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 SEPTEMBER 30, 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)
(Registrant's telephone number, including area code) (281)-346-2652
_______________________________________________________
(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.
29,779,205 COMMON SHARES
Page 1 of 8
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company files herewith the Unaudited Consolidated Financial Statements for
the three months ended September 30, 1998 and 1997, presented with the Audited
Consolidated Financial Statements for the twelve months (Fiscal Year) ended June
30, 1998. 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 related (as
opposed to natural gas), 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". Costs 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 is not recognized unless it
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 costs 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.
Page 2 of 8
<PAGE>
In the initial three and one half years in which the Company has held the
Jacobabad Concession in the Middle Indus Basin of central Pakistan, it has
expended in excess of $5.5 Million in acquisition, geological, seismic, drilling
and associated costs. At the time of this filing, the Company is preparing to
drill a second exploration well on this Concession. The Company deposited $1.1
Million in a segregated bank account in Islamabad, Pakistan, as a reserve for
estimated site preparation and drilling costs on this well. Drilling operations
are expected to commence in late 1998 or early 1999, depending upon rig
availability. 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 further
evaluation and drilling preparations for the second exploratory well are
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 September 30, 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 September 30, 1998, the Company incurred a net operating
profit of $6,967, with oil & gas sales of $52,571 as compared to a net operating
income of $130,884 on oil & gas sales of $173,367 in the prior fiscal year's
quarter ended September 30, 1997. This reflects a significant decrease of
seventy (70%) percent in comparative quarter's oil and gas sales in comparison
with the prior year's Quarter ending September 30, 1997. This has been due to a
significant decline in the weighted average price per barrel of oil sales in the
comparative quarters, as well as the company's election to shut in most of its
primary production for maintenance and repairs. The average price per barrel of
oil sold by the Company in the quarter ending September 30, 1997 was $18.30, as
compared to $11.89 in the current quarter ending September 30, 1998, reflecting
a reduction in oil price per barrel of in excess of thirty five (35%) percent.
The Company has begun renewed drilling and recompletion activities in the later
part of this quarter. The results of this activity are expected to be more
accurately reflected in the Company's future financial information and
performance.
Page 3 of 8
<PAGE>
The Company incurred certain legal and professional expenses out of a total
expenditure for this category in the amount of $70,307 which management believes
to be non recurring due to the completion of matters pertaining to specific
prior litigation and corporate related matters.
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, including interest, writedown on other investments,
reported net loss of $122,585 in the quarter ended September 30, 1998 versus an
income of $11,747 in the prior fiscal year's quarter ended September 30, 1997.
As of September 30, 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. The pricing of oil, the Company's sole revenue
source in terms of product sales, has considerable impact on the prospective
revenues and profitability of the Company. Revenues from recent acquisitions,
drilling, and completion operations and the utilization of infusions of private
investment capital in drilling and completion operations have helped increase
these revenues, but the projects have yet to be fully developed and are still
far from completion.
TOTAL ASSETS / SHAREHOLDER'S EQUITY
Total Assets of the Company increased to $21,833,181, reflecting an increase of
over four and one half percent (4.5%) in three months from the fiscal year ended
June 30, 1998, which at that time totaled
$20,864,635.
Net Shareholders Equity increased to $19,887,234 as of September 30, 1998, from
$17,476,355 as of June 30, 1998. This reflects an increase of $2,410,879, or
approximately fourteen percent (13.8%) for the quarter. This is attributed to a
combination of the sale of common stock, reduction of trade payables through the
issuance of common stock, the exercise of certain of the Company's warrants and
the acquisition of properties through the issuance of common stock.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
Page 4 of 8
<PAGE>
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the quarter ending September 30, 1998, is provided below:
COMMON STOCK
The net amount of 851,333 shares of Common Stock were issued during the quarter,
thereby increasing the total number of outstanding Common Stock to 29,779,205
shares in the following manner: A. During the quarter ended September 30,1998,
certain foreign persons exercised a total of 135,000 warrants to purchase common
stock of the Company at an exercise price of $3.00 per share. The Company
received total proceeds of $405,000 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.
B. From time to time during the quarter ended September 30,1998, various holders
of the Company's convertible preferred stock exercised their conversion rights
whereby 21,664 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 108,320
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.
C. During the first quarter ended September 30, 1998, two foreign investors
purchased a total of 428,572 shares of common stock of the Company at a price of
$3.50 per share,resulting in receipt of total net proceeds of $1,500,000. As of
this filing, the entire placement contemplated has not been completed. 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
Page 5 of 8
<PAGE>
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.
D. In the quarter ended September 30,1998, the Company acquired an interest in
oil and gas properties which the Company operates from one domestic industry
partner in exchange for 140,000 shares. The parties valued each share at 3.50
per share for the purposes of this transaction. The Company believes that the
purchaser had knowledge and experience in financial and business matters which
allowed the purchaser to evaluate the merits and risk of the purchase of these
securities of the Company, and that the purchaser 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 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 for 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.
E. In the quarter ended September 30,1998, the Company retired a total of
approximately $138,435 in debt to one company in exchange for a total of a total
of 39,441 shares of common stock of the Company. The Company believes that the
persons involved 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.
CONVERTIBLE PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 535,462
shares to 513,798 shares by conversion of 21,664 shares of Convertible Preferred
into 108,320 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 2,568,990 shares of Common Stock.
WARRANTS
Prior to the quarter ended September 30, 1998, outstanding warrants totaled
9,445,000. Total outstanding Warrants as of September 30,1998 were 10,335,000,
ranging in exercise price from $1.25 to $5.31 per share and in term from one
year to seven years. In the quarter ended September 30, 1998, a total of 135,000
warrants were exercised and a total of 1,025,000 warrants were issued to various
parties involved with the Company as described below:
Page 6 of 8
<PAGE>
A. In the quarter ended September 30, 1998, 1,000,000 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 an
exercise price of $5.00 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.
B. During the fiscal year, the Company has engaged certain technical consultants
in various contracts. In conjunction with retaining their services in the
quarter ended September 30, 1998, the Company has issued 25,000 warrants with an
exercise price of $4.00 per share and an expiration date of September, 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.
C. During the quarter ended September 30,1998, certain foreign persons exercised
a total of 135,000 warrants to purchase common stock of the Company at an
exercise price of $3.00 per share. The Company received total proceeds of
$405,000 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
Not Applicable
Page 7 of 8
<PAGE>
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 September 30, 1998 and
1997 (unaudited), and June 30, 1998 (Audited) are appended hereto
and expressly made a part hereof as Exhibit A.
(b) REPORTS ON FORM 8-K
A. The Company filed Form 8-K on July 10, 1998 regarding the
appointment of Don D. Henrich to the Board of Directors, which
is incorporated herein by reference.
B. The Company filed Form 8-K on September 24, 1998, and Form
8-KA on September 29, 1998, regarding Pakistan Concession
reserve estimates, which is incorporated herein by reference.
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
11/20/98 B/J/S
Bradley J. Simmons, President
11/20/98 L/F/G
Linda F. Gann, Secretary
Page 8 of 8
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1998
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND JUNE 30, 1998 (AUDITED)
F-1
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
CASH .................................... $ 3,263,267 $ 3,214,205
RECEIVABLES ............................. 31,404 8,984
RECEIVABLES - RELATED PARTY ............. 99,942 0
INVESTMENTS ............................. 1,000 3,300
OTHER CURRENT ASSETS .................... 113,794 113,118
------------ ------------
TOTAL CURRENT ASSETS .................... 3,509,407 3,339,607
------------ ------------
OIL & GAS PROPERTIES USING
FULL COST ACCOUNTING
PROPERTIES BEING AMORTIZED .............. 12,910,636 12,203,925
PROPERTIES NOT SUBJECT
TO AMORTIZATION ....................... 5,528,688 5,433,328
ACCUMULATED AMORTIZATION ................ (326,380) (303,927)
------------ ------------
NET OIL AND GAS PROPERTIES ............ 18,112,944 17,333,326
------------ ------------
PROPERTY AND EQUIPMENT
DRILLING AND RELATED EQUIPMENT .......... 282,153 246,494
VEHICLES ................................ 126,146 126,146
OFFICE EQUIPMENT ........................ 34,839 34,839
LESS: ACCUMULATED DEPRECIATION .......... (235,158) (218,627)
------------ ------------
NET PROPERTY AND EQUIPMENT .............. 207,980 188,852
------------ ------------
OTHER ASSETS
DEPOSITS AND OTHER ASSETS ............... 2,850 2,850
------------ ------------
TOTAL OTHER ASSETS ...................... 2,850 2,850
------------ ------------
TOTAL ASSETS ................................. $ 21,833,181 $ 20,864,635
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE ........................ 937,720 2,366,880
ACCRUED LIABILITIES ..................... 340,516 322,723
LEASE OBLIGATIONS-CURRENT ............... 6,430 6,985
NOTES PAYABLE-CURRENT ................... 304,526 250,876
------------ ------------
TOTAL CURRENT LIABILITIES ............... 1,589,192 2,947,464
------------ ------------
LONG TERM LIABILITIES
NOTES PAYABLE AND LONG TERM DEBT ........ 345,324 428,280
CAPITAL LEASE OBLIGATIONS ............... 11,431 12,536
------------ ------------
TOTAL LONG TERM LIABILITIES ............. 356,755 440,816
------------ ------------
TOTAL LIABILITIES ....................... 1,945,947 3,388,280
------------ ------------
SHAREHOLDERS EQUITY
CONVERTIBLE PREFERRED STOCK
PAR VALUE $.001 PER SHARE
AUTHORIZED 20,000,000 SHARES
ISSUED AND OUTSTANDING:
AT JUNE 30, 1998: 535,462 SHARES
AT SEPT 30, 1998: 513,798 SHARES ........ 514 535
COMMON STOCK, PAR VALUE ................. $ .001
PER SHARE, AUTHORIZED 80,000,000
SHARES, ISSUED AND OUTSTANDING
AT JUNE 30, 1998: 28,927,872 SHARES
AT SEPT 30, 1998: 29,779,205 SHARES ..... 29,779 28,928
PAID IN EXCESS OF PAR VALUE ............. 21,582,735 19,050,101
ACCUMULATED DEFICIT ..................... (1,725,794) (1,603,209)
------------ ------------
NET SHAREHOLDERS EQUITY ...................... 19,887,234 17,476,355
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS EQUITY ...... $ 21,833,181 $ 20,864,635
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
(UNAUDITED) (UNAUDITED)
------------------ ------------------
<S> <C> <C>
REVENUES
OIL & GAS SALES ............................. $ 52,571 $ 173,367
LEASE OPERATING AND PRODUCTION COSTS ........ 45,604 42,483
------------------ ------------------
GROSS PROFIT ........................... 6,967 130,884
------------------ ------------------
OTHER EXPENSES
LEGAL AND PROFESSIONAL FEES ................. 70,307 49,629
ADMINISTRATIVE SALARIES ..................... 18,025 43,566
OFFICE OVERHEAD EXPENSE ..................... 20,982 11,580
DEPRECIATION ................................ 4,127 1,104
GENERAL ADMINISTRATIVE EXPENSE .............. 27,401 35,229
------------------ ------------------
TOTAL OTHER EXPENSES ........................ 140,842 141,108
------------------ ------------------
NET OPERATING PROFIT (LOSS) ...................... (133,875) (10,224)
------------------ ------------------
OTHER INCOME (EXPENSE)
INTEREST INCOME ............................. 15,036 22,593
LOSS ON INVESTMENTS ......................... (2,300) 0
INTEREST EXPENSE ............................ (1,446) (622)
------------------ ------------------
NET OTHER INCOME (EXPENSE) .................. 11,290 21,971
------------------ ------------------
NET INCOME (LOSS) BEFORE TAX ..................... (122,585) 11,747
FEDERAL INCOME TAX .......................... 0 0
------------------ ------------------
NET INCOME (LOSS) FOR PERIOD ..................... ($ 122,585) $ 11,747
================== ==================
EARNINGS (LOSS) PER SHARE ........................ ($ 0.004) $ 0.001
================== ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 1998 SEPTEMBER 30 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................. $ (122,585) $ 11,747
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ..................... 38,984 27,569
Less amount capitalized to oil & gas properties ... (11,857) (6,284)
(Increase) decrease in receivables ................ (22,420) (8,772)
(Increase) decrease in deposits and other assets .. (99,942) (138,179)
(Increase) decrease in other current assets ....... (1,676) (21,407)
Increase (decrease) in accounts payable ........... (1,429,160) 275,814
Increase (decrease) in accrued liabilities and
other current liabilities ....................... 17,793 9,679
------------------ ------------------
Cash Provided by (Used in) Operating Activities (1,630,863) 150,167
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ........... (158,450) (2,382,969)
Expenditures for other property and equipment ..... (35,659) --
------------------ ------------------
Cash Provided By (Used in) Investing Activities (194,109) (2,382,969)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities ........................... -- --
Proceeds from the issuance of common stock ........ 1,905,000 2,652,650
Payments on notes payable and long-term liabilities (30,966) (41,521)
------------------ ------------------
Cash Provided By (Used in) Financing Activities 1,874,034 2,611,129
------------------ ------------------
NET INCREASE (DECREASE) IN CASH ..................... 49,062 378,327
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ....... 3,214,205 3,132,294
------------------ ------------------
CASH AND CASH EQUIVALENTS END OF PERIOD ............. $ 3,263,267 $ 3,510,621
================== ==================
</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 STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1998 THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
-------------------------- ------------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
----------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 ......... 28,927,872 $ 28,928 535,462 $ 535 $ 19,050,101 ($1,603,209)
=========== =========== ========== =========== ============ ===========
Common stock issued for cash
at $3.00 per share ............ 135,000 135 -- -- 404,865 --
Common stock issued for cash
at $3.5 per share ............. 428,572 429 -- -- 1,499,571 --
Common stock issued for
oil & gas properties
at $3.50 per share ............ 140,000 140 -- -- 489,860 --
Common stock issued for
retirement of accounts payable
at $3.50 per share ............ 39,441 39 -- -- 138,425 --
Common stock issued upon
conversion of preferred shares 108,320 108 (21,664) (21) (87) --
Net loss for the quarter
ended September 30, 1998 ...... -- -- -- -- -- (122,585)
----------- ----------- ---------- ----------- ------------ -----------
Balance, September 30, 1998 ..... 29,779,205 $ 29,779 513,798 $ 514 $ 21,582,735 ($1,725,794)
=========== =========== ========== =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
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, 1998, 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 September 30, 1998
F - 7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
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, 1998 was $84,448 . No interest was capitalized in the quarter ended
September 30, 1998. In addition, depreciation capitalized during the year ended
June 30, 1998 totaled $55,234. Depreciation capitalized during the quarter ended
September 30, 1998 totaled $11,857. 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 has been recognized in the accompanying
consolidated financial statements for the year ended June 30, 1998 and $22,453
for the quarter ended September 30, 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.
F - 8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
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
September 30, 1998, the Companies incurred total depreciation expense of $16,531
of which $11,857 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 September 30, 1998, the Companies held three certificates of deposit
totaling $322,196 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 September 30, 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.
F - 9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
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 had an interest rate of 11% and matured January 19, 1996. This
obligation was paid off during the year ended June 30, 1998. In addition, the
Companies have assigned to this individual a 1% overriding royalty in all oil
and gas properties of the Companies.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of June 30,
1998 and September 30, 1998:
September 30 June 30
1998 1998
--------- ---------
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 .................................... $ 675,502 $ 723,463
8.5% note payable to a financial
institution due in monthly installments
of $950 for 36 months; secured by two
vehicles ......................................... 16,803 19,261
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas
properties ....................................... 44,117 44,117
Total notes payable and long-term debt ........... $ 736,422 $ 786,841
--------- ---------
Less: Unamortized discount ....................... (86,572) (107,685)
--------- ---------
Net notes payable and long-term debt ............. 649,850 679,156
Less: Current portion of notes payable
and long-term debt ............................... (304,526) (250,876)
--------- ---------
Long-Term Liabilities ............................ $ 345,324 $ 428,280
========= =========
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 and quarter ended September 30, 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 $694.The following are the scheduled annual payments on these
capital leases:
F - 10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
NOTE 5 - CAPITAL LEASE OBLIGATIONS ( CONTINUED)
Year ending June 30
1999 .................................................. $ 6,243
2000 .................................................. $ 7,429
2001 .................................................. $ 3,355
2002 .................................................. $ 3,355
2003 .................................................. $ 3,076
--------
$ 23,458
Total minimum lease commitments ................................ $ 23,458
Less: Executory costs (such as taxes and insurance)
included in capital lease payments .................... (2,246)
--------
Net minimum lease payments ..................................... 21,212
Less: Amount representing interest ............................. (3,351)
--------
Total Capital Lease Obligations ................................ 17,861
Current Portion ................................................ (6,430)
--------
Long Term Portion .............................................. $ 11,431
========
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 535,462
shares to 513,798 shares by conversion of 21,664 shares of Convertible Preferred
into 108,320 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 2,568,990 shares of Common Stock
NOTE 7- COMMON STOCK
During the quarter ended September 30, 1998, a net total of 851,333 shares of
Common Stock of the Company were issued through a combination of equity sale
through Warrant exercise, private placement, debt conversion, and conversion of
Convertible Preferred shares. (See Consolidated statement of Stockholders
Equity)
NOTE 8- COMMON STOCK WARRANTS
Prior to the quarter ended September 30, 1998, outstanding warrants totaled
9,445,000. Total outstanding Warrants as of September 30,1998 were 10,335,000,
ranging in exercise price from $1.25 to $5.31 per share and in term from one
year to seven years. In the quarter ended September 30, 1998, a total of 135,000
warrants were exercised and a total of 1,025,000 warrants were issued to various
parties involved with the Company.
F - 11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
NOTE 9 - INCOME TAXES
Through September 30, 1998, the Companies have sustained net operating loss
carryforward totaling approximately $1,725,794 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
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.
During the year ended June 30, 1997, the Board of Directors authorized the
establishment of two Management Royalty Pools equal to 1% of the revenues from
domestic oil and gas production and Pakistan oil and gas production,
respectively. 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.
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 late 1998 or early 1999.
F - 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 3,263,267
<SECURITIES> 1,000
<RECEIVABLES> 31,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,509,407
<PP&E> 18,556,082
<DEPRECIATION> 235,158
<TOTAL-ASSETS> 21,833,181
<CURRENT-LIABILITIES> 1,589,192
<BONDS> 0
0
514
<COMMON> 29,779
<OTHER-SE> 19,856,941
<TOTAL-LIABILITY-AND-EQUITY> 21,833,181
<SALES> 52,571
<TOTAL-REVENUES> 67,607
<CGS> 45,604
<TOTAL-COSTS> 186,446
<OTHER-EXPENSES> 2,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,446
<INCOME-PRETAX> (122,585)
<INCOME-TAX> 0
<INCOME-CONTINUING> (122,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,585)
<EPS-PRIMARY> (.004)
<EPS-DILUTED> (.003)
</TABLE>
