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, 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 0 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 aft 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.
31,685,905 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 files herewith the Unaudited Consolidated Financial Statements for
the three months ended December 31, 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 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.
The Company previously announced its emergence from the development stage and
has since engaged in the drilling of development wells and the recompletion of
existing wells on its inventory of United States based properties acquired in
previous quarters. These activities have resulted in an increase in the number
of commercially productive wells on the Company's properties but have not
yielded significant revenue from the production of oil and gas due to the steep
decline in oil prices and the Company's election to shut in its wells in
response to such declining prices. The Company has financed its operations to
date through private placement of equity securities and borrowing from lenders,
including banks and existing shareholders. Because the Company's United States
based properties are predominantly oil related (as opposed to natural gas
related), the current depressed oil prices as well as the likely future
fluctuation in those prices will continue to have a negative impact on the
Company's revenue stream from domestic oil sales.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 2 OF 8
<PAGE>
The Company's most significant financial commitment the previous four quarters
has been the preparation for and commencement of drilling activities on its
Jacobabad Concession in the Middle Indus Basin of central Pakistan, where it has
expended in excess of $5.5 Million to date in acquisition, geological, seismic,
drilling and associated costs. The initial well was drilled in the fourth
quarter of the prior fiscal year and was tested for potential productive
geologic horizons, but has not been completed. The Company has since deposited
$1.1 Million in a segregated bank account in Islamabad, Pakistan, as a reserve
for estimated site preparation and drilling costs on its second exploratory
well. 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 the development of the extensive acreage comprising this
concession. Drilling operations on the second exploratory well have commenced as
of the time of filing of this report. 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, 1998, the field operations of the Company
consisted of maintenance activities on the existing leases and the drilling and
completion of developmental wells. Significant information pertaining to the
results of the quarter include:
REVENUES AND EARNINGS
In the quarter ended December 31, 1998, the Company incurred a net operating
profit of $24,223, with oil & gas sales of $107,724 as compared to a net
operating profit of $144,226 on oil & gas sales of $210,385 in the prior fiscal
year's quarter ended December 31, 1997. This reflects a significant decrease of
forty nine (49%) percent in comparative quarter's oil and gas sales in
comparison with the prior year's Quarter ending December 31, 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 December 31, 1997
was $18.13, as compared to $11.28 in the current quarter ending December 31,
1998, reflecting a reduction in oil price per barrel of in excess of thirty
seven (37%) percent. The Company renewed its drilling and recompletion
activities in this quarter. The results of this activity are expected to be
reflected in the Company's future reports.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, 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 $191,331 which management
believes to be non-recurring due to the completion of prior litigation and
corporate matters. In addition, $130,000 of this category of expense did not
require the outlay of cash by the company and was incurred through the issuance
of 53,200 shares of Common Stock.
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, and interest, reported a net loss of $244,480 in the
quarter ended December 31, 1998 versus a net gain of $73,055 in the prior fiscal
year's quarter ended December 31, 1997.
As of December 31, 1998, the Company was significantly engaged in its principal
business activity of drilling and producing wells. The Company previously
financed field maintenance operations through loans and private investment
capital infusions, but began 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 a significant oil and gas revenue stream
until it is able to substantially complete the development programs, if
successful, in the fields that it has acquired and until domestic oil prices
stabilize at a reasonable level. Additionally, the pricing of oil, the Company's
sole domestic 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 increased these revenues, but the projects have not been fully developed.
The possibility of a revenue stream from the production of gas on the Company's
Pakistan Concession could likewise enhance the Company's total revenues even if
domestic oil prices do not increase in the near term.
TOTAL ASSETS / SHAREHOLDER'S EQUITY
In the quarter ended December 31, 1998, Total Assets of the Company decreased to
$21,546,093, reflecting an overall increase of over three percent (3.2%) for the
six months from the fiscal year ended June 3 0, 1998, which at that time totaled
$20,864,63 5.
Net Shareholders Equity increased to $19,961,868 as of December 3 1, 1998, from
$17,476,3 5 5 as of June 30, 1998. This reflects an increase of $2,485,513, or
approximately fourteen percent (14.2%) for the six months from the fiscal year
ended June 30, 1998. 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 H - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Subsequent to the quarter ended December 31, 1998, the Company reached a
settlement with the Securities and Exchange Commission (SEC) in a civil lawsuit
filed by the SEC on April 24, 1997,
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 4 OF 8
<PAGE>
against the Company and its President, Bradley J. Simmons. In the lawsuit, the
SEC sought civil penalties, injunctive relief and a bar against Mr. Simmons from
serving as an officer and director of any publicly traded company based on
allegations that specific press releases issued and filings made by the Company
in 1995 contained misleading statements or omitted material information and
thereby allegedly violated certain provisions of the Securities Act of 1933 and
the Securities Exchange Act of 1934, The Company and Mr. Simmons agreed to the
settlement without admitting or denying the allegations in the SEC's lawsuit in
order to avoid further costs of protracted litigation and disruption to the
Company. The terms of the settlement were incorporated in a final judgment
entered by the Court on January 15, 1999. Under the terms of the final judgment,
the Company and Mr. Simmons agreed to a permanent injunction prohibiting each of
them from engaging in violations of certain specified anti-fraud and reporting
provisions in the federal securities laws. Although Mr. Simmons agreed to pay a
civil penalty in the amount of $60,000.00, the final judgment imposes no bar
upon Mr. Simmons and he remains the President and Chairman of the Board of the
Company.
The judgment impose no civil penalty on the Company. Moreover, it adopts a
remedy previously implemented by the Company on its own initiative to insure the
accuracy and adequacy of its public disclosures, namely, the establishment of an
independent Disclosure Committee to oversee all such public disclosures in the
future. The function of the Disclosure Committee is to monitor and review the
content of each proposed public disclosure in light of the nature and
materiality of the information being published. The composition of the
Disclosure Committee is subject to strict criteria and the Company is required
to continue its existence for a minimum of four years. The parties agreed that
this was an appropriate remedial effort to enhance the quality of the Company's
public disclosures.
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the quarter ending December 31, 1998, is provided below:
COMMON STOCK
A net increase of 1,906,700 shares of Common Stock occurred during the quarter,
thereby increasing the total number of outstanding Common Stock to 31,685,905
shares in the following manner:
A. During the quarter ended December 31,1998, one individual exercised a total
of 20,000 warrants to purchase common stock of the Company at an exercise price
of $1.38 per share. As these warrants were issued on the basis of a "cashless
exercise" formula, the Company received no proceeds in this transaction. Based
upon the formula, the individual received 18,200 shares of Common Stock. The
Company believes that the person had knowledge and experience in financial and
business matters which facilitated evaluation of the merits and risk of the
purchase of these securities of the Company, and that the person was
knowledgeable about the Company's operations and financial condition. This
transaction was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in 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 transaction.
None of the transactions described involved a public offering.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 5 OF 8
<PAGE>
B. From time to time during the quarter ended December 31,1998, various holders
of the Company's Convertible Preferred Stock exercised their conversion rights
whereby 365,440 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 1,827,200
shares of Common Stock were issued. The Company did not received 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. 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. In the quarter ended December 31,1998, the Company acquired an interest in
oil and gas properties which the Company operates from one domestic industry
partner in exchange for 54,000 shares. The parties valued each share at 3.50 per
share for the purposes of this transaction. The Company believes that the
parties had knowledge and experience in financial and business matters which
allowed the parties to evaluate the merits and risk of the purchase of these
securities of the Company, and that the parties were 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.
D. In the quarter ended December 31,1998, the Company cancelled a total of
27,700 shares through clerical adjustments and corrections from the transfer
agent of the Company. This was incorporated into the books and records of the
Company.
E. During the quarter ended December 31, 1998, the Company engaged a technical
consultant in various services for the Company. In conjunction with retaining
their services in the quarter ended December 31, 1998, the Company issued 35,000
shares of Common Stock to this firm. The Company believes that the consultant
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.
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 6 OF 8
<PAGE>
CONVERTIBLE PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 5 13,798
shares to 148,358 shares by conversion of 365,440 shares of Convertible
Preferred into 1,827,200 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 741,790 shares of Common
Stock.
WARRANTS
Prior to the quarter ended December 31, 1998, outstanding warrants totaled
10,335,000. Total outstanding Warrants as of December 31,1998 were 12,700,000,
ranging in exercise price from $1.25 to $5.3 1 per share and in term from one
year to seven years. In the quarter ended December 3 1, 1998, a total of 20,000
warrants were exercised and a total of 2,385,000 warrants were issued to various
parties involved with the Company as described below:
A. In the quarter ended December 31, 1998, a total of 2,360,000 warrants were
issued to directors, officers, and employees of the Company. These Warrants are
exercisable on the basis of one share of Common Stock for each Warrant, at
exercise prices of between $3.50 and $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 engaged various technical consultants. In
conjunction with retaining such services in the quarter ended December 31, 1998,
the Company has issued 25,000 warrants with an exercise price of $4.03 per share
and an expiration date in December, 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 December 31,1998, one individual exercised a total
of 20,000 warrants to purchase common stock of the Company at an exercise price
of $1.38 per share. As these warrants were issued on the basis of a "cashless
exercise" formula, the Company received no proceeds in this
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 7 OF 8
<PAGE>
transactions. Based upon the formula, the individual received 18,200 shares of
Common Stock. 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 purchase of these securities of the Company, and that the 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
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 December 31, 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 NONE
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
1/25/99 B/J/S
Bradley J. Simmons, President
1/25/99 L/F/G
Linda F. Gann, Secretary
SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD, PAGE 8 OF 8
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED DECEMBER 31,1998
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31,1998 AND 1997 (,UNAUDITED)
AND JUNE 30, 1998 (AUDITED)
F-1
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
---------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH .................................... $ 561,476 $ 3,214,205
RECEIVABLES ............................. 28,555 8,984
RECEIVABLES - RELATED PARTY ............. 206,442 0
INVESTMENTS ............................. 340 3,300
OTHER CURRENT ASSETS .................... 108,691 113,118
---------------- -------------
TOTAL CURRENT ASSETS .................... 905,504 3,339,607
---------------- -------------
OIL & GAS PROPERTIES USING
FULL COST ACCOUNTING
PROPERTIES BEING AMORTIZED .............. 13,596,818 12,203,925
PROPERTIES NOT SUBJECT
TO AMORTIZATION ....................... 6,195,446 5,433,328
ACCUMULATED AMORTIZATION ................ (370,241) (303,927)
---------------- -------------
NET OIL AND GAS PROPERTIES ............ 19,422,023 17,333,326
---------------- -------------
PROPERTY AND EQUIPMENT
DRILLING AND RELATED EQUIPMENT .......... 282,153 246,494
VEHICLES ................................ 127,046 126,146
OFFICE EQUIPMENT ........................ 38,106 34,839
LESS: ACCUMULATED DEPRECIATION .......... (251,689) (218,627)
---------------- -------------
NET PROPERTY AND EQUIPMENT .............. 195,616 188,852
---------------- -------------
OTHER ASSETS
RESTRICTED CASH/PAKISTAN OPERATIONS ..... 1,020,100 0
DEPOSITS AND OTHER ASSETS ............... 2,850 2,850
---------------- -------------
TOTAL OTHER ASSETS ...................... 1,022,950 2,850
---------------- -------------
TOTAL ASSETS ................................. $ 21,546,093 $ 20,864,635
================ =============
</TABLE>
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>
DECEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
---------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE ........................ 639,332 2,366,880
ACCRUED LIABILITIES ..................... 314,956 322,723
LEASE OBLIGATIONS-CURRENT ............... 6,415 6,985
NOTES PAYABLE-CURRENT ................... 359,341 250,876
---------------- -------------
TOTAL CURRENT LIABILITIES ............... 1,320,044 2,947,464
---------------- -------------
LONG TERM LIABILITIES
NOTES PAYABLE AND LONG TERM DEBT ........ 253,703 428,280
CAPITAL LEASE OBLIGATIONS ............... 10,478 12,536
---------------- -------------
TOTAL LONG TERM LIABILITIES ............. 264,181 440,816
---------------- -------------
TOTAL LIABILITIES ....................... 1,584,225 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 DEC 31, 1998: 148,358 SHARES ......... 148 535
COMMON STOCK, PAR VALUE $.001
PER SHARE, AUTHORIZED 80,000,000
SHARES, ISSUED AND OUTSTANDING
AT JUNE 30, 1998: 28,927,872 SHARES
AT DEC 31, 1998: 31,685,905 SHARES ...... 31,685 28,928
PAID IN EXCESS OF PAR VALUE ............. 21,900,309 19,050,101
ACCUMULATED DEFICIT ..................... (1,970,274) (1,603,209)
---------------- -------------
NET SHAREHOLDERS EQUITY ...................... 19,961,868 17,476,355
---------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS EQUITY ...... $ 21,546,093 $ 20,864,635
================ =============
</TABLE>
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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
OIL & GAS SALES .................. $ 107,724 $ 210,385 $ 160,295 $ 383,752
LEASE OPERATING & PRODUCTION COSTS 83,501 66,159 129,105 108,642
--------- --------- --------- ---------
GROSS PROFIT ................... 24,223 144,226 31,190 275,110
--------- --------- --------- ---------
EXPENSES
LEGAL AND PROFESSIONAL FEES ...... 191,331 55,694 261,638 105,323
ADMINISTRATIVE SALARIES .......... 25,500 22,050 43,525 65,616
OFFICE OVERHEAD EXPENSE .......... 13,013 7,380 33,995 18,960
FRANCHISE TAXES .................. 7,500 16,041 7,500 16,041
DEPRECIATION ..................... 4,127 1,104 8,254 2,208
GENERAL ADMINISTRATIVE EXPENSE ... 31,635 31,343 59,036 66,572
--------- --------- --------- ---------
TOTAL EXPENSE .................... 273,106 133,612 413,948 274,720
--------- --------- --------- ---------
NET OPERATING PROFIT (LOSS) ........... (248,883) 10,614 (382,758) 390
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
INTEREST INCOME .................. 6,136 13,732 21,172 36,325
LOSS ON INVESTMENTS .............. (1,073) (625) (3,373) (1,247)
INTEREST EXPENSE ................. (660) (37,947) (2,106) (37,947)
DEBT FORGIVENESS ................. 0 87,281 0 87,281
--------- --------- --------- ---------
NET OTHER INCOME (EXPENSE) ....... 4,403 62,441 15,693 84,412
--------- --------- --------- ---------
NET INCOME (LOSS) BEFORE TAX .......... (244,480) 73,055 (367,065) 84,802
FEDERAL INCOME TAX ............... 0 0 0 0
--------- --------- --------- ---------
NET INCOME (LOSS) FOR PERIOD .......... $(244,480) $ 73,055 $(367,065) $ 84,802
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE ............. $ (0.008) $ 0.003 $ (0.012) $ 0.003
========= ========= ========= =========
</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>
Six months Six months
ended ended
December 31 December 31
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................. ($ 367,065) $ 84,802
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ..................... 99,376 55,139
Less amount capitalized to oil & gas properties ... (24,808) (13,672)
(Increase) decrease in receivables ................ (19,571) (8,201)
(Increase) decrease in deposits and other assets .. (206,442) (96,000)
(Increase) decrease in other current assets ....... 2,960 (50,007)
(Increase) decrease in restricted cash ............ (1,020,100) --
Increase (decrease) in accounts payable ........... (1,727,548) (1,939)
Increase (decrease) in accrued liabilities and
other current liabilities ....................... (7,767) (281,803)
----------- -----------
Cash Provided by (Used in) Operating Activities (3,270,965) (311,681)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ........... (1,177,898) (3,894,253)
Expenditures for other property and equipment ..... (40,126) (2,824)
----------- -----------
Cash Provided By (Used in) Investing Activities (1,218,024) (3,897,077)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities ........................... -- --
Proceeds from the issuance of common stock ........ 1,905,000 6,365,000
Proceeds from the issuance of convertible
voting preferred stock .......................... -- --
Payments on notes payable and long-term liabilities (68,740) (104,454)
----------- -----------
Cash Provided By (Used in) Financing Activities 1,836,260 6,260,546
----------- -----------
NET INCREASE (DECREASE) IN CASH ..................... (2,652,729) 2,051,788
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ....... 3,214,205 3,132,294
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ............. $ 561,476 $ 5,184,082
=========== ===========
</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, 1998 THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
Convertible Voting Capital in
Common Stock Preferred Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 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)
============ ============ ============ ============ ============ ============
Common stock issued for
services at $1.38 per share .. 18,200 18 -- -- 25,098 --
Common stock issued for
oil & gas properties
at $3.50 per share ........... 54,000 54 -- -- 188,945 --
Common stock issued for
services at $3.00 per share .. 35,000 35 -- -- 104,965 --
Cancellation of common stock ... (27,700) (28) -- -- 28 --
Common stock issued upon
conversion of preferred shares 1,827,200 1,827 (365,440) (366) (1,462) --
Net loss for the quarter
ended December 31, 1998 ...... -- -- -- -- -- (244,480)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 .... 31,685,905 $ 31,685 148,358 $ 148 $ 21,900,309 $ (1,970,274)
============ ============ ============ ============ ============ ============
</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
DECEMBER 31, 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 December 31, 1998
F-7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND JUNE 30, 1998
NOTE I - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
b. DEVELOPMENT STAVE 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
December 31, 1998. In addition, depreciation capitalized during the year ended
June 30, 1998 totaled $55,234. Depreciation capitalized during the quarter ended
December 31, 1998 totaled $12,404. 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 $43,861
for the quarter ended December 31, 1998 on proved and impaired or abandoned oil
and gas properties.
The acquisition of Simmons Oil Company, Inc. and it's subsidiaries has been
accounted for using the purchase method. Accordingly, the accompanying
consolidated financial statements for the period up until the date of
acquisition, September 30, 1994, do not include the financial position, the
results of operations or cash flows of the Simmons companies for those periods.
The acquisition of Hycarbex, Inc. has been accounted for using the
pooling-of-interests method. Hycarbex had no assets or liabilities or results of
operations through the date of the acquisition and, therefore, had no effect on
the consolidated financial statements through April 6, 1995.
F-8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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
December 31, 1998, the Companies incurred total depreciation expense of $16,531
of which $12,404 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, 1998, the Companies held three certificates of deposit
totaling $325,438 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, 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
DECEMBER 31, 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 certain
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 December 31, 1998:
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
----------- ---------
<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 ............................... $ 626,094 $ 723,463
8.5% note payable to a financial institution due
in monthly installments of $950 for 36 months;
secured by two vehicles .............................. 14,294 19,261
7% notes payable, due September 15, 1995, secured
by working interest in oil and gas properties ........ 38,117 44,117
Total notes payable and long-term debt ............... $ 678,505 $ 786,841
----------- ---------
Less: Unamortized discount ........................... (65,461 (107,685)
----------- ---------
Net notes payable and long-term debt ................. 613,044 679,156
Less- Current portion of notes payable
and long-term debt ................................... (359,341) (250,876)
----------- ---------
Long-Term Liabilities ................................ $ 253,703 $ 428,280
=========== =========
</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 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
DECEMBER 31, 1998 AND JUNE 30, 1998
NOTE 5 - CAPITAL LEASE OBLIGATIONS (CONTINUED)
Year ending June 30
1999 $ 4,161
2000 $ 7,429
2001 $ 3,355
2002 $ 3,355
2003 $ 3,076
-------
$21,376
Total minimum lease commitments ................................ $ 21,376
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ........... (1,603)
--------
Net minimum lease payments ............................. 19,773
Less: Amount representing interest ..................... (2,880)
--------
Total Capital Lease Obligations ........................ 16,893
Current Portion ........................................ (6.415)
--------
Long Term Portion ...................................... $ 10,478
--------
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from 513,798
shares to 148,358 shares by conversion of 365,440 shares of Convertible
Preferred into 1,827,200 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 741,790 shares of Common
Stock
NOTE 7- COMMON STOCK
During the quarter ended December 31, 1998, a net increase of 1,906,700 shares
of Common Stock of the Company was incurred through a combination of Warrant
exercise, stock cancellation, property acquisition, consulting fees, and
conversion of Convertible Preferred shares. (See Consolidated Statement of
Stockholders Equity)
NOTE 8- COMMON STOCK WARRANTS
Prior to the quarter ended December 31, 1998, outstanding warrants totaled
10,335,000. Total outstanding Warrants as of December 31,1998 were 12,700,000,
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 December 31, 1998, a total of 20,000
warrants were exercised and a total of 2,385,000 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
December 31, 1998 and June 30,1998
NOTE 9 - INCOME TAXES
Through December 31, 1998, the Companies have sustained net operating loss carry
forward totaling approximately $1,970,274 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 carry forward 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.
In May 1997, the Securities and Exchange Commission filed civil charges against
the Company and its President alleging various violations of securities
regulations. Subsequent to the quarter ended December 31, 1998, the Company and
its President have settled the matter, and the lawsuit has been dismissed.
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.
In connection with this extension, the Company has deposited a total of
$1,100,000 in one of its Pakistan bank accounts to secure the estimated drilling
and other costs associated with this well. As of December 31, 1998, $1,020,100
remained in this account and is reflected in the current Balance Sheet under the
caption "Other Assets". Drilling is expected to begin in February, 1999.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 566,476
<SECURITIES> 340
<RECEIVABLES> 28,555
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 905,504
<PP&E> 19,869,328
<DEPRECIATION> 251,689
<TOTAL-ASSETS> 21,546,083
<CURRENT-LIABILITIES> 1,320,094
<BONDS> 0
0
148
<COMMON> 31,685
<OTHER-SE> 19,930,035
<TOTAL-LIABILITY-AND-EQUITY> 21,546,093
<SALES> 107,724
<TOTAL-REVENUES> 113,860
<CGS> 83,501
<TOTAL-COSTS> 356,607
<OTHER-EXPENSES> 1,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 660
<INCOME-PRETAX> (244,480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,280)
<EPS-PRIMARY> (.008)
<EPS-DILUTED> (.006)
</TABLE>
