UNITED STATES SECURITIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended JUNE 30, 1997
Commission file number 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 87-0448843
(State or other jurisdiction IRS Employer Identification Number
of incorporation or organization)
P.O. BOX 489, SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip Code)
(281) 346-3652
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: NONE
Exchange on which registered: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (_) Yes (X) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not 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)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
19,859,293 Common Shares (June 30, 1997)
<PAGE>
PART I
ITEM 1. HISTORY OF THE REGISTRANT
The American Energy Group, Ltd. (formerly Belize-American Corp. Internationale)
(formerly Dim, Inc.) (hereinafter "Company") was organized in the State of
Nevada on July 21, 1987, as a wholly owned subsidiary of Dimension Industries,
Inc. a Utah Corporation (hereinafter "Dimension").
At the time of organization, the Company issued 1,366,250 shares of voting
Common Stock to Dimension, which was the sole stockholder. On April 28, 1989, a
filing submitted by the Company on form S-18 with the United States Securities
and Exchange Commission was declared effective. Dimension distributed the
1,366,250 shares it held to the stockholders of Dimension as a dividend. Also
distributed were 1,566,250 warrants to purchase 1 share of voting Common Stock
of the Company for each warrant held. The warrant offering expired on August 11,
1989. Exercise of the warrants by shareholders resulted in the Company issuing
1,547,872 shares of Common voting stock for $40,282 received in cash. At this
point, the Company had 3,144,122 shares of voting Common Stock issued and
outstanding.
In 1987, the Company engaged in marketing an automobile carburetor modification
kit. The efforts were not successful and were abandoned.
From 1987 to 1990 the Company was inactive. In October, 1990, the shareholders
of the Company approved a one for ten (1:10) reverse split of the voting Common
Stock.
In June, 1991, the Company obtained an Oil Prospecting License from the
government of Belize. At a special meeting of shareholders, resolutions to
change the name of the Company to "Belize-American Corp. Internationale",
forward split the voting Common Stock ten for one (10:1) and a vote to ratify
the Oil Prospecting License received a vote of approval.
During 1991, the Company attempted various means to attract sufficient capital
investment to develop the oil prospect in Belize, but were not successful. The
license expired due the lack of performance by the Company.
From 1992 until 1994 Company activities consisted of attempting to raise capital
for a business venture and solicitation of other business enterprises for a
possible merger.
On September 22, 1994, the Company entered into an agreement with Simmons Oil
Company, Inc., a Texas Corporation (hereinafter "Simmons") whereby the Company
issued 2,074,521 shares of Convertible Voting Preferred Stock to the
shareholders of Simmons in order to acquire Simmons and two subsidiaries of
Simmons, Simmons Drilling Company and Sequoia Operating Company. For accounting
purposes, the acquisition was treated as a purchase of Simmons by the Company.
The agreement was effective September 30, 1994. Prior to the acquisition of
Simmons, Simmons had acquired certain oil and gas properties located in Texas.
Subsequent to the acquisition, the Company has acquired additional oil and gas
properties in the same general area through its subsidiaries. These properties
consist of oil and gas leases on which existing wells have been abandoned due to
economics or loss of production. The Company intends to evaluate and rework
certain of these wells, explore various depths for reservoirs and drill offset
wells, if warranted.
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In April, 1995, the Company acquired all of the outstanding shares of Hycarbex,
Inc., a Texas Corporation (hereinafter "Hycarbex) for 120,000 shares of voting
Common Stock of the Company, a 1% Overriding Royalty Interest in the Pakistan
Project, and an agreement to pay the sole shareholder $200,000 based on the
success of certain future endeavors. For accounting purposes, this acquisition
was treated as a pooling of interests. The Company changed the name of Hycarbex,
Inc. to Hycarbex-American Energy, Inc. and it is operating as a wholly owned
subsidiary of the Company. Hycarbex has an oil and gas Concession and
Exploration License granted by the government of Pakistan. The concession is
located in the Middle Indus Basin near Jacobabad, Pakistan. In addition to the
above acquisition consideration, the Company has provided a $551,000 Financial
Guarantee Bond to the Government of Pakistan to assure performance of Concession
requirements.
The Company has emerged from the development stage. It has begun drilling
developmental wells on its properties, as well as continuing to accumulate an
inventory of oil and gas properties on which it intends to explore and develop
commercial wells. The Company is further pursuing capital investment to finance
a comprehensive drilling and production program, both in Texas and Pakistan, in
the next fiscal year.
FORWARD LOOKING INFORMATION
With the exception of historical information, the matters discussed in this
Report contain forward looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward looking statements contained in this report include the time and extent
of changes in commodity prices for oil and gas, increases in the cost of
conducting operations, including remedial operations, the extent of the
Company's success in discovering, developing and producing reserves, political
conditions, including those in Pakistan and other areas in which the Company
possesses properties, condition of capital and equity markets, changes in
environmental laws and other laws affecting the ability of the Company to
explore for and produce oil and gas and the cost of so doing and other factors
which are described in this report.
COMPETITION
The oil and gas business is highly competitive in every phase. The Company
competes with numerous companies and individuals in its activities. Many on
these competitors have far greater financial and technical resources with
established multi-national operations. As a result, unless the Company obtains
additional capital investment and /or joins in partnerships and joint ventures,
it may be prevented from participating in large drilling and acquisition
programs. Since the Company is smaller and has limited resources in comparison
to many of its competitors, its ability to compete for oil and gas properties is
also limited.
REGULATIONS
The following discussion of various government regulations is presented only as
an overview and is necessarily brief. It is not intended to constitute a
comprehensive dissertation of the various statutes, rules, regulations and other
governmental rulings, policies and orders which may affect the Company.
STATE AND LOCAL REGULATIONS
The various states have established statutes and regulations requiring permits
for drilling, drilling bonds, and reporting requirements on drilling and
production activities. Activitiessuch as well location, method of drilling and
casing wells, surface use and restoration, plugging and abandonment, well
density and other
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matters are all regulated by a governing body. Texas, the state in which the
Company operates, has rules and regulations covering all of these matters. It
also has regulations addressing a number of environmental and conservation
matters, including the unitization and pooling of oil and gas properties.
ENVIRONMENTAL REGULATIONS
The activities of the Company are subject to numerous statutes and regulations
concerning the storage, use and discharge of materials into the environment, and
many other matters relating to environmental protection. These regulations may
adversely affect the Company's operations and cost of doing business. It is
likely that these laws will become more stringent in the future.
SAFETY AND HEALTH REGULATIONS
The Company must also conduct its operations in accordance with laws governing
occupational safety and health. Currently, the Company does not foresee
expending substantial amounts in order to comply with these regulations.
FOREIGN LAWS AND REGULATIONS
The Company intends to commit a significant amount of its resources to develop
its oil and gas Concession in Pakistan. There are inherent risks in operating a
business in a foreign country where unfamiliar laws and business practices may
exist. The Company intends to minimize this risk by employing appropriate
personnel as the operations develop.
MARKETING
The availability of a ready market for the Company's oil and gas production
depends on numerous factors over which the Company has no control, including the
cost and availability of alternative fuels, the extent of other production,
costs and proximity of pipelines, regulations of governmental authorities and
cost of compliance with environmental concerns. Consumer demand and governmental
action can force the price of the Company's products both upwards and downwards,
depending on the circumstances. Future prices are virtually impossible to
predict. The Company does not have a significant share of any market segment and
cannot set or influence the price of its products.
EMPLOYEES
At June 30, 1997, the Company had 7 employees, including 3 administrative and
clerical personnel and 4 drilling and field personnel.
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ITEM 2. DESCRIPTION OF PROPERTIES
GLOSSARY
The following are used in this report and the definitions contained herein are
provided for the convenience of the reader:
BBL OR BARREL - means 42 United States gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE OR BARREL OF OIL EQUIVALENT - converts gas to oil at a ratio of 6,000 cubic
feet of gas to one Bbl of oil, usually. Then oil and gas are added together for
total BOE.
BOPD - means barrels of oil per day.
DEVELOPED ACREAGE - means the number of acres of oil and gas leases held or
owned, which are allocated or assignable to producing wells or wells capable of
production.
DEVELOPMENT WELL - means a well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
EXPLORATION - means the search for economic deposits of minerals, petroleum and
other natural earth resources by any geological, geophysical, or geochemical
technique.
EXPLORATORY WELL - means a well drilled either in search of a new, as-yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir, as indicated by reasonable interpretation of
available data, with the objective of completing in that reservoir.
FIELD - means a geographic area in which a number of oil or gas wells produce
from a continuous reservoir.
MCF - means one thousand cubic feet of natural gas.
NET ACRES OR NET WELLS - mean the sum of fractional working interests owned in
gross acres or gross wells.
OPERATOR - means the person or company actually operating an oil or gas well.
PV-10 VALUE - means the present value, employing a 10% discount factor, of the
future net revenues computed using current prices from the production of proven
reserves.
HISTORY OF PROPERTIES
The Company has emerged from the development stage and, in addition to
accumulating an inventory of oil and gas properties for future recovery, has
begun to drill selected developmental wells on the properties which it holds.
During the fiscal year ended June 30, 1995, the Company acquired Simmons Oil
Company, Inc. through a business combination accounted for as a purchase.
Simmons has certain oil and gas properties that had been acquired prior to the
acquisition of Simmons by the Company. The Company intends to further evaluate
these properties and develop those which merit such efforts, based upon this
continuing evaluation. Many of these properties contain existing wells that are
not currently productive which cannot be expected to become productive, if at
all, without additional evaluation, work and repair. The Company has begun an
extensive workover program with the purpose of revitalizing these fields. At
June 30, 1997, the workover and development program, while commenced, has not
progressed to the point of substantial completion. Therefore, oil and gas
production and related revenue from these workover properties are relatively
minimal and proven reserves have not been allocated to these properties. In some
instances, these wells are being plugged and abandoned due to the relinquishing
of leases and a focus on more potentially productive properties in the Company's
core areas of development.
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The Company acquired Hycarbex, Inc. in a business combination accounted for as a
purchase in April, 1995. Hycarbex, Inc. is a wholly owned subsidiary of the
Company. Hycarbex, Inc. has an Exploration License granted by the government of
Pakistan to explore for oil and gas reserves in a particular Concession. The
Company has shot 256 kilometers of 2D seismic surveys across this Concession,
has identified the initial proposed drillsite, and is currently preparing to
drill the initial exploratory well in late 1997. While the prospects of economic
productivity have been evaluated by independent consultants to the Company
indicating potential test drillsites, there can be no definitive evaluation of
the potential value of this project until the drilling is completed.
In June, 1997, the Company acquired oil and gas properties totaling
approximately 1,400 acres located in the Blue Ridge, Boling, and Manvel Fields,
Fort Bend County, Texas. The acquisition included 82 producing and non-producing
wells and all associated production equipment on the properties. The purchase
price was $1,000,000 payable in a combination of cash and production payments
over a maximum of four years. The Company paid $75,000 as down payment, and
executed a Note for $925,000. Under the terms of the purchase, the Company is
committed to pay a minimum of $250,000 per year for the next four years, or
until a total of $1,000,000 has been paid, whichever occurs first, through a
combination of payments of $10,000 for each new drillsite that is drilled and
payments to the seller in the form of an overriding royalty interest from gross
production. The Company has commenced its program to drill new wells on the
properties acquired and to rework some of the previously existing wells.
A summary of the oil and gas property areas in which the Company owns an
interest are as follows:
HARRIS COUNTY, TEXAS.
The Company previously owned and operated working interests in the Decker's
Prairie, Cypress, and Tomball Fields with four properties containing
approximately 833 acres. A portion of the leases have subsequently been deemed
uneconomic and the remainder lost through failure of title. The Company is in
the process of plugging the previously drilled wells and no further drilling and
workover activities are anticipated in this field.
FORT BEND COUNTY, TEXAS.
The Company owns interests in the Blue Ridge and Boling oil fields with 11
leases comprising approximately 1846 gross acres and 1729 net acres.
The Company previously owned acreage in the Nash Dome field in this County. The
Nash Dome acreage has been relinquished to another oil company, with the Company
retaining an overriding royalty in this company's production from this property.
During the Fiscal year ended June 30, 1997, the Company drilled eight
developmental wells in the Blue Ridge Field, with all eight currently in various
stages of completion or production. In excess of 40,000 gross barrels of oil
were sold from this property during fiscal 1997. The Company has a significant
number of proved development locations which it plans to drill in the Blue Ridge
field.
Subsequent to June 30, 1997, the Company has drilled six developmental wells in
the Boling field, with all six in various stages of completion and production.
The Company intends to drill a significant number of additional developmental
wells in this field, pending the ultimate outcome of the initial six recently
drilled.
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LIBERTY COUNTY, TEXAS.
The Company previously held interests in the North Dayton oil field with nine
wells previously drilled by other operators located on approximately 211 acres.
Subsequent to June 30, 1997, the Company has relinquished 161 acres of these
properties, and has drilled 5 new wells in this field on the remaining 50 acres.
The Company is in the process of evaluating the economic potential of these
wells as they are completed and tested, and reviewing the prospective
recompletions of the old wells on this property.
GALVESTON COUNTY, TEXAS.
The Company previously held interests in the Dickinson and Gillock fields with
leases comprising approximately 220 acres. The Company has subsequently
relinquished its interest in the Dickinson field and added the acquisition of an
additional lease in the Gillock field comprised of 673 acres. The Company has
also sold one lease in the Gillock field. The remaining holdings of the Company
are currently comprised of 673 net acres in the Gillock field.
LEON COUNTY, TEXAS.
The Company previously owned a producing property consisting of approximately
840 acres in the Alabama Ferry field. This property has been exchanged for
various equipment to be utilized by the Company in its other oil fields. The
Company retains no further interest in this field.
JACOBABAD, PAKISTAN.
The Company, through its wholly owned subsidiary Hycarbex-American Energy, Inc.,
has obtained an Exploration License to explore for oil and gas reserves from the
government of Pakistan. The property is located in the Middle Indus Basin, near
the city of Jacobabad, Pakistan. The prospect covers 5,000 square kilometers
(approximately 1.2 million acres or 1930 square miles.) The Company is currently
studying all phases of this project in order to adopt a plan that will maximize
the economics of this project, including preparations for the drilling of the
initial well.
"GROSS AND NET" ACREAGE
In the oil and gas industry and as used herein, the word "gross" acres means the
gross surface acreage in which a leasehold working interest is owned. If that
leasehold working interest is less than one hundred percent (100%), the
fractional working interest actually owned is multiplied by the gross acreage to
yield a "net" acreage figure. For example, a fifty percent (50%) working
interest in an oil field comprised of one thousand (1,000) "gross" acres would
calculate as an ownership of five hundred (500) "net" acres.
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A. DRILLING HISTORY
Set forth below is a tabulation of wells completed in the period indicated in
which the Company has participated and the results thereof for each of the three
years ended June 30, 1997.
YEAR ENDED JUNE 30
1997 1996 1995
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
EXPLORATORY:**
DRY .......... 0 0 0 0 0 0
OIL .......... 0 0 0 0 0 0
GAS .......... 0 0 0 0 0 0
----- ----- ----- ----- ----- -----
TOTALS .. 0 0 0 0 0 0
** No Exploratory wells have been drilled by the Company
============================================
DEVELOPMENT:
DRY ................... 0 0 0 0 0 0
OIL ................... 8 7 0 0 0 0
GAS ................... 0 0 0 0 4 3
----- ----- ----- ----- ----- -----
TOTALS ................... 8 7 0 0 4 3
============================================
B. PRODUCING WELLS
Shown below is a tabulation of the productive wells owned by the Company as of
June 30, 1997. This summary includes wells which may currently be shut in and
awaiting recompletion in order to restore productivity.
As of June 30, 1997
PRODUCTIVE WELLS
GROSS NET
----- -----
OIL ............................ 85 82.5
GAS ............................ 0 0
----- -----
TOTAL ..................... 85 82.5
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C. ACREAGE HOLDINGS
Set forth below is information reflecting the developed and undeveloped acreage
owned by the Company as of June 30, 1997.
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
GROSS NET GROSS NET
---------- ---------- ---------- ----------
TEXAS .......... 132 123 2,399 2,371
PAKISTAN ....... 0 0 1,200,000 1,140,000
---------- ---------- ---------- ----------
TOTAL .......... 132 123 1,202,399 1,142,371
========== ========== ========== ==========
D. PRODUCTION AND SALE OF OIL AND GAS
As of June 30, 1997, the Company received oil revenues from 10 wells. All of
these wells are oil producers, with no sales of gas. The additional identified
productive wells are in various stages of recompletion, and many have begun or
are expected to begin to generate production subsequent to June 30, 1997, which
are not reflected in the following production numbers:
Gross Oil Sales (Bbls) in the
Fiscal Year ended June 30, 1997: ....... 40,017
========
Net Oil Sales (Bbls) in the
Fiscal Year ended June 30, 1997: ....... 14,241
========
Avg. Price per Barrel: ................. $ 19.90
========
E. OIL AND GAS RESERVES
This is the initial report filed by the Company in which a reserve report has
been prepared due to the developmental stage of the Company's initial years of
existence. There are no prior comparative years in the following review of
reserves, costs, and associated data. The Company's proved reserves and PV-10
Value from proved developed and undeveloped oil and gas properties have been
estimated by Sigma Energy Corporation in Houston, Texas. The estimates of this
independent petroleum engineering firm were based upon review of production
histories and other geologic economic, ownership and engineering data provided
by the Company. In accordance with SEC guidelines, the Company's estimates of
future net revenue from the Company's proved reserves and the present value
thereof are made on the basis of oil and gas sales prices in effect as of the
dates of such estimates and are held constant throughout the life of the
properties, except where such guidelines permit alternate treatment. Future net
revenues at June 30, 1997 reflect a weighted average price of $19.50 per BOE.
There have been no reserve estimates filed with any United States federal
authority or agency.
The proved developed and undeveloped oil and gas reserve figures presented in
this report are estimates based on reserve reports prepared by independent
petroleum engineers. The estimation of reserves requires substantial judgment on
the part of the petroleum engineers, resulting in imprecise determinations
particularly
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with respect to new discoveries. Estimates of reserves and of future net
revenues prepared by different petroleum engineers may vary substantially,
depending, in part, on the assumptions made, and may be subject to material
adjustment. Estimates of proved undeveloped reserves, which comprise a
substantial portion of the Company's reserves, are, by their nature, much less
certain than proved developed reserves. The accuracy of any reserve estimate
depends on the quality of available data as well as engineering and geological
interpretation and judgment. Results of drilling, testing and production or
price changes subsequent to the date of the estimate may result in changes to
such estimates. The estimates of future net revenues in this report reflect oil
and gas prices and production costs as of the date of estimation, without
escalation, except where changes in prices were escalated under the terms of
existing contracts. There can be no assurance that such prices will be real or
that the estimated production volumes will be produced during the period
specified in such reports. Since June 30, 1997, (the date of the estimate and
the date of this report) oil and gas prices have generally remained stable. The
estimated reserves and future net revenues may be subject to material downward
or upward revision based upon production history, results of future development,
prevailing oil and gas prices and other factors. A material change in estimated
proved reserves or future net revenues could have a material effect on the
Company.
The following tables present total proved developed and proved undeveloped
reserve volumes as of June 30,1997, and estimates of the future net revenues and
PV-10 Value therefrom. There can be no assurance that the estimates are accurate
predictions of future net revenues from oil reserves or their present value.
ESTIMATED PROVED OIL AND GAS RESERVES
RESERVE CATEGORY
----------------------------------------------------------
As of June 30, 1997
Proved Developed Proved Shut In Proved Undeveloped
-------------------- ------------------ ----------------------
Oil (Bbls) Oil (Bbls) Oil (Bbls)
176,413 200,200 2,037,950
======= ======= =========
Total estimated proved oil reserves as of June 30, 1997:
2,414,563 Barrels
=================
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ESTIMATED FUTURE NET REVENUES
The estimated future net revenues (using current prices and costs at the years
end) and the present value of future net revenues (using discount factor of 10
percent per annum) before income taxes for the Company's proved developed and
proved undeveloped oil reserves as of June 30, 1997 are as follows:
RESERVE CATEGORY
----------------------------------------------------------
As of June 30, 1997
PROVED DEVELOPED PROVED SHUT IN PROVED UNDEVELOPED
- ----------------------- ----------------------- -----------------------
Future net Present Future net Present Future net Present
Revenues value of Revenues value of Revenues value of
future net future net future net
revenue revenue revenue
PV 10% PV 10% PV 10%
- ---------- ---------- ---------- ---------- ----------- -----------
$3,440,057 $2,921,183 $3,903,900 $3,105,102 $39,740,027 $21,693,580
========== ========== ========== ========== =========== ===========
TOTAL OF COMBINED PROVED DEVELOPED, SHUT IN, AND UNDEVELOPED
CATEGORIES
Future net Present
Revenues value of
future net
revenue
PV 10%
- ----------- -----------
$47,083,977 $27,719,869
=========== ===========
"Proved developed" oil and gas reserves are reserves that can be expected
recovered from existing wells with existing equipment and operating method
"Proved undeveloped" oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where
relatively major expenditure is required for recompletion. In recent year the
market for oil and gas has experienced substantial fluctuations, which have
resulted in significant swings in the prices for oil and gas. The Company cannot
predict the future of oil and gas prices or whether a future decline in prices
will occur. Any such decline would have an adverse effect on the Company.
TITLE TO PROPERTIES
Many of the Company's oil and gas properties are held in the form of mineral
leases. As is customary in the oil and gas industry, a preliminary investigation
of title is made at the time of acquisition of developed and undeveloped
properties. Title investigations covering the drillsites are generally
completed, however, before commencement of drilling operations or the
acquisition of producing properties. Generally, the Company's
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working interests are subject to customary royalty and overriding royalty
interests, liens, current taxes, operating agreements and other customary
imperfections of title which do not immediately affect operations. Properties
acquired by purchases are also often subject to environmental covenants designed
to protect the seller from liability for environmental damage. The Company
believes that its methods of investigating title to, and acquisition of, its oil
and gas properties are consistent with practices customary in the industry and
that it has generally satisfactory title to the leases covering its proved
reserves.
ITEM 3. LEGAL PROCEEDINGS
The Company and its officers and directors are involved in various litigation as
described below:
The Company and its President, Bradley J. Simmons, have been served with a civil
lawsuit filed by the Securities and Exchange Commission which alleges securities
fraud and stock manipulation regarding actions of the Company in 1995. The
Company and Mr. Simmons intend to vigorously refute these allegations and have
retained legal counsel to represent them in this litigation. The magnitude of
the financial impact of this litigation has yet to be determined.
The Company has been served with three lawsuits involving the collection of
three of the Promissory Notes utilized to purchase the working interests in the
fields in Harris County, Texas as described in Item II in this filing. The
Company is currently evaluating settlement alternatives, third party litigation,
or potential countersuits which could affect these legal actions.
On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston,
Texas, charging that specific individuals and companies had conspired to
manipulate stock of the Company which is believed to have been fraudulently
obtained prior to the formation of The American Energy Group, Ltd. in 1994. As
of the filing of this report, the Company has obtained an injunction to bar
trading in the subject shares until the Court rules on their authenticity. It is
estimated that between 1,000,000 and 2,500,000 shares of existing Common Stock
could be affected by the outcome of this litigation. At this time, it is not
anticipated that litigation costs incurred by the Company will adversely affect
ongoing Company operations.
A derivative claim was filed in response to the Company's July 30, 1997 lawsuit
by one of the defendants, George I. Norman Jr., against the Company and the
Company's three (3) directors, Bradley J. Simmons, David L. Cox, and Gerald N.
Agranoff, alleging that the individuals breached their fiduciary duties to the
Company in the performance of their director activities. The claim by Norman
requests unspecified damages from the individual directors for and on behalf of
the Company and requests that the Court appoint a receiver to manage the affairs
of the Company. Management views the responsive claims of Mr. Norman to be
without merit and intends to vigorously oppose the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
NONE
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION: During the past year, the price of the Common Stock of the
Company was quoted in the "pink sheets" published by the National Quotation
Bureau and the Bulletin Board, an inter-dealer quotation system operated by the
National Association of Securities Dealers Automated Quotation system (NASDAQ)
under the symbol AMEL. The bid price ranged from a low of $1.00 to a high of
$4.19. These over- the-counter market quotations may reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not necessarily
reflect actual transaction prices.
DESCRIPTION OF SECURITIES ISSUED
COMMON STOCK [Authorized 80,000,000 shares of $.001 par value. Issued and
outstanding at June 30, 1997 are 19,859,293 shares]. In addition, 5,377,790
shares are eligible to be issued over a five year period beginning September 30,
1994 upon conversion of the Convertible Preferred Stock. (See Convertible
Preferred Stock) These shares hold voting rights of one vote per share. On June
30, 1997, the Company had approximately 1,500 shareholders holding 19,859,293
shares of Common Stock. As of June 30, 1997, if all Convertible Preferred shares
were converted, the total outstanding Common shares of the Company would be
25,237,083 shares.
CONVERTIBLE PREFERRED STOCK [Authorized 20,000,000 shares of $.001 par value.
Issued and outstanding at June 30, 1997 are 1,075,558 shares] These shares hold
voting rights of one vote per share and a noncumulative preferential dividend of
$0.025 per share per annum payable as declared by the Board of Directors. The
Preferred shares are convertible into Common Stock on the basis of five (5)
Common shares for each one (1) Preferred share. This convertibility is allowed
over a five (5) year period, 20% each year, 20% on or after September 30, 1994
and each year thereafter until September 30, 1999. There is no public market for
the Preferred Stock of the Company. On June 30, 1996, the Company had fifty (50)
shareholders holding 2,128,646 shares of Convertible Preferred stock. In the
year ended June 30, 1997, a total of 1,053,088 Preferred shares were converted
into 5,265,424 shares of Common Stock, thereby reducing the outstanding
Convertible Preferred to a total of 1,075,558 shares. If all remaining
outstanding Preferred shares are converted, the Company will issue an additional
5,377,790 Common shares through June 30, 1999.
WARRANTS - As of June 30, 1997, a total of 10,248,608 Warrants have been issued
by the Company. There is no public market for the Warrants of the Company. A
breakdown of the various amounts, terms, and details are described as follows:
A total of 9,325,000 Warrants were issued in conjunction with the private sale
of Common Stock. These Warrants, held by a total of 17 holders, are exercisable
on the basis of one share of Common Stock for each Warrant, at a price of $1.50
per share through February 12, 1998, and at a price of $3.00 through the
subsequent eighteen (18) month period ending August 12, 1999.As of the filing of
this report none of these Warrants have been exercised.
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<PAGE>
A total of 625,000 Warrants were issued to the Management and Directors of the
Company in the current fiscal year. These Warrants are exercisable on the basis
of one share of Common Stock for each Warrant, at a price of $1.38 per share for
a seven year period which expires April 17, 2004.As of the filing of this report
none of these Warrants have been exercised.
A total of 78,608 Warrants had been issued to Management in the previous fiscal
year. These Warrants are exercisable on the basis of one share of Common Stock
per Warrant. The exercise price for these Warrants is $2.88, and expire on April
30, 1998. As of the filing of this report none of these Warrants have been
exercised.
A total of 120,000 Warrants were issued in conjunction with securing legal
services for the Company. These Warrants are exercisable on the basis of one
share of Common Stock for each Warrant, at a price of $1.38 per share for a two
year period which expires April 17, 1999. As of the filing of this report none
of these Warrants have been exercised.
A total of 100,000 Warrants were issued in conjunction with market development
services for the Company. These Warrants are exercisable on the basis of one
share of Common Stock for each Warrant. These Warrants are exercisable at a
price of $2.50 per share for 25,000 of these Warrants, $3.50 per share for
25,000 of these Warrants,$4.50 per share for 25,000 of these Warrants, and $5.50
per share for 25,000 of these Warrants, for a three year period which expires
September 19,1999.As of the filing of this report none of these Warrants have
been exercised.
DIVIDENDS: The Company has not declared, distributed or paid any cash dividends
in the past. There is no current expectation that the Company will have
sufficient net profit and cash flow in amounts that would allow a cash dividend
to be paid to it's shareholders.
CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the Fiscal year is provided below:
COMMON STOCK
The increase in Common Stock in the amount of 13,239,090 shares from the prior
year is broken down as follows:
A total of 5,265,424 shares of Common Stock were issued in conjunction with the
conversion of Convertible Preferred Stock into Common Stock.
A total of 7,624,666 shares were issued in conjunction with the sale of Common
Stock in a private sale and capitalization of the Company. Of these, a total of
7,274,666 shares were issued under the provisions of Regulation S. Further,
Bonus Trade AG, which holds 3,408,000 shares of the Common Stock acquired, has
agreed to refrain from selling its holdings for a period of one year. Should the
market price of the Common Stock reach $7.50 per share, this restriction becomes
nonapplicable. Likewise, the Officers, Directors, and largest individual
shareholder of the Company, who collectively hold 4,892,335 shares of Common
(assuming conversion of their Convertible Preferred shares into Common Stock),
have agreed to refrain from selling their shares under these same terms.
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<PAGE>
A total of 181,000 shares were issued for the settlement of debt of the Company.
A total of 537,500 shares were issued in conjunction with the acquisition of oil
properties.
A total of 500,000 shares previously issued in conjunction with a prior
investment financing were cancelled due to a default on performance.
Subsequent to the Fiscal year ending June 30, 1997, the Company issued an
additional 2,647,000 shares in conjunction with completion of its equity sale,
which will be reflected in the first quarter of the next fiscal year and its
appropriate quarterly filing.
CONVERTIBLE PREFERRED STOCK
In the year ended June 30, 1997, a total of 1,053,088 Preferred shares were
converted into 5,265,424 shares of Common Stock, thereby reducing the
outstanding Convertible Preferred to a total of 1,075,558 shares.
WARRANTS
As of June 30, 1997, a total of 10,248,608 Warrants have been issued by the
Company. In the event that all outstanding issued Warrants were exercised by the
parties, the Common Stock of the Company would increase by 10,248,608 shares,
generating additional equity investment into the Company of $15,440,000, at
exercise prices in excess of 300% of the current book value per share of the
Company.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the Financial Statements of the Company appended hereto as
"Exhibit "A".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL INFORMATION
The following information should be read in conjunction with the consolidated
financial statements of the Company, attached to this report as Exhibit "A".
The Company has emerged from the development stage. It has been previously
acquiring an inventory of properties to explore and or develop, and has now
begun to drill development wells and recomplete existing wells. It has not had
significant revenue from the production of oil and gas. The Company has financed
its operations to date through private placement of equity securities and
borrowing from lenders, including banks and existing shareholders. Management
anticipates the future generation of a regular revenue stream now that the
Company has received substantial equity funding with which to develop certain of
its properties.
The Company utilizes the full cost method of accounting for its oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a "full
cost pool". Cost included in the full cost pool are charged to operations as
depreciation, depletion and amortization using the units of production method
based on the ratio of current production to estimated
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<PAGE>
proven reserves as defined by regulations promulgated by the U.S. Securities and
Exchange Commission. Gain or loss on disposition of oil and gas properties are
not recognized unless they would materially alter the relationship between the
capitalized costs and the estimated proved reserves. Disposition of properties
are reflected in the full cost pool. The full cost method of accounting limits
the costs the Company may capitalize by requiring the Company to recognize a
valuation allowance to the extent that capitalized cost of its oil and gas
properties in its full cost pool, net of accumulated depreciation, depletion and
amortization and any related deferred income taxes, exceed the future net
revenues of proved oil and gas reserves plus the lower of cost or estimated fair
market value of non-evaluated properties, net of federal income tax. This
limitation is normally referred to as the "ceiling test limitation."
The Company changed significantly on October 1, 1994 with the acquisition of
Simmons Oil Company, Inc. and its subsidiaries, Simmons Drilling Company and
Sequoia Operating Company. Through this transaction, the Company acquired
interests in several oil and/or gas properties located near Houston, Texas. The
Company increased the number of properties in this area by acquiring additional
leases. All of the properties are in areas where production had been achieved in
the past by other exploration companies.
The Company acquired a 52% working interest in a field in Harris County, Texas
from a corporation that was a general partner in partnerships that had been
formed to develop the oil and gas properties. Under the terms of the agreement,
the Company acquired its interest by assuming the obligations of the general
partner, including drilling and completion of the wells on the properties. The
Company made an offer to the other partners in the partnership to buy their
interest in the partnership for the amount of their investment plus interest.
The Company gave the partners until September 15, 1995 to accept or reject the
offer. Partners representing a 42% working interest in the field agreed to sell
their interest at a cost of $485,020 to the Company. The Company has not
completed the purchase transaction and is currently involved in litigation
regarding this purchase (see Legal Proceedings)
SUBSIDIARIES
The Company has established several subsidiaries in order to designate certain
oil and gas fields to specific companies. In addition, certain companies have
been acquired throughout the Company's history. These subsidiaries are further
described as follows:
HYCARBEX, INC. In April 1995, the Company acquired Hycarbex, Inc. which it is
operating as a wholly owned subsidiary. Hycarbex, Inc. has a concession granted
by the Government of Pakistan to explore for oil and gas deposits in the Middle
Indus Basin near Jacobabad, Pakistan. Pakistan has became more aggressive in
allowing exploration activities by foreign corporations and there have been some
significant discoveries by other exploration companies prospecting in the
country and in the vicinity of the Hycarbex concession.
AMERICAN ENERGY-DECKERS PRAIRIE, INC. Incorporated by the parent in January,
1995, as a wholly owned subsidiary to develop the Deckers Prairie Field, Harris
County, Texas. This subsidiary previously owned controlling working interests in
five previously producing gas wells and three wells drilled and ready for
completion. The Company has elected to abandon development of this area relative
to its core areas of activity.
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<PAGE>
THE AMERICAN ENERGY OPERATING CORP. Incorporated by the parent in February,
1995, as a wholly owned subsidiary to operate the wells and fields owned by the
parent and/or certain of the other subsidiaries.
TOMBALL-AMERICAN ENERGY, INC. Incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the Tomball Field, Harris County, Texas. This
subsidiary previously owned controlling working interests in two wells drilled
and ready for completion. The Company has elected to abandon development of this
area relative to its core areas of activity.
CYPRESS-AMERICAN ENERGY, INC. Incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the Cypress Field, Harris County, Texas. This
subsidiary previously owned 100% working interest in one 3,000 ft. well drilled
and ready for completion. The Company has elected to abandon development of this
area relative to its core areas of activity.
DAYTON NORTH FIELD-AMERICAN ENERGY, INC. Incorporated by the parent in March,
1995, as a wholly owned subsidiary to develop the North Dayton Field, Liberty
County, Texas. This subsidiary previously owned an interest in two 4,200 ft.
wells drilled and ready for completion and one 2,500 ft. producing well, along
with 300 acres. This property has been consolidated into the parent company.
NASH DOME FIELD-AMERICAN ENERGY, INC. Incorporated by the parent in March, 1995,
as a wholly owned subsidiary to develop the Nash Dome Field, Ft. Bend County,
Texas. This subsidiary previously owned an interest in three 4,200 ft. producing
wells in addition to 900 acres to be developed. The Company has elected to
abandon development of this area relative to its core areas of activity. This
property has been consolidated into the parent company.
SIMMONS OIL COMPANY, INC. Acquired in October 1994. The properties of this
company have been re-distributed to other field specific subsidiaries, and at
present, this subsidiary is planned for dissolution in the coming fiscal year.
SIMMONS DRILLING CO., INC. A subsidiary of Simmons Oil Company, Inc., which
originally held 4 drilling rigs, 2 service rigs, and associated drilling and
completion equipment, including bulldozers, trucks, etc. This equipment is being
consolidated into The American Energy Operating Corp., and this company is
scheduled to be dissolved in the coming fiscal year.
SEQUOIA OPERATING COMPANY, INC. A subsidiary of Simmons Oil Company, Inc., which
originally operated Simmons Oil Company, Inc.'s properties. The wells that this
company operated are systematically being consolidated into the operations of
The American Energy Operating Corp., and this company is scheduled to be
dissolved in the coming fiscal year.
POLICY OF CONSOLIDATION
As a policy, the Company is currently evaluating the consolidation of its
properties in the various subsidiaries into a more centralized structure, which
would entail dissolving some of the above described companies and creating a
more streamlined approach to its activities.
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<PAGE>
RESULTS OF OPERATIONS
As of June 30, 1997, the Company had only commenced its principal drilling and
reworking operations and had not yet generated significant revenues. The Company
has financed operations through loans and equity capital infusions. During the
past year, it has incurred general and administrative costs associated with the
Company's acquisitions and management of the Company's affairs. Costs incurred
in connection with the acquisition and development of oil and gas properties
have been capitalized in accordance with the full cost method of accounting for
oil and gas properties.
The Company previously acquired oil drilling rigs and associated equipment in
anticipation of drilling wells for their own account. While management
originally believed that this would be more efficient and cost effective than
contracting with third parties, some of the rigs and associated equipment are
being sold due to the current inflation in rig and equipment prices and the
opportunity to focus on production operations.
In the initial two years in which the Company held the Jacobabad Concession in
the Middle Indus Basin of central Pakistan, it expended in excess of $2.0
Million in acquisition, geological, seismic, and associated costs. At the time
of this filing, the Company is in the planning stages for drilling of the
initial exploration well in this Concession. The Company has deposited $1.65
Million in its bank account in Islamabad, Pakistan, in preparation for drilling
the initial well by the end of 1997, and is currently studying geological data
on the area, logistics, mobilization, and other associated matters to devise a
sound plan for success. This is a significant undertaking by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company produced $283,485 in net oil revenues in the fiscal year ended June
30, 1997, which were produced during the initial production phase of various
wells. This represents an increase of 460% from the prior years oil revenues of
$50,390. This calculation does not include the total oil revenues produced for
the benefit of other working interest owners and royalty owners, but only
reflects the net share attributable to the Company. The Company sold a total of
40,017 gross barrels from properties which it developed, with 14,241 net barrels
attributable to the Company's net interest. The Company produced net oil
revenues of $283,485 and incurred production costs of $83,826 and an
amortization charge of $33,000, thereby generating net results from production
operations of a net profit of $166,659 vs a net loss of $30,697 in the fiscal
year ending June 30, 1996.
The Company sustained an overall operating loss of $156,663, due to the
inability of its revenues, which began in mid year, to cover its entire year's
administrative costs. Charges to revenues included a relatively excessive amount
of additional legal and professional expenses in the amount of $143,622 which
the Company considers to be a non-recurring item. Management is confident that
the litigation that it has experienced will not cause a detrimental effect to
the shareholders of the Company.
The Company tripled its total assets from $4,362,126 at June 30, 1996 to
$13,092,370 as of June 30, 1997. This has been primarily due to the issuance and
sale of equity in the fiscal year.
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<PAGE>
The Company increased shareholders equity from $2,450,380 at June 30, 1996 by
300% to a June 30, 1997 total of $10,457,095. More significantly, the Company
has increased its "book value" per share, on a fully diluted basis, by
approximately 200% from $0.14 per share at June 30, 1996 to $0.41 per share at
the end of the current fiscal year. This has been primarily through the sale of
equity in the Company at prices higher than its book value per share.
In the fiscal year ended June 30, 1997, the Company expended $2,497,050 in
acquiring and developing proved domestic properties. These efforts have produced
proven developed and undeveloped reserves, on the portion of the properties upon
which reserve studies were conducted, of in excess of 2.4 Million barrels
reflecting over $27,000,000 in future net revenues (PV-10) attributable to the
Company's interest ownership. This does not include the total oil reserves
developed for the benefit of other working interest owners and royalty owners,
but only reflects the net share attributable to the Company. As there have been
no prior reserve studies prepared for the Company during its development stage,
this serves as the initial benchmark for future comparisons and adjustments.
The Company expended an additional $1,306,426 in connection with exploration
related activities in its Pakistan Concession, bringing the costs attributable
to this project to a total of $2,058,095 as of June 30, 1997. The Company
anticipates additional expenditures in the coming year associated with this
project to be approximately $2 Million. The initial test well is expected to
begin drilling in late 1997. There were no proved reserves included in the
attached Proven Reserve calculations.
While the Company continues to initiate drilling, completion, workover, and
evaluation operations on its fields, most of the wells remain in shut in status
due to the need for additional work. Reservoir studies on many of its properties
cannot begin until this evaluation stage has been completed. The capital for
completing this process is now being provided through equity placement completed
subsequent to June 30, 1997. Until this occurred, the Company was utilizing
private loans from alternative sources. These loans were repaid through the
equity funding provided in fiscal 1997.
The Company estimates the cost of the exploratory well in Pakistan to be
approximately $1.65 Million. The Company has deposited funds from its equity
sale, in the amount of $1.65 Million, into its bank account in Pakistan to
utilize in this endeavor. If successful, the proved reserves from this project
could materially affect the reserve estimates of the Company, as well as provide
a substantial revenue stream for its capital needs in the future.
The Company has replenished its capital resources and cash reserves through the
recent private sale of equity. The Company will be able to fund its overhead and
operations from this capital base for an undetermined time while awaiting the
prospect of revenues to increase to the point of profitability. There is no
assurance that the Company can fund its operations in this manner for adequate
time to realize profitability, or that revenues will increase to that point.
Management is optimistic that the Company will continue to realize revenues from
the projects that it has initiated at the end of its fiscal year ended June 30,
1997, and that it will continue to increase its proven reserve base throughout
the coming fiscal year with its existing capital reserve.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements for the fiscal years ended June 30, 1997, 1996, and 1995
including supplementary data are appended hereto as Exhibit "A" and expressly
made a part hereof.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Mr. Charles Roe, CPA, conducted the annual audits of the Company from inception
to June 30,1994. For the audit of the years ended June 30, 1995, 1996, and 1997,
Mr. Roe affiliated himself with Jones, Jensen & Co. CPA, and the audit is
performed and issued under their auspices. There are no disagreements on
accounting matters or financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Bradley J. Simmons Age 42 President, Director
David L. Cox Age 49 Secretary, Director
President, Hycarbex-American Energy, Inc.
Gerald Agranoff Age 50 Vice President, Treasurer, Director
The following is a brief description of the Officer and Directors during the
subject report period and their status at the time of filing:
BRADLEY J. SIMMONS
PRESIDENT, DIRECTOR & C.E.O.
Bradley Jay Simmons graduated from Yale University with a Bachelor of Science
Degree in Administrative Science in 1979. From 1979 to 1980 he was employed by
E.F. Hutton & Co., Tyler, Texas, as an Account Manager. In 1980 he joined Wells
Battelstein Oil & Gas, Houston, TX., as Vice President, Marketing. He was
instrumental in obtaining over $50 million in joint venture capital, and was
promoted to overseeing a diversified subsidiary base including drilling,
pipeline, well servicing (workover), and operating companies which drilled over
350 wells. In 1982, he started a private independent operating company, Simcor
Energy Corp., Houston, TX., and began drilling and operating Texas oil & gas
properties. In 1983 Simcor was merged into Cottonwood Energy Development Corp.,
Houston, TX., at which time he became President and Chairman of Cottonwood. In
the following five year period, Cottonwood drilled over 300 wells and was
eventually operating approximately 600 wells throughout Texas. In 1988,
Cottonwood was acquired in a "friendly takeover". He subsequently established a
private investment banking practice, representing oil companies in negotiations,
restructuring, acquisitions, and liquidations. Special emphasis of his practice
was in developing and implementing strategies of acquisition and reorganization.
Spent time acquiring knowledge of offshore drilling and operations, and began
aggressive acquisitions of minerals, acreage, and interests in proven trends, as
well as acquisitions of drilling and well servicing equipment. Co-founded
Simmons Oil Company, Inc. and Simmons Drilling Co., Inc. When Simmons Oil
Company, Inc. was acquired by The American Energy Group, Ltd. in September,
1994, he became President, CEO, and a Director of the Company. Mr. Simmons is a
full time employee of the Company.
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<PAGE>
DAVID L. COX
DIRECTOR, SECRETARY, PRESIDENT & CEO, HYCARBEX-AMERICAN ENERGY, INC.
David L. Cox was the former President of Belize American Corp., Internationale
(the previous name of the Company), from October, 1993, to September, 1994. He
graduated from the University of Missouri in 1969 with a Bachelor of Science in
Business Administration. He immediately joined Oscar Mayer & Co., eventually
promoted to Regional Manager ( Dallas, Texas). In 1988, he became Vice
President, Sales and Marketing for HyGrade Foods in Kansas City. He became a
principal in MBRK Advertising & Public Relations in 1992, and started Advantage
Consulting, a firm involved in marketing and acquisitions. Mr. Cox was in the
country of Poland as a special consultant to Constar, Inc. for one year, and
upon his return has taken over as President and CEO of Hycarbex-American Energy,
Inc., acquired by The American Energy Group, Ltd., with a focus on international
oil & gas exploration. Mr. Cox became a full time employee of the Company in
May, 1995, and is the Secretary and a Director of the Company.
GERALD N. AGRANOFF
VICE PRESIDENT, TREASURER, DIRECTOR
Gerald N. Agranoff is a general partner of and general counsel to Plaza
Securities Company and Edelman Securities Company, Investment Partnerships, all
in New York. He has been affiliated with both Plaza and Edelman since January,
1982. Since 1994, he has been Vice President and General Counsel to Datapoint
Corp. In addition, Mr. Agranoff is currently of Counsel to Pryor, Cashman,
Sherman & Flynn, in New York. From 1975 through 1981, Mr. Agranoff was engaged
exclusively in the private practice of law in New York. In addition, he was an
adjunct-instructor at New York University's Institute of Federal Taxation. Prior
to entering private practice, Mr. Agranoff served as attorney-advisor to a Judge
of the United States Tax Court. Mr. Agranoff is a Director of Datapoint
Corporation, Canal Capital Corporation, Atlantic Gulf Communities, and Bull Run
Corporation. Also, he was a co-founder of Simmons Oil Company, Inc., and became
Vice President of The American Energy Group, Ltd. after Simmons Oil was
acquired. He holds an L.L.M. degree in Taxation from New York University and
J.D. and B.S. Degrees from Wayne State University. Mr. Agranoff serves the
Company on a part time, as needed, basis.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following is a summary of compensation paid in cash to officers and
directors during the fiscal year ended June 30, 1997.
Bradley J. Simmons President & Director $ 100,000 Salary
$ 25,000 Bonus
---------
$ 125,000 Total
David L. Cox President-Hycarbex $ 90,000 Salary
COMMON STOCK AND WARRANTS
The Board of Directors approved granting two key employees and the three
Directors of the Company Common Stock and Warrants to acquire Common shares of
the Company under the following conditions:
<TABLE>
<CAPTION>
Name Type Number of Shares Exercise Date Exercise Price
<S> <C> <C> <C> <C>
Bradley J. Simmons Warrants 200,000 shares 4/17/97 to 4/17/2004 $1.38
David L. Cox Warrants 300,000 shares 4/17/97 to 4/17/2004 $1.38
Common 100,000 shares Rule 144
Gerald N. Agranoff Warrants 125,000 shares 4/17/97 to 4/17/2004 $1.38
</TABLE>
MANAGEMENT INCENTIVE PLAN
The Board of Directors approved granting the key employees of the Company
involved with the development of the Jacobabad Concession and the Domestic
Properties a 1% Overriding Royalty Interest. This Royalty Interest will be
re-apportioned as key employees are adjusted with respect to the Pakistan and
United States operations. Currently, the division of this 1% Overriding Royalty
Interest is as follows:
JACOBABAD PROJECT DOMESTIC U.S. PROJECTS
----------------- ----------------------
David L. Cox 55% 50%
Bradley J. Simmons 45% 50%
---- ----
Total 100% 100%
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has two classes of voting equity securities, Common and Convertible
Preferred, which are combined to accumulate the total voting shares of the
Company. Set forth below is the ownership of such equity securities as of June
30, 1997.
A. TOTAL VOTING SHARES AND RELATED COMPUTATIONS AS OF JUNE 30, 1997
(1) VOTING SHARE COMPUTATION AS OF JUNE 30, 1997
Common Stock (1 Vote per Share) 19,859,293
Convertible Preferred (1 Vote per Share) 1,075,558
-----------
Total Voting Shares at 6/30/97 20,934,851
(2) DIRECTORS AND MANAGEMENT VOTING SHARE HOLDINGS
AS OF JUNE 30, 1997
Number Voting
Name Position Type of Shares %
Bradley J. Simmons President/Director Conv. Pref. 40,450
Bradley J. Simmons President/Director Common. 463,375
---------
Total 503,825 2.41%
David L. Cox Secretary/Director Common 392,280 1.87%
Gerald N. Agranoff V. Pres./Director Common 486,375
Gerald N. Agranoff V. Pres./Director Conv. Pref. 32,425
---------
Total 518,800 2.48%
========= ======
TOTAL 1,414,905 6.76%
B. OTHER PARTIES HOLDING 5% OR MORE OF VOTING SHARES AT JUNE 30, 1997
The Farrington Family Trust Common 2,920,749 13.95%
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<PAGE>
C. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
During the Year ended June 30, 1997, and subsequent to this period, the
Company's Officers and Directors failed to file on a timely basis the reports
required by Section 16 (a) of the Exchange Act with respect to the following
transactions:
Bradley J. Simmons, President and Director, after receiving direct and indirect
beneficial ownership of 161,125 shares of Convertible Preferred stock in the
acquisition of Simmons Oil Company, Inc., subsequently gifted 22,000 Convertible
Preferred shares to family members in December, 1995. In June, 1997, he
converted 96,675 shares of Convertible Preferred into 483,375 shares of Commons
stock and gifted 20,000 shares of Common Stock to family members in June, 1997.
Gerald N. Agranoff, Vice President, Treasurer, and Director, after receiving
162,125 shares of Convertible Preferred stock in the acquisition of Simmons Oil
Company, Inc, subsequently in October, 1995, converted 64,850 shares of
Convertible Preferred stock into 324,250 shares of Common Stock. He converted
32,425 Convertible Preferred shares into 162,125 shares of Common Stock during
the year ended June 30, 1997. He gifted 32,425 shares of Convertible Preferred
stock prior to the current fiscal year.
David L. Cox, Secretary and Director, received 255,780 shares of Common Stock in
exchange for oil and gas properties in October, 1994. Mr. Cox subsequently
received 25,000 shares in November, 1994, as compensation for prior service to
the Company. Mr. Cox subsequently, in May, 1995, acquired 2,000 shares of Common
stock at a purchase price of $6.25 per share. Subsequent purchases were made in
July, 1995, of 1,500 shares at $4.75 per share, and in December, 1995, of 8,000
shares at $2.25 per share. In addition, Mr. Cox received 100,000 shares as a
bonus in April, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases an office building located in Simonton, Texas from the
President of the Company for a monthly cost of $500 plus utilities. This is a
month to month lease, which can be terminated by either party with 30 days
notice.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
SEC FORM 10-K
THE AMERICAN ENERGY GROUP, LTD. 6/30/97 PAGE 24 OF 25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS & SCHEDULES, AND REPORTS FILED ON
FORM 8K.
(A) EXHIBITS
EXHIBIT A
Financial Statements dated June 30, 1997, 1996, and 1995 are
appended hereto as Exhibit "A" and expressly made a part hereof.
(B) FINANCIAL STATEMENTS
Financial Statements dated June 30, 1997, 1996, and 1995 are
appended hereto as Exhibit "A" and expressly made a part hereof.
(C) REPORTS FILED ON FORM 8-K
Form 8-K dated August 13, 1997, subsequent to the Fiscal Year
ended June 30, 1997, is appended hereto as Exhibit "B" and
expressly made a part hereof.
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
10/17/97 B/J/S
------------ -----------------------------
Bradley J. Simmons, President
10/17/97 D/L/C
------------ -----------------------------
David L. Cox, Secretary
SEC FORM 10-K
THE AMERICAN ENERGY GROUP, LTD. 6/30/97 PAGE 25 OF 25
<PAGE>
EXHIBIT A
FINANCIAL STATEMENTS
<PAGE>
EXHIBIT A TO FORM 10-K FOR PERIOD ENDING JUNE 30, 1997
THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1997, 1996 and 1995
<PAGE>
CONTENTS
Independent Auditors' Report..................................................3
Consolidated Balance Sheets...................................................4
Consolidated Statements of Operations.........................................6
Consolidated Statements of Stockholders' Equity...............................7
Consolidated Statements of Cash Flows.........................................10
Notes to the Consolidated Financial Statements................................12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
The American Energy Group, Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1997, 1996 and 1995. These consolidated financial
statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
American Energy Group, Ltd. and Subsidiaries as of June 30, 1997 and 1996 and
the results of their operations and their cash flows for the years ended June
30, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1, the accompanying consolidated financial statements have
been prepared assuming that the Companies will continue as going concerns. The
Companies have experienced recurring losses from operations which raises
substantial doubt about the entities ability to continue as going concerns.
Management's plans with regard to these matters are described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Co.
October 9, 1997
Salt Lake City, Utah
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
JUNE 30,
----------------------------
1997 1996
------------ -----------
CURRENT ASSETS
Cash (Notes 1 and 2) ........................ $ 3,132,294 $ 424,698
Receivables ................................. 70,989 5,188
Receivable-related party (Note 3) ........... 9,702 --
Other current assets ........................ 63,984 --
------------ -----------
Total Current Assets ..................... 3,276,969 429,886
------------ -----------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING (Notes 1 and 5)
Properties being amortized ................. 5,618,847 --
Properties not subject to amortization ..... 3,990,489 3,687,111
Accumulated amortization ................... (33,000) --
------------ -----------
Net Oil and Gas Properties ............... 9,576,336 3,687,111
------------ -----------
OTHER PROPERTY AND EQUIPMENT (Note 1 and 4)
Drilling and related equipment .............. 246,494 281,815
Vehicles .................................... 126,146 73,725
Office equipment ............................ 23,021 12,355
Accumulated depreciation .................... (159,446) (129,891)
------------ -----------
Net Other Property and Equipment ......... 236,215 238,004
------------ -----------
OTHER ASSETS
Joint venture receivables ................... -- 4,000
Deposits and other assets ................... 2,850 3,125
------------ -----------
Total Other Assets ....................... 2,850 7,125
------------ -----------
TOTAL ASSETS ............................. $ 13,092,370 $ 4,362,126
============ ===========
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable .................................... $ 545,987 $ 275,971
Accrued liabilities ................................. 296,970 258,423
Advance on equity acquisition ....................... -- 44,985
Note payable - related parties (Note 6) ............. -- 110,000
Current portion of capital lease obligations (Note 8) 4,565 --
Current portion of notes payable and
long-term debt (Note 7) ............................ 1,123,899 1,201,867
------------ -----------
Total Current Liabilities ......................... 1,971,421 1,891,246
------------ -----------
LONG-TERM LIABILITIES
Notes payable and long-term debt (Note 7) ........... 649,737 20,500
Capital lease obligations (Note 8) .................. 14,117 --
------------ -----------
Total Long-Term Liabilities ....................... 663,854 20,500
------------ -----------
Total Liabilities ................................. 2,635,275 1,911,746
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Notes 9, 10 and 11)
Convertible voting preferred stock; par value $.001
per share; authorized 20,000,000 shares;
outstanding 1,075,558 and 2,128,646, respectively .. 1,076 2,129
Common stock; par value $.001 per share;
authorized 80,000,000 shares; 22,509,293 and
6,620,203 shares issued and 19,859,293 and
6,620,203 shares outstanding, respectively ......... 22,509 6,620
Capital in excess of par value ...................... 13,893,728 3,360,186
Common stock subscriptions receivable ............... (2,385,000) --
Accumulated deficit ................................. (1,075,218) (918,555)
------------ -----------
Total Stockholders' Equity ........................ 10,457,095 2,450,380
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 13,092,370 $ 4,362,126
============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Oil and gas sales .............................................. $ 283,485 $ 50,390 $ 43,711
--------- --------- ---------
EXPENSES
Lease operating and production costs ........................... 83,826 81,087 49,372
Legal and professional ......................................... 143,622 129,866 123,640
Administrative labor ........................................... 77,194 118,827 99,112
Office expenses ................................................ 46,929 62,140 48,457
Travel, meals and lodging ...................................... 10,494 16,020 26,381
Depreciation and amortization expense .......................... 37,416 2,163 1,232
Other general and administrative ............................... 56,202 58,361 13,268
--------- --------- ---------
TOTAL EXPENSES ................................................... 455,683 468,464 361,462
--------- --------- ---------
NET OPERATING LOSS ............................................... (172,198) (418,074) (317,751)
--------- --------- ---------
OTHER INCOME (EXPENSES)
Interest income ................................................ 22,416 8,768 10,591
Interest expense ............................................... (43,224) (91,890) (1,948)
Gain (loss) on sale of assets .................................. 19,000 (2,390) --
--------- --------- ---------
Total Other Income (Expenses) ............................... (1,808) (85,512) 8,643
--------- --------- ---------
NET LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM .......................................... (174,006) (503,586) (309,108)
INCOME TAX BENEFITS (Note 12) .................................... -- -- --
--------- --------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM ............................... (174,006) (503,586) (309,108)
EXTRAORDINARY ITEM (Note 13) ..................................... 17,343 -- --
--------- --------- ---------
NET LOSS ......................................................... $(156,663) $(503,586) $(309,108)
========= ========= =========
LOSS PER COMMON SHARE ............................................ $ (0.014) $ (0.076) $ (0.052)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For The Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
--------------------- --------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
---------- ------- ---------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 .............................. 4,700,752 $ 4,701 -- $ -- $ 101,160 $(105,861)
Common stock issued by American
Energy for acquisition of oil and gas
properties at $0.34 per share ...................... 511,560 511 -- -- 173,489 --
Preferred stock issued to acquire
Simmons Oil Company, Inc. and
subsidiaries at $0.50 per share .................... -- -- 2,074,521 2,075 1,042,074 --
Common stock issued for drilling
services at $1.00 per share ........................ 13,395 13 -- -- 13,382 --
Common stock issued to officers
at $0.10 per share ................................. 55,000 55 -- -- 5,445 --
Preferred stock issued for cash
contributed at $1.36 per share ..................... -- -- 75,000 75 101,925 --
Common stock issued upon
conversion of preferred shares .................... 234,625 235 (46,925) (47) (188) --
Preferred stock canceled
in settlement of litigation ........................ -- -- (129,375) (129) 129 --
Preferred stock issued in satisfaction
of notes payable at $1.36 per share ................ -- -- 212,500 212 288,788 --
Common stock issued in satisfaction
of notes payable at $1.35 per share ................ 256,000 256 -- -- 345,744 --
Common stock issued for bonding
service at $0.44 per share ......................... 469,996 470 -- -- 206,110 --
Common stock issued for cash
contributions at $2.00 per share ................... 333,000 333 -- -- 632,867 --
Common stock issued for legal
services rendered at $0.33 per share ............... 12,500 13 -- -- 4,155 --
Cancellation of common
stock of a shareholder ............................. (800,000) (800) -- -- 800 --
Common stock issued for acquisition
of Hycarbex at $0.50 per shares .................... 120,000 120 -- -- 59,880 --
Net (loss) for the year ended
June 30, 1995 ...................................... -- -- -- -- -- (309,108)
---------- ------- ---------- ------- ----------- ---------
Balance, June 30, 1995 .............................. 5,906,828 $ 5,907 2,185,721 $ 2,186 $ 2,975,760 $(414,969)
---------- ------- ---------- ------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For The Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
----------------------- ---------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
----------- -------- ---------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 ............................. 5,906,828 $ 5,907 2,185,721 $ 2,186 $ 2,975,760 $(414,969)
Common stock issued upon
conversion of preferred shares .................... 285,375 285 (57,075) (57) (228) --
Charge stock issuance costs
to the proceeds of the offering ................... -- -- -- -- (114,918) --
Common stock issued for cash
contributions at $1.00 per share .................. 500,000 500 -- -- 499,500 --
Cancellation of common stock ....................... (72,000) (72) -- -- 72 --
Net (loss) for the year ended
June 30, 1996 ..................................... -- -- -- -- -- (503,586)
----------- -------- ---------- ------- ----------- ---------
Balance, June 30, 1996 ............................. 6,620,203 6,620 2,128,646 2,129 3,360,186 (918,555)
Common stock issued for
oil and gas properties ............................ 287,500 288 -- -- 474,712 --
Common stock issued upon
conversion of preferred shares .................... 5,265,424 5,265 (1,053,088) (1,053) (4,213) --
Cancellation of common stock ....................... (500,000) (500) -- -- 500 --
Common stock issued as part of
joint venture buy out at $1.00 per share .......... 250,000 250 -- -- 249,750 --
Common stock issued for
retirement of notes payable at
$1.00 per share ................................... 150,000 150 -- -- 149,850 --
Common stock issued for
services rendered at $1.00 per share .............. 30,500 30 -- -- 30,470 --
Common stock issued to an officer
as a bonus at $1.00 per share ..................... 100,000 100 -- -- 99,900 --
Common stock issued in satisfaction of
accounts payable at $.78 per share ................ 31,000 31 -- -- 24,024 --
Common stock issued for cash
contributions at $1.00 per share .................. 350,000 350 -- -- 349,650 --
----------- -------- ---------- ------- ----------- ---------
Balance forward .................................... 12,584,627 $ 12,584 1,075,558 $ 1,076 $ 4,734,829 $(918,555)
----------- -------- ---------- ------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For The Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
---------------------- -------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
---------- ------- --------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance forward ............................. 12,584,627 $12,584 1,075,558 $1,076 $ 4,734,829 $ (918,555)
Common stock issued for cash
at $.95 per share ......................... 7,274,666 7,275 -- -- 6,922,635 --
Common stock subscriptions at
$.90 per share ............................. 2,650,000 2,650 -- -- 2,382,350 --
Offering costs related to sales of
common stock .............................. -- -- -- -- (146,086) --
Net (loss) for the year ended
June 30, 1997 ............................... -- -- -- -- -- (156,663)
---------- ------- --------- ------ ------------ -----------
Balance, June 30, 1997 ...................... 22,509,293 $22,509 1,075,558 $1,076 $ 13,893,728 $(1,075,218)
========== ======= ========= ====== ============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------
1997 1996 1995
----------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Loss .............................................................. $ (156,663) $(503,586) $ (309,108)
Adjustments to Reconcile Net Loss to Cash
Provided by Operating Activities:
Depreciation and amortization ..................................... 88,719 53,069 23,792
Less amount capitalized to oil and gas
properties ....................................................... (51,303) (50,906) (22,560)
Common stock issued for services rendered ......................... 130,500 -- 9,668
Changes in Operating Assets and Liabilities:
Decrease (Increase) in receivables ................................ (65,801) 6,900 1,435
(Increase) in receivables-related party ........................... (9,702) -- --
Decrease (Increase) in other current assets ....................... (63,984) 903 (903)
Decrease in joint venture receivables ............................. 4,000 64,727 4,752
Decrease in deposits .............................................. 275 665 1,112
Increase (Decrease) in accounts payable ........................... 294,070 171,522 (282,612)
Increase (Decrease) in accrued liabilities
and other current liabilities ..................................... (6,438) 205,891 27,522
----------- --------- -----------
Cash Provided (Used) by Operating Activities
163,673 (50,815) (546,902)
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment .................... 51,001 5,190 --
Expenditures for unproved oil and gas properties .................... (4,024,056) (713,378) (630,752)
Expenditures for other property and equipment ....................... (53,885) -- (55,243)
----------- --------- -----------
Cash Provided (Used) by Investing Activities ..................... (4,026,940) (708,188) (685,995)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term
liabilities ........................................................ 120,000 381,200 650,000
Proceeds from issuance of common stock .............................. 7,279,910 500,000 633,200
Expenditures for offering costs ..................................... (146,086) (114,918) --
Proceeds from issuance of convertible voting
preferred stock .................................................... -- -- 102,000
Payments on notes payable and long-term
liabilities ........................................................ (682,961) (55,074) (36,728)
----------- --------- -----------
Cash Provided (Used) by Financing Activities ..................... $ 6,570,863 $ 711,208 1,348,472
----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH ....................................... $2,707,596 $ (47,795) $115,575
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR .................................................... 424,698 472,493 --
CASH ACQUIRED IN PURCHASE TRANSACTION ................................. -- -- 356,918
---------- --------- --------
CASH AND CASH EQUIVALENTS END OF
YEAR ................................................................. $3,132,294 $ 424,698 $472,493
========== ========= ========
CASH PAID FOR:
Interest ............................................................ $ 39,105 $ 91,890 $ 29,300
Income taxes ........................................................ $ -- $ -- $ --
NON CASH FINANCING ACTIVITIES:
Common stock issued for acquisition of oil
and gas properties ................................................... $ 725,000 $ -- $174,000
Common stock issued to retire notes payable
and accounts payable ................................................. $ 174,055 $ -- $346,000
Notes payable for acquisition of oil and gas
properties ........................................................... $1,121,866 $ -- $485,021
Notes payable and capital lease obligations
for acquisition of other property and equipment ...................... $ 51,046 $ -- $ 87,000
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1997, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The American Energy Group, Ltd. (the Company) was incorporated in the
State of Nevada on July 21, 1987 as Dimension Industries, Inc. Since
incorporation, the Company has had several name changes including DIM,
Inc. and Belize-American Corp. Internationale with the name change to
The American Energy Group, Ltd. effective November 18, 1994.
Effective September 30, 1994, the Company entered into an agreement to
acquire all of the issued and outstanding common stock of Simmons Oil
Company, Inc. (Simmons), a Texas Corporation, in exchange for the
issuance of certain convertible voting preferred stock (see Note 9).
The acquisition included wholly owned subsidiaries of Simmons, Sequoia
Operating Company, Inc. and Simmons Drilling Company, Inc. The
acquisition was recorded at the net book value of Simmons of $1,044,149
which approximates fair value.
During the year ended June 30, 1995, the Company incorporated
additional subsidiaries including American Energy-Deckers Prairie,
Inc., The American Energy Operating Corp., Tomball American Energy,
Inc., Cypress-American Energy, Inc., Dayton North Field-American
Energy, Inc. and Nash Dome Field-American Energy, Inc. In addition, in
May 1995, the Company acquired all of the issued and outstanding common
stock of Hycarbex, Inc. (Hycarbex), a Texas corporation, in exchange
for common stock of the Company (see Note 10), a 1% overriding royalty
on the Pakistan Project (see Note 5) and a future $200,000 production
payment if certain conditions are met. In April 1995, the name of that
company was changed to Hycarbex-American Energy, Inc. All of these
companies are collectively referred to as "the Companies".
The Company and its subsidiaries (the Companies) are principally in the
business of acquisition, exploration, development and production of oil
and gas properties.
b. Development Stage and Continued Existence
During the year ended June 30, 1997, the Companies began production
from its oil and gas leases located in the State of Texas and has
recognized the corresponding revenues. Accordingly, the Companies are
no longer considered to be in the development stage with the
accompanying consolidated financial statements no longer reflecting the
results of operations, changes in stockholders' equity and cash flows
for the period from inception on July 21, 1987 through June 30, 1997.
In addition, the accompanying consolidated financial statements have
been prepared assuming the Companies will continue as going concerns.
The Companies have experienced recurring losses and negative cash flows
from operations which raise substantial doubt about the Companies'
ability to continue as going concerns.
12
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Development Stage and Continued Existence (Continued)
The recovery of assets and continuation of future operations are
dependent upon the Companies' ability to obtain additional debt or
equity financing and their ability to generate revenues sufficient to
continue pursuing their business purpose. Management is actively
pursuing additional equity and debt financing sources to finance future
operations and anticipates an increase in revenues from oil and gas
production during the coming year.
c. Accounting Methods
The Company's consolidated financial statements are prepared using the
accrual method of accounting.
Oil and Gas Properties-
The full cost method is used in accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related
overhead costs, are capitalized. In addition, depreciation on property
and equipment used in oil and gas exploration and interest costs
incurred with respect to financing oil and gas acquisition, exploration
and development activities are capitalized in accordance with full cost
accounting. Capitalized interest for the year ended June 30, 1997 and
1996 was $31,028 and $40,229, respectively. In addition, depreciation
capitalized during the years ended June 30, 1997 and 1996 totaled
$51,303 and $50,906, respectively. All capitalized costs of proved oil
and gas properties subject to amortization are being amortized on the
unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects not
subject to amortization are not amortized until proved reserves
associated with the projects can be determined or until impairment
occurs. 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. As of June 30, 1997, proved oil and gas reserves
had been identified on some of the Companies oil and gas properties
with revenues generated and barrels of oil produced from those
properties. Accordingly, amortization totaling $33,000 has been
recognized in the accompanying consolidated financial statements for
the year ended June 30, 1997 on proved and impaired or abandoned oil
and gas properties.
Acquisition of Simmons Oil Company, Inc. and Subsidiaries-
The acquisition of Simmons Oil Company, Inc. and its subsidiaries has
been accounted for using the purchase method. Accordingly, the
accompanying consolidated financial statements for the year ended June
30, 1995, do not include the financial position, the results of
operations or cash flows of the Simmons companies for the three months
ended September 30, 1995. That information is presented on a proforma
basis in Note 16 to these consolidated financial statements.
Acquisition of Hycarbex, Inc.-
The acquisition of Hycarbex, Inc. has been accounted for using the
pooling-of-interests method. That company had no assets or liabilities
or results of operations through the date of the acquisition and,
therefore, had no effect on the consolidated financial statements as of
and for the period ended June 30, 1995.
13
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Principles of Consolidation
The consolidated financial statements include the Company and its
wholly owned subsidiaries as detailed previously. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
f. Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation on drilling and
related equipment, vehicles and office equipment is provided using the
straight-line method over expected useful lives of five to seven years.
For the years ended June 30, 1997 and 1996, the Companies incurred
total depreciation of $55,719 and $53,069, respectively.
In accordance with full cost accounting, $51,303 and $50,906 of
depreciation was capitalized as costs of oil and gas properties for the
year ended June 30, 1997 and 1996, respectively, as previously
discussed.
g. Net Loss Per Share of Common Stock
The net loss per share of common stock is based on the weighted average
number of shares issued and outstanding at the date of the consolidated
financial statements. Stock warrants and preferred shares prior to
conversion are not included in the calculation because their inclusion
would be antidilutive, thereby reducing the net loss per common share.
h. Concentrations of Risk
From time to time the cash balances in the Companies bank accounts
exceed Federally insured limits. At June 30, 1997 and 1996 the balances
in excess of the limits were approximately $2,622,700 and $325,000,
respectively.
i. Foreign Operations
A significant portion of the assets of the Companies relate to an oil
and gas concession located in the country of Pakistan (see Note 5). The
Companies do not believe that they are subject to any unusual risks
beyond the normal risks attendant to operating its business.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
14
<PAGE>
THE AMERICAN GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 2 - CERTIFICATES OF DEPOSIT
As of June 30, 1997, the Companies held three certificates of deposit
totaling $300,000 at the same financial institution, all in the name of
the Company and two of the subsidiaries. All three certificates of
deposit bear interest at a rate of 4.25% and mature every 30 days.
These certificates of deposit are unencumbered at June 30, 1997. In
prior periods, certificates of deposit of corresponding amounts had
been pledged as collateral on notes payable ( Note 7).
NOTE 3 - RECEIVABLES-RELATED PARTY
Periodically, the Company makes advances to and receives advances from
officers and directors of the Company. As of June 30, 1997, the Company
had a net receivable from the president of the Company totaling $9,702.
Subsequent to June 30, 1997, these advances were repaid to the Company.
NOTE 4 - OTHER PROPERTY AND EQUIPMENT
On September 30, 1995, the Company entered into an agreement with an
unrelated party to acquire 6.6725 acres of land including all buildings
and improvements located in Cypress, Texas for $1,172,550. $5,000 was
paid at the time of execution of the agreement with the remaining
unpaid principal balance was due in full on September 30, 1996.
Interest accrued on that unpaid balance at a rate of 6% and was payable
monthly before the end of each calendar month. The Companies and their
management determined not to complete this transaction and notified the
lienholder of the Companies intent to not complete the acquisition and
vacate the premises. Accrued interest totaling $28,665 was reflected as
a liability at June 30, 1996 and was subsequently paid. There is no
liability or outstanding commitment related to this transaction at June
30, 1997.
NOTE 5 - OIL AND GAS PROPERTIES
At the time the Company acquired Simmons Oil Company, Inc. and its
subsidiaries, those companies had ownership interests in oil and gas
prospects located in Texas. These properties contained oil and gas
leases on which existing wells had been shut-in and abandoned and had
additional sites were available for further exploration and
development. During the years ended June 30, 1997 and 1996, the
Companies expended funds in exploration and development activities and
work over of existing wells on those properties and other oil and gas
properties acquired during those years.
On March 10, 1995, American Energy - Deckers Prairie, Inc., a wholly
owned subsidiary of the Company, entered into an agreement with an
unrelated entity to accept the transfer of all right, title and
interest to certain oil and gas leases located in the State of Texas
along with all personal property and equipment located on and used in
connection with those leases. In exchange, American Energy - Deckers
Prairie, Inc. assumed all contractual covenants related to those oil
and gas leases. The selling entity had previously sold working
interests in these oil and gas leases totaling from 33% to 48%
depending on the property.
As part of the acquisition agreement, American Energy - Deckers
Prairie, Inc. agreed to purchase the working interests from the
individual holders for the amount of their original investment plus
interest at 7% from the date of their investment, evidenced by a
"Drilling Investor Note" to each investor, due and payable on September
15, 1995. Each working interest holder has the option to retain his
working interest or sell it to American Energy - Deckers Prairie, Inc.
15
<PAGE>
THE AMERICAN GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 5 - OIL AND GAS PROPERTIES (Continued)
At June 30, 1997, the Companies have been unable to satisfy this
obligation and the financial guaranty bond securing the payment of the
Drilling Investor Notes has not been enforced, although the Companies
intend to satisfy this obligation. Accordingly, the value of the
acquisition of these working interest has been included in the
accompanying consolidated financial statements as part of the cost of
oil and gas properties along with the corresponding liability (See Note
7).
Effective May 1, 1995, the Company acquired certain oil and gas leases
and certain drilled and equipped wells for $55,000 from an unrelated
entity.
On April 3, 1995, the Company entered into an agreement with an
unrelated entity (which is also the same entity providing financial
guaranty and surety bonds on oil and gas property acquisitions) for the
sale of common stock and joint venture investments of up to
approximately $20,000,000 in the exploration, development and
production of the Companies oil and gas properties. The agreement was
amended and extended several times, including the addition of the
Company agreeing to sell an undivided 50% working interest in certain
oil and gas properties for $1,000,000. The Companies did not receive
any funds in conjunction with this transaction and no working interest
ownership was conveyed to this entity. In December 1995, the Companies
entered into an agreement with an unrelated foreign entity to assume
the position of the previously mentioned entity for the purchase of
common stock and oil and gas and Joint Venture investments.
Subsequently, that entity defaulted on the agreement. Accordingly, no
effects of this transaction have been reflected in the accompanying
consolidated financial statements with respect to oil an gas
properties. (See Note 10).
On April 6, 1995, Hycarbex entered into a concession agreement with and
was issued an exploration license by the President and the Federal
Government of the Islamic Republic of Pakistan. This agreement and
license relate to oil and gas property known as the "Jacobabad Block"
(Block 2768-4) or the Pakistan concession and entitles Hycarbex to a
95% working interest in the property. The exploration license has been
issued for a period of three years. During the first year Hycarbex
expended the minimum required $26,000 for processing and interpreting
data already available. In the second year which was included in the
year ended June 30, 1997, Hycarbex performed the minimum seismic work,
evaluating and interpreting the data from the work performed. Hycarbex
must drill one exploratory well prior to April 1998 to an agreed upon
depth. In the event Hycarbex does not commit to undertake the drilling
of the exploratory well, the license shall expire. Hycarbex is
currently negotiating for the drilling of the exploratory well and has
deposited $1,650,000 with a bank in Pakistan which is the agreed upon
budget for this first exploratory well.
On May 15, 1996, an unrelated entity acquired an option to purchase a
1% overriding royalty interest in the Pakistan concession.
Consideration of $3,800 was paid with the option expiring in 24 months.
The purchase price of the 1% overriding royalty interest is $100,000.
This option had not been exercised as of June 30, 1997.
16
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 5 - OIL AND GAS PROPERTIES (Continued)
As part of compensation arrangements with key management, the Company
established a royalty pool consisting of a 1% overriding royalty on the
Pakistan concession upon discovery and establishment of production.
The concession agreement also required Hycarbex to provide a bank
guaranty for $551,000 which was done by an unrelated surety company.
That surety company received common stock of the Company as
compensation for providing the bond as described in Note 10.
The Companies had a joint venture receivable with an unrelated entity
totaling approximately $120,000 with that entity also making certain
claims against the Companies. These amounts and claims had been in
dispute for sometime. During the year ended June 30, 1997, the
Companies entered into a settlement arrangement with this entity
wherein the Companies forgave this receivable, conveyed certain oil and
gas properties and issued 187,500 shares of common stock to that entity
in exchange for other oil and gas properties. The effects of this
transaction have been reflected in the accompanying consolidated
financial statements at June 30, 1997.
In May 1997, the Companies entered into an agreement to acquire certain
oil and gas properties and equipment in the state of Texas for a total
of $1,000,000 from an unrelated party. $75,000 cash was paid with the
balance of $925,000 to be paid over a maximum of four years with a
minimum of $175,000 the first year and $250,000 per year thereafter
until paid in full (see Note 7). This liability may be paid during each
year in the form of $10,000 per drill site and certain royalty
payments.
During the year ended June 30, 1997, the Companies received $800,000 as
a joint venture investment in certain of the Companies oil and gas
properties. In June 1997, the Companies entered into agreements
representing $500,000 of the joint venture investors to repurchase
their interests for a total of 250,000 shares of common stock and notes
payable totaling $389,000 (see Notes 10 and 7, respectively).
Subsequent to June 30, 1997, the Companies acquired the remaining
$300,000 joint venture interest for 150,000 shares of common stock and
a note payable of $121,564 with additional payments made to that
individual prior to the consummation of that transaction.
NOTE 6 - NOTE PAYABLE - RELATED PARTY
As of June 30, 1996, the Companies had a note payable in the amount of
$100,000 due to an individual who is a major shareholder and director
of the Companies. This note payable bears interest at a rate of 11% and
matured January 19, 1996. In addition, the Companies have assigned to
this individual a 1% overriding royalty in all oil and gas properties
of the Companies. This obligation was paid off during the year ended
June 30, 1997.
During the year ended June 30, 1996, the Companies borrowed $10,000
from an individual who is related to an officer and director. This note
payable bore interest at 10% and was due on demand. This note payable
was retired during the year ended June 30, 1997.
17
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable bearing no interest; payable $175,000
the first year and $250,000 annually thereafter
until paid in full; secured by certain oil and gas
property and equipment .................................................. $ 915,000 $ --
Notes payable bearing no interest; due in monthly
installments of $64,834; secured by joint venture
interests in certain oil and gas properties ............................. 389,000 --
8.5% note payable to a financial institution due in
monthly installments of $950 for 36 months; secured
by two vehicles ......................................................... 28,520 --
10% notes payable, due on demand, unsecured .............................. 190,000 190,000
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties ................... 443,250 468,000
5.25% notes payable to a financial institution, due
November 1, 1996; secured by certificates of
deposit totaling $300,000 (see Note 2) .................................. -- 300,000
10% note payable, due in monthly installments of
$1,900 with a balloon payment of $30,803 due August
1, 1996; secured by natural gas gathering
system .................................................................. -- 37,667
Note payable to an individual bearing no interest
and due on demand; unsecured ............................................ -- 50,000
Note payable bearing no interest; payable at $0.50
per foot drilled with the drilling rig securing this
obligation, any unpaid balance due June 1, 1998 ......................... -- 20,500
15% note payable, due June 28, 1997, secured
by equipment ............................................................ -- 80,000
16% note payable, due July 16, 1996, secured by
equipment, oil and gas lease interests and
guarantee agreement with a Company officer .............................. -- 76,200
---------- ----------
Total notes payable and long-term debt ................................... $1,965,770 $1,222,367
---------- ----------
</TABLE>
18
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Total notes payable and long-term debt ....... $ 1,965,770 $ 1,222,367
Less: Unamortized discount ................... (192,134) --
----------- -----------
Net notes payable and long-term debt ......... 1,773,636 1,222,367
Less: Current portion of notes payable
and long-term debt .................. (1,123,899) (1,201,867)
----------- -----------
Long-Term Liabilities ........................ $ 649,737 $ 20,500
=========== ===========
The following are the scheduled annual repayments of notes payable and long-term
debt:
YEAR ENDING JUNE 30,
1998 $1,123,899
1999 199,776
2000 218,539
2001 231,422
----------
$1,773,636
==========
Discounts on non-interest bearing notes payable have been determined using an
imputed interest rate of 10%. These discounts have been reflected as reductions
in notes payable and long-term debt in the accompanying consolidated financial
statements.
NOTE 8 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 relating to office equipment and portable buildings used in the field which
have been accounted for as capital leases. These leases have terms of from 36 to
60 months with total monthly lease payments of $643.
The following are the scheduled annual payments on these capital leases:
YEAR ENDING JUNE 30,
1998 $ 7,711
1999 7,711
2000 6,815
2001 2,741
2002 1,387
--------
Total minimum lease commitments ................................ 26,365
Less: Executory costs (such as taxes and insurance)
included in capital lease payments .................... (2,342)
--------
Net minimum lease payments ..................................... 24,023
Less: Amount representing interest ............................. (5,341)
--------
Total Capital Lease Obligations ................................ 18,682
Current Portion ................................................ (4,565)
--------
Long Term Portion .............................................. $ 14,117
========
19
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 9 - CONVERTIBLE VOTING PREFERRED STOCK
On September 22,1994, the board of directors of the Company approved
the issuance of 2,074,521 shares of the authorized preferred stock of
the Company, to be issued in a series, to be known as the "Convertible
Voting Preferred Stock, $.025 Non-Cumulative Dividend". A corresponding
certificate of issuance was filed with the State of Nevada. Holders of
these shares are entitled to a noncumulative, preferential dividend of
$.025 per share per annum, when declared by the board of directors,
payable from the surplus, net profits or assets of the Company. At any
time after September 30, 1999, the board of directors of the Company
may elect to redeem this Convertible Voting Preferred Stock at a
redemption price of $.50 per share. Each share of this Convertible
Voting Preferred Stock shall be convertible into five shares of the
common stock of the Company.
Under the conversion privileges of these shares, the holder may elect
to convert 20% of the Convertible Voting Preferred Stock prior to
September 30, 1995 and an additional 20% every year thereafter until
September 30, 1999. The right to convert shall terminate if not
exercises in or before September 30, 1999. Each share of this
Convertible Voting Preferred Stock shall be entitled to one shareholder
vote. These 2,074,521, shares were issued pursuant to the acquisition
by the Company of Simmons Oil Company, Inc. and its subsidiaries. One
share of Convertible Voting Preferred Stock was issued for every four
shares of common stock of Simmons Oil Company, Inc.
During the year ended June 30, 1995, the Company issued an additional
75,000 shares of Convertible Voting Preferred Stock in exchange for
cash contributions totaling $102,000 at a price of $1.36 per share as
established by the board of directors. In addition, 212,500 shares of
Convertible Voting Preferred Stock were issued to individuals during
the year ended June 30, 1995 in satisfaction of notes payable totaling
$289,000. The per share price at which these transactions took place
was also at a rate of $1.36 per share as determined by the board of
directors. These shares were issued on the same basis and convertible
and voting terms as the Convertible Voting Preferred shares issued in
conjunction with the Simmons Oil Company, Inc. and Subsidiaries
acquisition.
The Company resolved a dispute with one of the original shareholders of
Simmons Oil Company, Inc. during the year ended June 30, 1995 which
resulted in the surrender and cancellation of 129,375 shares of
Convertible Voting Preferred Stock previously issued in conjunction
with the acquisition of Simmons Oil Company, Inc. and Subsidiaries.
During the years ended June 30, 1997 and 1996, holders of shares of the
Convertible Voting Preferred Stock elected to convert their shares into
common stock of the Company in accordance with the conversion
provisions. Accordingly, 1,053,088 shares of convertible voting
preferred stock were converted into 5,265,424 shares of the Company's
common stock in 1997 and 57,075 shares of convertible voting preferred
stock were converted into 285,375 shares of the Company's common stock
in 1996 (Note 10.)
20
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 10 - COMMON STOCK
During the year ended June 30, 1994, the Company issued 1,500,000
shares of common stock in satisfaction of a $4,500 long-term liability.
During the year ended June 30, 1995, the board of directors authorized
cancellation of 800,000 of those common shares pursuant to a mutual
agreement between the parties involved.
The Company compensated officers and directors by issuing them 55,000
shares of common stock during the year ended June 30, 1995 for services
rendered valued at $5,500 or $0.10 per share.
In September 1994, the Company issued to two individuals, one of which
was an officer and director of the Company, 511,560 shares of common
stock for oil and gas properties valued at $174,000, representing $0.34
per share as determined by the board of directors.
The Company issued 13,395 shares of common stock during the year ended
June 30, 1995 as payment for $13,395 of drilling services which is the
equivalent of $1.00 per share as determined by the board of directors.
During the year ended June 30, 1995 notes payable totaling $346,000
were retired by the issuance of 256,000 shares of common stock at
prices varying from $0.34 to $2.00 per share as determined by the board
of directors.
During the year ended June 30, 1995, the Companies acquired interests
in numerous oil and gas properties through several large transactions.
Those transactions required that there be performance bonds provided by
the Companies in specified amounts. The Companies entered into an
arrangement with a company who would provide the required bonding
associated with these transactions in exchange for the issuance of
common stock. Accordingly, the Company issued a total of 469,996 shares
of its common stock valued at $206,580 representing prices per share of
between $0.34 and $0.50 as determined by the board of directors.
A total of 333,000 shares of common stock was issued during 1995 for
cash contributions totaling $633,200 in various transactions at prices
per share ranging from $0.34 to $3.50 as determined by the board of
directors.
The Company issued 12,500 shares of common stock during the year ended
June 30, 1995 to a former director of the Company for legal services
valued at $4,168 or $0.33 per share as determined by the board of
directors.
In April 1995, the Company acquired all of the issued and outstanding
common stock of Hycarbex, Inc., a Texas corporation, by issuing 120,000
shares of the Company's common stock. This transaction was valued at
$60,000 or $0.50 per share as determined by the Board of Directors.
A total of 285,375 shares of common stock were issued during the year
ended June 30, 1996 as a result of the conversion of 57,075 shares of
convertible voting preferred stock. During the year ended June 30,
1997, 1,053,088 shares of convertible voting preferred stock were
converted into 5,265,424 shares of common stock (see Note 9).
21
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 10- COMMON STOCK (Continued)
As discussed in Note 5, an unrelated foreign entity assumed the
investment obligations of another entity in December 1995. In January
1996, the Companies received $500,000 from that foreign entity. In
accordance with the terms of the original and assumption agreement, the
$500,000 should be applied toward the acquisition of 500,000 shares of
the Company's common stock and was reflected accordingly in the
accompanying consolidated financial statements as of June 30, 1996. The
Company incurred significant costs in efforts to obtain this funding
totaling $114,918. These expenditures have been reflected as stock
issuance costs and a decrease in capital in excess of par value in the
accompanying consolidated financial statements ended June 30, 1997.
This foreign entity defaulted on the performance of the funding
commitments and the 500,000 shares of common stock associated with this
transaction have been cancelled as reflected in the accompanying
consolidated financial statements for the year ended June 30, 1997.
During the year ended June 30, 1996, and in conjunction with a
settlement arrangement with a previous shareholder of Simmons Oil
Company, the Company cancelled 72,000 shares of common stock originally
issued to that individual in conjunction with the acquisition
transaction discussed in Note 1.
In conjunction with a settlement and property exchange agreement
executed by the Company in August 1996 as discussed at Note 5, the
Company issued 187,500 shares of common stock to an unrelated entity
valued at $2.00 per share or $375,000. An additional 100,000 shares of
common stock were issued to a former director of the Company in
November 1996 in exchange for an interest in oil and gas properties.
These shares have been valued at $1.00 per share for a total of
$100,000 as included in the accompanying consolidated financial
statements.
During the year ended June 30, 1997, the Company issued 250,000 shares
of common stock in conjunction with the buy out of certain joint
venture interests in oil and gas properties. These shares have been
valued at $1.00 per share or $250,000.
150,000 shares of common stock have been issued during the year ended
June 30, 1997 to retire $150,000 of notes payable.
An additional 30,500 shares of common stock were issued during the year
ended June 30, 1997 as payment for services rendered. These shares have
been valued at $1.00 per share for a total of $30,500.
In satisfaction of $24,055 of accounts payable, the Company issued
31,000 shares of common stock representing $0.78 per share.
In May 1997, the Company issued 100,000 shares of common stock as a
bonus to an officer and director of the Company. These shares have been
valued at $1.00 per share as reflected in the accompanying consolidated
financial statements.
The Company received $350,000 of cash contributions during the year
ended June 30, 1997 for which 350,000 shares of common stock were
issued representing $1.00 per share.
22
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 10- COMMON STOCK (Continued)
During the year ended June 30, 1997, the Company sold 7,274,666 shares
of common stock for which the Company received $6,929,910 at an average
of $0.95 per share. An additional 2,650,000 shares had been issued at
June 30, 1997 for which proceeds of $2,385,000 had not yet been
received. The 2,650,000 shares have been reflected as issued but not
outstanding in the accompanying consolidated financial statements with
the corresponding $2,385,000 shown as common stock subscriptions
receivable. The funds related to these subscriptions were received
subsequent to June 30, 1997. The Company incurred costs associated with
this private placement totaling $146,086 which have been reflected as a
reduction on capital in excess of par value in the accompanying
consolidated financial statements.
NOTE 11- COMMON STOCK WARRANTS
The Board of Directors of the Company have granted to officers and
directors warrants to acquire Common shares of the Company under the
following conditions:
NAME NUMBER OF SHARES EXERCISE DATE EXERCISE PRICE
---- ---------------- ------------- --------------
Bradley J. Simmons 32,000 shares 5/1/97 to 4/30/98 $2.88
200,000 shares 4/17/97 to 4/17/04 $1.38
David L. Cox 30,000 shares 5/1/97 to 4/30/98 $2.88
300,000 shares 4/17/97 to 4/17/04 $1.38
Gerald N. Agranoff 125,000 shares 4/17/97 to 4/17/04 $1.38
In addition, the Company issued warrants for the issuance of 120,000
shares of common stock at a price of $1.38 per share to the Companies
attorneys. These warrants were granted on April 17, 1997 and expire
April 17, 1999.
The exercise price of the warrants to the officers, directors and
attorneys approximates fair market value of the Company's common stock
on the date the warrants were granted.
In conjunction with the sale of common stock discussed in Note 10, the
Company has issued warrants for 9,325,000 shares of common stock. These
warrants have been issued with a grant date of August 12, 1996
exercisable at $1.50 per share until February 12, 1998 at which time
the exercise price increases to $3.00 per share until August 12, 1999
at which time the warrants expire.
Additional warrants for 100,000 shares of common stock were issued in
conjunction with services performed for the Company. These warrants are
exercisable at prices ranging from $2.50 to $5.50 per share graduating
in price $1.00 per each 25,000 of warrants. These warrants expire
September 19, 1999.
NOTE 12- INCOME TAXES
Through June 30, 1997, the Companies have sustained net operating loss
carryforwards totaling approximately $1,075,000 that may be offset
against future taxable income through 2012. No tax benefit has been
reported in the accompanying consolidated financial statements, because
the potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
23
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 13 - EXTRAORDINARY ITEMS
Extraordinary items totaling $17,343 relate to forgiveness of debt in
the settlement of a note payable and an account payable.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 5, the Companies defaulted on the payment of the
Drilling Investor Notes due and payable September 15, 1995 related to
the acquisition of oil and gas leases in Harris County, Texas. Although
these notes are secured by a financial guarantee bond, there is no
assurance that the bond can be enforced. The Companies intend to settle
these obligations, along with the related accrued interest. The
ultimate effect on the Companies and outcome of the satisfaction of
this obligation cannot be determined.
As discussed in Notes 5 and 10, the Companies had entered into various
agreements to obtain additional capital and joint venture financing.
The agreements have been defaulted with the Companies only receiving
$500,000 of $20,000,000 of funding commitments. The Company has
authorized the cancellation the 500,000 shares of common stock related
to the agreements and funds received. Management of the Company does
not believe that there is any liability associated with this
transaction. The ultimate outcome of these transactions and events can
not be determined.
The Company leases office space in Simonton, Texas from the President
and director of the Company at a monthly cost of $500 plus utilities.
This is a month to month lease and can be terminated by either party
with 30 days notice.
The Companies have minimum lease and royalty obligations associated
with their oil and gas properties of $77,300 annually, see also Note 5.
During the year ended June 30, 1997, the board of directors authorized
the payment of a bonus to the president and secretary of the Company
equal to 1% of the revenues from domestic oil and gas production.
In May 1997, the Securities and Exchange Commission filed civil charges
against the Company and its president alleging various violations of
securities regulations. The Company and its president are vigorously
contesting the allegations. This litigation is currently in the
discovery and discussion stage and the ultimate outcome on the Company,
if any, cannot be readily determined.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to June 30, 1997, in addition to collecting the
subscriptions receivable as discussed at Note 10, the Companies
received an additional $550,000 from the sale of common stock.
The Company entered into various farmout agreements during the year
ended June 30, 1997 with unrelated domestic entities with respect to
the Pakistan concession. The terms of the agreements were not complied
with and the transactions terminated prior to June 30, 1997.
24
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1997, 1996 and 1995
NOTE 15 - SUBSEQUENT EVENTS (Continued)
In July 1997, the Company filed suit against various individuals and
entities alleging fraud in the obtaining of common stock of the
Company. One defendant has asserted a counter claim for unpaid fees of
$14,000 with two other defendants asserting counterclaims against the
Company and its directors. The Company intends to vigorously pursue
this litigation and believes that the counterclaims are without merit.
This litigation is all in the discovery stage and the ultimate outcome
and effect on the Companies cannot be readily determined.
NOTE 16 - PROFORMA FINANCIAL INFORMATION
As discussed in Note 1, The American Energy Group, Ltd. (formerly
Belize-American Corp. Internationale) acquired all of the issued and
outstanding common stock of Simmons Oil Company, Inc. effective
September 30, 1994. This transaction was accounted for using the
purchase method. The following proforma financial information presents
the results of operations of The American Energy Group, Ltd., Simmons
Oil Company, Inc. and its subsidiaries for the year ended June 30, 1995
as though all of the companies had combined at the beginning of the
period.
Revenue
Oil and gas sales ....................................... $ 44,976
---------
Total Revenue ........................................ 44,976
---------
Expenses
Lease operating costs ................................... 51,283
Legal and professional .................................. 149,429
Administrative labor .................................... 102,124
Office expenses ......................................... 56,687
Travel, meals and lodging ............................... 32,061
Depreciation ............................................ 1,590
Other general and administrative ........................ 22,561
---------
Total Expenses ....................................... 415,735
---------
Net Operating Loss ........................................ (370,759)
---------
Other Income (Expenses)
Interest income ......................................... 12,951
Interest expense ........................................ (1,948)
---------
Total Other Income (Expenses) ........................ 11,003
---------
Net Loss Before Income Taxes .............................. (359,756)
Income Tax Benefits ....................................... --
---------
Net Loss .................................................. $(359,756)
=========
25
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1997 and 1996
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
JUNE 30,
----------------------
1997 1996
--------- ---------
Proved oil and gas producing properties and related
lease and well equipment ............................ $ 696,450 $ --
Accumulated depreciation and depletion ................ (33,000) --
--------- ---------
Net Capitalized Costs ................................. $ 663,450 $ --
========= =========
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
FOR THE YEARS ENDED
JUNE 30,
-----------------------------
1997 1996
---------- ----------
Acquisition of Properties
Proved ................................ $1,800,600 $ --
Unproved .............................. 2,188,749 545,947
Exploration Costs ........................ 1,306,426 751,669
Development Costs ........................ 696,450 --
The Company does not have any investments accounted for by the equity
method.
(3) Results of Operations for
Producing Activities
FOR THE YEAR ENDED
JUNE 30,
------------------------
1997 1996
---------- ----------
Sales .............................................. $ 283,485 $ 50,390
Production costs ................................... (83,826) (81,087)
Depreciation and depletion ......................... (33,000) --
---------- ----------
Results of operations for producing activities
(excluding corporate overhead and interest costs) . $ 166,659 $ (30,697)
========== ==========
26
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1997 and 1996
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
Oil BBF
BBL MCF
---------- ----------
Proved developed and undeveloped reserves:
Balance, June 30, 1996 .......................... -- --
Additions ..................................... 2,428,804 --
Production .................................... (14,241) --
---------- ----------
Balance, June 30, 1997 .......................... 2,414,563 --
========== ==========
Proved developed reserves:
Oil BBF
BBL MCF
---------- ----------
Beginning of the year ended June 30, 1997 ....... -- --
End of the year ended June 30, 1997 ............. 376,613 --
During the year ended June 30, 1997, the Company had reserve studies
and estimates prepared on the various properties acquired and
developed. The difficulties and uncertainties involved in estimating
proved oil and gas reserves makes comparisons between companies
difficult. Estimation of reserve quantities is subject to wide
fluctuations because it is dependent on judgmental interpretation of
geological and geophysical data.
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At June 30, 1997
THE AMERICAN
ENERGY GROUP
LTD. AND
SUBSIDIARIES
------------
Future cash inflows .......................................... $ 47,083,977
Future production and development costs ...................... (8,587,400)
------------
Future net inflows before income taxes ....................... 38,496,577
Future income tax expense .................................... (2,636,703)
------------
Future net cash flows ........................................ 35,859,874
10% annual discount for estimated timing of cash flows ....... (8,140,005)
------------
Standardized measure of discounted future net cash flows ..... $ 27,719,869
============
27
<PAGE>
THE AMERICAN ENERGY GROUP, LTD.
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1997 and 1996
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and changes in
the standardized measure of discounted future net cash flows have their
foundation in engineering estimates of future net revenues that are
derived from proved reserves and with the assumption of current pricing
and current costs of production for oil and gas produces in future
periods. These reserve estimates are made from evaluations conducted by
Reuven Hollo, Ph.D., a registered professional engineer with Sigma
Energy Corporation, of such properties and will be periodically
reviewed based upon updated geological and production date. Estimates
of proved reserves are inherently imprecise. The above standardized
measure does not include any restoration costs due to the fact the
Company does not own the land.
Subsequent development and production of the Company's reserves will
necessitate revising the present estimates. In addition, information
provided in the above schedules does not provide definitive information
as the results of any particular year but, rather, helps explain and
demonstrate the impact of major factors affecting the Company's oil and
gas producing activities. Therefore, the Company suggests that all of
the aforementioned factors concerning assumptions and concepts should
be taken into consideration when reviewing and analyzing this
information.
28
<PAGE>
EXHIBIT "B" TO FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) AUGUST 13, 1997
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 0-26402 87-0448843
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
P.O. BOX 489, SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 346-2652
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
The American Energy Group, Ltd. Form 8-K Page 1
<PAGE>
FORM 8-K
THE AMERICAN ENERGY GROUP, LTD.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 1, 1997, The American Energy Group, Ltd. acquired oil and gas
properties totaling approximately 1,400 acres located in the Blue Ridge, Boling,
and Manvel Fields, Fort Bend County, Texas. The acquisition included 82
producing and non-producing wells and all associated production equipment on the
properties. The purchase price was $1,000,000 payable in a combination of cash
and production payments over a maximum of four years.
The Company paid $75,000 as down payment, and executed a Note for
$925,000. Under the terms of the purchase, the Company is committed to pay a
minimum of $250,000 per year for the next four years, or until a total of
$1,000,000 has been paid, whichever occurs first, through a combination of
payments of $10,000 for each new drillsite that is drilled and payments to the
seller in the form of an overriding royalty interest from gross production. The
Company has commenced its program to drill new wells on the properties acquired
and to rework some of the previously existing wells.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT:
Not Applicable.
ITEM 5. OTHER EVENTS.
Bonus Trade AG and a consortium of European investors have completed the funding
of a $5,000,000 investment commitment originally announced by the Company on
March 20, 1997, and has increased that funding to a total investment of
$9,883,000, which includes the partial funding of $2,600,000 announced by the
Company on May 16, 1997. The Company has issued a total of 10,602,450 shares of
Common Stock in conjunction with this funding. Under the terms of the investment
agreements, as modified, the funds were allocated entirely to the acquisition of
Common Stock, however, certain shares of this investment also carried Warrants
totaling 8,275,000 for the acquisition of additional Common Stock of the
Company. These Warrants are exerciseable at a price of $1.50 per share through
February 12, 1998, and at a price of $3.00 through the subsequent eighteen (18)
month period ending August 12, 1999. As of the filing of this report no Warrants
have been exercised.
The American Energy Group, Ltd. Form 8-K Page 2
<PAGE>
Further, Bonus Trade AG, which holds 3,408,000 shares of the Common Stock
acquired, has agreed to refrain from selling its holdings for a period of one
year. Should the market price of the Common Stock reach $7.50 per share, this
restriction becomes nonapplicable. Likewise, the Officers, Directors, and
largest individual shareholder of the Company, who collectively hold 4,892,335
shares of Common (assuming conversion of their Convertible Preferred into Common
Stock), have agreed to refrain from selling their shares under these same terms.
On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston,
Texas, charging that specific individuals and companies had conspired to
manipulate stock of the Company which is believed to have been fraudulently
obtained prior to the formation of The American Energy Group, Ltd. in 1994. The
Company is seeking an injunction to bar trading in the subject shares until the
Court rules on their authenticity. It is estimated that between 1,500,000 and
2,500,000 shares of exsiting Common Stock could be affected by the outcome of
this litigation. At this time, it is not anticipated that litigation costs
incurred by the Company will adversely affect ongoing Company operations.
The Company has completed acquisition, processing, and interpretation of newly
acquired seismic data on its Pakistan Concession for which it expended in excess
of $900,000. In addition, the Company has escrowed $1,650,000, an amount equal
to the estimated costs of the first well, into its bank account in Islamabad,
for use in making advance deposits for drilling, service providers, and
necessary supplies.
ITEM 6. RESIGNATIONS OF REGISTRANTS DIRECTORS.
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Not Applicable
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE AMERICAN ENERGY GROUP, LTD.
(Registrant)
Date: AUGUST 13, 1997 BY: B/J/S
Bradley J. Simmons, President
The American Energy Group, Ltd. Form 8-K Page 3
