UNITED STATES SECURITIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended June 30, 1998
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
of incorporation or organization) identification Number
P.O. Box 489, Simonton, Texas 77476
(Address of principal executive offices) (Zip Code)
(281) 346-2652
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.001
(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 [ ]
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: 31,007,059 Common Shares
outstanding as of November 1, 1998.
The aggregate market value of voting and non-voting common equity held by
non-affiliates as of October 31, 1998 was $121,445,095.
<PAGE>
Table of Contents
PART I
Item 1. Business...........................................................1
Item 2. Properties.........................................................4
Item 3. Legal Proceedings.................................................15
Item 4. Submission of Matters to a Vote of Security Holders...............16
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...................................16
Item 6. Selected Financial Data...........................................22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........28
Item 8. Financial Statements..............................................28
Item 9. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure............................28
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................28
Item 11. Executive Compensation............................................30
Item 12. Security Ownership of Certain Beneficial Owners and Management....32
Item 13. Certain Relationships and Related Transactions....................33
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K............34
SIGNATURES
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PART I
ITEM 1. BUSINESS
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"). As used herein,
the term "Company" means the Company and its subsidiaries.
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
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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.
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
revenues generated through the development of Hycarbex's Pakistan Concession,
and an agreement to pay the sole shareholder $200,000 conditioned upon the
success of that development. 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 holds 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 provided a $551,000 Financial
Guarantee Bond to the Government of Pakistan to assure performance of Concession
requirements. The subsequent seismic surveys performed and drilling of the
initial exploratory well by the Company have satisfied the performance
requirements to date for Concession requirements.
The Company began producing commercial quantities of oil on its
domestic properties and emerged from the development stage during the year ended
June 30, 1997. The Company has begun a program of 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.
In June, 1997, the Company purchased oil and gas properties totaling
approximately 1,400 acres in Texas. During the past year, the Company drilled
six developmental wells on these properties of which five wells are currently
producing. Two additional developmental wells were drilled subsequent to June
30, 1998.
During the past year, the Company drilled an exploratory well in
central Pakistan, the Kharnbak #1 well. Based on the preliminary testing of the
Kharnbak #1 well, and the reserve study by an independent petroleum engineering
firm, the Company believes that further drilling and testing is desirable.
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
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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, the
ability of the Company to obtain financing on reasonable terms, 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 to cover plugging contingencies, and
reporting requirements on drilling and production activities. Activities such as
well location, method of drilling and casing wells, surface use and restoration,
plugging and abandonment, well density and other 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 state and federal
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
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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 engaging
appropriate professional and support 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, 1998, the Company and its subsidiaries had 17 employees,
including 11 administrative and clerical personnel and 6 drilling and field
personnel.
YEAR 2000
The Company believes that its computers are Y2K compliant, and that
there will be no impact on the Company as a result of the Company's computers
interacting with the computers of its vendors and customers.
ITEM 2. 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 - generally converts gas to oil at a ratio of
6,000 cubic feet of gas to one Bbl of oil. Then oil and gas are added together
for total BOE.
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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.
DEVELOPMENTAL 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.
GROSS ACRES - means the gross surface acreage in which a leasehold working
interest is owned.
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. By way of example, a 50% working interest in 100
gross acres is equivalent to 50 net acres.
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. ("Simmons") through a business combination accounted for as a
purchase. Simmons owns 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 and 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
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the purpose of revitalizing these fields. At June 30, 1998, 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 in favor of more potentially productive properties in the
Company's core areas of development.
The Company acquired Hycarbex, Inc. in a business combination accounted
for as a purchase in April, 1995 and changed the name to Hycarbex-American
Energy, Inc. ("Hycarbex") Hycarbex is a wholly owned subsidiary of the Company.
Hycarbex holds an Exploration License granted by the government of Pakistan to
explore for oil and gas reserves in a particular Concession now comprised of
approximately 4,000 square kilometers. The Company shot 256 kilometers of 2D
seismic surveys across this Concession, drilled its initial exploratory well on
the Concession in early 1998, and is currently preparing to drill the second
exploratory well in late 1998. While the prospects of economic productivity have
been evaluated by independent consultants to the Company whose report to
management indicates certain Probable Recoverable Reserves and additional
potential test drillsites, there can be no definitive evaluation of the
potential value of this project until additional drilling and testing 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. During the fiscal year, the Company 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 properties areas in which the Company owns
an interest are as follows:
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.
During the fiscal year ended June 30, 1998, the Company drilled six
developmental wells in the Boling Field, with five of the six currently in
various stages of completion or production. The Company has a significant number
of proved undeveloped locations which it plans to drill in the Boling and Blue
Ridge Fields.
Subsequent to June 30, 1998, the Company drilled two additional
developmental wells in the
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Boling field, with both currently 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
eight tests.
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 relinquished 161 acres of
these properties, and has drilled 5 new wells in this field on the remaining 50
acres all of which are currently shut in, . The Company is in the process of
evaluating the economic potential of these wells as they are completed and
tested, and reviewing the viability of 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 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 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.
JACOBABAD, PAKISTAN.
The Company, through its wholly owned subsidiary Hycarbex-American
Energy, Inc., obtained an Exploration License from the government of Pakistan to
explore for oil and gas reserves . The Concession is located in the Middle Indus
Basin, near the city of Jacobabad, Pakistan. The prospect covers 4,000 square
kilometers (approximately 1 million acres ). The Company is currently studying
all phases of this project in order to adopt a plan that will maximize the
financial return from the Concession. Preparations for the drilling of the
second exploratory well by the Company in late 1998 are currently underway.
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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, 1998.
YEAR ENDED JUNE 30
----------------------------------------
1998 1997 1996
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
DEVELOPMENTAL WELLS:
DRY ........ 0 0 0 0 0 0
OIL ........ 6 5 8 7 0 0
GAS ........ 0 0 0 0 0 0
----- ----- ----- ----- ----- -----
TOTALS ..... 6 5 8 7 0 0
EXPLORATORY WELLS: The Company drilled one exploratory well in
Pakistan, the Kharnhak #1. As of the year ended June
30, 1998, operations on this well had been suspended
without a completion attempt in any of the geologic
horizons encountered during drilling.
B. PRODUCING WELLS
Shown below is a tabulation of the productive oil wells owned by the
Company as of June 30, 1998. This summary includes wells which may currently be
shut in and awaiting recompletion in order to restore commercial productivity.
There have been no productive gas wells since 1996. All of the wells are located
in the Company's oil and gas properties in Texas.
As of June 30, 1998
PRODUCTIVE WELLS
-------------------
GROSS NET
----- -----
OIL .......................................... 94 91.5
GAS .......................................... 0 0
----- -----
TOTAL .................... 94 91.5
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C. ACREAGE HOLDINGS
The developed and undeveloped acreage owned by the Company as of June
30, 1998 are as follows.
DEVELOPED UNDEVELOPED
-------------- ------------------------
ACREAGE ACREAGE
GROSS NET GROSS NET
----- --- --------- -------
TEXAS .................... 172 147 2,402 2,402
PAKISTAN ................. 0 0 1,000,000 950,000
----- --- --------- -------
TOTAL .................... 172 147 1,002,402 952,402
===== === ========= =======
D. PRODUCTION AND SALE OF OIL AND GAS
As of June 30, 1997 and 1998, the Company received oil revenues from 10
and 14 wells, respectively. All of these wells are oil producers, with no sales
of gas. The additional productive wells identified herein are in various stages
of recompletion. Many have begun or are expected to begin to generate production
subsequent to June 30, 1998, which production is not reflected in the following
production numbers:
1996 (FN 1) 1997 1998
----------- ------- ----------
Net Oil Sales (Bbls) in the
Fiscal Year ended June 30: ............. N/A 14,241 42,663
=========== ======= ==========
Avg. Price per Barrel: ................. N/A $ 19.90 $ 15.03
=========== ======= ==========
- ----------------------
FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis
sales of oil and gas which consisted only of production from
preliminary testing of wells.
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All wells in the U.S. fields were shut in for repairs and maintenance
as of June 30, 1998, and had been shut in for varying periods of time prior to
June 30, 1998, thereby reducing the amount of net sales by the Company during
the fiscal year ended June 30, 1998.
AVERAGE LIFTING COST
1996 (FN 1) 1997 1998
----------- ----- -----
Per BBL ................................. N/A $5.89 $6.05
Per MCF (FN 2) .......................... N/A N/A N/A
- ---------------------
FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis
sales of oil and gas which consisted only of oil production from
preliminary testing of wells.
FN 2 The Company does not presently produce natural gas.
E. OIL AND GAS RESERVES
The Company did not report reserves to any other agency of the U. S.
government.
The Company's proved reserves and PV-10 Value from its U.S. proved
developed and undeveloped oil and gas properties have been estimated by Sigma
Energy Corporation in Houston, Texas. The Company's Pakistan Probable
Recoverable Reserves and PV-10 Value from its Pakistan undeveloped gas
properties have been estimated by Martin Petroleum and Associates in Calgary,
Alberta, Canada. The estimates of these independent petroleum engineering firms
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 and probable 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, 1998 on
the Company's U.S. properties reflect a weighted average price of $12.50 per BOE
vs. $19.50 in its June 30, 1997 estimates.
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 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
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data as well as engineering and geological interpretation and judgment. Results
of drilling, testing and production or price changes for produced hydrocarbons
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, 1998, (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.
UNITED STATES RESERVE ESTIMATES
The following tables present total proved developed and proved
undeveloped reserve volumes as of June 30, 1998, and 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 NET PROVED OIL RESERVES - UNITED STATES PROPERTIES
PROVED OIL RESERVE CATEGORY
(BBLS)
----------------------------------------------------------
AS OF JUNE 30:
PROVED DEVELOPED PROVED SHUT IN PROVED UNDEVELOPED
- ----------------- ----------------- ---------------------
1998 1997 1998 1997 1998 1997
- ------- ------- ------- ------- --------- ---------
-0- 176,413 671,050 200,200 1,689,950 2,037,950
======= ======= ======= ======= ========= =========
Total estimated Proved oil reserves as of June 30:
1998 1997
----------------- -----------------
2,361,000 Barrels 2,414,563 Barrels
================= =================
ESTIMATED FUTURE NET REVENUES - UNITED STATES PROPERTIES
The comparative 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
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income taxes for the Company's proved developed and proved undeveloped oil
reserves as of June 30, 1998 and 1997 are as follows:
PROVED DEVELOPED OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED DEVELOPED PROVED DEVELOPED
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$ - 0 - $ - 0 - $3,440,057 $2,921,183
======== ======== ========== ==========
PROVED SHUT IN OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED SHUT-IN PROVED SHUT-IN
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$7,257,990 $6,077,565 $3,903,900 $3,105,102
========== ========== ========== ==========
PROVED UNDEVELOPED OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED UNDEVELOPED PROVED UNDEVELOPED
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$13,395,010 $9,572,141 $39,740,027 $21,693,580
=========== ========== =========== ===========
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TOTAL OF COMBINED PROVED OIL DEVELOPED, SHUT IN, AND UNDEVELOPED CATEGORIES
AS OF JUNE 30, 1998: AS OF JUNE 30, 1997:
- --------------------------------------- -----------------------------------
FUTURE NET PRESENT FUTURE NET PRESENT
REVENUES VALUE OF REVENUES VALUE OF
FUTURE NET FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ----------- ----------- ----------- -----------
$20,653,000 $15,649,706 $47,083,977 $27,719,869
=========== =========== =========== ===========
The Company attributes the decline in present valuations to the
relative decline in oil prices at the time of the estimates - wherein the
weighted average price had declined from $19.50 at June 30, 1997, to $12.50 at
June 30, 1998. This reflects a 36% decline in product prices, while present
value has declined 43%. The differential also includes the downward adjustment
of 10,900 barrels, net of actual production, as well as a relatively fixed
operating cost base.
"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.
PAKISTAN RESERVE ESTIMATES - PROBABLE RECOVERABLE RESERVES
As previously reported and filed in a Form 8-K dated September 22,
1998, the Company retained Martin Petroleum and Associates to perform a
preliminary reserve study on its Jacobabad Concession in the Middle Indus basin
in central Pakistan. These reserves are not categorized as proven. Further,
these reserves remain categorized by the Company as unproven. However,
management has determined that the independent estimates of Probable Recoverable
Reserves in the preliminary reserve study represent material information which
merited disclosure to the shareholders. These independent estimates also served
as justification to management to continue further exploratory drilling on its
Pakistan Concession. The following summary represents total probable recoverable
undeveloped natural gas reserve estimates as of June 30, 1998, 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 these
gas reserves or their present value.
13
<PAGE>
GROSS PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES 5.159 TCF (Trillion Cubic Feet)
NET PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES 3.231 TCF (Trillion Cubic Feet)
NET PRESENT VALUE (Discounted @ 10%) $1,767,600,000
(TO THE COMPANY'S INTEREST)
Probable Recoverable Reserves as defined in the preliminary reserve
study are "reserves which analysis of drilling, geological, geophysical and
engineering data does not demonstrate to be proved under current technology and
existing economic conditions, but where such analysis suggests the likelihood of
their existence and future recovery."
The estimation of reserves requires substantial judgment on the part of
the petroleum engineers, resulting in imprecise determinations particularly 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 probable undeveloped reserves, which are 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 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, 1998, (the date of the estimate and the date of this report) 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 gas prices and
other factors. A material change in categorization of reserves or future net
revenues could have a material 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 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
14
<PAGE>
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 joined in
a civil lawsuit filed by the Securities and Exchange Commission which alleges
securities fraud regarding actions of the Company in 1995. The case is styled
Securities and Exchange Commission v. Bradley J. Simmons and American Energy
Group, Ltd., No. H-97-1384, in the United States District Court, Southern
District of Texas, Houston, Division. While the Company has retained securities
counsel to vigorously refute these allegations, management intends to move
forward in such a matter as to resolve this issue as rapidly as possible. In
conjunction with this initiative, the Company has reserved $85,000 in its
current Financial Statement toward possible settlement and legals costs
associated with this litigation.
In 1997, the Company and one its subsidiaries, American Energy -
Deckers Prairie, Inc. were named as defendants in four lawsuits involving the
collection of several promissory notes delivered by the Company in 1994 to
purchase the working interests in the fields in Harris County, Texas. The cases
are styled: Horace H. Norman, et. al. v. American Energy Group, Ltd. and
American Energy - Deckers Prairie, Inc., No. 103320, in the 268th Judicial
District Court, Fort Bend County, Texas; Andrew M. J. Steinhubl and Horace H.
Norman v. American Energy Group, Ltd. and American Energy - Deckers Prairie,
Inc., No. 103320, in the 268th Judicial District Court, Fort Bend County,
Texas;., No. 99044, in the 328th Judicial District Court, Fort Bend County,
Texas; Larry M. Graham, et. al. v. American Energy Group, Ltd. and American
Energy - Deckers Prairie, Inc., No. 101424, in the 268th Judicial District
Court, Fort Bend County, Texas; and J.L.M. Investors et. al. v. American Energy
Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 98905, in the 240th
Judicial District Court, Fort Bend County, Texas. All of these lawsuits have
been settled in their entirety and the lawsuits have been dismissed.
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 was believed to have been fraudulently
obtained prior to the acquisition by The American Energy Group, Ltd. in 1994.
The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al.,
C.A. No. H- 97-2450, in the United States District Court, Southern District of
Texas, Houston, Division. A countersuit and derivative claim was filed in
response to the Company's July 30, 1997 lawsuit by one of the defendants. The
Company subsequently reached a settlement with all except three of the
defendants, whereby 565,833 shares were canceled and returned to the Company,
certain debts owed by the Company were forgiven, and, in addition, the Company
received a cash settlement. Furthermore, the countersuit was withdrawn. The
litigation continues against three defendants, representing in excess of 400,000
shares of common stock which the Company believes to have been fraudulently
obtained. At
15
<PAGE>
this time, it is not anticipated that litigation costs incurred by the Company
will adversely affect ongoing Company operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The price of the Common Stock of the Company is 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 under the symbol "AMEL". These over- the-counter market quotations may
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual transaction prices.
FISCAL YEARS ENDED
JUNE 30,
HIGH BID LOW BID
-------- -------
1997
First Quarter $4.19 $2.00
Second Quarter $3.12 $1.41
Third Quarter $2.12 $1.25
Fourth Quarter $2.09 $1.00
1998
First Quarter $2.50 $1.53
Second Quarter $3.00 $1.94
Third Quarter $2.56 $1.75
Fourth Quarter $7.00 $1.28
On November 2, 1998, the closing bid for the Common Stock $4.06 per
share. On November 2, 1998 there were approximately 1,500 stockholders of record
of the Common Stock.
16
<PAGE>
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.
RECENT SALES OF UNREGISTERED SECURITIES
1. From time to time during 1998, a total of 27 holders of the Company's
convertible preferred stock exercised their conversion rights whereby 540,096
shares of convertible preferred stock were converted into common stock of the
Company at a conversion ratio of five shares of common stock in exchange for
each one share of convertible preferred stock. A total of 2,700,485 shares of
common stock were issued. The Company did not received any proceeds. The Company
believes that each of the persons had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risk of the
purchase of these securities of the Company, and that each person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
2. From time to time during 1997, a total of four foreign investors purchased a
total of 2,385,000 shares of common stock of the Company at a price of $0.90 per
share. The Company received proceeds of $2,385,000. See, No. 6, below. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the purchase of these securities of the Company, and that each person
was knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
3. In December, 1997, the Company acquired one oil and gas property from one
foreign person in exchange for 150,000 shares. The parties valued each share at
1.50 per share for the purposes of this transaction. The Company believes that
the person had knowledge and experience in financial and business matters which
allowed the person to evaluate the merits and risk of the purchase of these
securities of the Company, and that the person was knowledgeable about the
Company's operations and financial condition. This transaction was effected by
the Company in reliance upon exemptions from registration under the Securities
Act of 1933 as amended (the "Act") as provided in Regulation S and
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<PAGE>
Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
4. In November, 1998, the Company retired a total of approximately $324,277 in
debt to eight persons in exchange for a total of a total of 140,383 shares of
common stock of the Company. The Company believes that each of the persons had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risk of the receipt of these securities of the Company
and that each person was knowledgeable about the Company's operations and
financial condition. These transactions were effected by the Company in reliance
upon exemptions from registration under the Securities Act of 1933 as amended
(the "Act") as provided in Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
5. In December, 1998, the Company compensated two foreign persons for consulting
services in connection with the Kharnbak #1 well in Pakistan. The Company issued
a total of 15,000 shares of common stock of the Company as payment in kind for
these services. The parties valued each share at $1.50 per shares for the
purpose of this transaction. The Company believes that each of the persons had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risk of the receipt of these securities of the Company,
and that each person was knowledgeable about the Company's operations and
financial condition. These transactions were effected by the Company in reliance
upon exemptions from registration under the Securities Act of 1933 as amended
(the "Act") as provided in Regulation S and Section 4(2) thereof. Each
certificate issued for unregistered securities contained a legend stating that
the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with any of these transactions.
None of the transactions involved a public offering.
6. In August, 1997, the Company made an adjustment to a prior private
transaction in involving one person regarding a prior share issuance. The
adjustment required a resetting to $0.90 share, of the transactional value of
shares issued in the prior transaction. Pursuant to this adjustment, the Company
issued a further 405,562 shares to the person. The Company received proceeds of
$265,00. See, No. 2, above. The Company believes that the person had knowledge
and experience in financial and business matters which allowed the person to
evaluate the merits and risk of the receipt of these securities of the Company,
and that person was knowledgeable about the Company's operations and financial
condition.
This transactions was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
18
<PAGE>
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
7. In August, 1997, the Company sold 550,000 shares of common stock to one
foreign person for proceeds of $550,000. Each share was valued at $1.00 per
share. The Company believes that the person had knowledge and experience in
financial and business matters which allowed the person to evaluate the merits
and risk of the purchase of these securities of the Company, and that the person
was knowledgeable about the Company's operations and financial condition. This
transactions was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
8. From time to time during 1998, certain foreign persons exercised a total of
2,610,000 warrants to purchase common stock of the Company at an exercise price
of $1.50 per share. The Company received total proceeds of $3,915,000 in these
transactions. The Company believes that each of the persons had knowledge and
experience in financial and business matters which allowed them to evaluate the
merits and risk of the purchase of these securities of the Company, and that
each person was knowledgeable about the Company's operations and financial
condition. These transactions were effected by the Company in reliance upon
exemptions from registration under the Securities Act of 1933 as amended (the
"Act") as provided in Regulation S and Section 4(2) thereof. Each certificate
issued for unregistered securities contained a legend stating that the
securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with any of these transactions. None of the
transactions involved a public offering.
9. During June, 1998, certain persons exercised a total of 100,000 warrants to
acquire common stock of the Company whereby 67,982 shares of common stock of the
Company were issued. The prior issuance of the warrants and this issuance of
common stock was in connection with legal services which the parties valued at
$101,973 for the purpose of this transaction. The Company treated this
transaction as a payment in kind transaction for legal services rendered. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company, and that each person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
19
<PAGE>
transactions. None of the transactions involved a public offering.
10. In April, 1998, the Company and a foreign person settled a dispute.
Previously, the person had invested $500,000 in the Company. As a result of the
settlement, the Company issued 350,000 shares of common stock of the Company to
the person. The Company believes that the person had knowledge and experience in
financial and business matters which allowed the person to evaluate the merits
and risk of the purchase of these securities of the Company, and that the person
was knowledgeable about the Company's operations and financial condition. This
transaction was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
11. In the fiscal year ended June 30, 1998, 1,710,000 warrants were issued to
directors, officers, and management of the Company. These Warrants are
exercisable on the basis of one share of Common Stock for each Warrant, at
prices ranging from $1.25 to $5.31 per share for a seven year period. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
12. During the fiscal year, the Company established a three member "Disclosure
Committee" comprised of certain of the Company's attorneys and market relations
consultants. Each of these parties have received 25,000 warrants, making a total
of 75,000 warrants issued, exercisable at $1.25 per share which expire in May,
2005. The Company believes that each of the persons had knowledge and experience
in financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
20
<PAGE>
13. During the fiscal year, the Company has engaged certain technical and market
relations professional consultants in various contracts. In conjunction with
retaining their services, the Company has issued 200,000 warrants ranging in
exercise price from $2.31 to $3.97 per share and in expiration date up to May,
2005. The Company believes that each of the persons had knowledge and experience
in financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data presented under the captions
"Statements of Earnings Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five year period ended June 30, 1998, are derived
from the consolidated financial statements of The American Energy Group, Ltd,
and Subsidiaries. The financial data for the three years ended June 30,1998 have
been audited by Jones, Jensen & Company, Independent Public Accountants. The
financial data for the two years ended June 30, 1995 have been audited by
Charles D. Roe, CPA - Independent Public Accountant. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements as of June 30, 1997 & 1998, and for each of the three years ended
June 30, 1994, 1995 and 1996, the accompany notes and the report thereon, which
are included elsewhere in the respective Forms 10-K.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Oil & Gas sales ....................... $ 641,203 $ 283,485 $ 50,390 $ 43,711 $ 0
Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0
Legal & Professional ................... 541,031 143,622 129,866 123,640 0
Administrative Labor ................... 122,089 77,194 118,827 99,112 0
Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0
Other General & Administrative ......... 144,172 113,625 136,521 88,106 0
============ ============ ============ ============ ===========
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Extraordinary Item .................. 123,082 17,343 0 0 0
============ ============ ============ ============ ===========
Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0
============ ============ ============ ============ ===========
Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000
============ ============ ============ ============ ===========
Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752
============ ============ ============ ============ ===========
Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000
============ ============ ============ ============ ===========
Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357
============ ============ ============ ============ ===========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0
Legal & Professional ................... 541,031 143,622 129,866 123,640 0
Administrative Labor ................... 122,089 77,194 118,827 99,112 0
Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0
Other General & Administrative ......... 144,172 113,625 136,521 88,106 0
============ ============ ============ ============ ===========
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Extraordinary Item .................. 123,082 17,343 0 0 0
============ ============ ============ ============ ===========
Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0
============ ============ ============ ============ ===========
Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000
============ ============ ============ ============ ===========
Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752
============ ============ ============ ============ ===========
Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000
============ ============ ============ ============ ===========
Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357
============ ============ ============ ============ ===========
<CAPTION>
JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
=========== =========== =========== ========== ======
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash & Cash Equivalents ...... $ 3,214,205 $ 3,132,294 $ 424,698 $ 472,493 $ 0
Working Capital (Deficit) .... 650,004 2,434,012 (84,160) 348,852 0
Total Assets ................. $20,864,635 $13,092,370 $ 4,362,126 $3,243,758 $ 0
=========== =========== =========== ========== ======
Long Term Debt
(Including Current Portion) $ 698,677 $ 1,792,318 $ 1,397,700 $ 486,736 $ 0
Stockholders Equity .............. $17,476,355 $10,457,095 $ 2,450,380 $2,568,884 $ 0
=========== =========== =========== ========== ======
</TABLE>
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 as set forth beginning on page f-1.
As of June 30, 1998, the Company had commenced its principal drilling
and reworking operations but had not yet generated significant revenues to date.
The Company has financed operations through loans and equity capital infusions.
During the past year, the Company 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. 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 previously acquired oil drilling rigs and associated
equipment in anticipation of drilling wells for their own account. Some of the
older rigs and associated equipment are being sold due to the opportunity to now
focus on production operations.
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
23
<PAGE>
on the ratio of current production to estimated 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 subsequently 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.
In the initial three years in which the Company held the Jacobabad
Concession in the Middle Indus Basin of central Pakistan, it expended in excess
of $5.3 Million in acquisition, geological, seismic, drilling, and associated
costs. At the time of this filing, the Company is in the planning stages for
drilling of the second exploration well in this Concession. The Company has
deposited $1.1 Million in its bank account in Islamabad, Pakistan, in
preparation for drilling the second exploratory well by the end of 1998, 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.
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 AMERICAN ENERGY, INC.
In April 1995, the Company acquired Hycarbex, Inc.(now known as
Hycarbex American Energy, Inc.) which it is operating as a wholly owned
subsidiary. This subsidiary holds 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 become progressively more amenable aggressive
to exploration activities by foreign corporations and there have been
significant discoveries by other exploration companies prospecting in the
country and in the vicinity of the Hycarbex concession.
24
<PAGE>
AMERICAN ENERGY-DECKERS PRAIRIE, INC.
This subsidiary was 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 and is planning to dissolve this corporation.
THE AMERICAN ENERGY OPERATING CORP.
This subsidiary was 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.
This subsidiary was 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 and is planning to dissolve this
corporation.
CYPRESS-AMERICAN ENERGY, INC.
This subsidiary was 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 and is planning to dissolve this
corporation.
DAYTON NORTH FIELD-AMERICAN ENERGY, INC.
This subsidiary was 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 and the
Company is planning to dissolve this corporation.
NASH DOME FIELD-AMERICAN ENERGY, INC.
This subsidiary was 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
25
<PAGE>
has been consolidated into the parent company and management is planning to
dissolve this corporation.
SIMMONS OIL COMPANY, INC.
This subsidiary was acquired in October 1994. The properties of this
company have been redistributed to other field specific subsidiaries, and at
present, this subsidiary is planned for dissolution in the coming fiscal year.
SIMMONS DRILLING CO., INC.
This entity is 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.
This entity is 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 most of the above described companies and creating
a more streamlined approach to its activities.
RESULTS OF OPERATIONS
The Company produced $641,203 in oil revenues in the year ended June
30, 1998, as compared to $283,485 in oil revenues in the year ended June 30,
1997. This represents an increase of 226% from the prior years oil revenues. The
Company sold a total of 42,663 net barrels attributable to its interest from
properties which it developed, as compared with 14,241 net barrels attributable
to the Company's net interest in the prior year. This reflects a 299% increase
in net production to the company's interest. However, product prices declined
from the prior year's average price per barrel of $19.90 to an average in the
current fiscal year of $15.03.
The Company produced oil revenues of $641,203 and incurred production
costs of $258,032 and an amortization charge of $270,927, thereby generating net
results from production operations of a net profit of $112,244 vs. a net profit
of $166,659 in the prior fiscal year ending June 30, 1997. Net results for the
period were adversely affected by the 24% decline in average price per barrels
of
26
<PAGE>
oil sold.
With respect to operating costs, because of the sustained period in
which the wells were shut in during the year, the Company's financial statement
reflects an increase in its lifting costs per barrel from $5.89 per barrel in
the prior fiscal year to $6.05 per barrel in the current fiscal year. Management
anticipates that these "per barrel" lifting costs will be reduced considerably
as the wells are placed on line with sustained and uninterrupted production.
The Company sustained an overall operating loss of $527,991. Charges to
revenues included a relatively large amount of legal and professional expenses
in the amount of $541,031 which the Company considers to be a non-recurring
item. Management believes that the litigation that the Company has experienced
will not cause a detrimental effect to the shareholders of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased total assets to $20,864,635 at June 30, 1998
compared to $13,092,370 as of June 30, 1997. This has been primarily due to the
sale of equity by the Company.
These equity sales were sales of stock and the exercise of warrants.
Shareholders equity increased to $17,476,355 at June 30, 1998 compared
to $10,457,095 at June 30, 1997. This reflects an increase of $7,019,260 or 67%.
The Company has increased its "book value" per share, on a fully
diluted basis (excluding warrant exercise), by approximately 34% from $0.41 per
share at June 30, 1997 to $0.55 per share at the end of the current fiscal year.
This has been primarily through the sale of equity and warrant exercise in the
Company at prices higher than its book value per share.
In the current year, the Company expended an additional $3,375,233 in
connection with exploration related activities on its Pakistan Concession,
bringing the costs attributable to this project to a total of $5,433,328 as of
June 30, 1998. The Company anticipates additional expenditures in the coming
year associated with this project to be approximately $2.5 Million. The second
exploratory well is expected to begin drilling in late 1998.
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 combined
equity placements completed prior to and subsequent to June 30, 1998.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into market risk sensitive transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements for the fiscal years ended June 30, 1998, 1997,
and 1996 including supplementary data, if required, are included as set forth
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (FN 1)
NAME AGE POSITION
Bradley J. Simmons 43 Director, President and Chief Accounting Officer
Gerald Agranoff 51 Director, Vice President, Treasurer
Don D. Henrich 52 Director
Linda F. Gann 42 Secretary
- -----------------------------
FN 1 David L. Cox died in June, 1998. He had been a Director and the
Secretary of the Company.
BRADLEY J. SIMMONS
PRESIDENT, DIRECTOR & C.E.O.
PRESIDENT, HYCARBEX-AMERICAN ENERGY, INC.
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
28
<PAGE>
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.
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.
DON D. HENRICH
DIRECTOR
Don D. Henrich is President and CEO of Maverick Drilling Co., Inc., a position
which he has held since 1977. Maverick Drilling Co. Inc. is an Austin, Texas
based drilling contractor with five land based drilling rigs in Texas. Maverick
has drilled twenty wells for the Company over the past two years. Mr. Henrich
had joined Maverick in 1975 as vice president. He graduated from Tarleton
University in 1968 with a BS in Business Administration, and was a sales
representative for Xerox Corporation in Austin from 1970 to 1975. Mr. Henrich
joined the Board of Directors of the Company on June 29, 1998.
LINDA F. GANN
SECRETARY
Linda F. Gann was appointed Secretary of the Company on June 18, 1998. She has
been employed by the Company since January, 1995, where she has held various
positions including Office Manager,
29
<PAGE>
Accounting Supervisor, and Assistant to the President. Prior to her employment
with the company, she was employed by Igloo Corporation, where she was
Production Manager. She had previously worked for Guaranty National Bank in
Accounting and Commercial Customer Service. Ms. Gann has pursued various course
work in attempting to obtain a college degree, subject to the constraints of her
workload and responsibilities at the Company.
DIRECTOR COMPENSATION
Upon becoming a Director, each Director received a warrant to acquire
up to 125, 000 shares of common stock of the Company. Each year thereafter, each
Director is to receive an additional warrant to acquire up to 75,000 shares of
common stock of the Company. These warrants were immediately exercisable and
expire seven years from the date that the warrant is issued.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Bradley J. Simmons, Gerald N. Agranoff, Don D. Henrich and Linda F.
Gann each failed to timely file one Form 5, all of which were subsequently
filed.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- -----------------------
AWARDS PAYOUTS
OTHER ---------- ------- ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION YEAR SALARY (1) BONUS SATION AWARDS OPTIONS/SARS PAYOUTS SATION
- ---------- ----- ---------- ------ ------ --------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bradley J 1998 $ 110,000 12,000 -0- -0- 525,000 -0- -0-
Simmons 1997 $ 100,000 25,000 -0- -0- 200,000 -0- -0-
CEO 1996 $ 62,000 -0- -0- -0- 33,391 -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company does not have any employment agreements.
MANAGEMENT INCENTIVE POOL
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 Pool
will be re-apportioned as key employees are added and according to certain
performance criteria with respect to the Pakistan and United States operations.
30
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS/SARS EMPLOYEES OR BASE -----------------------------
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------- ------------- ------------ ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bradley J. 150,000 8.8% $2.31 11/4/04 $720,000 $1,065,000
Simmons 125,000 7.3% $1.25 5/1/05 $776,250 $1,137,500
250,000 14.6% $3.97 6/18/05 $872,500 $1,595,000
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
SHARES VALUE (#) ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---------- ------------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Bradley J. -0- -0- 725,000 / -0- $2,078,500 / -0-
Simmons
</TABLE>
31
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The below graph compares the cumulative total stockholder return of The
American Energy Group, Inc. Common Stock from June 30, 1994 through June 30,
1998, with Standard & Poors 500 Index (the Company's Broad Market Index) and
with Standard & Poors Oil Composite Index (the Company's Peer Group Index). The
graph assumes that the value of the investment in The American Energy Group,
Inc. Common Stock and each index was $100 on June 30, 1994, and that all
dividends, if any, were reinvested. The comparisons in this table are not
intended to forecast or be indicative of possible future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF
THE AMERICAN ENERGY GROUP, INC., THE S&P 500 INDEX (BROAD
MARKET INDEX), AND THE S&P OIL COMPOSITE INDEX (PEER GROUP INDEX)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
The American Energy Group, Inc........... 100 100 85 107 139
Broad Market Index....................... 100 116 142 189 235
Peer Group Index......................... 100 102 129 156 191
<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.
The following table sets forth certain information as of November 1,
1998, with respect to the beneficial ownership of shares of common stock by (i)
each person who is known to the Company to beneficially own more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group. Unless otherwise indicated, each
stockholder has sole voting and investment power with respect to the shares
shown.
NUMBER PERCENT
NAME TYPE OF SHARES OF CLASS
- ------------------------- ---------- ----------- ---------------
Bradley J. Simmons (FN 1) Common. 1,337,449 4.6%
Conv. Pref. 8,225 1.6%
Gerald N. Agranoff (FN 2) Common 1,131,375 3.9%
Conv. Pref. 32,500 6.1%
Don D. Henrich (FN 3) Common 200,000 0.7%
Linda F. Gann (FN 4) Common 60,600 0.3%
The Farrington Family Trust Common 3,394,880 11.8%
Conv Pref 161,245 30.2%
All officers and directors Common 2,729,474 9.3%
as a group (four persons) Conv. Pref. 40,725 7.7%
- --------------
(FN 1) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 200,000 shares at an exercise price of
$1.38 per share.
An option to purchase up to 150,000 shares at an exercise price of
$2.31 per share.
An option to purchase up to 125,000 shares at an exercise price of
$1.25 per share.
32
<PAGE>
An option to purchase up to 250,000 shares at an exercise price of
$3.97 per share.
(FN 2) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of
$1.38 per share.
An option to purchase up to 150,000 shares at an exercise price of
$2.31 per share.
An option to purchase up to 125,000 shares at an exercise price of
$1.25 per share.
An option to purchase up to 250,000 shares at an exercise price of
$3.97 per share.
(FN 3) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 50,000 shares at an exercise price of $2.00
per share.
An option to purchase up to 25,000 shares at an exercise price of $4.00
per share. An option to purchase up to 125,000 shares at an exercise
price of $5.31 per share.
(FN 4) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 5,000 shares at an exercise price of $1.25
per share.
An option to purchase up to 55,000 shares at an exercise price of $3.97
per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS FILED ON FORM 8-K.
FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules required herein are included as set
forth beginning on page F-1.
EXHIBITS
3.1 * Articles of Incorporation as amended
3.2 * Bylaws as amended
4.1 * Form of Common Stock Certificate
4.2 * Designation Certificate of Preferred Stock
21.1 * Subsidiaries
27.1 * Financial Data Schedule
--------
* Filed herewith
REPORTS FILED ON FORM 8-K
On August 13, 1997, the Company filed a Current Report on Form 8-K for
events which occurred on June 1, 1997, July 30, 1997, August 1, 1997
and August 12, 1997, which reported the acquisition of assets and other
events.
On December 16, 1997, the Company filed a Current Report on Form 8-K
for events which occurred on December 3, 1997, which reported other
events.
On May 26, 1998, the Company filed a Current Report on Form 8-K for
events which occurred on May 15, 1998, which reported other events.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 16, 1998.
THE AMERICAN ENERGY GROUP, LTD.
by: /s/ Bradley J. Simmons
Director, President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bradley J. Simmons Director, President November 16, 1998.
and Chief Accounting Officer
/s/ Gerald Agranoff Director, Vice President November 16, 1998.
Treasurer
/s/ Don D. Henrich Director November 16, 1998.
35
<PAGE>
THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
F-1
<PAGE>
C O N T E N T S
Independent Auditors' Report ...................................... F-3
Consolidated Balance Sheets ....................................... F-4
Consolidated Statements of Operations ............................. F-6
Consolidated Statements of Stockholders' Equity ................... F-7
Consolidated Statements of Cash Flows ............................. F-11
Notes to the Consolidated Financial Statements .................... F-13
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
The American Energy Group, Ltd. and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1998, 1997 and 1996. 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 audits 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, 1998 and 1997 and
the results of their operations and their cash flows for the years ended June
30, 1998, 1997 and 1996, 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 & Company
Salt Lake City, Utah
October 31, 1998
F-3
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash (Notes 1 and 2) ......................................... $ 3,214,205 $ 3,132,294
Receivables .................................................. 8,984 70,989
Receivable-related party (Note 3) ............................ -- 9,702
Investments .................................................. 3,300 --
Other current assets ......................................... 113,118 63,984
------------ ------------
Total Current Assets ....................................... 3,339,607 3,276,969
------------ ------------
OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING (Notes 1 and 4)
Properties being amortized ................................... 12,203,925 5,618,847
Properties not subject to amortization ....................... 5,433,328 3,990,489
Accumulated amortization ..................................... (303,927) (33,000)
------------ ------------
Net Oil and Gas Properties ................................. 17,333,326 9,576,336
------------ ------------
OTHER PROPERTY AND EQUIPMENT (Note 1)
Drilling and related equipment ............................... 246,494 246,494
Vehicles ..................................................... 126,146 126,146
Office equipment ............................................. 34,839 23,021
Accumulated depreciation ..................................... (218,627) (159,446)
------------ ------------
Net Other Property and Equipment ........................... 188,852 236,215
------------ ------------
OTHER ASSETS
Deposits ..................................................... 2,850 2,850
------------ ------------
Total Other Assets ......................................... 2,850 2,850
------------ ------------
TOTAL ASSETS ............................................... $ 20,864,635 $ 13,092,370
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable .................................... $ 2,366,880 $ 545,987
Accrued liabilities ................................. 322,723 296,970
Current portion of capital lease obligations (Note 6) 6,985 4,565
Current portion of notes payable and long-term
debt (Note 5) ..................................... 250,876 1,123,899
------------ ------------
Total Current Liabilities ......................... 2,947,464 1,971,421
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt (Note 5) ........... 428,280 649,737
Capital lease obligations (Note 6) .................. 12,536 14,117
------------ ------------
Total Long-Term Liabilities ....................... 440,816 663,854
------------ ------------
Total Liabilities ................................. 3,388,280 2,635,275
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 7, 8 and 9)
Convertible voting preferred stock; par value $0.001
per share; authorized 15,000,000 shares;
outstanding 535,462 and 1,075,558, respectively .... 535 1,076
Common stock; par value $0.001 per share;
authorized 80,000,000 shares; 28,927,872 and
22,509,293 shares issued and 28,927,872 and
19,859,293 shares outstanding, respectively ........ 28,928 22,509
Capital in excess of par value ...................... 19,050,101 13,893,728
Common stock subscriptions receivable ............... -- (2,385,000)
Accumulated deficit ................................. (1,603,209) (1,075,218)
------------ ------------
Total Stockholders' Equity ........................ 17,476,355 10,457,095
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 20,864,635 $ 13,092,370
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Oil and gas sales ................... $ 641,203 $ 283,485 $ 50,390
------------ ------------ ------------
Total Revenue ..................... 641,203 283,485 50,390
------------ ------------ ------------
EXPENSES
Lease operating and production costs 258,032 83,826 81,087
Legal and professional .............. 541,031 143,622 129,866
Administrative labor ................ 122,089 77,194 118,827
Depreciation and amortization expense 275,803 37,416 2,163
Other general and administrative .... 144,172 113,625 136,521
------------ ------------ ------------
Total Expenses .................... 1,341,127 455,683 468,464
------------ ------------ ------------
NET OPERATING LOSS ..................... (699,924) (172,198) (418,074)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income ..................... 99,958 22,416 8,768
Interest expense .................... (6,460) (43,224) (91,890)
Loss on investments ................. (44,647) -- --
Gain (loss) on sale of assets ....... -- 19,000 (2,390)
------------ ------------ ------------
Total Other Income (Expenses) ..... 48,851 (1,808) (85,512)
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .................................. (651,073) (174,006) (503,586)
EXTRAORDINARY ITEM (Note 11) ........... 123,082 17,343 --
------------ ------------ ------------
NET LOSS ............................... $ (527,991) $ (156,663) $ (503,586)
============ ============ ============
BASIC LOSS PER COMMON SHARE ............ $ (0.020) $ (0.014) $ (0.076)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING .................... 26,252,631 11,548,539 6,650,850
============ ============ ============
FULLY DILUTED LOSS PER
COMMON SHARE .......................... $ (0.014) $ (0.006) $ (0.028)
============ ============ ============
FULLY DILUTED WEIGHTED
AVERAGE NUMBER OF
SHARES OUTSTANDING .................... 38,374,941 27,174,937 17,997,688
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
------------------------ ------------------------ EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <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
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 -- --
----------- ----------- ----------- ----------- ----------- ------------- -----------
Balance forward ................... 11,923,127 $ 11,923 1,075,558 $ 1,076 $ 4,080,935 $ -- $ (918,555)
----------- ----------- ----------- ----------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
------------------- ----------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
---------- ------- --------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance forward ................................. 11,923,127 $11,923 1,075,558 $1,076 $ 4,080,935 $ -- $ (918,555)
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
at $1.00 per share ............................ 350,000 350 -- -- 349,650 -- --
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 (2,385,000) --
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 $(2,385,000) $(1,075,218)
---------- ------- --------- ------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
---------------------- -------------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
----------- -------- ---------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 .................. 22,509,293 $ 22,509 1,075,558 $ 1,076 $ 13,893,728 $(2,385,000) $(1,075,218)
Common stock issued for cash
at $0.65 per share as a result
of a prior year placement .............. 405,562 406 -- -- 264,595 -- --
Common stock issued for cash
at $1.00 per share ..................... 550,000 550 -- -- 549,450 -- --
Common stock issued for cash
at $1.50 per share ..................... 2,610,000 2,610 -- -- 3,912,390 -- --
Common stock issued upon
conversion of preferred shares ......... 2,700,485 2,700 (540,096) (541) (2,159) -- --
Common stock issued for
retirement of notes payable at
$2.31 per share ........................ 140,383 140 -- -- 325,137 -- --
Common stock issued for oil
and gas properties at $1.50 per
share .................................. 150,000 150 -- -- 224,850 -- --
Common stock issued for services
rendered at $1.50 per share ............ 77,982 78 -- -- 116,895 -- --
Cancellation of common stock ............ (565,833) (565) -- -- 565 -- --
Common stock issued in connection
with a settlement with prior
shareholders (Note 8) .................. 350,000 350 -- -- (350) -- --
----------- -------- ---------- ------- ------------ ----------- -----------
Balance forward ......................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $(2,385,000) $(1,075,218)
----------- -------- ---------- ------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
--------------------- ------------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
---------- --------- --------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance forward ........................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $(2,385,000) $(1,075,218)
Cash received on subscriptions
receivable ............................... -- -- -- -- -- 2,385,000 --
Offering costs related to sales of
common stock ............................. -- -- -- -- (235,000) -- --
Net (loss) for the year ended
June 30, 1998 ............................ -- -- -- -- -- -- (527,991)
---------- --------- --------- --------- ------------ ----------- -----------
Balance, June 30, 1998 .................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,050,101 $ -- $(1,603,209)
========== ========= ========= ========= ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .............................................................. $ (527,991) $ (156,663) $(503,586)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ....................................... 331,037 88,719 53,069
Less amount capitalized to oil and gas properties ................... (55,234) (51,303) (50,906)
Common stock issued for services rendered ........................... 116,973 130,500 --
Loss on investment .................................................. 44,647 -- --
Changes in operating assets and liabilities:
Decrease (increase) in receivables .................................. 62,005 (65,801) 6,900
Decrease (increase) in receivables-related party .................... 9,702 (9,702) --
Decrease (increase) in other current assets ......................... (49,134) (63,984) 903
Decrease in joint venture receivables ............................... -- 4,000 64,727
Decrease in deposits ................................................ -- 275 665
Increase (decrease) in accounts payable ............................. 1,820,893 294,070 171,522
Increase (decrease) in accrued liabilities and
other current liabilities .......................................... 25,753 (6,438) 205,891
----------- ----------- ---------
Net Cash Provided (Used) by
Operating Activities ............................................. 1,778,651 163,673 (50,815)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment ...................... -- 51,001 5,190
Purchase of investments ............................................... (47,947) -- --
Expenditures for unproved oil and gas properties ...................... (7,708,841) (4,024,056) (713,378)
Expenditures for other property and equipment ......................... (7,959) (53,885) --
----------- ----------- ---------
Net Cash (Used) by Investing Activities ........................... (7,764,747) (4,026,940) (708,188)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term
liabilities .......................................................... -- 120,000 381,200
Proceeds from issuance of common stock ................................ 4,730,001 7,279,910 500,000
Expenditures for offering costs ....................................... (235,000) (146,086) (114,918)
Cash received on stock subscription ................................... 2,385,000 -- --
Payments on notes payable and long-term
liabilities .......................................................... (811,994) (682,961) (55,074)
----------- ----------- ---------
Net Cash Provided by Financing Activities ......................... $ 6,068,007 $ 6,570,863 $ 711,208
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH ........................................ $ 81,911 $2,707,596 $ (47,795)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ..................................................... 3,132,294 424,698 472,493
---------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END
OF YEAR ............................................................... $3,214,205 $3,132,294 $ 424,698
========== ========== =========
CASH PAID FOR:
Interest ............................................................ $ 40,020 $ 39,105 $ 91,890
Income taxes ........................................................ $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisition of oil
and gas properties ................................................ $ 225,000 $ 725,000 $ --
Common stock issued to retire notes payable
and accounts payable .............................................. $ 325,277 $ 174,055 $ --
Notes payable for acquisition of oil and gas
properties ........................................................ $ -- $1,121,866 $ --
Notes payable and capital lese obligations
for acquisition of other property and equipment ................... $ 13,159 $ 51,046 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
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 7). 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 120,000 shares of common
stock of the Company, a 1% overriding royalty on the Pakistan
Project (see Note 4) 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. Continued Existence
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.
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.
F-13
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 years ended June 30, 1998 and 1997
was $84,448 and $31,028, respectively. In addition, depreciation
capitalized during the years ended June 30, 1998 and 1997 totaled
$55,234 and $51,303, 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,
1998, 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 $270,927 and $33,000 has been recognized in
the accompanying consolidated financial statements for the years
ended June 30, 1998 and 1997, respectively, on proved and impaired
or abandoned oil and gas properties.
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-14
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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, 1998 and
1997, the Companies incurred total depreciation of $60,111 and
$55,719, respectively.
In accordance with full cost accounting, $55,234 and $51,303 of
depreciation was capitalized as costs of oil and gas properties
for the years ended June 30, 1998 and 1997, respectively, as
previously discussed.
g. Basic Net Loss Per Share of Common Stock
The basic net loss per share of common stock is based on the
weighted average number of shares issued and outstanding during
the period of the consolidated financial statements. Stock
warrants and preferred shares prior to conversion are not included
in the basic calculation because their inclusion would be
antidilutive, thereby reducing the net loss per common share.
Stock warrants and preferred shares have been included in the
fully diluted loss per share.
h. Change in Accounting Principle
The Companies adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" during the year ended June
30, 1998. In accordance with SFAS No. 128, diluted earnings per
share must be calculated when an entity has convertible
securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted
earnings (loss) per share is to show (on a pro forma basis) per
share earnings or losses assuming the exercise or conversion of
all securities that are exercisable or convertible into common
stock and that would either dilute or not affect basis EPS. As
permitted by SFAS No. 128, the Companies have retroactively
applied the provisions of this new standard by showing the fully
diluted loss per common share for all years presented.
i. Concentrations of Risk
From time to time the cash balances in the Companies bank accounts
exceed Federally insured limits. At June 30, 1998 and 1997, the
balances in excess of the limits were approximately $3,014,200 and
$2,622,700, respectively. Of these balances, approximately
$964,000 and $0, respectively, was in the country of Pakistan.
F-15
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
j. 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 4). Pakistan has experienced recently, or are experiencing
currently, economic or political instability. Hyperinflation,
volatile exchange rates and rapid political and legal change,
often accompanied by military insurrection, have been common in
these and certain other merging markets in which the Companies are
conducting operations. The Companies may be materially adversely
affected by possible political or economic instability in
Pakistan. The risks include, but are not limited to terrorism,
military repression, expropriation, changing fiscal regimes,
extreme fluctuations in currency exchange rates, high rates of
inflation and the absence of industrial and economic
infrastructure. Changes in drilling or investment policies or
shifts in the prevailing political climate in Pakistan could
adversely affect the Companies business. Operations may be
affected in varying degrees by government regulations with respect
to production restrictions, price controls, export controls,
income and other taxes, expropriation of property, maintenance of
claims, environmental legislation, labor, welfare benefit
policies, land use, land claims of local residents, water use and
well safety. The effect of these factors cannot be accurately
predicted.
k. 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.
NOTE 2 - CERTIFICATES OF DEPOSIT
As of June 30, 1998 and 1997, the Companies held three
certificates of deposit totaling $318,538 and $300,000,
respectively, 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,
1998 and 1997.
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.
F-16
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 4 - 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, 1998 and 1997,
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.
At June 30, 1997, the Companies had been unable to satisfy this
obligation and the financial guaranty bond securing the payment of
the Drilling Investor Notes had not been enforced, although the
Companies intended to satisfy this obligation. Most of the
obligation was settled during the year ended June 30, 1998 by
issuing 140,383 shares of common stock valued at $325,278.
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 remaining liability (See Note 5).
F-17
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 4 - OIL AND GAS PROPERTIES (Continued)
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. As part of the
agreement, Hycarbex was to drill one exploratory well prior to
April 1998 to an agreed upon depth. During May 1998, the Company
obtained preliminary results of its first Middle Indus Basin
exploratory well in Pakistan. The well was spudded during March
1998 and was drilled to total depth during May 1998. Based upon
the results, the Company extended its exploration license on the
Jacobabad concession for one year with a commitment to drill
another well by April 1999. Having completed its three years of
work requirements and initial license term, the Company, per the
provisions of the original exploration license, relinquished 20%
of the acreage originally held under the concession, thereby
retaining approximately one million acres for further exploration
and development. The relinquished acreage is not part of the
potentially productive structure to be evaluated by the Company on
the Jacobabad concession.
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 and the option exists
for the life of the Pakistan concession. The purchase price of the
1% overriding royalty interest is $100,000. This option had not
been exercised as of June 30, 1998.
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.
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.
F-18
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 4 - OIL AND GAS PROPERTIES (Continued)
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 5). 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 8 and 5,
respectively). During the year ended to June 30, 1998, the
Companies acquired the remaining $300,000 joint venture interest
for 150,000 shares of common stock (valued at $1.50 per share) and
a note payable of $121,564 with additional payments made to that
individual prior to the consummation of that transaction.
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as
of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<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 ........................................................................... $ 723,463 $ 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 ......................................................................... 19,261 28,520
10% notes payable, due on demand, unsecured .............................................. -- 190,000
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties ................................... 44,117 443,250
--------- -----------
Total notes payable and long-term debt ................................................... 786,841 1,965,770
Less: unamortized discount ............................................................... (107,685) (192,134)
--------- -----------
Net notes payable and long-term debt ..................................................... 679,156 1,773,636
Less: Current portion of notes payable
and long-term debt .............................................................. (250,876) (1,123,899)
--------- -----------
Long-Term Liabilities .................................................................... $ 428,280 $ 649,737
========= ===========
</TABLE>
F-19
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
The following are the scheduled annual repayments of notes payable
and long-term debt:
YEAR ENDING JUNE 30,
1999 ............................................... $250,876
2000 ............................................... 220,879
2001 ............................................... 207,401
2002 ............................................... --
2003 ............................................... --
2004 and thereafter ................................ --
--------
$679,156
========
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 6 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the years
ended June 30, 1998 and 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 $694.
The following are the scheduled annual payments on these capital
leases:
YEAR ENDING JUNE 30,
1999 ........................................... $ 8,325
2000 ........................................... 7,429
2001 ........................................... 3,355
2002 ........................................... 3,355
2003 ........................................... 3,076
--------
Total minimum lease commitments ................................. 25,540
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ..................... (600)
--------
Net minimum lease payments ...................................... 24,940
Less: amount representing interest .............................. (5,419)
--------
Total capital lease obligations ................................. 19,521
Less: current portion ........................................... (6,985)
--------
Total Long-Term Capital Lease Obligations ....................... $ 12,536
========
F-20
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 7 - 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
NonCumulative 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 $0.50 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 exercised 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 years ended June 30, 1998, 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, 540,096
shares of convertible voting preferred stock were converted into
2,700,485 shares of the Company's common stock in 1998, 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 8.)
NOTE 8 - COMMON STOCK
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. During the year ended June 30, 1998, 540,096 shares of
convertible voting preferred stock were converted into 2,700,485
shares of common stock (see Note 7).
F-21
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 8 - COMMON STOCK (Continued)
As discussed in Note 4, 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
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 were canceled as reflected in the accompanying
consolidated financial statements for the year ended June 30,
1997. During the year ended June 30, 1998, the Company entered
into a settlement agreement with the original investors of the
$500,000 and the Company issued 350,000 shares of its common stock
in a preliminary settlement. The Company anticipates that a
certain portion of these shares may subsequently be returned to
the Company and cancelled.
During the year ended June 30, 1996, and in conjunction with a
settlement arrangement with a previous shareholder of Simmons Oil
Company, the Company canceled 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 4, 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 were 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.
F-22
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 8 - COMMON STOCK (Continued)
The Company received $350,000 of cash during the year ended June
30, 1997 for which 350,000 shares of common stock were issued
representing $1.00 per share.
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
were received during the year ended June 30, 1998. The 2,650,000
shares have been reflected as issued but not outstanding in the
accompanying consolidated financial statements at June 30, 1997
with the corresponding $2,385,000 shown as common stock
subscriptions receivable. 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.
During the year ended June 30, 1998, the Company sold 3,565,562
shares of common stock for which the Company received $4,730,001
at an average of $1.33 per share. The Company incurred costs
associated with the sale of common stock of $235,000 which has
been reflected as a reduction on capital in excess of par value in
the accompanying consolidated financial statements.
An additional 10,000 shares of common stock were issued during the
year ended June 30, 1998 as payment for services rendered. These
shares have been valued at $1.50 per share for a total of $15,000.
140,383 shares of common stock were issued during the year ended
June 30, 1998 to retire $325,277 of notes payable at $2.31 per
share and were recorded as shares issued for services since no
cash was received in the transaction.
During the year ended June 30, 1998, the Company issued 150,000
shares of common stock in conjunction with the buyout of certain
joint venture interests in oil and gas properties. These shares
have been valued at $1.50 per share or $225,000.
In conjunction with a settlement arrangement with a former officer
and shareholder, the Company canceled 565,833 shares of common
stock originally issued to that individual.
67,982 shares of common stock were issued during the year ended
June 30, 1998 in conjunction with the exercise of 100,000 common
stock warrants. The warrants were recorded at $1.50 per share and
were recorded as shares issued for services since no cash was
received in the transaction.
F-23
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 9 - COMMON STOCK WARRANTS
Prior to the year ended June 30, 1998, the Company had 10,248,608
outstanding warrants. In the current fiscal year ended June 30,
1998, the Company issued a total of 1,985,000 warrants at varying
exercise prices and expiration dates. 2,710,000 warrants have
been exercised and a total of 78,608 warrants have expired
unexercised, leaving a remaining balance of 9,445,000 warrants
outstanding as of June 30, 1998. A recap of the various warrants
are described below.
The Board of Directors of the Company have granted to officers
and directors 2,335,000 warrants to acquire common shares of the
Company under the following conditions:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
------------------ ---------------- --------------- --------------
<S> <C> <C> <C>
Bradley J. Simmons 200,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
----------------
Total 725,000
David L. Cox 300,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
250,000 5/1/2005 $1.25
----------------
Total 700,000
Gerald N. Agranoff 125,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
----------------
Total 650,000
Linda F. Gann 5,000 5/1/2005 $1.25
55,000 6/18/2005 $3.97
----------------
Total 60,000
Don D. Henrich 50,000 3/15/1999 $2.00
25,000 3/15/1999 $4.00
125,000 6/29/2005 $5.31
----------------
Total 200,000
Grand Total 2,335,000 Warrants
</TABLE>
Management had previously received 78,608 warrants which expired
unexercised in April, 1998.
F-24
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1998, 1997 and 1996
NOTE 9 - COMMON STOCK WARRANTS (Continued)
During the year ended June 30, 1997, the Company issued warrants
for the issuance of 120,000 shares of common stock at a price of
$1.38 per share to various of the Company's attorneys. These
warrants were granted on April 17, 1997 and expire April 17,
1999. During the year ended June 30, 1998, 67,892 shares of
common stock were issued in lieu of 100,000 of the warrants at
$1.38 per share based upon a "cashless exercise formula". These
shares are reflected in the accompanying financial statements as
shares issued for services at $1.50 per share since no cash was
received in the transaction.
In conjunction with the sale of common stock discussed in Note 8,
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, exerciseable at $1.50 per share until June 1,
1998 at which time the exercise price increased to $3.00 per
share until August 12, 1999, at which time the warrants expire.
During the year ended June 30, 1998, a total of 2,610,000 of
these warrants were exercised at $1.50 per share, leaving a
remaining balance of 6,715,000 warrants, exerciseable at $3.00
per share, unexercised at June 30, 1998.
During the year ended June 30, 1998, the Company established a
three member "Disclosure Committee" comprised of certain of the
Company's attorneys and market relations consultants. Each of
these parties have received 25,000 warrants, making a total of
75,000 warrants issued, exerciseable at $1.25 per share which
expire in May, 2005.
Also during the year ended June 30, 1998, the Company engaged
certain technical and market relations professional consultants
in various contracts. In conjunction with retaining their
services, the Company issued 200,000 warrants ranging in exercise
price from $2.31 to $3.97 per share which expire in May, 2005.
The exercise price of the warrants to the officers, directors,
attorneys, consultants, and other parties approximates fair
market value of the Company's common stock on the date the
warrants were granted.
NOTE 10 - INCOME TAXES
Through June 30, 1998, the Companies have sustained net operating
loss carryforwards totaling approximately $1,660,000 that may be
offset against future taxable income through 2013. 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.
NOTE 11 - EXTRAORDINARY ITEMS
Extraordinary items for the years ended June 30, 1998 and 1997
totaling $123,082 and $17,343, respectively, relate to
forgiveness of debt in the settlement of various notes payable
and an account payable.
F-25
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1998, 1997 and 1996
NOTE 12 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 4, 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.
The Company leases office space in Simonton, Texas at a monthly
cost of $1,033 plus utilities. The lease expires during November
2000 at which time the Company may lease the space on a
month-to-month basis at $1,200 per month.
The Companies have minimum lease and royalty obligations
associated with their oil and gas properties of $77,300 annually,
see also Note 4.
During the year ended June 30, 1997, the Board of Directors
authorized the establishment of a Management Royalty Pool equal
to 1% of the revenues from domestic oil and gas production. The
beneficiaries and their ownership in this pool are subject to
variance based upon certain performance criterion.
A shareholder of the Company has asserted a right to the exercise
(by the payment of money) of 800,000 warrants for common stock at
the exercise price of $1.50 per share. The Company disputes this
right and the parties are currently negotiating. If asserted
successfully in litigation, the potential claims for financial
relief would be attorneys fees and the loss, if any, resulting in
the difference between the stock value on the date of intended
exercise versus the stock price on the date the court permits
such exercise. The ultimate outcome, however, cannot be readily
determined.
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 is engaged in
discussions concerning the possible settlement of these matters
and has consequently accrued $85,000 as a reserve against a
potential settlement or associated legal costs.
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 asserted a counter claim for unpaid
fees of $14,000 with two other defendants asserting counterclaims
against the Company and its directors. During the year ended June
30, 1998, the countersuits were withdrawn as part of a settlement
agreement without cost to the Company.
F-26
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
June 30, 1998, 1997 and 1996
NOTE 13 - SUBSEQUENT EVENTS
The Company is currently engaged in the securing of additional
capital in the form of a private placement of common stock. At
the date of this report, the Company has received $1,500,000 and
has yet to close the entire placement.
The Company, through its wholly-owned subsidiary,
Hycarbex-American Energy, Inc. has obtained a one year extension
on its Jacobabad Concession in central Pakistan, and has also
awarded contracts for various goods and services associated with
the drilling of its second exploratory well on the Concession.
The Company has deposited $1,100,000 in its Pakistan bank
accounts estimated to be the drilling costs associated with this
well. Drilling is expected to begin in early December, 1998.
F-27
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1998 and 1997
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
JUNE 30,
-----------------------
1998 1997
----------- ---------
Proved oil and gas producing properties and related
lease and well equipment ........................... $ 4,169,260 $ 696,450
Accumulated depreciation and depletion ............... (270,927) (33,000)
----------- ---------
Net Capitalized Costs ................................ $ 3,898,333 $ 643,450
=========== =========
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
FOR THE YEARS ENDED JUNE 30,
----------------------------
1998 1997
---------- ----------
Acquisition of Properties
Proved ................... $ 389,348 $1,800,600
Unproved ................. -- 2,188,749
Exploration Costs ........... 3,375,233 1,306,426
Development Costs ........... 4,169,260 696,450
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,
---------------------
1998 1997
--------- ---------
Sales ................................................. $ 641,203 $ 283,485
Production costs ...................................... (258,032) (83,826)
Depreciation and depletion ............................ (270,927) (33,000)
--------- ---------
Results of operations for producing activities
(excluding corporate overhead and interest costs) .... $ 112,244 $ 166,659
========= =========
F-28
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1998 and 1997
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
OIL GAS
BBL MCF
---------- ---------
Proved developed and undeveloped reserves:
Balance, June 30, 1997 .................. 2,414,563 --
Change in estimates ................... (10,900) --
Production ............................ (42,663) --
---------- ---------
Balance, June 30, 1998 .................. 2,361,000 --
========== =========
Proved developed reserves:
OIL GAS
BBL MCF
---------- ---------
Beginning of the year ended June 30, 1998 376,613 --
End of the year ended June 30, 1998 ... 671,050 --
During the year ended June 30, 1998, 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, 1998
THE AMERICAN
ENERGY GROUP
LTD. AND
SUBSIDIARIES
------------
Future cash inflows ........................................... $ 29,512,500
Future production and development costs ....................... (7,206,800)
------------
Future net inflows before income taxes ........................ 22,305,700
Future income tax expense ..................................... (1,652,700)
------------
Future net cash flows ......................................... 20,653,000
10% annual discount for estimated timing of cash flows ........ (5,003,294)
------------
Standardized measure of discounted future net cash flows ...... $ 15,649,706
============
F-29
<PAGE>
THE AMERICAN ENERGY GROUP, LTD.
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1998 and 1997
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.
F-30
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
DIMENSION INDUSTRIES, INC.
We, the undersigned natural persons over the age of 21 years, acting as
incorporators of a corporation under the Nevada Business Corporation Law, adopt
the following Articles of Incorporation for such corporation.
ARTICLE I
NAME
The name of the Corporation is DIMENSION INDUSTRIES, INC.
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless dissolved
accordingly to law.
ARTICLE III
PURPOSES
The Corporation shall have unlimited power to conduct any and all lawful
businesses not contrary to these Articles of Incorporation and/or the laws of
the State of Nevada.
ARTICLE IV
CAPITALIZATION
4.01. AUTHORIZED SHARES. The aggregate number of shares which the
Corporation shall have authority to issue is Fifteen Million (15,000,000)
divided into two (2) classes: Common Stock and Preferred Stock.
COMMON STOCK. the number of shares of Common Stock which the Corporation
shall have authority to issue is Twelve Million Five Hundred Thousand
(12,500,000) shares, with par value of $0.001 per share.
PREFERRED STOCK. The number of shares of Preferred Stock which the
Corporation shall have the authority to issue is Two Million Five Hundred
Thousand (2,500,000) shares, with par value of $0.001 per share.
4.02. VOTING. The holders of shares of each class designated as Common
Stock and Preferred Stock shall have the right to one (1) vote per share on all
issues.
4.03. SERIES OF PREFERRED STOCK. The Board of Directors shall have
authority to divide any or all of the Preferred Stock into series, each of which
series to be so designated as to distinguish the shares thereof from any other
series and classes, and within the limitations set forth in the Nevada Business
Corporations Act and in these Articles of Incorporation, to fix and determine
the relative rights and preferences of the shares of any series so established
including, without limitation, entitlement to cumulative, non-cumulative of
partially cumulative dividends.
4.04. DIVIDENDS ON PREFERRED STOCK. The shares of that class designated
as Preferred Stock shall be entitled to the payment of a dividend fixed and
determined by the Board of Directors for any year or other
<PAGE>
2
period, and to the payment of any unpaid cumulative or partially cumulative
dividend, before any dividend for such year or other period shall be paid upon
the shares of any other class.
ARTICLE V
AMENDMENTS TO ARTICLES
These Articles may be amended at any time at an annual or special meeting
of the Shareholders in which notice of the purpose to amend the Articles of
Incorporation is set forth and these Articles may be amended only upon the vote
to Shareholders owning not less than a majority of all shares entitled to vote
upon any matter submitted to a vote at a meeting of Shareholders.
ARTICLE VI
BY-LAWS
Provision for the regulation of the internal affairs of the Corporation
shall be set forth in the By-Laws, which shall be adopted by majority vote of
the Board of Directors and which may be amended, repealed or restated by
majority vote of the Board of Directors.
ARTICLE VII
DENIAL OF PRE-EMPTIVE RIGHTS
No Shareholder shall be entitled, as a matter of right, to subscribe for,
purchase or receive any shares of stock or any rights or options of the
Corporation which it may issue or sell, whether out of the number of shares
authorized by these Articles of Incorporation, or by amendment thereof, or out
of the shares of the stock of the Corporation acquired by it after the issuance
thereof, nor shall any Shareholder be entitled, as a matter of right, to
subscribe for, purchase or receive any bonds, debentures or other securities
which the Corporation may issue or sell that shall be convertible into or
exchangeable for stock or to which shall be attached or appertain to any warrant
or warrants or other instrument or instruments that shall confer upon the holder
or owner of such obligations the right to subscribe for, purchase or receive
from the Corporation any shares of its authorized capital stock; but all such
additional issues of stock, rights and options or of bonds, debentures or other
securities convertible into or exchangeable for stock or to which warrants shall
be attached or appertain or which shall confer upon the holder the right to
subscribe for, purchase or receive any shares of stock, may be issued, optioned
for or sold or disposed of by the Corporation pursuant to resolution of its
Board of Directors to such persons, firms or corporations and upon such terms as
may be lawful and may to such Board of Directors seem proper and advisable,
without first offering such stock or securities or any part thereof to the
Shareholders. The acceptance of stock in the Corporation shall be a waiver of
any preemptive rights or preferential rights which, in the absence of this
provision might otherwise be asserted by Shareholders of the Corporation or any
of them.
ARTICLE VIII
PROHIBITION OF CUMULATIVE VOTING
At each election for Directors, every Shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are Directors to be elected and
for whose election he has the right to vote, but it is expressly prohibited for
any Shareholder to cumulate his votes by giving one candidate as many votes as
the number of such Directors multiplied by his shares shall equal, or by
distributing such votes on such principle among any number of such candidates.
<PAGE>
3
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified by this corporation against expenses reasonably incurred by
him or imposed on him in connection with or resulting from the defense of such
action, suit or other proceeding, and in connection with or resulting from any
appeal therein, provided that in the context of such action, suit or proceeding
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendre or its equivalent
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful. As
used herein, the term "expense" shall mean and include all obligations
incurred by such person for the payment of money, including without limitation,
attorney's fees reasonably incurred, judgments, awards, fines, penalties and
amounts paid in satisfaction of judgment or reasonably paid in settlement of any
such action, suit or proceeding.
ARTICLE X
OFFICERS, DIRECTORS AND STOCKHOLDERS CONTRACTS
A contract or other transaction with the corporation may be permitted
regardless of the fact that an officer, director or stockholder of this company
is financially interested in, or may be interested in, such transaction. No
contract, act or other transaction of this corporation with any person, firm or
corporation shall be affected by the fact that an officer, director or
stockholder of this corporation (a) is a party to, or is interested in, such
contract, act or transaction, or (b) is in some way connected with such person,
firm or corporation. Each person who is now or may become an officer, director
or stockholder of this corporation is hereby relieved from any liability that he
might otherwise incur in the event such officer, director or stockholder
contracts with the corporation, provided said officer, director or stockholder
acts in good faith.
ARTICLE XI
PRINCIPAL OFFICE AND REGISTERED AGENT
The initial principal office of the corporation shall be located in Washoe
County, State of Nevada, at the following address:
The Corporation Trust Company of Nevada
1 East 1st Street
Reno, Nevada 89501
The name of the initial registered agent at the principal office is: The
Corporation Trust Company of Nevada.
<PAGE>
4
ARTICLE XII
DIRECTORS
The number of directors constituting the initial Board of Directors of the
Corporation shall be three (3) provided, however, that the Shareholders, in the
By-Laws or by amendment thereto, may increase the number of directors to nine
(9). The names and addresses of the persons who are to serve as the initial
directors until the first annual meeting of Shareholders or until their
successors are duly elected and shall qualify are:
NAME
- -------------------------------------
Douglas Brown........................ 604 South 1300 East
Salt Lake City, Utah 84102
Barbara K. Brown..................... 604 South 1300 East
Salt Lake City, Utah 84102
L. Benson Mabey...................... 376 East 400 South, Suite 300
Salt Lake City, Utah 84111
ARTICLE XIII
INCORPORATORS
The name and address of each incorporator is:
NAME
- -------------------------------------
604 South 1300 East
Douglas Brown Salt Lake City, Utah 84102
604 South 1300 East
Barbara K. Brown Salt Lake City, Utah 84102
376 East 400 South, Suite 300
L. Benson Mabey Salt Lake City, Utah 84111
DATED this 20th day of May, 1987.
DOUGLAS BROWN
Douglas Brown
BARBARA K. BROWN
Barbara K. Brown
L. BENSON MABEY
L. Benson Mabey
<PAGE>
5
STATE OF UTAH )
) ss
COUNTY OF SALT LAKE )
On the 20th day of May, 1987, personally appeared before me the above
signers, who being by me duly sworn, severally declared that they are the
persons who signed the foregoing Articles of Incorporation as incorporators, and
that the statements contained therein are true.
NOTARY PUBLIC
Residing at Salt Lake City, Utah
My Commission Expires:
7-2-90
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION OF
DIMENSION INDUSTRIES INC. (5527-87)
We, the undersigned President, and Secretary of Dimension Industries Inc., a
Nevada corporation do hereby certify:
That the Board of Directors of Dimension Industries Inc., a Nevada corporation,
at a meeting duly convened and held on the 7th day of October, 1988, adopted a
resolution to amend the original Articles of Incorporation as follows:
Article I shall be amended to read as follows:
"NAME
The name of the Corporation is DIM Inc."
The number of shares outstanding in the Corporation is 1,366,250, all of which
are entitled to vote on said proposed change to the Articles of Incorporation.
All of Said shares are held by Dimension Industries Inc., a Utah corporation. By
action of its Board of Directors, Dimension Industries Inc. (Utah) has voted to
approve the change in the Articles of Incorporation of Dimension Industries Inc.
(Nevada).
Signed:
JAMES BLACKBURN PETER N. WILLIAMS
James Blackburn, President Peter N. Williams, Secretary
State of Utah
County of Salt Lake
On October 7, 1988, Peter Williams, and James Blackburn did personally
appear before me, and did execute the above instrument.
JULIE ANN SHORT
My Commission expires 24 August 1992
[NOTARY PUBLIC SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION OF
DIM INC.
(NEVADA FILE NO. 5527-87)
We, the undersigned President, and Secretary of DIM, Inc., a Nevada corporation
do hereby certify:
That the Board of Directors of DIM Inc., a Nevada corporation, at a meeting duly
convened and held on the 4th day of June, 1991, adopted the following
resolution:
Be it Resolved that Article I of the Articles of Incorporation of the Company be
amended to read as follows:
"NAME"
The name of the Corporation is Belize-American Corp. Internationale.
The Board of Directors also called for a shareholders meeting to be held 19th
day of June. At that shareholders meeting, there were 312,075 shares outstanding
and eligible to vote at this meeting, of which 201,100 were present and voting
either in person or by proxy. The shareholders unanimously approved the above
change in the Articles of Incorporation.
Signed:
/s/JAMES BLACKBURN /s/DOUGLAS E BROWN
JAMES BLACKBURN, PRESIDENT DOUGLAS E BROWN, SECRETARY
State of Utah
County of Salt Lake
On the 21st day of June, 1991, James Blackburn and Douglas E Brown, whom are
personnally known to me to be the President and Secretary respectively of DIM
Inc. did appear before me and sign the foregoing.
/s/JOLENE STEVENS My commission expires 10/17/94
JOLENE STEVENS, NOTARY PUBLIC
NOTARY PUBLIC SEAL
STATE OF NEVADA SEAL
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
BELIZE AMERICAN, CORP. INTERNATIONALE
We, the undersigned President and Secretary of Belize American, Corp.
Internationale, a Nevada corporation, do hereby certify:
That the Board of Directors of Belize American, Corp. Internationale, a
Nevada corporation, at a meeting duly convened and held on the 3rd day of
October, 1994 adopted the following resolutions to amend the Articles of
Incorporation of said corporation, as follows:
ARTICLE I of the Articles of Incorporation of the corporation shall be
amended to read as follows: "The name of the Corporation is The American Energy
Group, Ltd."
ARTICLE IV, Section 4.01, of the Articles of Incorporation of the
corporation shall be amended to read as follows:
"4.01. Authorized Shares. The aggregate number of shares which the
Corporation shall have the authority to issue is One-Hundred Million
(100,000,000) divided into two (2) classes: Common Stock and Preferred
Stock.
"Common Stock. The number of shares of Common Stock which the
Corporation shall have authority to issue is Eighty Million (80,000,000)
shares, with par value of $0.001 per share.
"Preferred Stock. The number of shares of Preferred Stock which
the Corporation shall have authority to issue is Twenty Million
(20,000,000) shares, with par value of $0.001 per share."
The number of shares of Common Stock outstanding in the corporation as of
October 31, 1994, was 5,212,312 shares, all of which were entitled to vote on
said proposed amendments to the Articles of Incorporation. By special meeting of
the stockholders held on October 31, 1994, said amendments were approved by
2,744,955 shares of the Common Stock, being a majority of said shares. Also, as
such meeting, said proposed amendments were also approved by the persons
entitled to a majority of the shares of Convertible Voting Preferred Stock,
$.025 Non-Cumulative Dividend, being preferred stock of the corporation to be
issued pursuant to the plan of exchange adopted by the corporation and Simmons
Oil Company, Inc. a Texas corporation.
BRADLEY J. SIMMONS
BRADLEY J. SIMMONS, PRESIDENT
ALBERT R.H. KENNEDY
ALBERT R.H. KENNEDY, SECRETARY
STATE OF TEXAS )
)
COUNTY OF FORT BEND )
This instrument was acknowledged before me on the 16th day of November,
1994, by Bradley J. Simmons, as President of Belize American, Corp.
Internationale, now, by this Certificate, The American Energy Group, Ltd., a
Nevada corporation, on behalf of said corporation.
KEN DOUCETTE
Ken Doucette
Notary Public, State of Texas
Certificate of Amendment to Articles of Incorporation -
Belize American Corp. Internationale Page 1
<PAGE>
[NOTARY PUBLIC SEAL]
STATE OF TEXAS )
)
COUNTY OF FORT BEND )
This instrument was acknowledged before me on the 16th day of November,
1994, by Gilbert R.H. Kennedy, as Secretary of Belize American, Corp.
Internationale, now, by this Certificate, The American Energy Group, Ltd., a
Nevada corporation, on behalf of said corporation.
KEN DOUCETTE
Ken Doucette
Notary Public, State of Texas
[NOTARY PUBLIC SEAL]
Certificate of Amendment to Articles of Incorporation -
Belize American Corp. Internationale Page 2
EXHIBIT 3.2
EXHIBIT 3.03
BY-LAWS
OF
DIM INC
ARTICLE I
OFFICES
Section 1. The principal office of the Corporation shall be located in the
state of Nevada. The Corporation may have such other offices, either within or
without the State of Nevada, as the Board of Directors may designate or as the
business of the Corporation may require from time to time.
The registered office of the Corporation required by the laws of the State
of Nevada, to be maintained in the State of Nevada, may be but need not be
identical with the principal office in the State of Nevada, and the address of
the registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of shareholders shall be
held at the principal office of the first Monday in March, at 10:00 am, or at
such other times and places as the Board of Directors may from time to time
determine. If the day so designated falls upon a legal holiday, then the meeting
shall be held upon the first business day thereafter. In the event of a change
in the time, date, or place of the annual meeting, the Secretary shall serve
personally, or by mail, a written notice thereof, not less than ten (10) nor
more than fifty (50) days previous to meeting, addressed to each shareholder at
his address as it appears on the stock book; but at any meeting at which all
shareholders shall be present, or at which all shareholders not present have
waived notice in writing, the giving of notice as above required may be
dispensed with.
Section 2. SPECIAL MEETINGS. Special meetings of shareholders, other than
those regulated by statute, may be called at any time by a majority of the
Directors. Notice of such meeting stating the purpose for which it is called
shall be served personally or by mail, not less than ten (10) days before the
date set for such meeting. If mailed, it shall be directed to a shareholder at
his address as it appears on the stock book; but at any meeting at which all
shareholders present, or at which shareholders not present have waived notice in
writing, the giving of notice as above described may be dispensed with. The
Board of Directors shall also, in like manner, call a special meeting of
shareholders whenever so requested in writing by shareholders representing not
less than ten percent (10%) of the capital stock of the Corporation entitled to
vote at the meeting of shareholders upon ten (10) days notice. No business,
other than that specified in the call for the meeting, shall be transacted at
any special meeting of the shareholders, except upon the unanimous consent of
all the shareholders entitled to notice thereof.
Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to receive notice of or to vote at
any meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed, for a
stated period not to exceed, in any case, fifty (50) days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed, and no record date is fixed for the
determination of shareholders entitled to receive notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board
1
<PAGE>
of Directors declaring such dividend is adopted, as the case may be, shall the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 4. VOTING. At all meetings of the shareholders of record having
the right to vote, subject to the provisions of Section 3, each stockholder of
the Corporation is entitled to one vote for each share of stock having voting
power standing in the name of such stockholder of the books of the Corporation.
Votes may be cast in person or by written authorized proxy.
Section 5. PROXY. Each proxy must be executed in writing by the
shareholder of the Corporation of his duly authorized attorney. No proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution.
Every proxy shall be revocable at the discretion to the person executing it
or of his person representatives or assigns upon written notice given to the
Secretary of the corporation.
Section 6. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
By-Laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him either in person or by proxy without a transfer of such shares into
his name. Shares standing in the name of a trustee may be voted by him either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the Court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledge, and
thereafter the pledge shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held by is in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 7. ELECTION OF DIRECTORS. At each election for directors every
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are Directors to be elected and for whose election he has a right to vote.
There shall be no cumulative voting.
Section 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the stockholders.
If a quorum shall not be present or represented, the shareholders entitled
to a vote thereat, present in person or represented by proxy, shall have power
to adjourn from time to time the meeting until a quorum shall be present or
represented. At such re-scheduled meeting at which a quorum shall be present or
represented, any business or any specified item of business may be transacted
which might have been transacted at the meeting originally notified.
The number of votes or consents or the holders of any class of stock having
voting power which shall be necessary for the transaction of any business or any
specified item of business at any meeting of shareholders, including amendments
to the Articles of Incorporation, or the giving of any consent, shall be a
majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy.
Section 9. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may
2
<PAGE>
be taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by all of the shareholders entitled to vote with respect
to the subject matter thereof.
ARTICLE III
DIRECTORS
Section 1. NUMBER. The affairs and business of this Corporation shall be
managed by a Board of Directors. The first Board of Directors shall consist of
three (3) members. Thereafter, the number of Directors may be increased to not
more than seven (7) by resolution of the Board of Directors.
Directors need not be shareholders and need not be residents of the state
of Nevada.
Section 2. ELECTION. The directors shall be elected at each annual
meeting of the shareholders, but if any such annual meeting is held, or the
directors are not elected thereat, the directors may be elected at any special
meeting of the shareholders held for that purpose.
Section 3. DUTIES. The Board of Directors shall have the control and
general management of the affairs and business of the Corporation. Such
directors shall in all cases act as a Board, except as herein provided in
Section 10, regularly covered, by a majority, and they may adopt such rules and
regulations for the conduct of their meetings and the management of the
Corporation, as they may deem proper, not inconsistent with these By-Laws and
the laws of the State of Nevada.
Section 4. DIRECTORS' MEETINGS. Regular meetings of the Board of
Directors shall be held immediately following the annual meeting of the
shareholders, and at such other time and place as the Board of Directors may
determine. Special meetings of the Board of Directors may be called by the
President at any time, and shall be called by the President or the Secretary
upon the written request of two directors.
Section 5. NOTICE OF MEETINGS. Notice of meetings other than the regular
annual meeting, shall be given by service upon each director in person, or by
mailing to him at his last known address, at least three (3) days before the
date therein designated for such meeting, including the day of mailing, of a
written or printed notice thereof specifying the time and place of such meeting,
and the business to be brought before the meeting, and no business other than
that specified in such notice shall be transacted at any special meeting. At any
meeting at which every member of the Board of Directors shall be present,
although held without notice, any business may be transacted which might have
been transacted if the meeting had been duly called.
Any Director may waive notice of any meeting under the provisions of
Article XI. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully convened or called.
Section 6. VOTING. At all meetings of the Board of Directors, each
director is to have one vote, irrespective of the number of shares of stock that
he may hold. The act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 7. VACANCIES. Vacancies in the Board occurring between annual
meetings shall be filled for the unexpired portion of the term by a majority of
the remaining directors.
Section 8. REMOVAL OF DIRECTORS. Any one or more of the Directors may be
removed, with or without cause, at any time, by a vote of the shareholders
holding a majority of the stock, at any special meeting called for that purpose.
Section 9. QUORUM. The number of Directors who shall be present at any
meeting of the Board of Directors in order to constitute a quorum for the
transaction of any business or any specified item of business shall be a
majority.
The number of votes of Directors that shall be necessary for the
transaction of any business or any specified item of business shall be a
majority.
3
<PAGE>
If a quorum shall not be present at any meeting of the Board of Directors,
those present may adjourn the meeting from time to time, until a quorum shall be
present.
Section 10. EXECUTIVE COMMITTEE. By resolution of the Board of Directors,
and at their option, the Directors may designate an Executive committee which
includes at least one (1) Director, to manage and direct the daily affairs of
the Corporation. Said Executive Committee shall have and may exercise all of the
authority that is vested in the Board of Directors as if the Board of Directors
were regularly convened, except that the Executive Committee shall not have
authority to amend these By-Laws.
At all meetings of the Executive Committee, each member shall have one
vote, and the act of a majority of the members present at a meeting at which
quorum is present shall be the act of the executive committee members who shall
be present at any meeting of the Executive Committee in order to constitute a
quorum for the transaction of any business or any specified item of business.
The number of votes of Executive Committee members that shall be necessary
for the transaction of any business or any specified item of business shall be a
majority.
Section 11. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors or each may be paid a stated salary as Director, either
in cash, its equivalent, or in shares of stock of the Company. No such payment
shall preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefor.
Section 12. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken unless his dissent shall be entered in the minutes of the
meetings or unless he shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of this Corporation shall be: President,
Vice-President, Secretary and Treasurer.
With respect to the officer of Vice President, the Company may have any
number of Vice Presidents, as directed by the Board of Directors.
Any officer may hold more than one office.
Section 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately after the
annual meeting of the shareholders, and shall hold office for the term of one
year or until their successors are fully elected. Officers need not be members
of the Board of Directors.
The Board may appoint such other officers, agents and employees as it shall
deem necessary who shall have such authority and shall perform such duties as
from time to time shall be prescribed by the Board.
Section 3. DUTIES OF OFFICERS. The duties and powers of the officers of
the Corporation shall be as follows:
PRESIDENT
The President shall preside at all meetings of the Board of Directors and
shareholders.
He shall present at each annual meeting of the shareholders and Directors a
report of the condition of the business of the Corporation.
He shall cause to be called regular and special meetings of the
shareholders and Directors in accordance with these By-Laws. He shall appoint
and remove, employ and discharge, and fix the
4
<PAGE>
compensation of all servants, agents employees, and clerks of the Corporation
other than the duly appointed officers, subject to the approval of the Board of
Directors.
He shall sign and make all contracts and agreements in the name of the
Corporation.
He shall see that the books, reports, statements and certificates required
by the statutes are properly kept, made and filed according to law.
He shall sign all certificates of stock, notes, drafts or bills of
exchange; warrants or other orders for the payment of money duly drawn by the
Treasurer.
He shall enforce these By-Laws and preform all of all the duties incident
to the position and office, and which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and preform his
duties or exercise his powers, as set forth in these By-Laws or in the laws
under which this Corporation is organized, the same shall be performed and
exercised by the Vice-President; and when so acting, he shall have all powers
and be subject to all the responsibilities hereby given to or imposed upon such
President.
SECRETARY
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the shareholder in appropriate books.
He shall give and serve all notices of the Corporation.
He shall be custodian of the records and of the seal and affix the latter
when required.
He shall keep the stock and transfer books in the manner prescribed by law,
so as to show at all times the amount of capital stock issued and outstanding;
the manner and the time compensation for the same was paid in; the names of the
owners thereof, alphabetically arranged; the number of shares owned by each; the
time at which each person became such owner, and the amount paid thereon; and
keep such stock and transfer books open daily during such shareholder to make
extracts from said books to the extent prescribed by law.
He shall sign all certificates of stock.
He shall present to the Board of Directors at their stated meetings all
communications addressed to him officially by the President or any officer or
shareholder of the Corporation.
He shall attend to all correspondence and perform the duties incident to
the office of Secretary.
TREASURER
The Treasurer shall have the care and custody of, and be responsible for,
all the funds and securities of the Corporation and deposit all such funds in
the name of the Corporation in such bank or banks, trust company or trust
companies, or safe deposit vaults as the Board of Directors may designate.
He shall exhibit at all reasonable times his books and accounts to any
director or shareholder of the Corporation upon application at the office of the
Corporation during business hours.
He shall render a statement of the conditions of the finances of the
Corporation at each regular meeting of the Board of Directors, and at such other
times as shall be required of him, and a full financial report at the annual
meeting of the shareholders.
He shall keep, at the office of the Corporation, correct books of account
of all its business and transactions and other such books of account as the
Board of Directors may require.
He shall do and perform all duties appertaining to the office of Treasurer.
Section 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge of
his duties as the Board may direct.
5
<PAGE>
Section 5. VACANCIES, HOW FILLED. All vacancies in any office shall be
filled by the Board of Directors without undue delay, at its regular meeting or
at a meeting specially called for that purpose. In the absence of any officer of
the Corporation or for any reason that the Board of Directors may deem
sufficient, The Board may, except as specifically otherwise provided in these
By-Laws, delegate the powers of such officers to any other officer of Director
for the time being, provided a majority of the entire Board concur therein.
Section 6. COMPENSATION OF OFFICERS. The Officers shall receive such
salary or compensation as may be determined by the Board of Directors.
Section 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer, by a majority vote, at any time with or without cause.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
shall be numbered and registered in the order in which they are issued. They
shall be bound in a book and shall be issued in consecutive order therefrom, and
in the margin thereof shall be entered the name of the person owning the shares
therein represented, with the number of shares and the date thereof. Such
certificates shall exhibit the holder's name and number of shares. They shall be
signed by the President or Vice-President, and countersigned by the Secretary or
Treasurer and sealed with the seal of the Corporation.
Section 2. TRANSFER OF STOCK. The stock of the Corporation shall be
assignable and transferable on the books of the Corporation only by the person
in whose name it appears on said books, his legal representatives or by his duly
authorized agent. In case of transfer by attorney, the power of attorney, duly
executed and acknowledged, shall be deposited with the Secretary. In all cases
of transfer, the former certificate must be surrendered up and cancelled before
a new certificate may be issued. No transfer shall be made upon the books of the
Corporation within ten (10) days next preceding the annual meeting of the
shareholders.
Section 3. LOST CERTIFICATES. If a shareholder shall claim to have lost
or destroyed a certificate or certificates of stock issued by the Corporation,
the Board of Directors may direct, at its discretion, that a new certificate or
certificates be issued, upon the making of an affidavit or that fact by the
person claiming the certificate of stock to be lost or destroyed and upon the
deposit of an open ended bond or other indemnity in such form and with such
sureties, if any, as the board may require.
ARTICLE VI
CORPORATE SEAL
Section 1. SEAL. The seal of the Corporation shall be as follows:
ARTICLE VII
DIVIDENDS
Section 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
Section 2. RESERVE. The Board of Directors may set aside out of the net
profits of the Corporation available for dividends such sum or sums, before
payment or any dividend, as the Directors, in their absolute discretion, think
proper as a reserve fund, to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purposes as the Directors shall think conducive or modify any such reserve in
the manner in which it was created.
6
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 1. INDEMNIFICATION. Any person made a party or involved in any
civil, criminal or administrative action, suit, or proceeding by reason or the
fact that he or his testator or intestate is or was director, officer, or
employee of the Corporation, or of any Corporation which he, the testator, or
intestate served as such at the request of the Corporation, shall be indemnified
by the Corporation against expenses reasonably incurred by him or imposed on him
in connection with or resulting from the defense of such action, suit, or
proceeding and in connection with or resulting from any appeal thereon, except
with respect to matters as to which it is adjudged in such action, suit, or
proceeding that such officer, director, or employee was liable to the
Corporation, or to such other corporation, for negligence or misconduct in the
performance of his duty. As used herein the term "expense" shall include all
obligations incurred by such person for the payment or money, including without
limitation attorney's fees, judgments, awards, fines, penalties, and amounts
paid in satisfaction of judgment or in settlement of any such action, suit, or
proceeding, except amounts paid to the Corporation or such other corporation by
him. A judgement or conviction whether based on pleas of guilty or nolo
contendre or its equivalent, or after trial, shall not of itself be deemed an
adjudication that such director, officer, or employee is liable to the
Corporation, or such other corporation, for negligence or misconduct in the
performance of his duties. Determination of the rights of such indemnification
and the amount thereof may be made at the option of the person to be indemnified
pursuant to procedure set forth from time to item in the By-Laws, by any of the
following procedures: (a) order of the court or administrative body or agency
having jurisdiction of the action, suit, or proceeding; (b) resolution adopted
by a majority or the quorum of the Board of Directors of the Corporation,
without counting in such majority or quorum any directors who have incurred
expenses in connection with such action, suit or proceeding; (c) if there is no
quorum of directors who have not incurred expenses in connection with such
action, suit, or proceeding, then by resolution adopted by a majority of the
committee of shareholders and directors who have not incurred such expenses
appointed by the Board of Directors; (d) resolution adopted by a majority for
the quorum of the Directors entitled to vote at any meeting; or (e) order of any
court having jurisdiction over the Corporation. Any such determination that a
payment by way of indemnity should be made will be binding upon the Corporation.
Such right of indemnification shall not be exclusive of any other right which
such directors, officers, and employees of the Corporation and the other persons
above-mentioned may have or hereafter acquire, and without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any By-Laws, Agreement, vote of shareholders, provision
of law, or otherwise, in addition to their rights under this Article. The
provision of this Article shall apply to any member of any committee appointed
by the Board of Directors as fully as though such person had been a director,
officer or employee of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. HOW AMENDED. These By-Laws may be altered, amended, repealed
or added to by the vote of the Board of Directors of this Corporation at any
regular meeting of said Board, or at a special meeting of directors called for
the purpose, provided a quorum of the directors, as provided by law and by the
Articles of Incorporation, are present at such regular meeting or special
meeting. These By-Laws and any amendments thereto and new By-Laws added by the
directors may be amended, altered or replaced by the shareholders at any such
annual or special meeting of the shareholders.
ARTICLE X
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year shall end June 30th.
7
<PAGE>
ARTICLE XI
WAIVER OF NOTICE
Section 1. WAIVER NOTICE. Whenever any notice is required to be given to
any shareholder or director of the Corporation under the provisions of the
Nevada Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the item
stated therein, shall be deemed equivalent to the giving of such notice.
These By-Laws approved and adopted at a meeting of the Board of Directors
on 1st day of October.
/s/ JAMES BLACKBURN
James Blackburn, President
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of DIM INC;
(2) That the foregoing By-Laws comprised of XI Articles, constitute the
By-Laws of said Corporation as duly adopted at a meeting of the Board of
Directors thereof duly held on the 1st day of October, 1988.
/s/ PETER N. WILLIAMS
Peter N. Williams, Secretary
8
EXHIBIT 4.1
THE AMERICAN ENERGY GROUP,
LTD.
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
PAR VALUE $.001 PER SHARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 025636 10 1
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF
THE AMERICAN ENERGY GROUP, LTD.
Transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the signatures of its duly authorized officers.
Dated:
[SEAL]
/s/ Richard A. Majeus
Secretary
/S/ Bobby J. Simmons
President
<PAGE>
The following abbreviations, when used in the inscription on this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-__________ Custodian____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act____________________________
(State)
UNIF TRF MIN ACT- __________ Custodian____________
(Cust) (Minor)
under Uniform Transfers to Minors
Act____________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer
unto
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO SEC RULE 11Ad15.
EXHIBIT 4.2
CERTIFICATE OF ISSUANCE OF
CONVERTIBLE VOTING PREFERRED STOCK
S.025 NON-CUMULATIVE DIVIDEND
OF
THE AMERICAN ENERGY GROUP, LTD.
We, the undersigned President and Secretary of The American Energy Group,
Ltd., a Nevada corporation, hereinafter called the "Corporation", do hereby
certify that the Board of Directors of the Corporation, at a meeting duly
convened and held on the 22nd day of September, 1994, by resolution authorized
the issuance of 2,074,521 shares of the authorized preferred stock of the
corporation, to be issued in a series, to be known as the "Convertible Voting
Preferred Stock, $.025 Non-Cumulative Dividend", which for purposes of this
document shall hereinafter be called the "Preferred Stock". The voting powers,
designations, preferences, limitations, restrictions and relative rights of said
series of Preferred Stock are as follows:
DIVIDEND RIGHTS. The holders of Preferred Stock shall be entitled to
receive, as and when declared, out of any surplus, net profits or other assets
from which the Corporation may legally declare dividends, noncumulative
preferential dividends at the rate of $0.025 a share per annum, payable
annually, semiannually, or quarterly as the Board of Directors of the
Corporation may determine, and no more, before any dividends may be declared on
the shares of the Common Stock of the Corporation.
REDEMPTION. At any time, and from time to time, after September 30, 1999,
the Board of Directors of the Corporation may elect to redeem the Preferred
Stock, at a redemption price of $0.50 per share.
CONVERSION PRIVILEGE. The Preferred Stock shall, at the option of the
holders thereof, be convertible into fully paid and nonassessable Common Stock
of the Corporation, upon the following terms and conditions:
On or before September 30, 1995, the holder may elect to
convert 20% of the Preferred Stock issued to such holder. On
or before September 30, 1996, the holder may elect to convert
a further 20% of the Preferred Stock issued to such holder. On
or before September 30, 1997, the holder may elect to convert
a further 20% of the Preferred Stock issued to such holder. On
or before September 30, 1998, the holder may elect to convert
a further 20% of the Preferred Stock issued to such holder. On
or before September 30, 1999, the holder may elect to convert
the final 20% of the Preferred Stock issued to such holder.
The right and option to convert shall terminate if not
exercised on or before September 30, 1999. The annual option
rights are cumulated, if not exercised. By way of example, if
a holder does not elect to convert prior to September 30, 1996
such holder may elect to convert 40% of the Preferred Stock
issued to such holder.
Each share of Preferred Stock shall be convertible into five (5) shares of
the Common Stock of the Corporation.
In order to exercise the conversion privilege, the holder of any of the
Preferred Stock to be converted shall surrender the certificate or certificates
therefore to any transfer agent of the Corporation, or to the main corporate
office of the Corporation or to any transfer agent of the Corporation, duly
endorsed, with signature guaranteed by a national banking association, in blank
for transfer, accompanied by written notice of election to convert such
Preferred Stock or portion thereof, executed on the form set forth on such
certificates or on such other form as may be provided from time to time by the
Corporation. As soon as practical after the surrender of such certificates by
the holder, the Corporation shall cause to be issued and delivered, at the
office of such transfer agent, to the holder of the certificates thus
surrendered, a certificate or certificates in the same name as the holder of the
certificates surrendered for the number of full shares of Common Stock issuable
hereunder upon the conversion of such Preferred Stock. Such conversion shall be
deemed to have been effected on the date on which the certificates for such
Preferred Stock have been surrendered.
Certificate of Issuance of Convertible Voting Preferred Stock -
The American Energy Group, Ltd. Page 1
<PAGE>
If at any time the Corporation contracts the number of outstanding Common
Stock by combining such shares into a smaller number of shares, the conversion
then in effect shall be proportionally increased, and the number of shares of
Common Stock into which each share of Preferred Stock shall thereafter be
convertible shall be proportionally decreased.
In the case of a merger or consolidation of the Corporation, or the
reclassification of its Common Stock, other than by way of split-up or
contraction, or a change in par value, the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion the kind and amount of shares
and securities and property which they would have been entitled to receive had
they converted such Preferred Stock into Common Stock of the Corporation as of
the record date for the determination of Common Stock shareholders entitled to
participate in such merger, consolidation or reclassification.
As long as any of the Preferred Stock remains outstanding during the
conversion period, the Corporation shall take all steps necessary to reserve and
keep available a number of its authorized but unissued Common Stock sufficient
for issuance upon conversion of all such outstanding Preferred Stock.
In case of the voluntary dissolution, liquidation or winding up of the
Corporation, all conversion rights of the holders of the Preferred Stock shall
be accelerated and shall terminate, if not exercised, on a date fixed by the
Board of Directors of the Corporation, to be not more than 30 days prior to the
record date for determining the holders of the Common Stock entitled to receive
any distribution upon such dissolution, liquidation, or winding up. The
Corporation shall cause notice of the proposed action, and of the date of
termination of conversion rights, to be mailed to the holders of record of the
Preferred Stock not later than 30 days prior to the date of such termination.
All certificates of Preferred Stock surrendered for conversion in the
manner herein set forth shall be canceled and retired.
The exercise of the conversion privilege shall be subject to such
regulations, not inconsistent with the foregoing provisions, as may from time to
time be adopted by the Board of Directors of the Corporation.
All Common Stock issued upon the conversion of the Preferred Stock shall be
validly issued and outstanding and fully paid and nonassessable.
VOTING RIGHTS. The holders of the Preferred Stock shall have the right to
vote or consent at all meetings of the shareholders of the Corporation, or
otherwise, in respect to any matter upon which the vote or the consent in lieu
of voting of the shareholders is required, including, without limitation, the
election of directors. Each share of the Preferred Stock shall be entitled to
one vote. /s/ BRADLEY J. SIMMONS
BRADLEY J. SIMMONS, PRESIDENT
/s/ GILBERT R.H. KENNEDY
GILBERT R.H. KENNEDY, SECRETARY
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on the 16th day of November,
1994, by Bradley J. Simmons, as President of The American Energy Group, Ltd., a
Nevada corporation, on behalf of said corporation.
/s/ KEN DOUCETTE
NOTARY PUBLIC, STATE OF TEXAS
[NOTARY PUBLIC SEAL]
Certificate of Issuance of Convertible Voting Preferred Stock -
The American Energy Group, Ltd. Page 2
<PAGE>
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on the 16th day of November,
1994, by Gilbert R.H. Kennedy, as Secretary of The American Energy Group, Ltd.,
a Nevada corporation, on behalf of said corporation.
/s/ KEN DOUCETTE
NOTARY PUBLIC, STATE OF TEXAS
[NOTARY PUBLIC SEAL]
STATE OF NEVADA SEAL
Certificate of Issuance of Convertible Voting Preferred Stock -
The American Energy Group, Ltd. Page 3
<PAGE>
BLOCK E
Certificate No.
E
Shares
INCORPORATED UNDER THE LAWS OF
THE STATE OF NEVADA
RESTRICTED PREFERRED STOCK
CONVERTIBLE VOTING PREFERRED STOCK, $0.025 NON-CUMULATIVE DIVIDEND
THIS CERTIFIES THAT
is the owner of
Fully-paid and non-assessable shares of Convertible Voting Preferred Stock,
$0.025 Non-Cumulative Dividend of
THE AMERICAN ENERGY GROUP, LTD.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar. In Witness Whereof, the said Corporation has caused this Certificate
to be signed by its duly-authorized officers and sealed with the Seal of the
Corporation.
Dated:
President
Secretary
Countersigned and Registered by
Signature Stock Transfer, Inc.
Authorized Signature
<PAGE>
For value received hereby sells, assigns, and
transfers unto Shares
represented by the within certificate, and do hereby irrevocably constitute and
appoint
Attorney to transfer the said
Shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated this day of , 19
(Witness) (Signature)
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR UNDER THE SECURITY LAWS OF ANY STATE. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER THE SECURITIES ACT OF 1933, AND THE REGISTRATION UNDER THE SECURITIES LAWS
OF ANY APPLICABLE STATE STATUTES, OR A PRIOR OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH STATUTES.
The shares of Preferred Stock reflected by this Certificate are subject to,
among others, the following qualifications, limitations, or restrictions:
Dividend Rights. The holders of the Preferred Stock shall be entitled to
receive, as and when declared, out of any surplus, net profits or other assets
from which the Corporation may legally declare dividends, noncumulative
preferential dividends at the rate of $0.025 a share per annum, payable
annually, semiannually, or quarterly as the Board of Directors of the
Corporation may determine, and no more, before any dividends may be declared on
the shares of the Common Stock of the Corporation.
Redemption. At any time, and from time to time, after September 30, 1999, the
Board of Directors of the Corporation may elect to redeem the Preferred Stock,
at a redemption price of $0.50 per share.
Conversion Privilege. The Preferred Stock reflected by this Certificate, being
Block E Preferred Stock, are convertible on or after October 1, 1998. On or
after such date, the Preferred Stock reflected by this Certificate shall, at the
option of the holders thereof, be convertible into fully-paid and non-assessable
Common Stock of the Corporation. Upon the exercise of such option, each share of
Preferred Stock shall be convertible into five (5) shares of the Common Stock of
the Corporation. The right and option to convert shall terminate if not
exercised on or before September 30, 1999.
Voting Rights. The holders of the Preferred Stock shall have the right to vote
or consent at all meetings of the shareholders of the Corporation, or otherwise,
in respect to any matter upon which the vote or the consent in lieu of voting of
the shareholders is required, including, without limitation, the election of
directors. Each share of the Preferred Stock shall be entitled to one vote.
A statement setting forth in full or summarizing further the conversion
privilege, and any other designations, limitations, restrictions and relative
rights of the stock reflected by this Certificate may be obtained from the
President of the Corporation at its principal office, being located at P.O. Box
489,, Simonton, Texas 77476. The Corporation shall furnish to its stockholders,
upon request and without charge, a copy of such statement or summary.
21.1 Subsidiaries
All of the Company's subsidiaries are Texas corporations.
1. AMERICAN ENERGY-DECKERS PRAIRIE, INC.
2. THE AMERICAN ENERGY OPERATING CORP.
3. TOMBALL-AMERICAN ENERGY, INC.
4. CYPRESS-AMERICAN ENERGY, INC.
5. DAYTON NORTH FIELD-AMERICAN ENERGY, INC.
6. NASH DOME FIELD-AMERICAN ENERGY, INC.
7. SIMMONS OIL COMPANY, INC.
8. SIMMONS DRILLING CO., INC.
9. SEQUOIA OPERATING COMPANY, INC.
10. HYCARBEX AMERICAN ENERGY, INC.
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<PERIOD-END> JUN-30-1998
<CASH> 3,214,205
<SECURITIES> 3,300
<RECEIVABLES> 8,984
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<CURRENT-ASSETS> 3,339,607
<PP&E> 17,740,805
<DEPRECIATION> 218,627
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0
535
<COMMON> 28,928
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<TOTAL-LIABILITY-AND-EQUITY> 20,864,635
<SALES> 641,203
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