U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 2009
[ ] 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 CORPORATION
______________________________________________
(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)
Indicate by checkmark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No[ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
229.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files.
Yes [X] No[ ]
Indicate by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the
Preceding Five Years.
N/A
Indicate by checkmark 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 [ ] No [ ]
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most practicable date:
Class Outstanding as of November 19, 2009
Common Stock, $0.001 58,900,000
-2-
AMERICAN EXPLORATION CORPORATION
Form 10-Q
Part 1. FINANCIAL INFORMATION 4
Item 1. FINANCIAL STATEMENTS 4
Balance Sheets 5
Statements of Operations 6
Statements of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
Part II. OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits 27
-3-
PART I
ITEM 1. FINANCIAL STATEMENTS
AMERICAN EXPLORATION CORPORATION
(an Exploration Stage Company)
FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
-4-
AMERICAN EXPLORATION CORPORATION
(f.k.a. Minhas Energy Consultants, Inc.)
(An Exploration Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2009 2008
_____________ ____________
ASSETS
Current Assets
Cash and equivalents $ 13,713 $ 160,832
_____________ ____________
Total Current Assets 13,713 160,832
Oil and gas properties - unevaluated, not subject
to amortization 3,771,001 -
Option to purchase oil and gas lease - 781,250
Website, net of amortization 7,234 9,725
_____________ ____________
Total Assets $ 3,791,948 $ 951,807
============= ============
LIABILITES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 120,419 $ 8,418
Accounts payable - related parties - 5,000
Stock payable 455,000 -
Notes payable - related parties 87,548 -
_____________ ____________
Total Current Liabilities 662,967 13,418
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.001 par value, 150,000,000 authorized:
58,900,000 and 137,475,000 shares issued and
outstanding, respectively 58,900 137,475
Additional paid in capital 4,892,417 965,775
Accumulated deficit during exploration stage (1,822,336) (164,861)
_____________ ____________
Total Stockholders' Equity 3,128,981 938,389
_____________ ____________
Total Liabilities and Stockholders' Equity $ 3,791,948 $ 951,807
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
UNAUDITED FINANCIAL STATEMENTS
-5-
AMERICAN EXPLORATION CORPORATION
(f.k.a. Minhas Energy Consultants, Inc.)
(An Exploration Stage Company)
For the Three and Nine Months Ended September 30, 2009
and the Period from Inception (May 11, 2006) to September 30, 2009
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
___________________________ ___________________________ Inception to
September
2009 2008 2009 2008 30, 2009
___________ ___________ ___________ ___________ ____________
Revenue $ - $ - $ - $ - $ -
Operating Expenses
General and administrative 1,357,125 10,654 1,411,859 37,986 1,531,855
Professional Fees 66,992 - 243,425 - 288,290
___________ ___________ ___________ ___________ ____________
Total Operating Expenses 1,424,117 10,654 1,655,284 37,986 1,820,145
Loss from operations (1,424,117) (10,654) (1,655,284) (37,986) (1,820,145)
Other income(expense)
Interest expense (2,191) - (2,191) - (2,191)
___________ ___________ ___________ ___________ ____________
Loss before income taxes (1,426,308) (10,654) (1,657,475) (37,986) (1,822,336)
Income taxes - - - - -
Net loss $(1,426,308) $ (10,654) $(1,657,475) $ (37,986) $ (1,822,336)
=========== =========== =========== =========== ============
Net loss per common share -
basic and diluted (0.03) $ (0.00) $ (0.02) $ (0.00)
=========== =========== =========== ===========
Weighted average common
shares - basic and diluted 56,705,707 90,650,000 82,803,114 90,650,000
=========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
UNAUDITED FINANCIAL STATEMENTS
-6-
AMERICAN EXPLORATION CORPORATION
(f.k.a. Minhas Energy Consultants, Inc.)
(An Exploration Stage Company)
For the Nine Months Ended September 30, 2009
and the Period from Inception (May 11, 2006) to September 30, 2009
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
_______________________________ Inception to
September 30, September 30, September 30,
2009 2008 2009
_____________ _____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,657,475) $ (37,986) $ (1,822,336)
ADJUSTMENT TO RECONCILE NET LOSS TO CASH USED
BY OPERATING ACTIVITIES:
Amortization expense 2,493 406 4,045
Share-based compensation 853,318 - 853,318
Changes in operating assets and liabilities:
Inventory - 1,161 1,161
Accounts payable and accrued liabilities 111,998 (1,650) 122,362
Accounts payable - related parties - 5,000 -
Foreign currency adjustment - - 616
_____________ _____________ _____________
Net cash used in operating activities (689,666) (33,069) (840,834)
CASH FLOWS FROM INVESTING ACTIVITIES
Website - - (10,000)
Acquisition of unproved oil and gas properties (325,001) - (1,106,251)
_____________ _____________ _____________
Net cash used in investing activities (325,001) - (1,116,251)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants 780,000 - 1,883,250
Proceeds from notes payable - related parties 87,548 - 87,548
_____________ _____________ _____________
Net cash provided by financing activities 867,548 - 1,970,798
(Decrease) increase in cash during period (147,119) (33,069) 13,713
Cash, beginning of period 160,832 35,550 -
_____________ _____________ _____________
Cash, end of period $ 13,713 $ 2,481 $ 13,713
============= ============= =============
Supplemental cash flow information:
Taxes paid $ - $ - $ -
Interest paid $ - $ - $ -
Non-cash investing and financing activities:
Stock issued to purchase oil and gas property $ 2,664,751 $ - $ 2,664,751
Common stock cancelled $ 83,000 $ - $ 83,000
Forgiveness of related party liability as
contributed capital $ 5,000 $ - $ 5,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
UNAUDITED FINANCIAL STATEMENTS
-7-
AMERICAN EXPLORATION CORPORATION
(f.k.a. Minhas Energy Consultants, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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 changed the focus of
operations from the provision consulting engineering services to oil and gas
exploration and development.
BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated balance sheets and
related statements of income and cash flows include all adjustments, consisting
of normal recurring items, necessary for their fair presentation in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP").
Interim results are not necessarily indicative of results for a full year. The
information included in this Form l0-Q should be read in conjunction with
information included in the Company's Form 10-K, for the period ended December
31, 2008, filed with the U.S. Securities and Exchange Commission.
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. On April 13, 2009 a 1.5:1
forward stock split took effect. All share amounts have been adjusted to reflect
the retroactive effect of these forward stock splits.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS
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.
LOSS PER SHARE
Basic loss per share are calculated by dividing the Company's net income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted net loss per common share is determined
using the weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock equivalents, such as
outstanding options or warrants. In periods when losses are reported, the
weighted-average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
For the three and nine months ended September 30, 2009, options and warrants to
purchase 2,700,000 and 1,477,916 shares of common stock, respectively, were
excluded from the diluted EPS calculation because their effect would have been
-8-
antidilutive. For the three months and nine months ended September 30, 2008,
options and warrants to purchase 2,700,000 and 1,477,916 shares of common stock
were excluded from the diluted EPS calculation because their because their
effect would have been antidilutive.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATIONS OF RISKS - CASH BALANCES
The Company maintains its cash in institutions insured by the Canada Deposit
Insurance Corporation (CDIC). 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 CDIC-insured institutions are insured up to at
least $250,000 per depositor until December 31, 2009. On January 1, 2010, CDIC
deposit insurance for all deposit accounts, except for certain retirement
accounts, will return to at least $100,000 per depositor.
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company has elected to use the full cost method of accounting for oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells used to find proved reserves,
and to drill and equip development wells including directly related overhead
costs and related asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs on a county by country basis. Properties not subject to
amortization consist of exploration and development costs which are evaluated on
a property-by-property basis. Amortization of these unproved property costs
begins when the properties become proved or their values become impaired. The
Company assesses the realizability of unproved properties, if any, on at least
an annual basis or when there has been an indication that impairment in value
may have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
In applying the full cost method, the Company performs an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present value," of its proved
reserves discounted at a 10-percent interest rate of future net revenues, based
on current economic and operating conditions at the end of the period, plus the
cost of properties not being amortized, plus the lower of cost or fair market
value of unproved properties included in costs being amortized, less the income
tax effects related to book and tax basis differences of the properties. If
capitalized costs exceed this limit, the excess is charged as an impairment
expense.
FOREIGN EXCHANGE AND CURRENCY TRANSLATION
For the periods presented, the Company maintained cash accounts in Canadian and
U.S. dollars, and incurred certain expenses denominated in Canadian dollars. The
Company's functional and reporting currency is the U.S. dollar. Transactions
denominated in foreign currencies are translated into U.S. dollars at exchange
rates in effect on the date of the transactions. Assets and liabilities are
translated using exchange rates at the end of each period. Exchange gains or
losses on transactions are included in earnings. Adjustments resulting from the
translation process are reported in a separate component of other comprehensive
income and are not included in the determination of the results of operations.
-9-
For all periods presented, any exchange gains or losses or translation
adjustments resulting from foreign currency transactions were immaterial.
As of September 30, 2009 the Company had no proved properties and no impairment
of unevaluated oil and gas properties was indicated.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued SFAS No. 168, THE FASB ACCOUNTING STANDARDS
CODIFICATION AND THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
("SFAS 168" or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification
as the sole source of authoritative accounting principles recognized by the FASB
to be applied by all nongovernmental entities in the preparation of financial
statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively
effective for financial statements issued for fiscal years ending on or after
September 15, 2009, and interim periods within those fiscal years. The adoption
of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company's results of
operations or financial condition. The Codification did not change GAAP;
however, it did change the way GAAP is organized and presented. As a result,
these changes impact how companies reference GAAP in their financial statements
and in their significant accounting policies. The Company implemented the
Codification in this Report by providing references to the Codification topics
alongside references to the corresponding standards.
In June 2008, the FASB issued FSP EITF 03-6-1 (ASC 260-10), DETERMINING WHETHER
INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING
SECURITIES ("FSP EITF 03-6-1" or ASC 260-10). FSP EITF 03-6-1 (ASC 260-10)
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
computing earnings per share under the two-class method described in SFAS No.
128 (ASC 260-10), EARNINGS PER SHARE . FSP EITF 03-6-1 (ASC 260-10) is effective
for the Company as of January 1, 2009 and in accordance with its requirements it
will be applied retrospectively. The adoption of FSP EITF 03-6-1 (ASC 260-10)
did not have a material impact on the Company's consolidated financial
statements.
Other recently issued or adopted accounting pronouncements are not expected to,
or did not have, a material effect on the Company's operations or financial
position.
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
September 30, 2009 of $1,822,336. The Company intends to fund initial operations
through equity financing arrangements and current efforts are further described
in Note 8.
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 or completed 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
equity or debt 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. There can be no assurances, however, that management's
expectations of future revenues will be realized.
-10-
NOTE 4. STOCKHOLDERS' EQUITY
COMMON STOCK - ISSUED AND OUTSTANDING
On May 11, 2006 (inception), the Company issued 94,500,000 shares of its common
stock to its Directors for cash of $4,500. On September 30, 2006, the Company
closed a private placement for 41,475,000 common shares for an aggregate of
$98,750.
On November 19th and 24th of 2008, the Company closed two private placements for
1,350,000 and 150,000 shares respectively, at a price of $0.66 for a total of
$1,000,000. Included with each share in these private placements was one-half
non-transferable share purchase warrant. Each warrant has a term of 12 months
and entitles the subscriber to purchase one additional share of the company at
an exercise price of $2.00 per warrant share.
Two private placements were completed for 487,500 shares for a total of $325,000
in February 2009. Included with each share in these private placements was
one-half non-transferable share purchase warrant. Each warrant has a term of 12
months and entitles the subscriber to purchase one additional share of the
company's stock at an exercise price of $2.00 per share.
On March 21, 2009 our prior executive officers and founders agreed to return an
aggregate 83,100,000 shares of our common stock to the Company. They did not
receive any compensation from the return and cancellation of these shares to the
Company.
On August 19, 2009 4,037,500 shares were issued to Westrock to acquire the
balance of an oil and gas lease (see Note 7). These shares were valued at $0.66
per share for a total of $2,664,750, based upon the Company's share price on the
date of agreement.
On August 31, 2009 a private placement closed, for 260,000 shares at $0.50 per
share or $130,000. On September 21, 2009 two private placements closed, one for
133,333 shares at $0.75 and one for 400,000 shares at $0.50 raising $100,000 and
$200,000 respectively. On September 25, 2009 a private placement closed for
25,000 shares at $1.00. The total raised by private placement in the third
quarter of 2009 was $455,000. Warrants were attached to each of the third
quarter 2009 private placements at the equivalent of one warrant for each two
shares of common stock. The warrants have exercise prices ranging from $0.50 to
$1.00. As of September 30, 2009, the shares related to these placements have not
been issued so the aggregate 818,333 shares are shown as stock payable.
STOCK OPTIONS
In September 2009, the Company adopted the 2009 Stock Option Plan ("2009 Plan").
The 2009 Plan allows the Company to issue options to officers, directors and
employees, as well as consultants, to purchase up to 7,000,000 shares of common
stock.
During September 2009, the following options were granted:
o 1,000,000 options to the Company's Chief Executive Officer, who is
also a director of the Company.
o 1,150,000 options to two directors of the Company
o 150,000 options to the Company's Chief Financial Officer
o 400,000 options to three consultants to the Company
All the options granted have an exercise price of $0.80 per share and a 10 year
life. One third of the options vested at the date of grant, with the remaining
options vesting in equal parts in September 2012 and September 2015.
Fair value of the options granted was $2,559,954 and was calculated in
accordance with the Black-Sholes valuation model based on the following
assumptions: (a) risk free interest rate 3.47%, (b) expected volatility of
192.35% (c) expected life of 5.75 years, and (d) zero expected future dividends.
The options qualify as `plain vanilla' under the accounting literature and
therefore, the expected life has been calculated pursuant to the provisions of
-11-
Staff Accounting Bulletin No. 107. The Company recognized $853,318 related to
these option issuances during the three and nine months ended September 30,
2009.
A summary of stock option activity and related information for the nine months
ended September 30, 2009 is presented below:
Weighted-Average Aggregate Intrinsic
Options Exercise Price Value
___________________ _____________________ _____________________
Outstanding at January 1, 2009 - $ - $ -
Granted 2,700,000 0.80 -
Exercised - - -
Forfeited - - -
___________________
Outstanding at September 30, 2009 2,700,000 $ 0.80 $ 1,215,000
===================
Exercisable at September 30, 2009 900,000 $ 0.80 $ 405,000
As of September 30, 2009, total unrecognized stock-based compensation expense
related to non-vested stock options was $1,706,636. The unrecognized expense is
expected to be recognized over the weighted average period of 6 years and the
weighted average remaining contractual term of the outstanding options and
exercisable options at September 30, 2009 is approximately 10 years.
WARRANTS
A summary of warrant activity and related information for the nine months ended
September 30, 2009 is presented below:
Weighted-Average Aggregate
Warrants Exercise Price Intrinsic Value
_________________ ____________________ ____________________
Outstanding at January 1, 2009 825,000 $ 2.00 $ -
Granted 652,916 1.26 -
Exercised - - -
Forfeited - - -
_________________
Outstanding and exercisable at September 30, 2009 1,477,916 $ 1.67 $ 365,000
=================
At September 30, 2009, the Company had 1,477,916 warrants outstanding with a
remaining weighted average contractual life of one year. The weighted average
exercise price for all remaining outstanding warrants was $1.67. The warrants
had an aggregate fair market value of $431,488 at the date of grant.
-12-
NOTE 5. RELATED PARTY TRANSACTIONS
The $5,000 related party payable to the company from a director, outstanding as
of December 31, 2008, was forgiven as of January 1, 2009 and recorded as a
contribution to capital.
During the second quarter of 2009, directors of the Company loaned a total of
$87,548 to cover operating expenses. Terms of the loan were finalized during the
2009 third quarter. Interest of 10% per annum will be paid to the lenders
beginning July 1, 2009 and the loan is due upon demand.
NOTE 6. UNEVALUATED OIL AND GAS PROPERTIES
In November 2008, the Company executed an option agreement (the "Option
Agreement") to purchase a 75% net revenue interest (100% working interest) in
approximately 5,000 net acres in oil and gas leases located in Mississippi in
the onshore region of the Gulf Coast of the United States. The purchase price
was $625.00 per net acre or a total of approximately $3,125,000. The Option
Agreement required that a well be spud no later than May 31, 2009 and provided
the Company until November 17, 2008 to complete its due diligence (the "Option
Period"). The Company made a cash payment of $781,250 upon execution of the
Option Agreement.
The Option Agreement was amended a number of times to extend the Option Period
and through August 2009, the Company made additional cash payments totaling
$325,001 to the counterparty.
On August 19, 2009, the Company entered into a final amendment to the Option
Agreement whereby the Company (i) agreed to issue 4,037,500 shares of its
restricted common stock as satisfaction for the remaining balance due under the
Option Agreement, and (ii) agreed to drill and complete a minimum of at least
one well on the properties in the Haynesville geological zone no later than
December 31, 2010.
The 4,037,500 shares issued to satisfy the remaining purchase price were valued
at $2,664,750, based upon the Company's share price on the date of agreement,
bringing the total acquisition price to $3,771,001. The properties acquired have
no proved reserves and therefore, have been classified as unevaluated in the
accompanying financial statements.
NOTE 7. INCOME TAXES
Deferred income taxes are provided on a liability method whereby deferred tax
assets and liabilities are established for the difference between the financial
reporting and income tax basis of assets and liabilities as well as operating
loss and tax credit carry forwards. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
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. At
September 30, 2009 the Company has recorded a 100% valuation allowance as
management believes it is likely that any deferred tax assets will not be
realized.
As of September 30, 2009, the Company has a net operating loss carry forward of
approximately $1,822,336.
NOTE 8. SUBSEQUENT EVENTS
A convertible debenture was issued on October 13, 2009 by the company to a
shareholder for $96,609 to be used for operating expenses. The interest rate is
5% per annum and the maturity date is January 13, 2010 although the Company may
repay the debenture at any time prior to January 13, 2010 at its discretion. The
unpaid principal amount of the debenture is convertible to stock at $0.50 per
share at any time at the option of the holder.
-13-
The Company evaluated subsequent events through November 19, 2009, which is the
date the financial statements were issued and there were no other significant
subsequent events to report.
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q 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.;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
American Exploration Corporation 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 engaged in
the exploration, acquisition and development of oil and gas properties in the
United States and within North America. Our trading symbol for our shares traded
on the Over-the-Counter Bulletin Board is "AEXP.OB".
Please note that throughout this Quarterly Report, and unless otherwise noted,
the words "we," "our," "us," the "Company," or "American Exploration," refers to
American Exploration Corporation.
RECENT DEVELOPMENTS
APRIL 2009 FORWARD STOCK SPLIT
On August 18, 2008 the Company affected a 14 for 1 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 "Forward Stock Split"). 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 April 13, 2009 upon filing the
appropriate documentation with NASDAQ. The 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 par value of our common
stock will continue to be $0.001. Due to issuance of stock options, purchase of
a mineral lease with shares and private placements the number of shares
outstanding is 58,900,000
-14-
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 Quarterly
Report, our authorized capital structure has been increased from 100,000,000
shares of common stock to 150,000,000 shares of common stock.
CURRENT BUSINESS OPERATIONS
We are an exploration stage natural resource exploration and production company
which intends to engage in the exploration, acquisition and development of oil
and gas properties in the United States and within North America.
WESTROCK OPTION AGREEMENT
Effective on November 3, 2008, our Board of Directors authorized the execution
of an option agreement (the "Option Agreement") with Westrock. Westrock owns all
right, title and interest in and to approximately 5,000 net acres in oil and gas
Leases located in Mississippi. The Option Agreement allowed us 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
contiguous acreage involves several landowners, with mineral lease expiry
ranging from June through September of 2011. Terms of the Option Agreement
required spudding a well on or before October 1, 2009. The effective date of the
conveyance of the revenue interest in the Leases to us was to be no later than
May 15, 2009 with a final payment of the remaining balance of $2,018,750.
Effective on January 8, 2009, we entered into an amendment to the Option
Agreement (the "Amended Option Agreement") with Westrock. Pursuant to the
Amended Option Agreement, Westrock granted to us until February 2, 2009 to
complete our due diligence. Effective on March 18, 2009, we entered into a
further amendment to the Option Agreement ("the "Second Amended Option
Agreement") with Westrock. Pursuant to the Second Amended Option Agreement: (i)
Westrock granted to us until May 15, 2009 to complete our due diligence; (ii) we
paid Westrock an additional non-refundable amount of $325,000 as consideration
for the extension; and (iii) the effective date of the conveyance of the revenue
interest in the Leases to us was to be no later than May 15, 2009.
The Option Agreement to purchase mineral leases in Mississippi was concluded in
the 3rd quarter of 2009. The original agreed upon purchase price of the Acquired
Properties between Westrock and American was $3,125,000 in the original Option
Agreement dated November 3, 2008. During the quarter ended June 30, 2009, two
separate evaluations were undertaken to review the land title status of the
Leases. Both evaluations concluded that all was satisfactory and title could be
cleanly transferred to us from Westrock. Westrock to date has received cash from
American of $1,106,250. Balance owing by American to Westrock was $2,018,750.
The Company and Westrock entered into an amendment dated August 19, 2009 to
amend the purchase price (the "Purchase Price") pursuant to which an aggregate
of 4,037,500 shares of restricted common stock of the Company would be issued to
Westrock as satisfaction for the $2,018,750 that remained due and owing under
the Purchase Price and the Company agrees to drill and complete a minimum of at
least one well on the properties in the Haynesville geological zone no later
than December 31, 2010 (the "Third Amendment to Option Agreement"). Shares
issued to Westrock were valued using the closing price on the date of the
agreement of $0.66, or $2,664,750.
As of the date of this Quarterly Report, the transaction with Westrock is deemed
finalized. Transfer of the mineral lease titles is currently being finalized.
LETTER AGREEMENT
Effective on September 17, 2009, our Board of Directors authorized the execution
of a letter agreement (the "Letter Agreement") with Mainland Resources Inc., a
Nevada corporation ("Mainland Resources") to jointly develop contiguous acreage
located in Mississippi (the "Joint Development Project"). In accordance with the
terms and provisions of the Letter Agreement: (i) we have agreed to commit
approximately 5,000 net acres and Mainland Resources has agreed to commit
approximately 8,200 net acres to the Joint Development Project; (ii) Mainland
-15-
Resources shall be the operator of the Joint Development Project; (iii) Mainland
Resources has agreed to pay 80% of the initial well drilling and completion
costs to earn a 51% working interest in the well and the total Joint Development
Project; and (iv) we have agreed to pay 20% of the initial well drilling and
completion costs to earn a 49% working interest in the well and the total Joint
Development Project. In further accordance with the terms and provisions of the
Joint Development Project, future costs, including drilling and completions, for
oil and gas activities of the net acreage in the Joint Development Project will
be split of a 51%/49% basis between Mainland Resources and us, respectively.
Mainland Resources was required to secure the acreage committed to the Joint
Development Project from an unrelated third party on or before October 15, 2009
or the Letter Agreement would have terminated and is no longer in force and
effect. Subsequent to this we agreed to an extension that Mainland was granted
by the unrelated third party thus giving Mainland until December 1, 2009 to
acquire the acreage.
-16-
RESULTS OF OPERATION
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2008.
Our net loss for the nine month period ended September 30, 2009 was $1,657,475
compared to a net loss of $37,986 during the nine month period ended September
30, 2008 During the nine month period ended September 30, 2009 and 2008, we did
not generate any revenue.
The Operating Expenses incurred during the nine month period ended September 30,
2009 consisted of: (i) professional fees of $243,425 (2008: $-0-); and (ii)
general and administrative of $1,411,859 (2008: $37,986) which included stock
based compensation of $853,318 (2008: $-0-).
Operating expenses incurred during the nine month period ended September 30,
2009 compared to nine month period ended September 30, 2008 increased primarily
due to the incurrence of professional fees, general and administrative expenses
associated with the increased scope and scale of our business operations and the
expense associated with stock options issued during the period. General and
administrative expenses generally include corporate overhead, financial and
administrative contracted services, marketing, and consulting costs. Investor
relations fees were a new category of expenses as well as stock based
compensation of $853,318. The Company follows FASB ASC 718-10-15-4 with regard
to expensing options.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2008.
Our net loss for the three month period ended September 30, 2009 was $1,426,308
compared to a net loss of $10,654 during the three month period ended September
30, 2008. During the three month periods ended September 30, 2009 and 2008, we
did not generate any revenue.
The operating expenses incurred during the three month period ended September
30, 2009 consisted of: (i) professional fees of $66,992 (2008: $-0-); (ii)
general and administrative of $979,125 (2008: $10,654) which included stock
based compensation of $853,318 (2008: $-0-), and (iii) Investor relations of
$378,000 (2008:
$-0-),
LIQUIDITY AND CAPITAL RESOURCES
AS AT SEPTEMBER 30, 2009
As of September 30, 2009, our current assets were $13,713 and our current
liabilities were $662,967, which resulted in a working capital deficiency of
$649,254. As of September 30, 2009, current assets were comprised of cash on
hand. As of September 30, 2009, current liabilities were comprised of $120,419
of accounts payable and accrued liabilities, $87,548 was short term loans from
directors and a stock payable of $455,000.
As of September 30, 2009, our total assets were $3,791,948 comprised of: (i)
$13,713 in current assets; (ii) $7,234 in website; and (iii) $3,771,001 in oil
and gas properties - unevaluated.
Stockholders' equity increased from $938,389 for fiscal year ended December 31,
2008 to stockholders' equity of $3,128,981 for the nine month period ended
September 30, 2009.
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 currently 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,
-17-
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.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the
nine month period ended September 30, 2009, net cash flows used in operating
activities was $689,666. For the nine month period ended September 30, 2008, net
cash flows used in operating activities was $33,069.
CASH FLOWS FROM INVESTING ACTIVITIES
For the nine month period ended September 30, 2009, net cash flows used in
investing activities was $325,001 related to the acquisition of oil and gas
property. For the nine month period ended September 30, 2008, net cash flows
used in investing activities was $-0-.
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advancements or the
issuance of equity and debt instruments. For the nine month period ended
September 30, 2009, net cash flows provided from financing activities was
$867,548 compared to $-0- for the nine month period ended September 30, 2008.
This amount was due to the sale of stock and warrants during the period and
short term loans to the company from directors.
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
A substantial portion of the third quarter was dedicated to both financing and
identification of a potential drilling partner. Financing partners were sought
with the intent of conducting a private placement to raise funds for primarily
finalizing the mineral lease acquisition in Mississippi and participation in the
drilling of a well on those lands. 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. We also plan to consider bringing in an
additional drilling partner, who would provide the balance of funding towards
drilling in Mississippi for an undetermined percentage interest in the project.
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.
SIGNED LETTER AGREEMENT WITH MAINLAND RESOURCES INC.
Extensive time was dedicated during the 3rd quarter of 2009 to finding a partner
to participate in drilling operations associated with the Mississippi mineral
leases. Several companies expressed interest in reviewing the prospect in detail
following the signing of a confidentiality agreement and corporate presentation.
-18-
A Letter Agreement was signed with Mainland Resources Inc. on Sept. 25th 2009,
whereby American Exploration Corp. and Mainland Resources Inc. agreed to
participate in a joint venture partnership to develop their mutual acreage
holdings in Mississippi. In this agreement, American Exploration agreed to
commit its approximately 5,000 net acres to the project and Mainland Resources
agreed to commit their approximately 8,200 net acres, representing an aggregate
13,200 acres to the composite project area.
American Exploration agreed that Mainland Resources would act as the Operator of
the project area. Mainland Resources will pay 80% of the initial well (drilling
and completion costs) for a 51% working interest in the well and total project
area. American Exploration will pay 20% of the initial well (drilling and
completion costs) to earn a 49% working interest in the well and total project
area. Following the drilling of the initial well, additional costs (ie.
drilling, completions etc.) for oil and gas activities on the 13,200 net acre
project area will be split on a 49% / 51% basis between American and Mainland
respectively.
-19-
PRIVATE PLACEMENTS
Several Private Placements were completed during the third quarter, the proceeds
of which were largely directed towards expanding investor awareness of the
company and increasing liquidity in the stock. A total of $455,000 was raised
through Private Placements in Q3.
Historically, financing the company has been burdened with concerns that the
stock was largely illiquid and therefore a campaign was undertaken to address
this concern. Most of this effort was stewarded by Media Plan, an affiliate of
Stockhouse Inc., who specializes in the distribution of corporate materials to
investment groups, and various Investment Relations providers. Materials were
targeted to those investors who were interested in small cap corporations within
the oil and gas sector. Many of the initial shareholders both encouraged and
funded this campaign via Private Placement from key shareholders.
The results of this campaign saw both an increase in the shareholder base as
well as an increase in share price as additional interest grew in the technical
story of the company. Both North American and European investors were targeted
during this effort to broaden awareness of American Exploration and it's
Haynesville Shale activity. As part of this awareness campaign, the Company's
website was translated into German.
MATERIAL COMMITMENTS
PROMISSORY NOTES
A material commitment during fiscal year 2009 relates to those certain
promissory notes entered into by us as follows (i) May 15, 2009 in the amount of
$30,000 with a related third party; (ii) May 29, 2009 in the amount of $7,548
with a related third party; and (iii) June 5, 2009 in the amount of $50,000 with
one of our directors. The terms of the loans are 10% annualized interest.
Debenture
Effective on October 13, 2009, our Board of Directors authorized the execution
of a 5% convertible debenture in the principal amount of $100,000 Canadian
Dollars (the "Debenture") with DMS Ltd. ("DMS"). In accordance with the terms
and provisions of the Debenture: (i) DMS has loaned us an aggregate amount of
$100,000 Canadian Dollars, which accrues interest at the rate of 5% per annum;
(ii) the maturity date for repayment is the earlier of: (a) that date when we
are able to meet the insolvency test (i.e., when we have sufficient funds in our
cash account to meet our obligations as they arise on a daily basis, which shall
be determined by management in good faith); or (b) January 9, 2010; and (iii)
DMS has the right at any time to convert the unpaid principal amount of the
Debenture into shares of our common stock at the price of $0.50 per share.
-20-
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 Quarterly 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.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse change in foreign currency
and interest rates.
EXCHANGE RATE
Our reporting currency is United States Dollars ("USD"). In the event we acquire
any properties outside of the United States, the fluctuation of exchange rates
may have positive or negative impacts on our results of operations. However,
since all of our properties are currently located within the United States, any
potential revenue and expenses will be denominated in U.S. Dollars, and the net
income effect of appreciation and devaluation of the currency against the U.S.
Dollar would be limited to our costs of acquisition of property.
INTEREST RATE
Interest rates in the United States are generally controlled. Any potential
future loans will relate mainly to acquisition of properties and will be mainly
short-term. However our debt may be likely to rise in connection with expansion
and if interest rates were to rise at the same time, this could become a
significant impact on our operating and financing activities. We have not
entered into derivative contracts either to hedge existing risks of for
speculative purposes.
ITEM IV. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We have performed an evaluation under the supervision and with the participation
of our management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of our disclosure controls and
procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, our management, including our CEO and CFO,
concluded that our disclosure controls and procedures were not effective as of
September 30, 2009 to provide reasonable assurance that information required to
be disclosed by us in the reports filed or submitted by us under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) inadequate segregation of duties consistent
-21-
with control objectives which the Company believes is attributable to its
exploration stage; and (2) ineffective controls over period end financial
disclosure and reporting processes primarily due to limited financial accounting
staff resources. The aforementioned material weaknesses were identified by our
Chief Executive Officer in connection with the review of our financial
statements as of September 30, 2009.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Under the supervision and with the participation of our
management, including our CEO and CFO, we evaluated the effectiveness of our
internal control over financial reporting as of September 30, 2009. In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control-Integrated Framework.
This Quarterly Report does not include an attestation report of our registered
public accounting firm Seale & Beers 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 Quarterly Report on Form 10-Q.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
We believe that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and our CEO and our CFO have
concluded that these controls and procedures are effective at the "reasonable
assurance" level.
CHANGES IN INTERNAL CONTROLS
No significant changes were implemented in our internal controls over financial
reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
AUDIT COMMITTEE
Our Board of Directors has not established an audit committee. The respective
role of an audit committee has been conducted by our Board of Directors. We are
contemplating establishment of an audit committee during fiscal year 2009. When
established, the audit committee's primary function will be to provide advice
with respect to our financial matters and to assist our Board of Directors in
fulfilling its oversight responsibilities regarding finance, accounting, and
legal compliance. The audit committee's primary duties and responsibilities will
be to: (i) serve as an independent and objective party to monitor our financial
reporting process and internal control system; (ii) review and appraise the
audit efforts of our independent accountants; (iii) evaluate our quarterly
financial performance as well as its compliance with laws and regulations; (iv)
oversee management's establishment and enforcement of financial policies and
business practices; and (v) provide an open avenue of communication among the
independent accountants, management and our Board of Directors.
PART II. OTHER INFORMATION
ITEM 1. 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 Quarterly 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.
-22-
ITEM IA. RISK FACTORS
No report required.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
2009 PRIVATE PLACEMENTS
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 ($1.33
Post-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 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.
Effective on August 17th, 2009, we completed certain private placement offerings
(collectively, the "August 2009 Private Placements") with certain non-United
States residents. In accordance with the terms and provisions of the September
2009 Private Placements, we issued to one investor an aggregate of 400,000 units
at a per unit price of $0.50 (the "Unit") in our capital for aggregate proceeds
of $200,000. Each Unit was comprised of one share of restricted common stock and
one-half non-transferrable warrant (the "Warrant"). Each whole Warrant is
exercisable at $0.50 per share for a period of one year. Effective on August 31,
2009, we also completed a private placement offering with a certain non-United
States resident (the "Investor"). In accordance with the terms and provisions of
the Private Placement, the Company issued to the Investor an aggregate of
260,000 units at a per unit price of $0.50 (the "Unit") in the capital of the
Company for aggregate proceeds of $130,000. Each Unit was comprised of one share
of restricted common stock and one-half non-transferrable warrant (the
"Warrant"). Each whole Warrant is exercisable at $1.00 per share for a period of
one year. The Units under the August 2009 Private Placement were sold to a
non-United States Investor in reliance on Regulation S promulgated under the
United States Securities Act of 1933, as amended (the "Securities Act"). The
August 2009 Private Placement has not been registered under the Securities Act
or under any state securities laws and may not be offered or sold without
registration with the United States Securities and Exchange Commission or an
applicable exemption from the registration requirements. The Investor executed a
subscription agreement and acknowledged that the securities to be issued have
not been registered under the Securities Act, that it understood the economic
risk of an investment in the securities, and that it had the opportunity to ask
questions of and receive answers from the Company's management concerning any
and all matters related to acquisition of the securities.
-23-
Effective on September 21, 2009, we issued to certain investors an aggregate of
133,333 Units at a per unit price of $0.75 in our capital for aggregate proceeds
of $100,000. Each Unit was comprised of one share of restricted common stock and
one-half non-transferrable Warrant. Each whole Warrant is exercisable at $1.25
per share for a period of one year. We further issued to certain investors on
September 24th, 2009 an aggregate 25,000 Units at a per unit price of $1.00 in
our capital for aggregate proceeds of $25,000. Each Unit was comprised of one
share of restricted common stock and one-half non-transferrable Warrant. Each
whole Warrant is exercisable at $1.50 per share for a period of one year. The
Units under the September 2009 Private Placement were sold to non-United States
residents in reliance on Regulation S promulgated under the United States
Securities Act of 1933, as amended (the "Securities Act"). The September 2009
Private Placement has not been registered under the Securities Act or under any
state securities laws and may not be offered or sold without registration with
the United States Securities and Exchange Commission or an applicable exemption
from the registration requirements. The investors executed a subscription
agreement and acknowledged that the securities to be issued have not been
registered under the Securities Act, that they understood the economic risk of
an investment in the securities, and that they had the opportunity to ask
questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.
As of the date of this Quarterly Report, share certificates have not been issued
for an aggregate 818,333 shares and, therefore, is reflected on balance sheet as
stock payable.
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 "Forward Stock Split"). The Forward Stock Split will be
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 was to
increase the marketability of our common stock.
The Forward Stock Split was effectuated on April 13, 2009 upon filing the
appropriate documentation with NASDAQ. The 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. Due to issuance of private placements and the
acquisition of the mineral lease for shares the amount of shares outstanding is
58,900,000.
2009 STOCK OPTION PLAN
OPTIONS FOR OFFICERS, DIRECTORS AND ADVISORS
A stock option plan was approved during the 3rd quarter of 2009, for the purpose
of rewarding and retaining key individuals within AEXP's management and support
team. The Board of Directors adopted a stock option plan (the "2009 Stock Option
Plan") to enhance the long-term stockholder value of the Company by offering
opportunities to its directors, officers, employees and eligible consultants of
the Company to acquire and maintain stock ownership in the Company and to grant
up to a maximum of 7,000,000 stock options under the 2009 Stock Option Plan to
-24-
certain officers, directors and consultants (the "Stock Options"). An aggregate
total of 2,700,000 options were issued by the Company in September 2009.
Options granted to each individual vest in one third increments beginning
September 14, 2009, September 14, 2012 and as of September 14, 2015, with an
exercise price of U.S. $0.80 per common share and a life of up to 10 years, all
in accordance with the terms and conditions of the Company's 2009 Stock Option
Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
CHANGES IN CERTIFYING ACCOUNTANT
MOORE & ASSOCIATES, CHARTERED ACCOUNTANTS
Effective August 11, 2009, we engaged Seale and Beers, CPAs ("S&B") as our
principal independent registered public accounting firm. Concurrent with this
appointment, we accepted the resignation of Moore & Associates, Chartered
Accountants ("Moore"), effective August 10, 2009. The decision to change our
principal independent registered public accounting firm has been approved by our
board of directors.
On August 27, 2009 the Public Company Accounting Oversight Board (the "PCAOB")
revoked the registration of Moore due to: (i) violations of PCAOB rules and
auditing standards in auditing financial statements; (ii) violations of PCAOB
rules and quality controls standards; and (iii) violations of Section 10(b) of
the Securities Act of 1934 and Rule 10b-5 thereunder; and (iv) noncooperation
with a PCAOB investigation.
The report of Moore on our financial statements for fiscal years ended December
31, 2008 and December 31, 2007 (which included the balance sheet as of December
31, 2008 and the statement of operations, cash flows and stockholders' equity
for the period from May 11, 2006 (inception) through December 31, 2008), did not
contain an adverse opinion or disclaimer of opinion, nor was it 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 year ended December 31, 2008, and during the subsequent period
through to the date of Moore's resignation, there were no disagreements between
us and Moore, 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, would have caused Moore to
make reference thereto in its report on our audited financial statements.
We have provided Moore with a copy of a Current Report on Form 8-K and requested
that Moore furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not Moore agrees with the statements made in this
Current Report on Form 8-K with respect to Moore and, if not, stating the
aspects with which they do not agree. We received the requested letter from
Moore wherein they have confirmed their agreement to our disclosures in the
Current Report with respect to Moore. A copy of Moore's letter was filed as an
exhibit to the Current Report.
In connection with our appointment of S&B as our principal registered accounting
firm at this time, we have not consulted S&B on any matter relating to the
application of accounting principles to a specific transaction, either completed
or contemplated, or the type of audit opinion that might be rendered on our
financial statements.
-25-
SEALE & BEERS, CPAS
We have engaged GBH, CPAs, PC ("GBH") as our principal independent registered
public accounting firm effective October 28, 2009. Concurrent with this
appointment, we have accepted the resignation of Seale & Beers, CPAs ("S&B"),
effective October 28, 2009. The decision to change our principal independent
registered public accounting firm has been approved by our Board of Directors.
We had engaged S&B as our principal independent registered public accounting
firm effective August 11, 2009 after the acceptance of the resignation of Moore
& Associates, Chartered Accountants ("Moore"), effective August 10, 2009. On
August 27, 2009 the Public Company Accounting Oversight Board (the "PCAOB")
revoked the registration of Moore due to: (i) violations of PCAOB rules and
auditing standards in auditing financial statements; (ii) violations of PCAOB
rules and quality controls standards; and (iii) violations of Section 10(b) of
the Securities Act of 1934 and Rule 10b-5 thereunder; and (iv) noncooperation
with a PCAOB investigation.
Therefore, due to the length of time of engagement with S&B as our auditors,
there is no report by S&B on our financial statements. The report of Moore on
our financial statements for fiscal years ended December 31, 2008 and December
31, 2007 (which included the balance sheet as of December 31, 2008 and the
statement of operations, cash flows and stockholders' equity for the period from
May 11, 2006 (inception) through December 31, 2008), did not contain an adverse
opinion or disclaimer of opinion, nor was it 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 year
ended December 31, 2008, and during the subsequent period through to the date of
Moore's resignation, there were no disagreements between us and and Moore,
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, would have caused Moore to make reference
thereto in its report on our audited financial statements.
We provided S&B with a copy of the Current Report on Form 8-K and requested that
S&B furnish us with a letter addressed to the Securities and Exchange Commission
stating whether or not S&B agrees with the statements made in this Current
Report on Form 8-K with respect to S&B and, if not, stating the aspects with
which they do not agree. We received the requested letter from S&B wherein they
have confirmed their agreement to our disclosures in the Current Report with
respect to S&B. A copy of S&B's letter was filed as an exhibit to the Current
Report.
In connection with our appointment of GBH as our principal registered accounting
firm at this time, we have not consulted GBH on any matter relating to the
application of accounting principles to a specific transaction, either completed
or contemplated, or the type of audit opinion that might be rendered on our
financial statements.
DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT
OF PRINCIPAL OFFICERS
Effective on September 25, 2009, our Board of Directors accepted the consent of
Herb Dhaliwal to act as a member of the Board of Directors. In accordance with a
written consent of resolutions of the Board of Directors dated September 25,
2009, Herb Dhaliwal was duly appointed as a member of the Board of Directors.
Therefore, as of the date of this Quarterly Report, the Board of Directors
consists of the following members: Steve Harding, Dev Randhawa, Manmohan Minhas
and Herb Dhaliwal.
BIOGRAPHY
HERB DHALIWAL. As of the date of this Quarterly Report, the Honorable Herb
Dhaliwal is a strategic advisor to private and public companies in Canada.
During the past thirty years, Mr. Dhaliwal has been involved in national
electoral politics in Canada. From approximately 1997 through 2004, Mr. Dhaliwal
successively held the portfolios of National Revenue, Fisheries & Oceans and
Natural Resources in Ottawa. He was also the senior Minister for Western Canada
in the federal Cabinet of Primter Minister Jean Chretien. Prior to entering
national electoral politics, and including current date, Mr. Dhaliwal is also an
entrepreneur, business owner, corporate director and advisor with interests in
transportation, building maintenance, housing construction and real estate
development. Before sitting the Parliament of Canada for Vancouver-South/Burnaby
constituency from October 1993 through June 2004, Mr. Dhaliwal had been
appointed by the British Columbia government as Vice-Chair of the British
Columbia Hydro and Power Authority board of directors, where he chaired the
budget and audit committees.
-26-
During his early tenure in the House of Commons, Mr. Dhaliwal: (i) served on the
Standing Committees on Finance and Fisheries; (ii) was parliamentary secretary
to the Minister of Fisheries & Oceans; and (iii) was Vice-Chair of the Standing
Committee on Health. He played an active role as a prominent member of the Prime
Minister's "TEAM CANADA" 1996 trade mission to India and led the Canadian
Parliamentary Observer presence for presidential elections in the Dominican
Republic. He also participated in parliamentary delegations to Cuba and UNESCO
and addressed an International Parliamentary Association Conference in Beijing
China on behalf of Canada regarding the elimination of land mines.
Among his accomplishments while a Minster, Mr. Dhaliwal restructured Revenue
Canada into the re-named Canada Customers & Revenue Agency, accompanied the
Governor-General on state visits to India, and instituted an annual
international conference on ocean stewardship. During 1997 through 2004, Mr.
Dhaliwal's ministerial career also included three key economic assignments
during which he had the rare distinction of being the first South Asian to hold
a Cabinet position anywhere in a Western democracy.
Mr. Dhaliwal is a graduate in commerce from the University of British Columbia
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.1 5% Convertible Debenture dated October 13, 2009 between
American Exploration Corporation and DMS Ltd. as filed with
the Current Report on Form 8-K with the Securities and
Exchange Commission on October 19, 2009.
10.2 Stock Option Plan of American Exploration Corporation dated
September 14, 2009 filed herewith.
16.1. Letter from Moore & Associates dated August 11, 2009 as filed
with the Current Report on Form 8-K filed with the Securities
and Exchange Commission on August 17, 2009.
16.2 Letter from Seale & Beers, CPAs dated November 2, 2009 as
filed with the Current Report on Form 8-K with the Securities
and Exchange Commission on November 4, 2009.
31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
32.1 Certifications pursuant to Securities Exchange Act of 1934
Rule 13a-14(b) or 15d-4(b) and 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes- Oxley Act of
2002.
-27-
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 CORPORATION
Dated: November 20, 2009 By: /s/ STEVE HARDING
_________________________________
Steve Harding, President and
Chief Executive Officer
Dated: November 20, 2009 By: /s/ BRIAN MANKO
__________________________________
Brian Manko, Chief Financial
Officer
-28-