, of any government body or regulatory agency,
or other special interest groups, may have a detrimental effect on us. Any or
all of these situations may have a negative impact on our ability to operate
and/or our profitability.
WE MAY BE UNABLE TO RETAIN KEY EMPLOYEES OR CONSULTANTS OR RECRUIT ADDITIONAL
QUALIFIED PERSONNEL.
Our extremely limited personnel means that we would be required to spend
significant sums of money to locate and train new employees in the event any of
our employees resign or terminate their employment with us for any reason. Due
to our limited operating history and financial resources, we are entirely
dependent on the continued service of Steve Harding, our Chief Executive
Officer, and Brian Manko, our Chief Financial Officer. Further, we do not have
key man life insurance on either of these individuals. We may not have the
20
financial resources to hire a replacement if one or both of our officers were to
die. The loss of service of either of these employees could therefore
significantly and adversely affect our operations.
OUR OFFICERS AND DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Most of our officers and directors serve only part time and are subject to
conflicts of interest. Each devotes part of his working time to other business
endeavors, including consulting relationships with other entities, and has
responsibilities to these other entities. Such conflicts include deciding how
much time to devote to our affairs, as well as what business opportunities
should be presented to us. Because of these relationships, our officers and
directors will be subject to conflicts of interest. Currently, we have no policy
in place to address such conflicts of interest.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTORS FROM
CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officers and directors will not be liable to us or
our stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE NATIONALS AND/OR RESIDENTS OF
CANADA.
Currently, the majority of our directors and officers reside in Canada.
Therefore, it may be difficult for investors to enforce within the United States
any judgments obtained against us or any of our directors or officers. All or a
substantial portion of such persons' assets may be located outside the United
States. As a result, it may be difficult for investors to effect service of
process on our directors or officers, or enforce within the United States or
Canada any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under U.S. federal securities laws against
them. In addition, investors may not be able to commence an action in a Canadian
court predicated upon the civil liability provisions of the securities laws of
the United States. We have been advised by our Canadian counsel that there is
doubt as to the enforceability, in original actions in Canadian courts, of
liability based upon the U.S. federal securities laws and as to the
enforceability in Canadian courts of judgments of U.S. courts obtained in
actions based upon the civil liability provisions of the U.S. federal securities
laws. Therefore, it may not be possible to enforce those actions against us or
any of our directors or officers.
RISKS RELATED TO OUR COMMON STOCK
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY CERTAIN STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE ON
21
THE PRICE OF OUR COMMON STOCK AND COULD AFFECT YOUR ABILITY TO REALIZE THE
CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
by certain stockholders could cause a reduction in the market price of our
common stock. As of the date of this Annual Report, we have 54,862,500 shares of
common stock issued and outstanding (Post-2009 Forward Stock Split). Of the
total number of issued and outstanding shares of common stock, certain
stockholders are able to resell up to 41,475,000 (Post-2009 Forward Stock Split)
shares of our common stock pursuant to the Registration Statement declared
effective on March 17, 2007. As a result of the Registration Statement,
1,975,000 Pre-2008 Forward Stock Split and Pre-2009 Forward Stock Split
(41,475,000 Post-2009 Forward Stock Spilt) shares of our common stock were
issued and are available for immediate resale which could have an adverse effect
on the price of our common stock.
As of the date of this Annual Report, there are 9,637,500 (Post-2009 Forward
Stock Split) outstanding shares of our common stock that are restricted
securities as that term is defined in Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"). Although the Securities Act and Rule 144
place certain prohibitions on the sale of restricted securities, restricted
securities may be sold into the public market under certain conditions. Further,
as of the date of this Annual Report, there are an aggregate of 993,750
(Post-2009 Forward Stock Split) Warrants outstanding. See "Item 5. Market for
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities."
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
THE TRADING PRICE OF OUR COMMON STOCK ON THE OTC BULLETIN BOARD WILL FLUCTUATE
SIGNIFICANTLY AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
As of the date of this Annual Report, our common stock trades on the
Over-the-Counter Bulletin Board. There is a volatility associated with Bulletin
Board securities in general and the value of your investment could decline due
to the impact of any of the following factors upon the market price of our
common stock: (i) disappointing results from our discovery or development
efforts; (ii) failure to meet our revenue or profit goals or operating budget;
(iii) decline in demand for our common stock; (iv) downward revisions in
securities analysts' estimates or changes in general market conditions; (v)
technological innovations by competitors or in competing technologies; (vi) lack
of funding generated for operations; (vii) investor perception of our industry
or our prospects; and (viii) general economic trends.
In addition, stock markets have experienced price and volume fluctuations and
the market prices of securities have been highly volatile. These fluctuations
are often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your investment.
22
ADDITIONAL ISSUANCE OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our Articles of Incorporation, as amended, authorize the issuance of 150,000,000
shares of common stock. The Board of Directors has the authority to issue
additional shares of our capital stock to provide additional financing in the
future and the issuance of any such shares may result in a reduction of the book
value or market price of the outstanding shares of our common stock. If we do
issue any such additional shares, such issuance also will cause a reduction in
the proportionate ownership and voting power of all other stockholders. As a
result of such dilution, your proportionate ownership interest and voting power
will be decreased accordingly. Further, any such issuance could result in a
change of control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH LIMITS
THE MARKET FOR OUR COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE OUTSIDE THE UNITED STATES WITH THE
RESULT THAT IT MAY BE DIFFICULT FOR INVESTORS TO ENFORCE WITHIN THE UNITED
STATES ANY JUDGMENTS OBTAINED AGAINST US OR ANY OF OUR DIRECTORS OR OFFICERS.
A majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada any judgments obtained
against us or our officers or directors, including judgments predicated upon the
civil liability provisions of the securities laws of the United States or any
state thereof. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United States.
23
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the date of this Annual Report, there are no unresolved comments pending
from the Securities and Exchange Commission.
ITEM 2. PROPERTIES
Our principal office space is located at 407 2nd Street SW, Calgary, Alberta,
Canada T2P 2Y3. The office space is for corporate identification, mailing, and
courier purposes only and is provided to American Exploration at no cost,
relating to a previous business relationship between us and our President/Chief
Executive Officer. The office and services related thereto may be cancelled at
any time.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving us or our properties. As of
the date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to us in any legal proceeding, or (ii) has an adverse interest to us in
any legal proceedings. Management is not aware of any other legal proceedings
pending or that have been threatened against us or our properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During fiscal year ended December 31, 2008, no matters were submitted to our
stockholders for approval.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
Shares of our common stock commenced trading on the OTC Bulletin Board under the
symbol "AEXP:OB" commencing November 2008. The market for our common stock is
limited, and can be volatile. The following table sets forth the high and low
bid prices relating to our common stock on a quarterly basis for the periods
indicated as quoted by the NASDAQ stock market. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
24
QUARTER ENDED HIGH BID LOW BID
December 31, 2008 $1.01. $0.90*
*Pre-2009 Forward Stock Split
As of March 30, 2009, we had 30 shareholders of record, which does not include
shareholders whose shares are held in street or nominee names.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We do not have any equity compensation plan authorized or adopted. The table set
forth below presents information relating to our equity compensation plans as of
the date of this Annual Report:
Number of Securities
Number of Securities Remaining Available
to be Issued Upon Weighted-Average for Future Issuance
Exercise of Exercise Price of Under Equity
Outstanding Options, Outstanding Options, Compensation Plans
Warrants and Rights Warrants and Rights (excluding column)
Plan Category (a) (b) (a)
___________________ ____________________ ____________________ ____________________
Equity Compensation
Plans Approved by
Security Holders n/a n/a n/a
Equity Compensation
Plans Not Approved
by Security Holders
Warrants 993,750 $1.33 -0-
Total 993,750
COMMON STOCK PURCHASE WARRANTS
As of the date of this Annual Report, there are an aggregate of 993,750 common
stock purchase warrants issued and outstanding (the "Warrants"), as increased
based upon the 2009 Forward Stock Split. Of the 993,750 Warrants issued, an
aggregate of 500,000 Warrants Pre-2009 Forward Stock Split (750,000 Warrants
Post-2009 Forward Stock Split) to purchase shares of common stock and the shares
of common stock underlying the Warrants were issued in a private placement by us
during fiscal year ended December 31, 2008 at an exercise price of $2.00
25
Pre-2009 Forward Stock Split per share exercisable for a period of twelve months
from the date of share issuance. The remaining 162,500 Warrants Pre-2009 Forward
Stock Split (243,750 Post-2009 Forward Stock Split) to purchase shares of common
stock and the shares of common stock underlying the Warrants were issued in a
private placement by us during the first quarter of fiscal year 2009 at an
exercise price of $2.00 Pre-2009 Forward Stock Split per share exercisable for a
period of twelve months from the date of share issuance.
As of the date of this Annual Report, none of the Warrants have been exercised.
RECENT SALES OF UNREGISTERED SECURITIES
As of the date of this Annual Report and during fiscal year ended December 31,
2008, to provide capital, we sold stock in private placement offerings, issued
stock in exchange for our debts or pursuant to contractual agreements as set
forth below.
PRIVATE PLACEMENT OFFERINGS
NOVEMBER 2008 PRIVATE PLACEMENT
During fiscal year ended December 31, 2008, we completed a private placement
offering (the "November 2008 Private Placement Offering"), whereby we issued an
aggregate of 1,000,000 Pre-2009 Forward Stock Split units at $1.00 per unit for
proceeds of $1,000,000 (1,500,000 units Post-2009 Forward Stock Split). Each
unit consists of one share of our restricted common stock and one-half of one
non-transferable share purchase warrant exercisable at $2.00 per share Pre-2009
Forward Stock Split for a period of twelve months from the date of share
issuance. The November 2008 Private Placement Offering was completed in reliance
on Regulation S of the Securities Act. Sales were made to only non-U.S.
residents. The November 2008 Private Placement Offering was not registered under
the Securities Act or under any state securities laws and may not be offered or
sold without registration with the Securities and Exchange Commission or an
applicable exemption from the registration requirements. The per share price of
the November 2008 Private Placement Offering was arbitrarily determined by our
Board of Directors based upon analysis of certain factors including, but not
limited to, stage of development, industry status, investment climate, perceived
investment risks, our assets and net estimated worth.
FEBRUARY 2009 PRIVATE PLACEMENT
During February 2009, we completed a private placement offering (the "February
2009 Private Placement Offering"), whereby we issued an aggregate of 325,000
Pre-2009 Forward Stock Split units at $1.00 per unit for proceeds of $325,000
(487,500 units Post-2009 Forward Stock Split). Each unit consists of one share
of our restricted common stock and one-half of one non-transferable share
purchase warrant exercisable at $2.00 Pre-2009 Forward Stock Split per share for
a period of twelve months from the date of share issuance. The February 2009
Private Placement Offering was completed in reliance on Regulation S of the
Securities Act. Sales were made to only non-U.S. residents. The February 2009
Private Placement Offering was not registered under the Securities Act or under
26
any state securities laws and may not be offered or sold without registration
with the Securities and Exchange Commission or an applicable exemption from the
registration requirements. The per share price of the February 2009 Private
Placement Offering was arbitrarily determined by our Board of Directors based
upon analysis of certain factors including, but not limited to, stage of
development, industry status, investment climate, perceived investment risks,
our assets and net estimated worth.
FORWARD STOCK SPLIT
On August 18, 2008, our Board of Directors authorized and approved the Forward
Stock Split. The Forward Stock Split was effectuated based on market conditions
and upon a determination by our Board of Directors that the Forward Stock Split
was in our best interests and of the shareholders. Certain factors were
discussed among the members of the Board of Directors concerning the need for
the Forward Stock Split, including the increased potential for financing. The
intent of the Forward Stock Split is to increase the marketability of our common
stock. The Forward Stock Split was effectuated on August 18, 2008 upon filing
the appropriate documentation with NASDAQ. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 6,475,000 to
approximately 90,650,000 shares of common stock. The common stock will continue
to be $0.001 par value.
CANCELLATION OF SHARES
On March 22, 2009, our prior executive officers and founders agreed to return an
aggregate 55,400,000 shares of our common stock. The executive officers did not
receive any compensation direct or indirect from us as a result of the
cancellation and return to treasury of the 55,400,000 shares of common stock.
Thus, our total issued and outstanding shares of common stock was reduced to
36,575,000 shares.
APRIL 2009 FORWARD STOCK SPLIT
On March 26, 2009, our Board of Directors authorized and approved a forward
stock split of 1.5 for one (1.5:1) of our total issued and outstanding shares of
common stock (the "2009 Forward Stock Split"). The 2009 Forward Stock Split will
be effectuated based on market conditions and upon a determination by our Board
of Directors that the 2009 Forward Stock Split was in our best interests and of
the shareholders. Certain factors were discussed among the members of the Board
of Directors concerning the need for the 2009 Forward Stock Split, including the
increased potential for financing. The intent of the 2009 Forward Stock Split is
to increase the marketability of our common stock.
The 2009 Forward Stock Split was effectuated on April 13, 2009 upon filing the
appropriate documentation with NASDAQ. The 2009 Forward Stock Split increased
our total issued and outstanding shares of common stock from 36,575,000 to
approximately 54,862,500 shares of common stock. The common stock will continue
to be $0.001 par value.
27
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is qualified by reference to, and
should be read in conjunction with our financial statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" contained elsewhere herein. The selected income statement
data for fiscal years ended December 31, 2008 and 2007 and the selected balance
sheet data as of December 31, 2008 and 2007 are derived from our audited
consolidated financial statements which are included elsewhere herein.
For the Period from
Fiscal Years Ended May 11, 2006
December 31 (inception) to
2008 and 2007 December 31, 2008
__________________ ___________________
STATEMENT OF OPERATIONS DATA
OPERATING EXPENSES
Professional Fees $ 44,865 $ -0- $ 44,865
Amortization 681 807 1,552
Advertising 6,030 -0- 6,030
General and Administrative 23,058 27,181 55,130
Marketing 19,716 32,510 54,326
Organization -0- -0- 1,500
Website -0- -0- 500
Other Income Expense 1,161 -0- 1,161
LOSS FROM OPERATIONS $(95,511) $(60,498) $(165,064)
Foreign Exchange Gain (Loss) (217) 420 203
NET LOSS $(95,728) $(60,078) $(164,861)
BALANCE SHEET DATA
TOTAL ASSETS $951,807 $ 37,117
TOTAL LIABILITIES 13,417 3,000
STOCKHOLDERS EQUITY (DEFICIT) $938,389 $ 34,117
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATION
The summarized financial data set forth in the table below is derived from and
should be read in conjunction with our audited financial statements for the
period from inception (May 11, 2006) to fiscal year ended December 31, 2008,
including the notes to those financial statements which are included in this
Annual Report. The following discussion should be read in conjunction with our
audited financial statements and the related notes that appear elsewhere in this
Annual Report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to
those discussed below and elsewhere in this Annual Report, particularly in the
section entitled "Risk Factors". Our audited financial statements are stated in
United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
We are an exploration stage company and have not generated any revenue to date.
The following table sets forth selected financial information for the periods
indicated. We have incurred recurring losses to date. Our financial statements
have been prepared assuming that we will continue as a going concern and,
accordingly, do not include adjustments relating to the recoverability and
realization of assets and classification of liabilities that might be necessary
should we be unable to continue in operation.
We expect we will require additional capital to meet our long term operating
requirements. We expect to raise additional capital through, among other things,
the sale of equity or debt securities.
RESULTS OF OPERATION
FISCAL YEAR ENDED DECEMBER 31, 2008 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2007.
Our net loss for fiscal year ended December 31, 2008 was ($95,728) compared to a
net loss of ($60,078) during fiscal year ended December 31, 2007 (an increase of
$35,650). During fiscal years ended December 31, 2008 and 2007, we did not
generate any revenue.
During fiscal year ended December 31, 2008, we incurred operating expenses of
approximately $95,511 compared to $60,498 incurred during fiscal year ended
December 31, 2007 (an increase of $35,013). These operating expenses incurred
during fiscal year ended December 31, 2008 consisted of: (i) professional fees
of $44,865 (2007: $9,120); (ii) amortization of $681 (2007: $807); (iii)
advertising $6,030 (2007: $-0-); (iv) general and administrative of $23,058
(2007: $27,181); and (v) other income expense of $1,161 (2007: $-0-).
29
Operating expenses incurred during fiscal year ended December 31, 2008 compared
to fiscal year ended December 31, 2007 increased primarily due to the incurrence
of professional fees associated with the increased scope and scale of our
business operations. General and administrative expenses generally include
corporate overhead, financial and administrative contracted services, marketing,
and consulting costs.
Foreign exchange gain (loss) incurred during fiscal year ended December 31, 2008
of ($217) (2007: $420) was recorded resulting in a net loss of ($95,728). Our
net loss during fiscal year ended December 31, 2008 was ($95,728) or ($0.00) per
share compared to a net loss of ($60,078) or ($0.00) per share during fiscal
year ended December 31, 2008. The weighted average number of shares outstanding
was 91,650,000 for fiscal year ended December 31, 2008 compared to 6,475,000 for
fiscal year ended December 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR ENDED DECEMBER 31, 2008
As at fiscal year ended December 31, 2008, our current assets were $160,832 and
our current liabilities were $13,417, which resulted in a working capital
surplus of $147,415). As at fiscal year ended December 31, 2008, current assets
were comprised of: (i) $8,176 in Canadian cash converted to US Dollars; and (ii)
$152,656 in US Dollars. As at fiscal year ended December 31, 2008, current
liabilities were comprised of: (i) $8,417 in accounts payable; and (ii) $5,000
due to director.
As at December 31, 2008, our total assets were $951,807 comprised of: (i)
$160,832 in current assets; (ii) $9,725 in website; and (iii) $781,250 in option
to purchase oil and gas lease. The increase in total assets during fiscal year
ended December 31, 2008 from fiscal year ended December 31, 2007 was primarily
due to the recording of the valuation of the option to purchase oil and gas
lease.
As at December 31, 2008, our total liabilities were $13,417 comprised entirely
of current liabilities. The increase in liabilities during fiscal year ended
December 31, 2008 from fiscal year ended December 31, 2007 was primarily due to
the creation of investor materials.
Stockholders' equity increased from $34,117 for fiscal year ended December 31,
2007 to $938,389 for fiscal year ended December 31, 2008.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For fiscal
year ended December 31, 2008, net cash flows used in operating activities was
($83,522), consisting primarily of a net loss of ($95,728). Net cash flows used
in operating activities was adjusted by $681 in amortization expense. Net cash
flows used in operating activities was further changed by $10,147 relating to
accounts payable and accrued liabilities, $1,161 in write down of obsolete
website, and $217 as FX adjustment 2008. For cumulative amounts from date of
incorporation (May 11, 2006) to fiscal year ended December 31, 2007, net cash
flows used in operating activities was ($151,168), consisting primarily of a net
30
loss of ($164,644). Net cash flows used in operating activities was adjusted by
$1,552 in amortization expense. Net cash flows used in operating activities was
further changed by $10,417 in accounts payable and accrued liabilities, $1,161
in write down of obsolete website, and $616 in FX adjustment inception to 2008.
CASH FLOWS FROM INVESTING ACTIVITIES
For fiscal year ended December 31, 2008, net cash flows used in investing
activities was ($791,250) consisting of $781,250 for acquisition of land and
further $10,000. For cumulative amounts from date of incorporation (May 11,
2006) to fiscal year ended December 31, 2007, net cash flows used in investing
activities was ($791,250).
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advancements or the
issuance of equity and debt instruments. For fiscal year ended December 31,
2008, net cash flows provided from financing activities was $1,000,000 compared
to $1,103,250 for cumulative amounts from date of incorporation (May 11, 2006)
to fiscal year ended December 31, 2007. Cash flows from financing activities for
fiscal year ended December 31, 2008 consisted of $1,000,000 in proceeds from
issuance of stock. Cash flows from financing activities for cumulative amounts
from date of incorporation (May 11, 2006) to fiscal year ended December 31, 2007
consisted of $103,250 in proceeds from issuance of stock.
We expect that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth of
our business.
PLAN OF OPERATION AND FUNDING
Existing working capital, further advances and debt instruments, and anticipated
cash flow are expected to be adequate to fund our operations over the next six
months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: (i) oil and gas operating properties; (ii)
possible drilling initiatives on current Lease and future properties; and (iii)
future property acquisitions. We intend to finance these expenses with further
issuances of securities, and debt issuances. Thereafter, we expect we will need
to raise additional capital and generate revenues to meet long-term operating
requirements. Additional issuances of equity or convertible debt securities will
result in dilution to our current shareholders. Further, such securities might
have rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
31
During fiscal year ended December 31, 2008, we completed a private placement
consisting of 1,000,000 Pre-2009 Forward Stock Split units at the price of $1.00
per unit for total proceeds of $1,000,000 (1,500,000 units Post-2009 Forward
Stock Split). During the first quarter of 2009, we closed a private placement
offering under Regulation S of the Securities Act pursuant to which we issued an
aggregate of 325,000 Pre-2009 Forward Stock Split units and received gross
proceeds of $325,000 (487,500 Post-2009 Forward Stock Split).
MATERIAL COMMITMENTS
During fiscal year ended December 31, 2008, an aggregate of $5,000 was due and
owing to one of our directors, which director has provided us with written
documentation dated January 1, 2009 forgiving the debt.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our December 31, 2008 and December
31, 2007 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts ("SFAS 163"). SFAS 163 clarifies how SFAS 60, Accounting and
Reporting by Insurance Enterprises applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. SFAS 163 is effective
for our interim period commencing January 1, 2009, except for disclosures about
an insurance enterprise's risk-management activities, which are effective for
our interim period commencing July 1, 2008. We do not expect the adoption of
SFAS 163 to have a material impact on our financial position, cash flows and
results of operations.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
32
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. SFAS 161 achieves these improvements by requiring disclosure of the fair
values of derivative instruments and their gains and losses in a tabular format.
It also provides more information about an entity's liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important information about derivative instruments. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, will be adopted by the Company beginning in
the first quarter of 2009. The Company does not expect there to be any
significant impact of adopting SFAS 161 on its financial position, cash flows
and results of operations.
In February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement No.
115 ("SFAS No. 159"). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of our first fiscal year that begins after November 15,
2007, although earlier adoption is permitted. As of December 31, 2007, we have
not adopted this statement and management has not determined the effect that
adopting this statement would have on our financial position or results of
operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS No. 160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160 is
effective as of the beginning of an entity's first fiscal year beginning on or
after December 15, 2008. Earlier adoption is prohibited. Management has not
determined the effect that adopting this statement would have on our financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
entity's first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations completed by us prior to January 1, 2009
will be recorded and disclosed following existing GAAP. Management has not
determined the effect that adopting this statement would have on our financial
position or results of operations.
33
In September 2006, FASB issued SFAS No. 157, Fair Value Measure ("SFAS No.
157"). This Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), expands
disclosures about fair value measurements, and applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 does
not require any new fair value measurements. However, the FASB anticipates that
for some entities, the application of SFAS No. 157 will change current practice.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for us is the fiscal year beginning
January 1, 2008. We are currently evaluating the impact of adopting SFAS No. 157
but do not expect that it will have a significant effect on its financial
position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
MOORE & ASSOCIATES, CHARTERED
ACCOUNTANTS AND ADVISORS
PCAOB REGISTERED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
American Exploration Corporation
(f.k.a. Minhas Energy Consultants, Inc.)
(An Exploration Stage Company)
We have audited the accompanying balance sheets of American Exploration
Corporation, (f.k.a. Minhas Energy Consultants, Inc.), (An Exploration Stage
Company) as of December 31, 2008 and December 31, 2007, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 2008 and December 31, 2007 and since inception on May
11, 2006 through December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conduct our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Exploration
Corporation, (f.k.a. Minhas Energy Consultants, Inc.) (An Exploration Stage
Company) as of December 31, 2008 and December 31, 2007, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 2008 and December 31, 2007 and since inception on May
11, 2006 through December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has an accumulated deficit of $164,861, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ MOORE & ASSOCIATES, CHARTERED
_________________________________
Moore & Associates, Chartered
Las Vegas, Nevada
March 24, 2009
6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
34
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
(An Exploration Stage Company)
Year End December 31, 2008
BALANCE SHEETS
December 31, December 31,
2008 2007
(Amended)
____________ ____________
ASSETS
Current Assets
Cash - CDN converted to USD $ 8,176
Cash - USD 152,656 $ 35,550
Total Current Assets in USD 160,832 $ 35,550
Website (note 7) 9,725 1,567
Option to purchase oil and gas lease (note 7 Item 2) 781,250
790,525
Total Assets $ 951,807 $ 37,117
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $ 8,417 $ 3,000
Due to Director (note 5) 5,000
Total Current Liabilities $ 13,417 3,000
Total Liabilities $ 13,417
Stockholders (Deficiency) Equity
Authorized:
150,000,000 common shares
Par Value $0.001
Issued and Outstanding:
137,475,000 & 135,975,000 respectively $ 137,475 $ 135,975
Additional Paid in Capital 965,775 (37,725)
Deficit accumulated during exploration stage (164,861) (69,133)
Total Stockholders Equity $ 938,389 34,117
Total Liabilities and Stockholders (deficiency) equity $ 951,807 $ 37,117
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
35
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
(An Exploration Stage Company)
Year End December 31, 2008
STATEMENTS OF OPERATIONS
Cumulative
Amounts From
Date of
Incorporation on
Year ended Year ended May 11, 2006 to
December 31, December 31, December 31,
2008 2007 2008
____________ ____________ ________________
REVENUE $___________ $ - $_________
OPERATING EXPENSES (note 2)
Professional fees 44,865 - 44,865
Amortization 681 807 1,552
Advertising 6,030 - 6,030
General & Administrative 23,058 27,181 55,130
Marketing 19,716 32,510 54,326
Organization - - 1,500
Website - - 500
Other Income Expense 1,161 - 1,161
____________ ____________ __________
Loss from operations (95,511) (60,498) (165,064)
Foreign exchange gain (loss) (217) 420 203
____________ ____________ __________
Loss before income taxes (95,728) (60,078) (164,861)
Provision for income taxes - - -
____________ ____________ __________
Net loss $ (95,728) $ (60,078) $ (164,861)
============ ============ ==========
Basic and diluted loss per common 0 0
Share (1)
Weighted average number of 137,475,000 6,475,000 137,475,000
Common shares o/s (Note 4) ============ ============ ===========
(1) Less than $0.01
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
36
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
(An Exploration Stage Company)
Year End December 31, 2008
STATEMENTS OF CASH FLOW
Cumulative
Amounts
From
Date of
Incorporation
On May 11,
Year Ended 2006 to
December 31, December 31,
2008 2008
____________ _____________
OPERATING ACTIVITIES
Net Loss for the period (95,728) (164,644)
____________ _____________
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY
OPERATING ACTIVITIES
Amortization Expense 681 1,552
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 10,147 10,417
Write down of obsolete website 1,161 1,161
FX adjustment 2008 217
FX adjustment inception to 2008 616
____________ _____________
Net Cash used in operating activities (83,522) (151,168)
INVESTING ACTIVITIES
Net cash used in operating activities 10,000 10,000
Land 781,250 781,250
____________ _____________
Net cash used in investing activities (791,250) (791,250)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,000,000 1,000,000
____________ _____________
Net cash provided by financing activities 1,000,000 1,103,250
(Decrease) increase in cash during the period 125,282 160,832
Cash, beginning of the period 35,550 -
Cash, end of the period 160,832 160,832
============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Supplemental Information
Taxes Paid 0 0
Interest Paid 0 0
37
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
(An Exploration Stage Company)
Year End December 31, 2008
STATEMENTS OF STOCKHOLDER'S EQUITY
Deficit
Accumulated
Common Stock Additional During the Total
__________________________ Paid in Exploration Stockholder's
Shares Amount Capital Stage Equity
__________________________ __________ ___________ _____________
Inception, May 11, 2006 - - - - -
Initial capitalization, sale of
Common stock to Directors on
May 11, 2006 $0.0005/share 94,500,000 $ 94,500 $(90,000) $ 4,500
Private Placement closed
September 30, 2006 0.0024/share 41,475,000 41,475 57,275 98,750
Net loss for the year - - - (9,055) (9,055)
___________ ________ ________ ________ ________
Balance December 31, 2006 135,975,000 135,975 (37,725) (9,055) 94,195
Net loss for the year - - - (60,078) (60,078)
___________ ________ ________ ________ ________
Balance December 31, 2007 135,975,000 135,975 (37,725) (69,133) 34,117
Private Placement closed
November 19, 2008 $0.692/share 1,350,000 1,350 898,650 900,000
Private Placement closed
November 24, 2008 $0.689/share 150,000 150 99,850 100,000
Net loss for the year - - - (95,728) (95,728)
___________ ________ ________ ________ ________
Balance December 31, 2008 137,475,000 137,475 965,775 (164,861) 938,389
=========== ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
38
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
The Company was originally incorporated under the laws of the state of Nevada on
May 11, 2006. The Company has limited operations and in accordance with SFAS #7,
is considered an Exploration stage company, and has had no revenues from
operations to date.
Initial operations have included capital formation, organization, target market
identification and marketing plans. On August 6, 2008 the Company merged with
its wholly owned subsidiary and changed its name to American Exploration
Corporation. Concurrent with the name change, management is planning to change
the focus of operations from the provision consulting engineering services to
the oil and gas industry to oil and gas exploration and development.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The relevant accounting policies and procedures are listed below.
ACCOUNTING BASIS
The basis is generally accepted accounting principles.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities with publicly held common stock. SFAS No. 128
supersedes the provisions of APB No. 15, and requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. The Company has
adopted the provisions of SFAS No. 128 effective its inception.
The basic earnings (loss) per share is calculated by dividing the Company's net
income available to common shareholders by the weighted average number of common
shares during the year. The diluted earnings (loss) per share is calculated by
dividing the Company's net income (loss) available to common shareholders by the
diluted weighted average number of shares outstanding during the year. The
diluted weighted average number of shares outstanding is the basic weighted
number of shares adjusted as of the first of the year for any potentially
dilutive debt or equity.
The Company has not issued any options or warrants or similar securities since
inception. However, warrants were included in the recent private placement
totaling 500,000 shares if fully exercised within one year of issue.
39
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
DIVIDENDS
The Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid during the periods shown.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
Income taxes are provided in accordance with Statement of Financial accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. A deferred tax asset
or liability is recorded for all temporary differences between financial and tax
reporting and net operating loss carry forwards. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of all of the deferred
tax assets will be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS
The Company's policy regarding advertising is to expense advertising when
incurred. No advertising expenses had been incurred as of December 31, 2008.
WEBSITE COSTS
Website costs consist of software costs, which represent capitalized costs of
design, configuration, coding, installation and testing of the Company's website
up to its initial implementation. In December 2006, a website was purchased and
was amortized over its estimated useful life of three years using the
straight-line method. In the fourth quarter of 2008 it was written down to 0
since it was an asset of the former company, Minhas Energy Consultants, Inc. At
the same time, a new website was purchased for the new company, American
Exploration Corporation. The price was $10,000 and it will also be amortized
over a useful life of 3 years on a straight line basis. Ongoing website
post-implementation costs of operation, including training and application
maintenance, will be charged to expense as incurred. See Note 7.
40
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, DETERMINING
WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE
PARTICIPATING SECURITIES, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the
computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share."
FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 and earlier adoption is prohibited. We
are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF
03-6-1 would have material effect on our consolidated financial position and
results of operations if adopted.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No.
163, "Accounting for Financial Guarantee Insurance Contracts-and interpretation
of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. SFAS No. 163 has no effect on the
Company's financial position, statements of operations, or cash flows at this
time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No.
162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162
sets forth the level of authority to a given accounting pronouncement or
document by category. Where there might be conflicting guidance between two
categories, the more authoritative category will prevail. SFAS No. 162 will
become effective 60 days after the SEC approves the PCAOB's amendments to AU
Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on
the Company's financial position, statements of operations, or cash flows at
this time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities--an
amendment of FASB Statement No. 133. This standard requires companies to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has not yet
adopted the provisions of SFAS No. 161, but does not expect it to have a
material impact on its consolidated financial position, results of operations or
cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB
107), in developing an estimate of expected term of "plain vanilla" share
options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular,
the staff indicated in SAB 107 that it will accept a company's election to use
the simplified method, regardless of whether the company has sufficient
information to make more refined estimates of expected term. At the time SAB 107
was issued, the staff believed that more detailed external information about
employee exercise behavior (e.g., employee exercise patterns by industry and/or
other categories of companies) would, over time, become readily available to
41
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
companies. Therefore, the staff stated in SAB 107 that it would not expect a
company to use the simplified method for share option grants after December 31,
2007. The staff understands that such detailed information about employee
exercise behavior may not be widely available by December 31, 2007. Accordingly,
the staff will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company currently uses the
simplified method for "plain vanilla" share options and warrants, and will
assess the impact of SAB 110 for fiscal year 2009. It is not believed that this
will have an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51. This statement
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This statement improves
comparability by eliminating that diversity. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008 (that is, January 1, 2009, for entities with calendar
year-ends). Earlier adoption is prohibited. The effective date of this statement
is the same as that of the related Statement 141 (revised 2007). The Company
will adopt this Statement beginning March 1, 2009. It is not believed that this
will have an impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in Statement 141. This
Statement establishes principles and requirements for how the acquirer: (a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. The
effective date of this statement is the same as that of the related FASB
Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements. The Company will adopt this statement beginning March 1, 2009. It is
not believed that this will have an impact on the Company's consolidated
financial position, results of operations or cash flows.
42
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for
Financial Assets and Liabilities--Including an Amendment of FASB Statement No.
115. This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. This option is available to
all entities. Most of the provisions in FAS 159 are elective; however, an
amendment to FAS 115 Accounting for Certain Investments in Debt and Equity
Securities applies to all entities with available for sale or trading
securities. Some requirements apply differently to entities that do not report
net income. SFAS No. 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of the previous fiscal year provided that the entity makes that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157 Fair Value Measurements. The Company will adopt SFAS
No. 159 beginning March 1, 2008 and is currently evaluating the potential impact
the adoption of this pronouncement will have on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this statement does not require any
new fair value measurements. However, for some entities, the application of this
statement will change current practice. This statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements for an interim
period within that fiscal year. The Company will adopt this statement March 1,
2008, and it is not believed that this will have an impact on the Company's
consolidated financial position, results of operations or cash flows.
CONCENTRATIONS OF RISKS - CASH BALANCES
The Company maintains its cash in institutions insured by the Federal Deposit
Insurance Corporation (FDIC). This government corporation insured balances up to
$100,000 through October 13, 2008. As of October 14, 2008 all non-interest
bearing transaction deposit accounts at an FDIC-insured institution, including
all personal and business checking deposit accounts that do not earn interest,
are fully insured for the entire amount in the deposit account. This unlimited
insurance coverage is temporary and will remain in effect for participating
institutions until December 31, 2009.
All other deposit accounts at FDIC-insured institutions are insured up to at
least $250,000 per depositor until December 31, 2009. On January 1, 2010, FDIC
deposit insurance for all deposit accounts, except for certain retirement
accounts, will return to at least $100,000 per depositor. Insurance coverage for
certain retirement accounts, which include all IRA deposit accounts, will remain
at $250,000 per depositor.
43
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. The Company has net losses for the period from inception to
December 31, 2008 of $(164,861). The Company intends to fund initial operations
through equity financing arrangements.
The ability of the Company to emerge from the exploration stage is dependent
upon the Company's successful efforts to raise sufficient capital and then
attaining profitable operations. In response to these problems, management has
planned the following actions:
o The Company has completed an SB-2 Registration Statement and obtained
a trading symbol for its common shares on the OTCBB.
o Management intends to raise additional funds through public or private
placement offerings.
o Management has changed the focus of the Company's operations to oil
and gas exploration and development from the provision of engineering
services to generate revenue. There can be no assurances, however,
that management's expectations of future revenues will be realized.
NOTE 4. STOCKHOLDERS' EQUITY
AUTHORIZED
Post 1.5:1 split on April 13, 2009 the Company is authorized to issue
150,000,000 shares of $0.001 par value common stock. All common stock shares
have equal voting rights, are non-assessable and have one vote per share. Voting
rights are not cumulative.
ISSUED AND OUTSTANDING
On May 11, 2006 (inception), the Company issued 4,500,000 shares of its common
stock to its Directors for cash of $4,500. See Note 5 (pre-forward split 14:1).
On September 30, 2006, the Company closed a private placement for 1,975,000
common shares at a price of $0.05 per share, or an aggregate of $98,750
(pre-forward split 14:1). The Company accepted subscriptions from 38 offshore
non-affiliated investors.
44
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 4. STOCKHOLDERS' EQUITY (CONTINUED)
On August 18, 2008, the Company affected a 14 for 1 forward stock split of its
issued and outstanding par value $0.001 common shares. 6,475,000 outstanding
common shares prior to the split resulted in 90,650,000 shares subsequent to the
split. All comparative share numbers have been adjusted to reflect the forward
split.
On November 19th and 24th, 2008, the Company closed two private placements for
900,000 and 100,000 shares respectively, at a price of $1.00 for a total of
$1,000,000. Included with each share in these private placements was one-half
non-transferable share purchase warrant in the capital of the company. Each
whole warrant entitles the subscriber to purchase one additional share of the
company 12 months from the date of issuance at an exercise price of $2.00 per
warrant share. As of December 31st, 2008, there were 91,650,000 shares
outstanding; when the warrants may be exercised, outstanding shares will
increase by 500,000 shares. On April 13, 2009 a 1.5:1 split was effectuated.
NOTE 5. RELATED PARTY TRANSACTIONS
The $5,000 amount loaned to the company from a director will be forgiven as of
January 1st, 2009 as per written letter.
NOTE 6. INCOME TAXES
Net deferred tax assets are $nil. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carry-forwards are expected to be available
to reduce taxable income. As the achievement of required future taxable income
is uncertain, the Company recorded a 100% valuation allowance. Management
believes it is likely that any deferred tax assets will not be realized.
As of December 31, 2008, the Company has a net operating loss carry forward of
approximately $164,861, of which $9,055 will expire by December 31, 2026 and the
balance of $155,806 by December 31, 2027.
45
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 7. REPLACEMENT OF WEBSITE
Former Minhas website:
ACCUMULATED WRITE- NET BOOK
COST AMORTIZATION DOWN VALUE
__________________________________________________________________
Website costs $2,438 $ 1,277 $ 1,161 $ -
__________________________________________________________________
WEBSITE COSTS ARE AMORTIZED ON A STRAIGHT LINE BASIS OVER 3 YEARS, ITS ESTIMATED
USEFUL LIFE.
In the third quarter of 2008, the website was written down to nil.
NEW AMERICAN EXPLORATION CORP WEBSITE:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
_______________________________________________________
Website Costs $10,000 $275.00 $9,725
_______________________________________________________
Once the company embarked on a new business front in the forth quarter of 2008,
a new website was constructed to better reflect this new business. This website
is being amortized on a straight line basis over its estimated useful life of 3
years. See www.americanexplorationcorp.com.
NOTE 8. SUBSEQUENT EVENTS
An extension was granted on the original option agreement to purchase the
mineral leases. The original amounts of $781,250 to conduct due diligence and
balance of $2,343,750 have remained the same. The original date of November 17,
2008 to complete due diligence has been extended to April 30th, 2009. The
original spud date of May 31, 2009 remains the same. For consideration of the
extension American Exploration Corporation agreed to provide an additional
non-refundable deposit of $325,000. Two private placements were completed for a
total of $325,000 in February 2009. $200,000 was raised on February 11, 2009 and
$125,000 was raised on February 18, 2009. On April 13, 2009 a 1.5:1 stock split
occurred and these amended financial statements have been duly adjusted.
46
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 9. AMENDMENT OF FINANCIAL STATEMENTS
The accompanying financial statements as of December 31, 2008 have been amended
to reflect a change to the presentation of private placement shares on the
balance sheet. The shares from private placements were issued and therefore
should have been included in the cumulative amount of shares outstanding rather
than be itemized on the balance sheet. This results in a change on the balance
sheet to properly show 91,650,000 shares issued and outstanding rather than
90,650,000 with two itemized private placements totaling 1,000,000 shares.
On April 13, 2009 a 1.5:1 stock split was effectuated which resulted in the
following changes in common shares, par value stock amounts and additional paid
in capital.
______________________________________________________________________
DECEMBER 31, 2008 DECEMBER 31, 2008
POST SPLIT PRE-SPLIT
(AMENDED)
______________________________________________________________________
AUTHORIZED 150,000,000 100,000,000
______________________________________________________________________
ISSUED AND OUTSTANDING 137,475,000 91,650,00
______________________________________________________________________
The table on the next page shows the changes in the statements of stockholder
equity pre and post split. The share amounts have increased by a factor of 1.5.
The par value stock amount is the new share amount x par value of $0.001. The
additional paid in value is the par value stock amount less total stockholders
equity. A change also occurs in the total stockholder's equity column from a
running total to stating specific amounts for the private placements.
47
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
Changes made to Balance Sheet
Year End December 31, 2008
BALANCE SHEETS
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
(AMENDED) (AMENDED) (PREVIOUS) (PREVIOUS)
____________ ____________ ____________ ____________
ASSETS ASSETS
Current Assets Current Assets
Cash - CDN converted to USD $ 8,176 Cash - CDN converted to USD $ 8,176
Cash - USD 152,656 $ 35,550 Cash - USD 152,656 $ 35,550
_________ _________ _________ _________
Total Current Assets in USD 160,832 $ 35,550 Total Current Assets in USD 160,832 $ 35,550
Website (note 7) 9,725 1,567 Website (note 7) 9,725 1,567
Option to purchase oil and gas lease 781,250 Option to purchase oil and gas lease 781,250
(note 7 Item 2) (note 7 Item 2)
790,525 790,525
_________ _________ _________ _________
Total Assets $ 951,807 $ 37,117 Total Assets $ 951,807 $ 37,117
========= ========= ========= =========
LIABILITIES & STOCKHOLDER'S EQUITY LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities Current Liabilities
Accounts Payable $ 8,417 $ 3,000 Accounts Payable
Due to Director (note 5) 5,000 Due to Director (note 5)
_________ _________ _________ _________
$ 8,417 $ 3,000
Total Current Liabilities $ 13,417 3,000 Total Current Liabilities 5,000
Total Liabilities $ 13,417 Total Liabilities $ 13,417 3,000
Stockholders (Deficiency) Equity Stockholders (Deficiency) Equity
Authorized: Authorized:
150,000,000 common shares 1,000,000 common shares $ 13,417
Par Value $0.001 Par Value $0.001
Issued and Outstanding: Issued and Outstanding:
137,475,000 & 135,975,000 $ 137,475 $ 135,975 90,650,000 $ 90,650 90,650
respectively Additional Paid in Capital 12,600 12,600
Additional Paid in Capital 965,775 (37,725) Private Placement 1 99,965
Deficit accumulated during (164,861) (69,133) Private Placement 2 899,965
exploration stage Deficit since inception (164,861) (69,133)
_________ _________ _________ _________
Total Stockholders Equity $ 938,389 34,117 Total Stockholders Equity $ 938,389 34,117
Total Liabilities and Stockholders $ 951,807 $ 37,117 Total Liabilities and Stockholders $ 951,807 $ 37,117
(deficiency) equity ========= ========= (deficiency) equity ========= =========
48
AMERICAN EXPLORATION CORPORATION
(formerly - MINHAS ENERGY CONSULTANTS, INC.)
(An Exploration Stage Company)
Year End December 31, 2008
STATEMENTS OF STOCKHOLDER'S EQUITY
Addi- Addi- Total Total
tional tional Stock- Stock-
Paid In Paid In Deficit. Deficit. holder's holder's
Shares Shares Amount Amount Capital Capital Accum. Accum. Equity Equity
Previous Amended Previous Amended Previous Amended Previous Amended Previous No change
__________________________________________________________________________________________________________________
Inception,
May 11,
2006 - - - - - - - - - -
Initial
capitalization,
sale of
Common stock to
Directors on
May 11, 2006
$0.0005/share 63,000,000 94,500,000 $ 63,000 $ 94,500 $(58,500) $(90,000) $ 4,500 $ 4,500
Private
Placement
closed
September 30,
2006
0.0024/share 27,650,000 41,475,000 27,650 41,475 71,100 57,275 98,750 98,750
Net loss for
the year - - - - - - (9,055) (9,055) (9,055) (9,055)
________________________________________________________________________________________________________________
Balance
December 31,
2006 90,650,000 135,975,000 90,650 135,975 (12,600) (37,725) (9,055) (9,055) 94,195 94,195
Net loss for
the year - - - - - - (60,078) (60,078) (60,078) (60,078)
________________________________________________________________________________________________________________
Balance
December 31,
2007 90,650,000 135,975,000 90,650 135,975 (12,600) (37,725) (69,133) (69,133) 34,117 34,117
Private
Placement
closed
November 19,
2008
$0.692/share 900,000 1,350,000 900 1,350 899,100 898,650 934,117 900,000
Private
Placement
closed
November 24,
2008
$0.689/share 100,000 150,000 100 150 99,900 99,850 1,034,117 100,000
Net loss for
the year - - - - - - (95,728) (95,728) (95,728) (95,728)
________________________________________________________________________________________________________________
Balance
December 31,
2008 91,650,000 137,475,000 91,650 137,475 1,011,600 965,775 (164,861) (164,861) 938,389 938,389
================================================================================================================
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective during fiscal year ended December 31, 2008, our Board of Directors
appointed Moore & Associates ("Moore & Associates") as our principal independent
registered public accounting firm.
The reports of Moore & Associates on our financial statements for each of the
fiscal years ended December 31, 2008 and 2007 did not contain an adverse opinion
or disclaimer of opinion, nor were they modified as to uncertainty, audit scope
or accounting principles, other than to state that there is substantial doubt as
to our ability to continue as a going concern. During our fiscal years ended
December 31, 2008 and 2007, there were no disagreements between us and Moore &
Associates, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Moore & Associates, would have
caused Moore & Associates to make reference thereto in their reports on our
audited consolidated financial statements.
ITEM 9A. CONTROLS AND PROCEDURES
FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
An evaluation was conducted under the supervision and with the participation of
our management, including Steve Harding as our Chief Executive Officer and Brian
Manko as our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2008.
Based on that evaluation, Messrs. Harding and Manko concluded that our
disclosure controls and procedures were effective as of such date to ensure that
information required to be disclosed in the reports that we file or submit under
the Exchange Act, is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms. Such officers also confirm that
there was no change in our internal control over financial reporting during the
fiscal year ended December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As of the date of this Annual Report, we have not implemented an Audit
Committee, but will be doing so in the future. We are currently in the process
of hiring a consultant to assist in implementing internal controls and
procedures for the monitoring and review of work performed by our Chief
Financial Officer.
This Annual Report does not include an attestation report of our registered
public accounting firm Moore & Associates regarding internal control over
financial reporting. Management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this Annual Report on Form
10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No change in our internal control over financial reporting occurred during the
quarter ended December 31, 2008, that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
50
ITEM 9A(T)
Not applicable.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our directors and executive officers, their ages, positions held are as follows:
NAME AGE POSITION WITH THE COMPANY
Steven Harding 49 President, Chief Executive Officer/Principal
Executive Officer and a Director
Brian Manko 42 Chief Financial Officer
Manmohan Minhas 54 Treasurer and a Director
Devinder Randhawa 49 Director
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed,
and including other directorships held in reporting companies.
STEVE HARDING. Mr. Harding has been our President/Chief Executive Officer and a
member of our board of directors since October 29, 2008. Mr. Harding has
twenty-six years experience in the oil and gas exploration industry within
numerous geological basins both within and outside of North America. He has
occupied various senior positions within EnCana Corp., and its predecessors
Alberta Energy and Husky Energy. From October 2003 to December 2004 he was the
vice president, Northern Canada and the vice president Alaska/MacKenzie Delta
from 2002 to September 2003. From 1998 to 2002 he was an exploration manager for
Alberta Energy in their New Ventures Group and the chief geologist/geoscientist
at Husky Energy from 1994 to 1998. Since March 2005 he has acted as a self
employed consultant, responsible for evaluating oil and gas assets for a number
51
of private and public companies from a technical and business viability
perspective. In the latter half of the 1980's, he was responsible for developing
the geological model, which lead to the discovery of the White Rose field in
offshore Newfoundland. The White Rose field is believed to hold estimated
reserves of 450 - 500 Million barrels of oil and 3-4 trillion cubic feet of gas,
and currently produces approximately 110,000 barrels per day. While at EnCana,
he also negotiated and secured the largest exploration position in the US and
Canadian Arctic, leading to the discovery of the Umiak field 2004 and receiving
a Department of Minerals Management Service corporate citizen award in 2003 for
outstanding cultural and environmental efforts in Alaska.
Mr. Harding received his Honours Bachelor of Science degree in Geology from
McMaster University in 1982 and his Masters degree in Geology from the
University of Alberta in 1985.
BRIAN MANKO. Mr. Manko has been our Chief Financial Officer since February 1,
2009. During the past eighteen years, Mr. Manko has been involved with private
and public companies involving a wide range of industries. From approximately
2000 to present, Mr. Manko has been directly involved with private money
management as an institutional investor and private investor specializing in
both the capital and currency markets. From approximately 2003 to present, Mr.
Manko has been a director for Morbank Mortgage Investment Company. From
approximately 1996 to 2000 to 2003, Mr. Manko worked as an equity broker with
Levesque Securities and Research Capital. From approximately 1992 to 1996, Mr.
Manko was employed by Johnson & Johnson in its pharmaceuticals divisions. Mr.
Manko is also currently working in an executive financial position with a
chapter of a national volunteer group.
Mr. Manko earned a Bachelor of Commerce degree in 1992 from the University of
Calgary. He is also currently completing his CMA accounting designation.
MANMOHAN MINHAS. Mr. Minhas has been our Treasurer and on our Board of Directors
since May 11, 2006 and was our prior President/Chief Executive Officer resigning
effective October 29, 2008. Mr. Manmohan Minhas worked for PanCanadian Petroleum
(now EnCana Corporation) from May 1980 to August 1993. He started as a Project
Engineer and worked on the design and construction of oil and gas production
facilities for the company. These facilities included gas plants, compressor
stations, pipelines, and oil production batteries. By August 1985, he had
successfully completed over $100,000,000 worth of projects and led a department
with twenty employees. On July 1986, he was transferred to Reservoir
Exploitation Department, where he worked on conceptual planning, reservoir
engineering studies, primary and secondary petroleum recovery studies, reserve
estimates, and production forecasts. These projects were all based in central
and southern Alberta. In this position, he was responsible for the supervision
of twelve engineers.
From June 1988 to September 1990, Mr. Minhas was the leader of the Reserves Task
Force for Pan Canadian, with a group of fifteen engineers, geologists and
computer personnel. The group reviewed over 15,000 oil and gas properties the
company had interest in Alberta, Saskatchewan, BC, Colorado and California for
purposes of regulatory disclosure of oil and gas reserves reporting. On
September 1990, he was appointed Supervisor, Production Revenue Department, and
was responsible for acquisitions and divestures of producing properties, and an
operations budget for the company of over $500,000,000 annually. He was also
52
responsible for contracts for processing and transportation of oil and gas
through the company's facilities, and supervised a staff of approximately twenty
personnel. During his tenure with Pan Canadian, Mr. Minhas supervised seven
Alberta based oil and gas exploration projects through conceptual development,
drilling and production, with an aggregate expenditure budget in excess of
$150,000,000. Mr. Minhas left PanCanadian in August 1993. From August 1993 to
September 1994, Mr. Minhas acted as a Principal Consulting Engineer with Quantel
Engineering Ltd. At Quantel, Mr. Minhas did conceptual, detailed engineering and
project management of oil and gas field production facilities in Southern
Alberta, including compressor stations, pipelines, gas plants and gas wellsite
construction and development.
In April 1990, he founded and acted as President of Minhas Training &
Development, Inc., which conducted seminars for multi-national oil companies
located throughout the world, including Indonesia, Malaysia, Thailand, Brunei,
Canada, USA, Singapore and Russia. Subjects taught included reservoir
engineering, petroleum economic evaluations, petroleum production facilities and
project management. He taught these seminars until July 2000.
Mr. Minhas received his B.Sc. (Mechanical Engineering) from the University of
Calgary in 1980. He is a registered professional engineer with Association of
Professional Engineers, Geologists and Geophysicists of Alberta ("APEGGA"). He
was given an Exemplary Voluntary Service Award by APEGGA in 1992. He has also
completed numerous seminars and courses in many facets of petroleum production
and facilities, reservoir engineering, drilling, well testing and log analysis.
Mr. Minhas is a member of the Board of Directors of American Oil & Gas Inc., a
publicly traded US oil and gas exploration and development company based in
Denver, Colorado. The company is listed on the AMEX and trades under the symbol
"AEZ". He is also a member of the company's audit committee and compensation
committee.
DEVINDER RANDHAWA. Mr. Rnadhawa has been on our Board of Directors since October
29, 2008. Mr. Randhawa founded Strathmore Minerals Corp. in 1996 and served as
its chairman and chief executive officer until January 2008. Strathmore Minerals
Corp. is an uranium exploration company publically listed on the TSX venture
exchange in Canada, with assets in the US, Canada and Peru. Mr Randhawa was also
the founder of Royal County Minerals Corp. and served as president and chief
executive officer and director from May 1998 to July 2003. Royal County Minerals
Corp. was a publically listed gold exploration company which traded on the TSX
venture exchange. In 2003, he arranged the sale of Royal Country Minerals to
Canadian Gold Hunter Corp. He was also the founder, and from December 2005 to
May 2006 acted as the president, chief executive officer and chairman of the
board of Pacific Asia China Energy, a TSX listed public company involved in the
coal bed methane exploration business in three provinces of China. In July 2008
he was instrumental in arranging the sale of the company to a third party. In
addition, Mr. Randhawa currently provides his services to the following TSX
venture exchange listed companies as: (i) chairman of the board and chief
executive officer for Fission Energy Inc.; (ii) chief executive officer for
Ballyliffin Capital Corp.; (iii) president, chief executive officer and a
director for Jalna Minerals Corp.; and (iv) vice chairman for Sernova Corp.
53
Mr. Randhawa received his MBA from the University of British Columbia in 1985
subsequent to graduating with High Honors from Trinity Western University with a
BA (Business Admin) in 1983.
COMMITTEES OF THE BOARD OF DIRECTORS
As of the date of this Annual Report, we have not established an audit
committee, a compensation committee nor a nominating committee. However, we
intend within the next fiscal quarter to establish such committees and adopt and
authorize certain corporate governance policies and documentation.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and officers, and the
persons who beneficially own more than ten percent of our common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2008.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and those executive officers that earned in excess of $100,000 during
fiscal years ended December 31, 2008 and 2007 and 2006 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
___________________________________________________________________________________________________
Non-Qualified
Non-Equity Deferred
Name and Stock Option Incentive Plan Compensation All Other
Principal Salary Bonus Awards Awards Compensation Earnings Compensation
Position Year ($) ($) ($) ($) ($) ($) ($)
___________________________________________________________________________________________________
Manmohan
Minhas,
prior 2006 -0- -0- -0- -0- --- --- ---
President 2007 -0- -0- -0- -0- --- --- ---
and CEO 2008 -0- -0- -0- -0- --- --- ---
___________________________________________________________________________________________________
Steve
Harding
current
President
and CEO 2008 20,000 -0- -0- -0- --- --- ---
___________________________________________________________________________________________________
54
STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2008
The following table sets forth information as at December 31, 2008 relating to
Stock Options that have been granted to the Named Executive Officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
_________________________________________________________________ _________________________________________
Equity
Equity Incentive
Incentive Plan
Market Plan Awards:
Value Awards: Market
Equity Number of Number or Payout
Incentive of Shares of Value of
Plan Shares or Unearned Unearned
Awards: or Units Units Shares, Shares,
Number of Number of Number of of of Units or Units or
Securities Securities Securities Stock Stock Other Other
Underlying Underlying Underlying That That Rights Rights
Unexercised Unexercised Unexercised Option Have Have That That
Options Options Unearned Exercise Option Not Not Have Not Have Not
Exercisable Unexercisable Options Price Expiration Vested Vested Vested Vested
Name (#) (#) (#) ($) Date (#) ($) (#) (#)
______________________________________________________________________________________________________________________________
Manhohan -0- -0- -0- -0- -0- -0- -0-
Minhas, prior
President/CEO
______________________________________________________________________________________________________________________________
Steve Harding,
current
President/CEO -0- -0- -0- -0- -0- -0- -0-
______________________________________________________________________________________________________________________________
55
The following table sets forth information relating to compensation paid to our
directors during fiscal year ended December 31, 2008, 2007 and 2006:
DIRECTOR COMPENSATION TABLE
Change in
Pension
Value and
Fees Non-Equity Nonqualified
Earned or Incentive Deferred All
Paid in Stock Option Plan Compensation Other
Cash Awards Awards Compensation Earnings Compensation Total
Name ($) ($) ($) ($) ($) ($) ($)
_________________________________________________________________________________________________________________
Manmohan Minhas
2006 -0- -0- -0- -0- -0- -0- -0-
2007 -0- -0- -0- -0- -0- -0- -0-
2008 -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________
Steve Harding
2008 -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________
Devinder Randhawa
2008 $10,000 -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________
Ravinder Minhas,
prior member
2008 -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________
EMPLOYMENT AND CONSULTING AGREEMENTS
As of the date of this Annual Report, we have entered into verbal month-to-month
contractual relationships with certain of our executive officers and directors
as follows. See "Item 13. Certain Relationships and Related Transactions and
Director Independence."
PRESIDENT/CHIEF EXECUTIVE OFFICER
As of October 29, 2008, we entered into a contractual relationship with Perfect
Ocean Investments Inc. ("POI") regarding the engagement and compensation of
Steve Harding, our President/Chief Executive Officer (the "Harding
Arrangement"). In accordance with the terms and provisions of the Harding
Arrangement, we will pay a monthly salary of $10,000 to POI as compensation for
Mr. Harding.
56
CHIEF FINANCIAL OFFICER
As of February 1, 2009, we entered into a contractual relationship with Manko
Business Consulting Corp. ("MBCC") regarding the engagement and compensation of
Brian Manko, our Chief Financial Officer (the "Manko Arrangement"). In
accordance with the terms and provisions of the Manko Arrangement, we will pay a
monthly salary of $2,750 to MBCC as compensation for Mr. Manko.
DIRECTOR
As of November 1, 2008, we entered into a contractual relationship with Devinder
Randhawa regarding the engagement and compensation of Mr. Randhawa as a member
of our Board of Directors (the "Randhawa Arrangement"). In accordance with the
terms and provisions of the Randhawa Arrangement, we will pay a monthly salary
of $5,000 to Mr. Randhawa as compensation. As of fiscal year ended December 31,
2008, we paid an aggregate of $10,000 to Mr. Randhawa.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of the date of this Annual Report, the following table sets forth certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors and executive officers. Each person
has sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. As of the
date of this Annual Report, there are 54,862,500 shares of common stock issued
and outstanding.
Amount and Nature of Percentage of Beneficial
Name and Address of Beneficial Owner(1) Beneficial Ownership(1) Ownership
Directors and Officers:
Steve Harding 1,500,000 2.73%
407 2nd Street SW
Calgary, Alberta
Canada T2P 2Y3
Brian Manko 300,000 Nil
407 2nd Street SW
Calgary, Alberta
Canada T2P 2Y3
Ravinder Randhawa 3,000,000 5.47%
407 2nd Street SW
Calgary, Alberta
Canada T2P 2Y3
Manmohan Minhas 495,000 Nil
407 2nd Street SW
Calgary, Alberta
Canada T2P 2Y3
All executive officers 5,295,000 9.65%
and directors as a group
(4 persons)
57
* Less than one percent.
(1) Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually outstanding as of
the date of this Annual Report. As of the date of this Annual Report, there
are 54,862,500 shares issued and outstanding. Beneficial ownership amounts
reflect the 2009 Forward Stock Split.
CHANGES IN CONTROL
We are unaware of any contract, or other arrangement or provision, the operation
of which may at a subsequent date result in a change of control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
As of the date of this Annual Report, other than as disclosed below, none of our
directors, officers or principal stockholders, nor any associate or affiliate of
the foregoing, have any interest, direct or indirect, in any transaction or in
any proposed transactions, which has materially affected or will materially
affect us during fiscal year ended December 31, 2008.
58
EMPLOYMENT ARRANGEMENTS
As of the date of this Annual Report, we have verbally agreed to pay certain of
our executive officers and directors compensation for services rendered as
follows:.President/Chief Executive Officer
As of October 29, 2008, we entered into a contractual relationship with POI
regarding the engagement and compensation of Steve Harding, our President/Chief
Executive Officer (the "Harding Arrangement"). In accordance with the terms and
provisions of the Harding Arrangement, we will pay a monthly salary of $10,000
to POI as compensation for Mr. Harding.
CHIEF FINANCIAL OFFICER
As of February 1, 2009, we entered into a contractual relationship with MBCC
regarding the engagement and compensation of Brian Manko, our Chief Financial
Officer (the "Manko Arrangement"). In accordance with the terms and provisions
of the Manko Arrangement, we will pay a monthly salary of $2,750 to MBCC as
compensation for Mr. Manko.
DIRECTOR
As of November 1, 2008, we entered into a contractual relationship with Devinder
Randhawa regarding the engagement and compensation of Mr. Randhawa as a member
of our Board of Directors (the "Randhawa Arrangement"). In accordance with the
terms and provisions of the Randhawa Arrangement, we will pay a monthly salary
of $5,000 to Mr. Randhawa as compensation.
ITEM 14. EXHIBITS
The following exhibits are filed as part of this Annual Report.
Exhibit No. Document
3.1 Articles of Incorporation (1)
3.1.2 Articles of Merger between Minhas Energy
Consultants and American Energy Corp. (2)
3.2 Bylaws (1)
10.1 Option Agreement between American Energy
Corp and Westrock Land Corporation dated
October 2008. (3)
31.1 Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act.
59
31.2 Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act.
32.1 Certification of Chief Executive Officer
Under Section 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act.
32.2 Certification of Chief Financial Officer
Under Section 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act.
(1) Incorporated by reference from our Registration Statement on Form SB-2
filed with the Commission on March 5, 2006.
(2) Incorporated by reference from our Current Report on Form 8-K filed with
the Commission on August 8, 2008.
(3) Incorporated by reference from our Current Report on Form 8-K filed with
the Commission on November 6, 2008 and our Amendment No. 1 to Current
Report filed with the Commission on January 25, 2009.
(4) Incorporated by reference from Form Current Report on 8-K filed with the
Commission on August 3, 2008.
ITEM 15.PRINCIPAL ACCOUNTING FEES AND SERVICES
During fiscal year ended December 31, 2008, we incurred approximately $9,230 in
fees to our principal independent accountant for professional services rendered
in connection with the audit of our financial statements for fiscal year ended
December 31, 2008 and for the review of our financial statements for the
quarters ended March 31, 2008, June 30, 2008 and September 30, 2008.
During fiscal year ended December 31, 2007, we incurred approximately $8,250 in
fees to our principal independent accountants for professional services rendered
in connection with the audit of our financial statements for fiscal year ended
December 31, 2007 and for the review of our financial statements for the
quarters ended March 31, 2007, June 30, 2007 and September 30, 2007.
During fiscal year ended December 31, 2008, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.
60
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN EXPLORATION CORP.
Dated: May 19, 2009
By: /s/ STEVE HARDING
_____________________________________
Steve Harding
President/Chief Executive Officer
Dated: May 19, 2009
By: /s/ BRIAN MANKO
_____________________________________
Brian Manko
Chief Financial Officer
61