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, 1999
[ ] 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. Yes [X] 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.
33,180,888 COMMON SHARES
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. PAGE 1 OF 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company has included herewith the unaudited consolidated financial
statements for the three months ended September 30, 1999 and 1998, presented
with the audited consolidated financial statements for the twelve months (Fiscal
Year) ended June 30, 1999. 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.
As of September 30, 1999, the Company was engaged in its principal activity of
developmental drilling of new wells and reworking operations on existing wells
situated on its Texas oil and gas properties. The Company, through its wholly
owned subsidiary, Hycarbex-American Energy, Inc., likewise holds an oil and gas
exploration license near Jacobabad, Pakistan, but activities during the quarter
in connection with the Pakistan concession were limited to preparations for
drilling activities which will not occur until calendar year 2000.
Historically, the Company has financed all of its operations and the operations
of its subsidiaries with the proceeds of loans and the sale of privately placed
securities. While the Company currently has an increasing revenue stream from
the sale of oil produced from its Texas properties, outside funds derived from
future loans, sales of securities or other outside sources will be necessary to
generate the working capital needed for continued development of both its
domestic and international properties until such development reaches a stage
where revenues from existing operations are sufficiently large to complete the
development of these properties.
The Company utilizes the full cost method of accounting for its oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a "full
cost pool". 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
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-evaluation properties, net of federal income tax.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 2 OF 8
<PAGE>
TEXAS GULF COAST OPERATIONS
The Company currently owns and operates a total of 105 existing wellbores in two
producing oil fields, the Blue Ridge Field and the Boling Dome Field, each of
which are within fifty (50) miles of the Houston, Texas metropolitan area. Most
of these existing wells were drilled by other oil companies prior to the
Company's acquisition of the properties and were inactive at the time of such
acquisition. During the twelve (12) months ending September 30, 1999, the
Company, through its operating subsidiary, The American Energy Operating Corp.,
drilled eight (8) new developmental wells, two (2) of which are situated in the
Boling Dome Field and six (6) of which are situated in the Blue Ridge Field.
Seven (7) of the eight (8) new wells are currently in various stages of
completion, testing or production and the eighth well is awaiting completion
while production storage facilities are put in place. Management believes that
seven (7) of the eight (8) wells will be commercially productive wells.
In addition to new developmental wells already drilled by the Company and
additional wells which management anticipates will be drilled in the future, the
Company has continued its ongoing efforts to rework and reactivate certain of
the existing wells. During the quarter ended September 30, 1999, an average of
twenty-two (22) of the Company's 105 wells were producing daily with varying
production ranging from 2 barrels per day to 55 barrels per day. A small number
of these producing wells flow without mechanical pumping but the majority
require mechanical pumping assistance. Both the number of producing wells and
the daily production from those wells remained stable throughout the quarter.
Moderate increases in the overall daily production rate occurred throughout the
quarter as a result of field work in progress. Quoted oil prices during the
quarter were as high as $22.00 per barrel and sales of oil by the Company during
the quarter averaged $19.38 per barrel net of severance taxes assessed by the
State of Texas.
Management anticipates that its domestic fields will continue to experience a
gradual increase in average daily production as additional existing wells are
reactivated and new developmental wells are drilled. Management believes that
such steadily increasing domestic production in an environment of favorable oil
prices will facilitate the generation of a portion of the operating capital
necessary to maintain its ongoing reactivation and development programs.
However, management believes that the Company must continue to raise additional
capital through outside sources in order for the reactivation and development
programs to progress, even if oil prices remain stable at a favorable level.
PAKISTAN OPERATIONS
In the initial four years in which Hycarbex-American Energy, Inc. has held the
Jacobabad concession in the Middle Indus Basin of central Pakistan, it has
expended in excess of $7.9 Million in acquisition, geological, seismic, drilling
and associated costs. Hycarbex-American Energy, Inc. has drilled three
exploratory wells on the Jacobabad concession to date without achieving a
commercial discovery, but has encountered natural gas shows in all three wells.
Hycarbex suspended operations on one well pending further testing, plugged one
well due to mechanical and downhole difficulties while drilling, and plugged a
second well due to contact with natural gas containing a high content of H2S and
CO2. The Company's technical team is evaluating the geological and geophysical
data derived from these wells to optimize the selection of future drillsites on
the approximate one million acres (fifteen hundred square miles) comprising the
concession.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 3 OF 8
<PAGE>
On October 12, 1999, Pakistani military troops seized control of state-run
television and radio stations and major airports throughout the country
following what certain media reports described as a surprise dismissal of the
Army Chief of Staff, General Pervaiz Musharraf. Subsequently, the Government was
dismissed, the constitution was suspended, and the country was placed under
martial law.
Charles Valceschini, President of Hycarbex-American Energy, Inc., conducted
informal meetings in Islamabad with various officials of the Pakistan Ministry
of Petroleum and Natural Resources subsequent to the governmental changes. Based
upon these meetings and the continued cooperation demonstrated by the Ministry,
the Company plans to commence its next exploration well in calendar 2000 and is
currently in logistical and technical planning for the project. Hycarbex owns
95% of the working interest in the Jacobabad concession and the Pakistan
Government owns a 5% working interest. The Pakistan Government has the option to
increase its holdings to a 25% working interest in the event of commercial
discovery of hydrocarbons.
The Company has deposited in its Pakistan account as a reserve certain cash
funds for application to the future costs incurred in connection with its next
exploration well to be drilled in calendar 2000. The funds on deposit are
insufficient to cover the anticipated costs of completing the well and must be
supplemented by funds from outside loans and/or private sales of securities.
Management anticipates that the necessary capital raising transactions will be
completed in the fiscal quarter ending December 31, 1999. In the event that such
capital raising transactions are not completed within the fiscal quarter, the
Company's current proposed exploration schedule will be directly affected and
will likely be postponed until these transactions or substituted capital
transactions are consummated.
RESULTS OF OPERATIONS
In the quarter ended September 30, 1999, the Company incurred a net operating
profit of $155,808, with oil and gas sales of $315,712 as compared to a net
operating profit of $6,967 on oil and gas sales of $52,751 in the prior fiscal
year's quarter ended September 30, 1998. This reflects an increase in revenues
of approximately five hundred percent (500 %) in comparison with the prior
year's quarter ending September 30, 1998. The Company experienced an increase of
$148,841 in net operating profits as compared to the prior year's quarter ended
September 30, 1998. The increases noted resulted from the increases in barrels
of oil sold from the Company's Texas properties at prices which were on the
average, sixty-three percent (63%) higher than obtained in the quarter ending
September 30, 1998. The average price per barrel of oil sold by the Company in
the quarter ending September 30, 1998, was $11.89, as compared to $19.38 per
barrel in the current quarter ending September 30, 1999.
During the quarter ending September 30, 1999, the Company sold 22,410 barrels of
oil, equivalent to 244 gross barrels per day for the 92 day period. The barrels
which were allocated net to the Company's interest were 16,298 barrels. The
remainder of 6,112 barrels are attributed to landowner royalties. The 16,298 net
barrels used in computing the Company's revenues generated $315,712 and reflect
an average of 177 net barrels of oil per day. The revenues of $315,712 are
especially significant when compared to oil and gas revenues for the fiscal year
ended June 30, 1999, which were $417,136. The subject quarter reflects revenues
equal to seventy six (76%) percent of the prior year's entire revenues, and is a
record quarter for revenues for the Company.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 4 OF 8
<PAGE>
Sales of oil by the Company did not mirror the actual production of oil, as some
of the oil produced during the quarter was stored and unsold at the end of the
quarter. These unsold barrels are not reflected in gross sales, revenues, or
balance sheet computations in the accompanying financial statements. At the
beginning of the quarter ended September 30, 1999, unsold oil on hand in
production tanks was 2,638 barrels. At the end of the quarter ended September
30, 1999, the unsold oil on hand totaled 3,677 barrels, reflecting an increase
of 994 barrels in stored oil inventory. Daily production for the period is
approximately 255 gross barrels per day and 185 net barrels per day if the
increase in stored but unsold inventory is added to the barrels actually sold.
Factors which affect sales range from ability to obtain transportation for oil
stored in production facilities (i.e., weather conditions, truck availability,
etc.) to the salability of the stored products at the time of the desired sale
(i.e., the need for separation of water prior to sale, etc.)
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, and including interest, reported net profit of $20,607
in the quarter ended September 30, 1999 versus a net loss of $124,885 in the
prior fiscal year's quarter ended September 30, 1998.
NONRECURRING EVENTS AFFECTING CAPITAL RESOURCES
During the quarter ended September 30, 1999, the Company raised $1,500,000.00 in
working capital (approximately $1,170,000 net of commissions and expenses)
through two (2) nonrecurring transactions. The Company raised $1,100,000.00
(before commissions and expenses) through a loan from a private individual
maturing March 17, 2002, secured by a lien on the Company's Texas properties,
and convertible, at the option of the lender, into shares of the Company's
common stock. The Company also raised $400,000.00 (before commissions and
expenses) from the private sale of 400,000 shares of senior convertible
preferred stock. The net proceeds from these transactions were predominantly
applied to the Company's future Pakistan operations through a deposit as a
reserve into the Company's account in Pakistan. The Company intends to pursue
additional capital raising transactions through loans and/or the private sale of
securities in order to meet its anticipated near term working capital needs,
both for its domestic reactivation and development programs and its projected
activities in Pakistan. Since the Company's current revenue stream from the sale
of oil from its Texas properties is insufficient to meet its anticipated working
capital needs for these activities, the success of such capital raising efforts
is critical. Should the Company's efforts in raising working capital through
outside sources prove unsuccessful, the Company's proposed domestic and
international activities would be directly and adversely affected.
TOTAL ASSETS / SHAREHOLDER'S EQUITY
In the quarter ended September 30, 1999, Total Assets of the Company increased
to $24,144,598, or three percent (3%) for the three months beginning from the
fiscal year ended June 30, 1999, which at that time totaled $23,456,438. Net
Shareholders Equity increased to $21,481,116 as of September 30, 1999, from
$21,362,502 as of June 30, 1998. This increase is attributed to the sale of
common stock combined with net profits in the quarter ended September 30, 1999.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 5 OF 8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston,
Texas, charging that specific individuals and companies had conspired to
manipulate stock of the Company which was believed to have been fraudulently
obtained prior to the acquisition by The American Energy Group, Ltd. in 1994.
The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al.,
C.A. No. H97-2450, in the United States District Court, Southern District of
Texas, Houston, Division. The Company subsequently reached a settlement with all
except three of the defendants. The litigation proceeded against three
defendants after the settlement, representing in excess of 400,000 shares of
common stock which the Company believes to have been fraudulently obtained. At
this time, it is not anticipated that litigation costs incurred by the Company
will adversely affect ongoing Company operations.
In the quarter ending June 30, 1999, the Company and its wholly owned
subsidiary, Hycarbex-American Energy, Inc. were named in a lawsuit filed by
Alpha Tech International, Inc. in Cause No. 1999-10941 in the 11th Judicial
District Court of Harris County, Texas. In the lawsuit Alpha Tech International,
Inc. is seeking recovery of cash, common stock, and an overriding royalty in the
Company's Pakistan Concession as a finder's fee under a 1996 agreement in which
Alpha Tech International, Inc. was to be compensated if successful in raising
working capital for the Company from certain named third parties. The Company
and its subsidiary have denied any liability under the Agreement.
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the quarter ending September 30, 1999, is provided below:
COMMON STOCK
A net increase of 302,500 shares of Common Stock occurred during the quarter,
thereby increasing the total number of shares of outstanding Common Stock to
33,180,388 shares in the following manner:
During the quarter ended September 30,1999, two holders of the Company's
convertible preferred stock exercised their conversion rights whereby 60,500
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 302,500 shares of
common stock were issued. The Company did not receive any proceeds in the
conversion. 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.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 6 OF 8
<PAGE>
CONVERTIBLE PREFERRED STOCK
During the quarter ended September 30,1999, the Company issued 400,000 shares of
Block F Convertible Preferred Stock, for which the Company received $400,000.
Each share is convertible into one share of common stock of the Company. The
Company believes that the purchaser had knowledge and experience in financial
and business matters which allowed him to evaluate the merits and risk of the
purchase of these securities of the Company, and that he 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.
At the time of issuance of the Block F Convertible Preferred Stock, the Company
also had outstanding other convertible preferred shares designated as Blocks A
through E. In the quarter ended September 30, 1999, the number of outstanding
Convertible Preferred shares (Blocks A through E) was reduced from 101,996
shares to 41,500 shares by conversion of 60,496 shares into 302,500 shares of
Common Stock on the basis of five Common shares for each one convertible
preferred share (see Common Stock). The remaining Block A through E Convertible
Preferred shares, if converted, would require issuance of an additional 207,500
shares of Common Stock. All Convertible Preferred shares, if converted to common
stock, would require the issuance of 607,500 shares of common stock.
WARRANTS
As of the fiscal year ended June 30, 1999, outstanding warrants totaled
16,030,000. Total outstanding warrants as of September 30,1999 had deceased by
5,030,000 warrants to 11,000,000, 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, 1999, no warrants were exercised, a total of 6,680,000 warrants
expired unexercised, and a total of 1,650,000 warrants were issued to various
parties involved with the Company as described below:
In the quarter ended September 30, 1999, a total of 1,500,000 warrants were
issued to an individual in conjunction with the sale of Convertible preferred
shares. These Warrants are exercisable on the basis of one share of Common Stock
for each Warrant, at exercise prices of $1.00 per share for a sixty day period
beginning September 17, 1999. In the event that these warrants are exercised in
the prescribed time period, then this individual is to receive an additional
1,500,000 warrants identical to those described above for another sixty day
period. The Company believes that the person 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.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 7 OF 8
<PAGE>
During the fiscal year, the Company engaged certain technical and financial
consultants in various contracts. In conjunction with retaining their services
in the quarter ended September 30, 1999, the Company issued 150,000 warrants
with an exercise price of $1.00 per share and an expiration date of September
17, 2004. The Company believes that each of the transacting 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.
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 September 30, 1999 and
1998 (unaudited), and June 30, 1999 (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.
11/12/99 /s/ B/J/S
Bradley J. Simmons, President
11/12/99 /s/ L/F/G
Linda F. Gann, Secretary
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/99 PAGE 8 OF 8
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1999
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND JUNE 30, 1999 (AUDITED)
F-1
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 JUNE 30, 1999
(UNAUDITED) (AUDITED)
------------------ --------------
ASSETS
Current Assets
Cash .................................. $ 1,178,618 $ 1,196,566
Receivables ........................... 114,611 73,166
Receivables - related party ........... 2,147 1,626
Investments ........................... 420 420
Other current assets .................. 22,505 13,602
------------ ------------
Total Current Assets .................. 1,318,301 1,285,380
------------ ------------
Oil and gas Properties Using
Full Cost Accounting
Properties being amortized ............ 15,089,015 14,388,253
Properties not subject
to amortization ..................... 7,964,838 7,913,414
Accumulated amortization .............. (504,206) (437,450)
------------ ------------
Net Oil and Gas Properties ............ 22,549,647 21,864,217
------------ ------------
Property and Equipment
Drilling and related equipment ........ 389,851 384,679
Vehicles .............................. 129,601 155,811
Office equipment ...................... 48,933 48,933
Less: Accumulated depreciation ........ (296,835) (287,682)
------------ ------------
Net Property and Equipment ............ 271,550 301,741
------------ ------------
Other Assets
Deposits and other current assets ..... 5,100 5,100
------------ ------------
Total Other Assets .................... 5,100 5,100
------------ ------------
TOTAL ASSETS ............................... $ 24,144,598 $ 23,456,438
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 JUNE 30, 1999
(Unaudited) (Audited)
------------------- ----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable .......................................... 920,679 1,299,152
Accrued liabilities ....................................... 235,665 250,233
Lease obligations - current ............................... 4,180 4,078
Notes payable - current ................................... 288,117 324,347
------------ ------------
Total Current Liabilities ................................. 1,448,641 1,877,810
------------ ------------
Long-Term Liabilities
Notes payable and long-term debt .......................... 1,208,355 207,401
Capital lease obligations ................................. 6,486 8,725
------------ ------------
Total Long-Term Liabilities ............................... 1,214,841 216,126
------------ ------------
Total Liabilities ......................................... 2,663,482 2,093,936
------------ ------------
Shareholders' Equity
Convertible preferred stock
par value$.001 per share
authorized 20,000,000 shares
issued and outstanding
At June 30, 1999: 101,996 shares
At September 30, 1999: 441,500 shares ..................... 442 102
Common stock, par value $.001
per share, authorized: 80,000,000
shares, issued and outstanding:
At June 30, 1999: 32,878,388 shares
At September 30, 1999: 33,180,888 shares .................. 33,180 32,878
Paid in excess of par value ............................... 23,784,445 23,687,080
Accumulated deficit ....................................... (2,336,951) (2,357,558)
------------ ------------
Net Shareholders' Equity .................................. 21,481,116 21,362,502
------------ ------------
Total Liabilities and Shareholders' Equity ..................... $ 24,144,598 $ 23,456,438
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
<TABLE>
<CAPTION>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
--------------------- --------------------
<S> <C> <C>
REVENUES
Oil and gas sales .................................. $ 315,712 $ 52,571
Lease operating and production costs ............... 159,904 45,604
--------- ---------
Gross Profit .................................... 155,808 6,967
--------- ---------
OTHER EXPENSES
Legal and professional fees ........................ 80,641 70,307
Administrative salaries ............................ 17,250 18,025
Office overhead expense ............................ 13,233 20,982
Depreciation ....................................... 3,381 4,127
General and administrative expense ................. 20,753 27,401
--------- ---------
Total Other Expenses ............................ 135,258 140,842
--------- ---------
NET OPERATING PROFIT (LOSS) .............................. 20,550 (133,875)
--------- ---------
OTHER INCOME (EXPENSE)
Interest income .................................... 4,683 15,036
Loss on investments ................................ 0 (2,300)
Loss on asset sales ................................ (4,416) (2,300)
Interest expense ................................... (210) (1,446)
--------- ---------
Net Other Income (Expenses) ..................... 57 8,990
--------- ---------
NET INCOME (LOSS) BEFORE TAX ............................. 20,607 (124,885)
Federal Income Tax ................................. 0 0
--------- ---------
NET INCOME (LOSS) FOR PERIOD ............................. $ 20,607 ($124,885)
========= =========
EARNINGS (LOSS) PER SHARE ................................ $ 0.001 ($ 0.004)
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 20,607 ($ 122,585)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ........................................ 85,079 38,984
Less amount capitalized to oil & gas properties ...................... (5,772) (11,857)
(Increase) decrease in receivables ................................... (41,445) (22,420)
(Increase) decrease in deposits and other assets ..................... (521) (99,942)
(Increase) decrease in other current assets .......................... (8,903) (1,676)
Increase (decrease) in accounts payable .............................. (378,473) (1,429,160)
Increase (decrease) in accrued liabilities and
other current liabilities .......................................... 14,568 17,793
----------- -----------
Cash Provided by (Used in) Operating Activities ................... (314,860) (1,630,863)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties .............................. (887,172) (158,450)
Proceeds from the sale of equipment .................................. 10,000 --
Expenditures for other property and equipment ........................ (2,715) (35,659)
----------- -----------
Cash Provided By (Used in) Investing Activities ................... (879,887) (194,109)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities .............................................. 1,100,000 --
Proceeds from the issuance of common stock ........................... -- 1,905,000
Expenditures for offering costs ...................................... (301,994) --
Proceeds from the issuance of convertible
voting preferred stock ............................................. 400,000 --
Payments on notes payable and long-term liabilities .................. (21,207) (30,966)
----------- -----------
Cash Provided By (Used in) Financing Activities ................... 1,176,799 1,874,034
----------- -----------
NET INCREASE (DECREASE) IN CASH ........................................ (17,948) 49,062
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .......................... 1,196,566 3,214,205
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ................................ $ 1,178,618 $ 3,263,267
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1999 THROUGH SEPTEMBER 30, 1999
<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, 1998 .............. 32,878,388 $ 32,878 101,996 $ 102 $ 23,687,080 ($ 2,357,558)
============ ============ ============ ============ ============ ============
Convertible preferred stock issed
for cash @ $1.00 per share ......... -- -- 400,000 400 399,600 --
Common stock issued upon
conversion of preferred shares ..... 302,500 302 (60,496) (60) (241) --
Offering costs related to the
issuance of comon stock ............ -- -- -- -- (301,994) --
Net income for the quarter
ended September 30, 1999 ........... -- -- -- -- -- 20,607
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 ......... 33,180,888 $ 33,180 441,500 $ 442 $ 23,784,445 ($ 2,336,951)
============ ============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
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, 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
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.
F-7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999 was $52,842 . No interest was capitalized in the quarter ended
September 30, 1999. In addition, depreciation capitalized during the year ended
June 30, 1999 totaled $51,339. Depreciation capitalized during the quarter ended
September 30, 1999, totaled $5,772. 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, 1999, 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 $133,523 has been recognized in the accompanying
consolidated financial statements for the year ended June 30, 1999 and $66,756
for the quarter ended September 30, 1999 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.
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.
F-8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999, the Companies incurred total depreciation expense of $18,323
of which $5,772 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.
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.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
F-9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of June 30,
1999 and September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
1999 1999
---------------- --------------
<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 .............................................. $ 403,199 $ 539,404
Note payable to individual secured by certain oil and
gas properties of the Company, payable March 17, 2003,
bearing no interest, payable at face value of note of
$1,500,000 at time of payment .............................. $ 1,100,000 $ -0-
8.5% note payable to a financial institution due in
monthly installments of $950 for 36 months; secured
by two vehicles ............................................ $ -0- $ 9,069
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties ...... 38,117 38,117
----------- -----------
Total notes payable and long-term debt ..................... $ 1,541,316 $ 586,590
----------- -----------
Less: Unamortized discount ................................. (44,844) (54,842)
----------- -----------
Net notes payable and long-term debt ....................... $ 1,496,472 $ 531,748
Less: Current portion of notes payable
and long-term debt ......................................... (288,117) (324,347)
----------- -----------
Long-Term Liabilities ...................................... 1,208,355 $ 207,401
=========== ===========
</TABLE>
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 and quarter ended December 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 32 to 60 months with total monthly lease
payments of $662.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, 1999 AND JUNE 30, 1999
NOTE 5 - CAPITAL LEASE OBLIGATIONS ( CONTINUED)
Year ending June 30
2000 $ 4,042
2001 $ 3,355
2002 $ 3,355
2003 $ 2,278
2004 $ -0-
--------
$ 13,030
Total minimum lease commitments $ 13,030
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ( 552)
----------
Net minimum lease payments 12,478
Less: Amount representing interest (1,812)
----------
Total Capital Lease Obligations 10,666
Current Portion (4,180)
----------
Long Term Portion $ 6,486
==========
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
During the quarter ended September 30,1999, the Company's issued 400,000 shares
of Block F convertible preferred stock, for which the Company received $400,000.
Each share is convertible into one share of common stock of the Company.
The number of outstanding Convertible Preferred (Block A-E) shares was reduced
from 101,996 shares to 41,500 shares by conversion of 60,496 shares of
Convertible Preferred into 302,500 shares of Common Stock on a "five Common for
each one Convertible Preferred" basis. All remaining Convertible Preferred
shares in all classes, if converted, would require issuance of an additional
607,500 shares of Common Stock
NOTE 7- COMMON STOCK
During the quarter ended September 30, 1999, a net increase of 302,500 shares of
Common Stock of the Company was incurred through conversion of Convertible
Preferred shares. (See Consolidated Statement of Stockholders Equity). This
addition brings total outstanding Common Stock to 33,180,888 shares.
F-11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
NOTE 8- COMMON STOCK WARRANTS
As of the fiscal year ended June 30, 1999, outstanding warrants totaled
16,030,000. Total outstanding warrants as of September 30,1999 had deceased by
5,030,000 warrants to 11,000,000, 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, 1999, no warrants were exercised, a total of 6,680,000 warrants
expired unexercised, and a total of 1,650,000 warrants were issued to various
parties involved with investment into the Company or consulting to the Company.
NOTE 9 - INCOME TAXES
Through September 30, 1999, the Companies have sustained net operating loss
carryforward totaling approximately $2,336,951 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.
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.
In May 1997, the Securities and Exchange Commission filed civil charges against
the Company and its President alleging various violations of securities
regulations. In the quarter ended March 31, 1999, the Company and its President
settled the matter, and the lawsuit has been dismissed.
Subsequent to the Quarter ended March 31, 1999, the Company has entered into a
Letter of Intent to acquire Maverick Drilling Company, Inc., an Austin, Texas
based drilling company. Terms have not been disclosed, and the viability and
continued pursuit of the transaction is under review by the Board of Directors.
In the fiscal year ended June 30, 1999, the Company completed the drilling of
two exploratory wells in Pakistan, both of which proved to be non-commercial and
were plugged and abandoned. The Company is currently conducting extensive
geological and geophysical review to determine its next planned drillsite on the
concession, scheduled for drilling in early 2000.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,178,618
<SECURITIES> 420
<RECEIVABLES> 105,207
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,301
<PP&E> 23,118,032
<DEPRECIATION> 296,835
<TOTAL-ASSETS> 24,144,598
<CURRENT-LIABILITIES> 1,448,641
<BONDS> 0
0
442
<COMMON> 33,180
<OTHER-SE> 21,447,494
<TOTAL-LIABILITY-AND-EQUITY> 24,144,598
<SALES> 315,712
<TOTAL-REVENUES> 320,395
<CGS> 159,904
<TOTAL-COSTS> 295,162
<OTHER-EXPENSES> 4,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 20,607
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,607
<EPS-BASIC> .001
<EPS-DILUTED> .001
</TABLE>
