UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended MARCH 31, 1998
-------------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
Commission File Number: 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 87-0448843
- --------------------------------------------------------------------------------
(state or other jurisdiction of IRS Employer
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)
(Former name, former address and former fiscal year, if changed since last
report)
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 filing requirements
for the past 90 days. |X| Yes |_| No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check-mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. |_| Yes |_| No
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.
28,288,921 COMMON SHARES
SEC Form 10-Q
The American Energy Group, LTD. Page 1 of 6
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company files herewith the Unaudited Consolidated Financial Statements for
the three months ended March 31, 1998 and 1997, presented with the Audited
Consolidated Financial Statements for the twelve months (Fiscal Year) ended June
30, 1997. In the opinion of Management, the Financial Statements with the
related notes reflect a fair presentation of the financial condition of the
Registrant for the period stated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL INFORMATION
The following information should be read in conjunction with the consolidated
financial statements of the Company, attached to this report.
The Company has emerged from the development stage. It has engaged in the
drilling of development wells and the recompletion of existing wells on its
inventory of properties acquired in previous quarters. It has not yet had
significant revenue from the production of oil and gas. The Company has financed
its operations to date through private placement of equity securities and
borrowing from lenders, including banks and existing shareholders. Management
anticipates an increasing revenue stream from the properties as further
development funded through substantial equity investment received by the Company
continues. Because the Company's properties are predominantly oil (as opposed to
natural gas) related, the fluctuation in oil prices will continue to have a
significant impact on the Company's prospective revenues and revenue stream from
oil sales.
The Company utilizes the full cost method of accounting for its oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a "full
cost pool". Cost included in the full cost pool are charged to operations as
depreciation, depletion and amortization using the units of production method
based on the ratio of current production to estimated 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.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 3/31/98 PAGE 2 OF 6
<PAGE>
In the initial three years in which the Company has held the Jacobabad
Concession in the Middle Indus Basin of central Pakistan, it has expended in
excess of $2.0 Million in acquisition, geological, seismic, and associated
costs. At the time of this filing, the Company is drilling an initial
exploration well on this Concession. The Company deposited $1.65 Million in its
bank account in Islamabad, Pakistan, as a reserve for estimated site preparation
and drilling costs on this well. Drilling operations commenced on March 15,
1998. The Company has conducted evaluation of geological and geophysical data on
the area, logistics, mobilization, and other associated matters to devise a
sound plan for success. As of the time of this filing, the drilling and
evaluation operations are still underway. This is a significant undertaking by
the Company.
With the exception of historical information, the matters discussed in this
Report contain forward looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward looking statements contained in this report include the time and extent
of changes in commodity prices for oil and gas, increases in the cost of
conducting operations, including remedial operations, the extent of the
Company's success in discovering, developing and producing reserves, political
conditions, including those in Pakistan and other areas in which the Company
possesses properties, condition of capital and equity markets, changes in
environmental laws and other laws affecting the ability of the Company to
explore for and produce oil and gas and the cost of so doing and other factors
which are described in this Report.
RESULTS OF OPERATIONS
In the Quarter ended March 31, 1998, the field operations of the Company
consisted of performing tasks necessary to maintain the existing leases and the
drilling and completion of wells drilled in pilot developmental drilling
projects. Significant Information pertaining to the results of the Quarter
include:
REVENUES AND EARNINGS
In the Quarter ended March 31, 1998, the Company incurred a net operating loss
of $120,903, with oil & gas sales of $98,784 as compared to a net operating
income of $11,295 on oil & gas sales of $97,636 in the prior fiscal year's
Quarter ended March 31, 1997. This reflects a slight increase (1%) in oil & gas
sales in comparison with the prior year's Quarter ending March 31, despite a
significant reduction in the weighted average price per barrel of oil sales in
the comparative quarters. The average price per barrel of oil sold by the
Company in the quarter ending March 31, 1997 was $21.65, as compared to $14.05
in the current quarter ending March 31, 1998, reflecting a reduction in oil
price per barrel of in excess of thirty five (35%) percent. The Company's
ongoing drilling and recompletion activities which have resulted in productive
wells are attributed to the relative increase from the prior year's Quarter and
total year's oil sales.
The Company, with the inclusion of other income, including interest, writedown
on other investments, and debt forgiveness, reported net loss of $66,048 in the
Quarter ended March 31, 1998 versus a income of $3,095 in the prior fiscal
year's Quarter ended March 31, 1997.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 3/31/98 PAGE 3 OF 6
<PAGE>
As of March 31, 1998, the Company was significantly engaged in its principal
business activity of drilling and producing wells. The Company had previously
financed field maintenance operations through loans and private investment
capital infusions, but has begun to produce income through the sale of oil since
the beginning of the new fiscal year. During the Quarter, it incurred general
and administrative costs associated with the acquisition of assets and
management of the Company's affairs. Costs incurred in connection with the
acquisition and development of oil and gas properties have been capitalized in
accordance with the full cost method of accounting for oil and gas properties.
The Company does not anticipate having significant oil and gas revenues until it
is able to substantially complete the development programs, if successful, in
the fields that it has acquired. Revenues from current drilling and completion
operations and the infusion of private investment capital have increased these
revenues, but the projects have yet to be fully developed and are still far from
completion.
LEGAL EXPENDITURES AND LITIGATION
During the nine months ended March 31, 1998, the Company paid retainers in
excess of $75,000 related to litigation instituted by the Company on July 30,
1997 against certain parties. These retainers are currently reflected on the
balance sheet of the Company. In the opinion of management, these retainers are
expected to be recovered upon final resolution of this litigation. Partial
settlements have been reached with the majority of the defendants and additional
settlements are anticipated.
TOTAL ASSETS / SHAREHOLDER'S EQUITY
Total Assets of the Company increased to $19,423,122, reflecting an increase of
$6,330,752, or forty eight (48%) percent in nine months from the fiscal year
ended June 30, 1997, at which time totaled $13,092,370.
Net Shareholders Equity increased to $17,975,372 as of March 31, 1998, from
$10,457,095 as of June 30, 1997. This reflects an increase of $533,802, or three
(3%) percent in the Quarter and an increase of $7,518,277, or seventy two (72%)
percent in the first nine months of the fiscal year. This is attributed to a
combination of the completion of equity financing and the exercise of certain of
the Company's warrants.
Net Shareholder Equity Per Share, on a fully diluted basis, has increased from
$0.414 per share at June 30, 1997, to $0.474 per share at September 30, 1997, to
$0.569 per share as of December 31, 1997, to $0.578 per share as of March 31,
1998, representing an increase of $0.009 per share, or one and one half (1.5%)
percent increase in the current Quarter and an increase of forty (40%) percent
in the nine months ending March 31, 1998. This is also attributed to the
completion of the equity financing and Warrants exercise.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 3/31/98 PAGE 4 OF 6
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 30,1997, the Company filed a lawsuit in U.S. District Court for the
Southern District of Texas, charging that specific individuals and companies had
conspired to manipulate stock of the Company believed to have been fraudulently
obtained prior to the formation of The American Energy Group, Ltd. in 1994. On
November 7, 1997, the Company announced a partial settlement of the lawsuit
filed by the Company on July 30, 1997, and the withdrawal of the countersuit by
one of the defendants against the Company's directors. The aggregate financial
benefit of the partial settlement to the Company will be detailed in the
Company's future filings with the Securities and Exchange Commission. The
Company, its directors, and the settling defendants have mutually dismissed all
pending actions and cross-actions against one another. The partial settlement
does not affect the Company's claims against certain remaining defendants, and
the Company intends to continue the pursuit of those claims.
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the Quarter ending March 31, 1998, is provided below:
COMMON STOCK
The net amount of 426,180 shares of Common Stock were issued during the Quarter,
thereby increasing the total number of outstanding Common Stock to 28,288,921
shares in the following manner:
a. 400,000 shares of Common Stock of the Company were issued in conjunction with
the exercise of Warrants held by shareholders at an exercise price of $1.50 per
share.
b. 26,180 shares of Common Stock of the Company were issued through the
conversion of 5,236 shares of outstanding Convertible Preferred Stock at the
election of the Preferred shareholders.
CONVERTIBLE PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 562,241
to 557,005 shares by conversion of 5,236 shares of Convertible Preferred into
26,180 shares of Common Stock on a "five Common for each one Convertible
Preferred" basis. The remaining Convertible Preferred shares, if converted,
would require issuance of an additional 2,785,025 shares of Common Stock.
FULLY DILUTED COMMON STOCK
The Common Stock, in the eventuality of 100% conversion of the outstanding
Convertible Preferred shares would total 31,073,946 shares. This figure is
commonly referred to as the "fully diluted" Common Stock.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 3/31/98 PAGE 5 OF 6
<PAGE>
WARRANTS
In the Quarter ending March 31, 1998, the Company issued additional Warrants to
an independent consultant as a component of an incentive package. A total of
75,000 Warrants were issued. Of this total, 50,000 Warrants are exercisable at
$2.00 per share and 25,000 Warrants are exercisable at $4.00 per share. The term
of the Warrants is for one year.
In the Quarter ending March 31, 1998, a total of 400,000 Warrants were exercised
at an exercise price of $1.50 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)
(a) EXHIBITS
The Consolidated Financial Statements dated March 31, 1998 and 1997,
(unaudited) and June 30, 1997 (Audited) are appended hereto and
expressly made a part hereof as Exhibit A.
(b) REPORTS ON FORM 8-K
None
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
5/15/98 /s/ B/J/S
Bradley J. Simmons, President
5/15/98 /s/ D/L/C
David L. Cox, Secretary
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 3/31/98 PAGE 6 OF 6
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED MARCH 31, 1998
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 (UNAUDITED)
AND JUNE 30, 1997 (AUDITED)
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
CASH .................................. $ 4,177,353 $ 3,132,294
RECEIVABLES ........................... 58,199 70,989
RECEIVABLES - RELATED PARTY ........... 0 9,702
OTHER CURRENT ASSETS .................. 78,123 63,984
------------ ------------
TOTAL CURRENT ASSETS .................. 4,313,675 3,276,969
------------ ------------
OIL & GAS PROPERTIES USING
FULL COST ACCOUNTING
PROPERTIES BEING AMORTIZED ............ 8,875,001 5,618,847
PROPERTIES NOT SUBJECT
TO AMORTIZATION ..................... 6,012,428 3,990,489
ACCUMULATED AMORTIZATION .............. (103,602) (33,000)
------------ ------------
NET OIL AND GAS PROPERTIES .......... 14,783,827 9,576,336
------------ ------------
PROPERTY AND EQUIPMENT
DRILLING AND RELATED EQUIPMENT ........ 246,494 246,494
VEHICLES .............................. 126,146 126,146
OFFICE EQUIPMENT ...................... 38,190 23,021
LESS: ACCUMULATED DEPRECIATION ........ (180,060) (159,446)
------------ ------------
NET PROPERTY AND EQUIPMENT ............ 230,770 236,215
------------ ------------
OTHER ASSETS
DEPOSITS AND OTHER ASSETS ............. 94,850 2,850
------------ ------------
TOTAL OTHER ASSETS .................... 94,850 2,850
------------ ------------
TOTAL ASSETS ............................... $ 19,423,122 $ 13,092,370
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE ................. 457,437 545,987
ACCRUED LIABILITIES .............. 62,614 296,970
LEASE OBLIGATIONS-CURRENT ........ 6,341 4,565
NOTES PAYABLE-CURRENT ............ 395,967 1,123,899
------------ ------------
TOTAL CURRENT LIABILITIES ........ 922,359 1,971,421
------------ ------------
LONG TERM LIABILITIES
NOTES PAYABLE AND LONG TERM DEBT . 511,689 649,737
CAPITAL LEASE OBLIGATIONS ........ 13,702 14,117
------------ ------------
TOTAL LONG TERM LIABILITIES ...... 525,391 663,854
------------ ------------
TOTAL LIABILITIES ................ 1,447,750 2,635,275
------------ ------------
SHAREHOLDERS EQUITY
CONVERTIBLE PREFERRED STOCK
PAR VALUE $.001 PER SHARE
AUTHORIZED 20,000,000 SHARES
ISSUED AND OUTSTANDING:
AT JUNE 30, 1997: 1,075,558 SHARES
AT MAR. 31, 1998: 431,341 SHARES.. 431 1,076
COMMON STOCK, PAR VALUE $.001
PER SHARE, AUTHORIZED 80,000,000
SHARES, ISSUED AND OUTSTANDING
AT JUNE 30, 1997: 22,509,293 SHARES
AT MAR 31, 1998: 28,288,921 SHARES 28,288 22,509
PAID IN EXCESS OF PAR VALUE ...... 19,003,117 13,893,728
STOCK SUBSCRIPTIONS RECEIVABLE ... 0 (2,385,000)
ACCUMULATED DEFICIT .............. (1,056,464) (1,075,218)
------------ ------------
NET SHAREHOLDERS EQUITY ............... 17,975,372 10,457,095
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS
EQUITY ................................ $ 19,423,122 $ 13,092,370
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
--------- --------- --------- ---------
REVENUES
<S> <C> <C> <C> <C>
OIL & GAS SALES .......................... $ 98,784 $ 97,636 $ 482,536 $ 148,690
--------- --------- --------- ---------
EXPENSES
LEASE OPERATING & AMORTIZATION ........... 90,760 17,723 199,402 38,140
LEGAL AND PROFESSIONAL FEES .............. 60,899 20,261 166,222 83,039
ADMINISTRATIVE SALARIES .................. 18,900 22,269 84,516 73,238
OFFICE OVERHEAD EXPENSE .................. 9,416 9,822 28,376 21,675
FRANCHISE TAXES .......................... 12,737 0 28,778 0
TRAVEL COSTS ............................. 0 3,947 0 6,560
DEPRECIATION ............................. 1,100 541 3,308 1,623
GENERAL ADMINISTRATIVE EXPENSE ........... 25,875 11,778 92,447 51,300
--------- --------- --------- ---------
TOTAL EXPENSE ............................ 219,687 86,341 603,049 275,575
--------- --------- --------- ---------
NET OPERATING PROFIT (LOSS) .................. (120,903) 11,295 (120,513) (126,885)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
INTEREST INCOME .......................... 43,231 1,550 79,556 4,077
INTEREST EXPENSE ......................... 0 (9,750) (1,247) (52,847)
UNREALIZED LOSS ON INVESTMENT ............ (3,000) 0 (40,947) 0
DEBT FORGIVENESS ......................... 14,624 0 101,905 0
--------- --------- --------- ---------
NET OTHER INCOME (EXPENSE) ............... 54,855 (8,200) 139,267 (48,770)
--------- --------- --------- ---------
NET INCOME (LOSS) BEFORE TAX ................. (66,048) 3,095 18,754 (175,655)
FEDERAL INCOME TAX ....................... 0 0 0 0
--------- --------- --------- ---------
NET INCOME (LOSS) FOR PERIOD ................. ($ 66,048) $ 3,095 $ 18,754 ($175,655)
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE .................... ($ 0.002) $ 0.000 ($ 0.001) ($ 0.013)
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Nine months
ended ended
March 31 March 31
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ................................. $ (66,408) $ (175,655)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ..................... 91,216 40,159
Less amount capitalized to oil & gas properties ... (19,514) (38,536)
(Increase) decrease in receivables ................ 22,492 (54,929)
(Increase) decrease in deposits and other assets .. (92,000) (9,510)
(Increase) decrease in other current assets ....... (14,139) (220)
Increase (decrease) in accounts payable ........... (88,550) 43,664
Increase (decrease) in accrued liabilities and
other current liabilities ....................... (234,356) 242,763
----------- -----------
Cash Provided by (Used in) Operating Activities (401,259) 47,736
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ........... (5,354,050) (1,807,451)
Expenditures for other property and equipment ..... (2,824) (18,793)
----------- -----------
Cash Provided By (Used in) Investing Activities (5,356,874) (1,826,244)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities ........................... -- 114,550
Proceeds from the issuance of common stock ........ 6,965,000 1,631,000
Proceeds from the issuance of convertible
voting preferred stock .......................... -- --
Payments on notes payable and long-term liabilities (161,808) (377,200)
----------- -----------
Cash Provided By (Used in) Financing Activities 6,803,192 1,368,350
----------- -----------
NET INCREASE (DECREASE) IN CASH ..................... 1,045,059 (410,158)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ....... 3,132,294 424,698
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ............. $ 4,177,353 $ 14,540
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDAIREIS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1996 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Convertible Voting Capital in
Common Stock Preferred Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 ............. 12,584,627 $ 12,584 1,075,558 $ 1,076 $ 4,734,829 ($ 918,555)
------------ ------------ ------------ ------------ ------------ ------------
Common stock issued for cash
contributions at $.95 per share .. 7,274,666 7275 -- -- 6,922,635 --
Common stock subscriptions
at $.90 per share ............... 2,650,000 2650 -- -- 2,382,350 --
Offering costs related to sales of
common stock ..................... -- -- -- -- (146,086)
Net (loss ) for the year
ended June 30, 1997 .............. -- -- -- -- -- (156,663)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 ............ 22,509,293 22,509 1,075,558 1,076 13,893,728 (1,075,218)
------------ ------------ ------------ ------------ ------------ ------------
Common stock issued for cash
contributions at $1.00 per share . 550,000 550 -- -- 549,450 --
Common stock issued upon
completion of private placement .. 405,562
Conversion of preferred shares ..... 407,500 813 (81,500) (82) 264,269
Net income for the quarter
ended September 30, 1997 ......... -- -- -- -- -- 11,747
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 ....... 23,872,355 $ 23,872 994,058 $ 994 $ 14,707,447 ($ 1,063,471)
============ ============ ============ ============ ============ ============
Conversion of preferred shares ..... 2,159,085 2,159 (431,817) (432) (1,727)
Common stock issued for Warrant
exercise at $1.50 per share ...... 2,110,000 2,110 -- -- 3,162,890 --
Common stock issued in
acquisition of oil property ........ 150,000 150 -- -- 224,850 --
Common stock issued for services
rendered to the Company ............ 10,000 10 -- -- 14,990 --
Common stock cancelled ............. (565,833) (566) -- -- 566 --
Common stock issued in conjunction
with debt conversion ............... 127,134 127 -- -- 294,546 --
Net income for the quarter
ended December 31, 1997 ............ -- -- -- -- -- 73,055
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 ........ 27,862,741 $ 27,862 562,241 $ 562 $ 18,403,562 ($ 990,416)
============ ============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1998 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ........... 27,862,741 27,862 562,241 562 18,403,562 (990,416)
Common stock issued for Warrant
exercise at $1.50 per share ......... 400,000 400 -- -- 599,450 --
Conversion of preferred shares ........ 26,180 26 (130,900) (131) 105
Net (loss) for the quarter
ended March 31, 1998 .................. -- -- -- -- -- (66,048)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 .............. 28,288,921 $ 28,288 431,341 $ 431 $19,003,117 ($1,056,464)
=========== =========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
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 6). The acquisition included wholly
owned subsidiaries of Simmons, Sequoia Operating Company, Inc. and Simmons
Drilling Company, Inc. The acquisition was recorded at the net book value of
Simmons of $1,044,149 which approximates fair value.
During the year ended June 30, 1995, the Company incorporated additional
subsidiaries including American Energy-Deckers Prairie, Inc., The American
Energy Operating Corp., Tomball American Energy, Inc., Cypress-American Energy,
Inc., Dayton North Field-American Energy, Inc. and Nash Dome Field-American
Energy, Inc. In addition, in May 1995, the Company acquired all of the issued
and outstanding common stock of Hycarbex, Inc. (Hycarbex), a Texas corporation,
in exchange for common stock of the Company (see Note 7), a 1% overriding
royalty on the Pakistan Project 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 are principally in the business of acquisition,
exploration and development of oil and gas properties with the ultimate goal of
production and operation of those properties and the contracting of those
services to other unrelated businesses.
b. DEVELOPMENT STAGE AND CONTINUED EXISTENCE
During the year ended June 30, 1997, the Companies began production from its oil
and gas leases located in the State of Texas and has recognized the
corresponding revenues. Accordingly, the Companies are no longer considered to
be in the development stage with the accompanying consolidated financial
statements no longer reflecting the results of operations, changes in
stockholders' equity and cash flows for the period from inception on July 21,
1987 through March 31, 1998
8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
b. DEVELOPMENT STAGE AND CONTINUED EXISTENCE (CONTINUED)
The recovery of assets and continuation of future operations were previously
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 the
realization of more significant revenues from oil and gas production in the near
future.
c. ACCOUNTING METHODS
The full cost method is used in accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of oil and gas reserves, including directly related overhead costs, are
capitalized. In addition, depreciation on property and equipment used in oil and
gas exploration and interest costs incurred with respect to financing oil and
gas acquisition, exploration and development activities are capitalized in
accordance with full cost accounting. Capitalized interest for the year ended
June 30, 1997 was $31,028 . No interest was capitalized in the quarter ended
March 31, 1998. In addition, depreciation capitalized during the year ended June
30, 1997 totaled $51,303. Depreciation capitalized during the quarter ended
March 31, 1997 totaled $4,738. All capitalized costs of proved oil and gas
properties subject to amortization are being amortized on the unit-of-production
method using estimates of proved reserves. Investments in unproved properties
and major development projects not subject to amortization are not amortized
until proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that the properties
are impaired, the amount of the impairment is added to the capitalized costs to
be amortized. As of June 30, 1997, proved oil and gas reserves had been
identified on some of the Companies oil and gas properties with revenues
generated and barrels of oil produced from those properties. Accordingly,
amortization totaling $33,000 has been recognized in the accompanying
consolidated financial statements for the year ended June 30, 1997 and $30,239
for the quarter ended March 31, 1998 on proved and impaired or abandoned oil and
gas properties.
The acquisition of Simmons Oil Company, Inc. and it's subsidiaries has been
accounted for using the purchase method. Accordingly, the accompanying
consolidated financial statements for the period up until the date of
acquisition, September 30, 1994, do not include the financial position, the
results of operations or cash flows of the Simmons companies for those periods.
The acquisition of Hycarbex, Inc. has been accounted for using the
pooling-of-interests method. Hycarbex had no assets or liabilities or results of
operations through the date of the acquisition and, therefore, had no effect on
the consolidated financial statements through April 6, 1995.
9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
d. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its wholly owned
subsidiaries as detailed previously. All significant intercompany accounts and
transactions have been eliminated in consolidation.
e. CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
f. PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation on drilling and related
equipment, vehicles and office equipment is provided using the straight-line
method over expected useful lives of five to seven years. For the quarter ended
March 31, 1998, the Companies incurred total depreciation expense of $5,838 of
which $4,738 was capitalized as costs of oil and gas properties.
g. EARNINGS AND LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average number of
shares issued and outstanding at the date of the consolidated financial
statements. The earnings per share of common stock is based on the weighted
average number of shares issued and outstanding on a fully diluted basis at the
date of the consolidated financial statements.
h. CERTIFICATES OF DEPOSIT
As of March 31, 1998, the Companies held three certificates of deposit totaling
$300,000 at the same financial institution, all in the name of the Company and
two of the subsidiaries. All three certificates of deposit bear interest at a
rate of 4.25% and mature every 30 days. These certificates of deposit are
unencumbered at March 31, 1998.
NOTE 2 - 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 available for further
exploration and development.
10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
NOTE 3 - NOTE PAYABLE - RELATED PARTY
As of June 30, 1996, the Companies had a note payable in the amount of $100,000
due to an individual who is a major shareholder and director of the Companies.
This note payable bears interest at a rate of 11% and matured January 19, 1996.
In addition, the Companies have assigned to this individual a 1% overriding
royalty in all oil and gas properties of the Companies. This obligation was paid
off during the year ended June 30, 1997.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of June 30,
1997 and March 31, 1998:
<TABLE>
<CAPTION>
March 31 June 30
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 ............................................. $ 779,843 $ 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 ............... 0 389,000
8.5% note payable to a financial institution due in
monthly installments of $950 for 36 months; secured
by two vehicles ........................................... 21,628 28,520
10% notes payable, due on demand, unsecured ............... 0 190,000
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties ..... 242,859 443,250
Total notes payable and long-term debt .................... $ 1,044,330 $ 1,965,770
----------- -----------
Less: Unamortized discount ................................ (136,674) (192,134)
----------- -----------
Net notes payable and long-term debt ...................... 907,656 1,773,636
Less: Current portion of notes payable
and long-term debt ........................................ (395,967) (1,123,899)
----------- -----------
Long-Term Liabilities ..................................... $ 511,689 $ 649,737
=========== ===========
</TABLE>
11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 and quarter ended March 31, 1998, 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 $662.The following are the scheduled annual payments on these
capital leases:
Year ending June 30, 1997
1998 ........................ $ 2,178
1999 ........................ $ 8,711
2000 ........................ $ 4,983
2001 ........................ $ 3,741
2002 ........................ $ 3,741
2003 ........................ $ 2,806
-------
$26,160
Total minimum lease commitments ................................. $ 26,160
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ..................... (2,402)
--------
Net minimum lease payments ...................................... 23,758
Less: Amount representing interest .............................. (3,715)
--------
Total Capital Lease Obligations ................................. 20,043
Current Portion ................................................. (6,341)
--------
Long Term Portion ............................................... $ 13,702
========
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
During the quarter ended March 31, 1998, a total of 5,236 shares of the
Company's Convertible Preferred shares were converted into 26,180 shares of
Common Stock.
NOTE 7- COMMON STOCK
During the quarter ended March 31, 1998, a net total of 426,180 shares of Common
Stock of the Company were issued through a combination of equity sale through
Warrant exercise and conversion of Convertible Preferred shares. (See
Consolidated statement of Stockholders Equity)
12
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND JUNE 30, 1997
NOTE 8- COMMON STOCK WARRANTS
In the Quarter ending March 31, 1998, the Company issued Warrants to an
independent consultant as a component of an incentive package. A total of 75,000
Warrants were issued. Of this total, 50,000 Warrants are exercisable at $2.00
per share and 25,000 Warrants are exercisable at $4.00 per share. The term of
the Warrants is for one year.
A total of 400,000 shares of Common Stock of the Company were issued in
conjunction with the exercise of Warrants held by shareholders at an exercise
price of $1.50 per share.
NOTE 9 - INCOME TAXES
Through March 31, 1998, the Companies have sustained net operating loss
carryforward totaling approximately $1,056,464 that may be offset against future
taxable income through 2012. No tax benefit has been reported in the
accompanying consolidated financial statements, because the potential tax
benefits of the net operating loss carryforward are offset by a valuation
allowance of the same amount.
NOTE 10 - 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 in favor of the named payees, there is no assurance
that the Company can avoid or mitigate its ultimate liability under the notes.
The Companies have begun to settle these obligations. The ultimate financial
effect of these efforts on the Companies cannot be determined.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,177,353
<SECURITIES> 7,000
<RECEIVABLES> 58,199
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,313,675
<PP&E> 15,298,259
<DEPRECIATION> 283,662
<TOTAL-ASSETS> 19,423,122
<CURRENT-LIABILITIES> 922,359
<BONDS> 0
0
431
<COMMON> 28,288
<OTHER-SE> 17,946,653
<TOTAL-LIABILITY-AND-EQUITY> 19,423,122
<SALES> 482,536
<TOTAL-REVENUES> 663,997
<CGS> 199,402
<TOTAL-COSTS> 603,049
<OTHER-EXPENSES> 40,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,247
<INCOME-PRETAX> 18,754
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,754
<EPS-PRIMARY> (.001)
<EPS-DILUTED> (.001)
</TABLE>
