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 DECEMBER 31, 1997
|_| 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.
27,862,741 COMMON SHARES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company files herewith the Unaudited Consolidated Financial Statements for
the three months ended December 31, 1997 and 1996, 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.
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.
PAGE 2 OF 7
<PAGE>
In the initial two 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 in the planning stages for drilling of the
initial exploration well on this Concession. The Company has deposited $1.65
Million in its bank account in Islamabad, Pakistan, as a reserve for estimated
site preparation and drilling costs on this initial well which is expected to be
commenced by April, 1998. The Company is currently evaluating 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.
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 December 31, 1997, 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 December 31, 1997, the Company incurred a net operating
profit of $10,614, with oil & gas sales of $210,385 as compared to a net
operating loss of $47,834 on oil &gas sales of $48,384 in the prior fiscal
year's Quarter ended December 31, 1996. This reflects in excess of a four fold
increase in oil & gas sales in the comparison with the prior year's Quarter
ending December 31st. This Quarter's revenues, as another comparison, is seventy
four (74%) percent of the total oil sales reported for the prior Year Ended June
30, 1997, which were $283,485. 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 income of $73,055 in
the Quarter ended December 31, 1997 versus.a loss of $74,934 in the prior fiscal
year's Quarter ended December 31, 1996.
PAGE 3 OF 7
<PAGE>
As of December 31, 1997, 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 six months ended December 31, 1997, 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 $18,985,838, reflecting an increase of
$5,893,468, or forty five (45%) percent in six months from the fiscal year ended
June 30, 1997, at which time totaled $13,092,370.
Net Shareholders Equity increased to $17,441,570 as of December 31, 1997, from
$10,457,095 as of June 30, 1997. This reflects an increase of $3,772,728, or
twenty seven (27%) percent in the Quarter and an increase of $6,984,475, or
sixty seven (67%) percent in the first six 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 representing an increase of $0.095 per
share, or twenty (20%) percent increase in the current Quarter and an increase
of thirty seven (37%) percent in the six months ending December 31, 1997. This
is also attributed to the completion of the equity financing and Warrants
exercise.
PAGE 4 OF 7
<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 December 31, 1997, is provided below:
COMMON STOCK
The net amount of 3,990,386 shares of Common Stock were issued during the
Quarter, thereby increasing the total number of outstanding Common Stock to
27,862,741 shares in the following manner:
a. 2,110,000 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. 2,159,085 shares of Common Stock of the Company were issued through the
conversion of 431,817 shares of outstanding Convertible Preferred Stock at the
election of the Preferred shareholders.
c. 150,000 shares were issued in conjunction with the acquisition of producing
oil and gas property
d. 10,000 shares were issued for services rendered to the Company.
e. 565,833 shares were cancelled during the Quarter.
f. 127,134 shares were issued in conjunction with the conversion of debt.
PAGE 5 OF 7
<PAGE>
CONVERTIBLE PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 994,058
to 562,241 shares by conversion of 431,817 shares of Convertible Preferred into
2,159,085 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 2,811,205 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 30,673,946 shares. This figure is
commonly referred to as the "fully diluted" Common Stock.
WARRANTS
In the Quarter ending December 31, 1997, the Company issued to each of the three
Directors of the Company an additional 150,000 Warrants at an exercise price of
$2.31. This represents a total of 450,000 additional Warrants issued. These
Warrants are valid for a period of seven years, and are exercisable at the
option of the holder into Common Stock of the Company.
In the Quarter ending December 31, 1997, a total of 2,110,000 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
PAGE 6 OF 7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)
(a) EXHIBITS
The Consolidated Financial Statements dated December 31, 1997 and
1996, (unaudited) and June 30, 1997 (Audited) are appended hereto
and expressly made a part hereof as Exhibit A.
(b) REPORTS ON FORM 8-K
A Form 8-K , as filed by the Company on December 16, 1997, is
appended hereto and expressly made a part hereof as Exhibit B.
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
1/27/98 B/J/S
Bradley J. Simmons, President
1/27/98 D/L/C
David L. Cox, Secretary
PAGE 7 OF 7
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 1997
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 (UNAUDITED)
AND JUNE 30, 1997 (AUDITED)
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
CASH ............................. $ 5,184,082 $ 3,132,294
RECEIVABLES ...................... 88,892 70,989
RECEIVABLES - RELATED PARTY ...... 0 9,702
OTHER CURRENT ASSETS ............. 113,991 63,984
------------ ------------
TOTAL CURRENT ASSETS ............. 5,386,965 3,276,969
------------ ------------
OIL & GAS PROPERTIES USING
FULL COST ACCOUNTING
PROPERTIES BEING AMORTIZED ....... 8,203,915 5,618,847
PROPERTIES NOT SUBJECT
TO AMORTIZATION ................ 5,145,208 3,990,489
ACCUMULATED AMORTIZATION ......... (73,363) (33,000)
------------ ------------
NET OIL AND GAS PROPERTIES ..... 13,275,760 9,576,336
------------ ------------
PROPERTY AND EQUIPMENT
DRILLING AND RELATED EQUIPMENT ... 246,494 246,494
VEHICLES ......................... 126,146 126,146
OFFICE EQUIPMENT ................. 25,845 23,021
LESS: ACCUMULATED DEPRECIATION ... (174,222) (159,446)
------------ ------------
NET PROPERTY AND EQUIPMENT ....... 224,263 236,215
------------ ------------
OTHER ASSETS
DEPOSITS AND OTHER ASSETS ........ 98,850 2,850
------------ ------------
TOTAL OTHER ASSETS ............... 98,850 2,850
------------ ------------
TOTAL ASSETS .......................... $ 18,985,838 $ 13,092,370
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE .................... 544,048 545,987
ACCRUED LIABILITIES ................. 15,167 296,970
LEASE OBLIGATIONS-CURRENT ........... 4,825 4,565
NOTES PAYABLE-CURRENT ............... 372,549 1,123,899
------------ ------------
TOTAL CURRENT LIABILITIES ........... 936,589 1,971,421
------------ ------------
LONG TERM LIABILITIES
NOTES PAYABLE AND LONG TERM DEBT .... 596,741 649,737
CAPITAL LEASE OBLIGATIONS ........... 10,938 14,117
------------ ------------
TOTAL LONG TERM LIABILITIES ......... 607,679 663,854
------------ ------------
TOTAL LIABILITIES ................... 1,544,268 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 DEC. 31, 1997: 562,241 SHARES .... 562 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 DEC. 31, 1997: 27,862,741 SHARES . 27,862 22,509
PAID IN EXCESS OF PAR VALUE ......... 18,403,562 13,893,728
STOCK SUBSCRIPTIONS RECEIVABLE ...... 0 (2,385,000)
ACCUMULATED DEFICIT ................. (990,416) (1,075,218)
------------ ------------
NET SHAREHOLDERS EQUITY .................. 17,441,570 10,457,095
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS
EQUITY ................................... $ 18,985,838 $ 13,092,370
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
OIL & GAS SALES .............................. $ 210,385 $ 48,384 $ 383,752 $ 51,054
--------- -------- --------- ---------
EXPENSES
LEASE OPERATING COSTS ........................ 66,159 14,864 108,642 20,417
LEGAL AND PROFESSIONAL FEES .................. 55,694 39,790 105,323 62,778
ADMINISTRATIVE SALARIES ...................... 22,050 16,210 65,616 50,969
OFFICE OVERHEAD EXPENSE ...................... 7,380 5,661 18,960 11,853
FRANCHISE TAXES .............................. 16,041 0 16,041 0
TRAVEL COSTS ................................. 0 2,252 0 2,613
DEPRECIATION ................................. 1,104 541 2,208 1,082
GENERAL ADMINISTRATIVE EXPENSE ............... 31,343 16,900 66,572 39,522
--------- -------- --------- ---------
TOTAL EXPENSE ................................ 199,771 96,218 383,362 189,234
--------- -------- --------- ---------
NET OPERATING PROFIT (LOSS) ..................... 10,614 (47,834) 390 (138,180)
--------- -------- --------- ---------
OTHER INCOME (EXPENSE)
INTEREST INCOME .............................. 13,732 1,650 36,325 2,527
INTEREST EXPENSE ............................. (625) (28,750) (1,247) (43,097)
UNREALIZED LOSS ON INVESTMENT ................ (37,947) 0 (37,947) 0
DEBT FORGIVENESS ............................. 87,281 0 87,281 0
--------- -------- --------- ---------
NET OTHER INCOME (EXPENSE) ................... 62,441 (27,100) 84,412 (40,570)
--------- -------- --------- ---------
NET INCOME (LOSS) BEFORE TAX .................... 73,055 (74,934) 84,802 (178,750)
FEDERAL INCOME TAX ........................... 0 0 0 0
NET INCOME (LOSS) FOR PERIOD .................... $ 73,055 ($74,934) $ 84,802 ($178,750)
========= ======== ========= =========
EARNINGS (LOSS) PER SHARE ....................... $ 0.003 ($ 0.009) $ 0.003 ($ 0.024)
========= ======== ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Six months
ended ended
December 31 December 31
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................. $ 84,802 ($ 178,750)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ..................... 55,139 26,773
Less amount capitalized to oil & gas properties ... (13,672) (25,692)
(Increase) decrease in receivables ................ (8,201) (35,721)
(Increase) decrease in deposits and other assets .. (96,000) (14,683)
(Increase) decrease in other current assets ....... (50,007) 1,820
Increase (decrease) in accounts payable ........... (1,939) 44,307
Increase (decrease) in accrued liabilities and
other current liabilities ....................... (281,803) 100,264
----------- -----------
Cash Provided by (Used in) Operating Activities (311,681) (81,682)
----------- -----------
Cash Flows from Investing Activities:
Expenditures for oil and gas properties ........... (3,894,253) (1,390,586)
Expenditures for other property and equipment ..... (2,824) (744)
----------- -----------
Cash Provided By (Used in) Investing Activities (3,897,077) (1,391,330)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from notes payable and
long-term liabilities ........................... -- 114,550
Proceeds from the issuance of common stock ........ 6,365,000 1,375,000
Proceeds from the issuance of convertible
voting preferred stock .......................... -- --
Payments on notes payable and long-term liabilities (104,454) (377,200)
----------- -----------
Cash Provided By (Used in) Financing Activities 6,260,546 1,112,350
----------- -----------
Net Increase (Decrease) in Cash ..................... 2,051,788 (360,662)
Cash and Cash Equivalents Beginning of Period ....... 3,132,294 424,698
----------- -----------
Cash and Cash Equivalents end of Period ............. $ 5,184,082 $ 64,036
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1996 THROUGH DECEMBER 31, 1997
<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 7,275 -- -- 6,922,635 --
Common stock subscriptions
at $.90 per share ............. 2,650,000 2,650 -- -- 2,382,350 --
Offering costs related to sales of
common stock ................... -- -- -- -- (146,086)
Net (loss ) for the year
ended June 30, 1997 ............ -- -- -- -- -- (156,663)
----------- -------- ---------- ------- ------------ -----------
Balance, June 30, 1997 ........... 22,509,293 22,509 1,075,558 1,076 13,893,728 (1,075,218)
----------- -------- ---------- ------- ------------ -----------
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 isued in conjunction
with debt conversion ............. 127,134 127 -- -- 292,280 --
Net income for the quarter
ended December 31, 1997 .......... -- -- -- -- -- 73,055
----------- -------- ---------- ------- ------------ -----------
Balance, December 31, 1997 ....... 27,862,741 $ 27,862 562,241 $ 562 $ 18,404,760 ($ 990,416)
=========== ======== ========== ======= ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 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 December 31, 1997
7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 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
December 31, 1997. In addition, depreciation capitalized during the year ended
June 30, 1997 totaled $51,303. Depreciation capitalized during the quarter ended
December 31, 1997 totaled $6,284. 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 $20,181
for the quarter ended December 31, 1997 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.
8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 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
December 31; 1997, the Companies incurred total depreciation expense of $7,388
of which $6,284 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 December 31, 1997, the Companies held three certificates of deposit
totaling $300,000 at the same financial institution, all in the name of the
Company and two of the subsidiaries. All three certificates of deposit bear
interest at a rate of 4.25% and mature every 30 days. These certificates of
deposit are unencumbered at December 31, 1997. In prior periods, certificates of
deposit of corresponding amounts had been pledged as collateral on notes
payable. .
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
9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JUNE 30, 1997
leases on which existing wells had been shut-in and abandoned and had additional
sites available for further exploration and development.
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 December 31, 1997:
December 31 June 30
1997 1997
----------- -----------
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 ................................. $ 855,706 $ 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 ....................... 23,984 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 ......... $ 1,122,549 $ 1,965,770
----------- -----------
Less: Unamortized discount ..................... (153,259) (192,134)
----------- -----------
Net notes payable and long-term debt ........... 969,290 1,773,636
Less: Current portion of notes payable
and long-term debt ............................ (372,549) (1,123,899)
----------- -----------
Long-Term Liabilities .......................... $ 596,741 $ 649,737
=========== ===========
10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JUNE 30, 1997
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 relating to office equipment and portable buildings used in the field which
have been accounted for as capital leases. These leases have terms of from 36 to
60 months with total monthly lease payments of $643.The following are the
scheduled annual payments on these capital leases:
Year ending June 30, 1997
1998 $4,232
1999 $7,711
2000 $6,815
2001 $2,741
2002 $1,387
-------
$22,886
Total minimum lease commitments $ 22,886
Less: Executory costs (such as taxes and insurance)
included in capital lease payments (2,108)
---------
Net minimum lease payments 20,778
Less: Amount representing interest ( 5,015)
---------
Total Capital Lease Obligations 15,763
Current Portion (4,825)
---------
Long Term Portion $ 10,938
=========
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
During the quarter ended December 31, 1997, a total of 431,817 shares of the
Company's Convertible Preferred shares were converted into 2,159,085 shares of
Common Stock.
NOTE 7- COMMON STOCK
During the quarter ended December 31, 1997, a net total of 3,990,386 shares of
Common Stock of the Company were issued through a combination of equity sale
through Warrant exercise, conversion of Convertible Preferred shares, debt
conversion, stock cancellation, and acquisition of oil & gas properties.
(See Consolidated statement of Stockholders Equity)
11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JUNE 30, 1997
NOTE 8- COMMON STOCK WARRANTS
Subsequent to the Quarter ended September 30, 1997, and concurrent with the
settlement and dismissal of litigation as described herein, the Company issued
to each of the three Directors of the Company an additional 150,000 Warrants at
an exercise price of $2.31. This represents a total of 450,000 additional
Warrants issued. These Warrants are valid for a period of seven years, and,
unless subsequently registered, are exercisable into Rule 144 Common Stock of
the Company. As of the filing of this report, none of the outstanding Warrants
have been exercised.
A total of 2,110,000 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 December 31, 1997, the Companies have sustained net operating loss
carryforward totaling approximately $990,000 that may be offset against future
taxable income through 2012. No tax benefit has been reported in the
accompanying consolidated financial statements, because the potential tax
benefits of the net operating loss carryforward are offset by a valuation
allowance of the same amount.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 5, the Companies defaulted on the payment of the Drilling
Investor Notes due and payable September 15, 1995 related to the acquisition of
oil and gas leases in Harris County, Texas. Although these notes are secured by
a financial guarantee bond, there is no assurance that the bond can be enforced.
The Companies have begun 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 from the President and
director of the Company at a monthly cost of $500 plus utilities. This is a
month to month lease and can be terminated by either party with 30 days notice.
12
<PAGE>
EXHIBIT B
TO FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 16, 1997
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 0-26402 87-0448843
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
P.O. BOX 489, SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 346-2652
____________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE>
FORM 8-K
THE AMERICAN ENERGY GROUP, LTD.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not Applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT:
Not Applicable.
ITEM 5. OTHER EVENTS.
A total of 2,110,000 Warrants have been exercised at an exercise price
of $1.50 per share, generating $3,165,000 in additional investment into the
Company. These Warrants were held by various overseas shareholders in
conjunction with the Company's sale of Common stock to such persons as reported
in previous filings with the Securities and Exchange Commission. The Common
Stock has been issued pursuant to Regulation S restrictions upon ownership and
transefability. The funds will be primarily allocated to further development of
the Company's domestic and Pakistan oil and gas projects.
ITEM 6. RESIGNATIONS OF REGISTRANTS DIRECTORS.
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Not Applicable
The American Energy Group, Ltd. Form 8-K Page 2
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE AMERICAN ENERGY GROUP, LTD.
(Registrant)
Date: DECEMBER 16, 1997 BY: B/J/S
Bradley J. Simmons, President
The American Energy Group, Ltd. Form 8-K Page 3
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 5,184,082
<SECURITIES> 10,000
<RECEIVABLES> 88,892
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,386,965
<PP&E> 13,747,608
<DEPRECIATION> 247,585
<TOTAL-ASSETS> 18,985,838
<CURRENT-LIABILITIES> 936,589
<BONDS> 0
0
562
<COMMON> 27,862
<OTHER-SE> 17,413,146
<TOTAL-LIABILITY-AND-EQUITY> 18,985,838
<SALES> 383,752
<TOTAL-REVENUES> 507,358
<CGS> 108,642
<TOTAL-COSTS> 383,362
<OTHER-EXPENSES> 37,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,247
<INCOME-PRETAX> 84,802
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