UNITED STATES SECURITIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED June 30, 2000
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) 346-0414
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, par value $0.001
(Title of class)
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
such filing requirements for the past 90 days. [X ]Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ]
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: 44,841,169 Common Shares
outstanding as of October 12, 2000.
The aggregate market value of voting and non-voting common equity held by
non-affiliates as of October 12, 2000 was $21, 972,173.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 1
<PAGE>
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements .............................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 3
General Information ........................................... 3
Texas Gulf Coast Operations ................................... 5
Pakistan Operations ........................................... 7
Results of Operations ......................................... 8
Oil and Gas Reserves .......................................... 10
Total Assets/Shareholder Equity ............................... 13
Events Affecting Capital Resources and Material Assets ........ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 15
Item 2. Changes in Securities ............................................. 15
Item 3. Defaults Upon Senior Securities ................................... 17
Item 4. Submission of Matters To A Vote Of The Securities Holders ......... 17
Item 5: Directors and Executive Officers Of The Company ................... 18
Item 6: Selected Financial Data ........................................... 20
Item 7: Executive Compensation ............................................ 21
Item 8: Security Ownership of Certain Beneficial Owners and Management .... 22
Item 9. Other Information ................................................. 25
Item 10. Exhibits and Reports on Form 8-K ................................. 25
SIGNATURE
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company has included herewith the audited consolidated financial statements
for the fiscal years ended June 30, 2000 and 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 June 30, 2000, 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 year in
connection with the Pakistan concession were limited to preparations for
drilling activities which will not occur until later in 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 sufficient to complete the
development of these properties. Additionally, the Company has entered into an
agreement with Northern Lights Energy, Ltd. to sell all of the Texas oil and gas
leases, equipment and the stock of its operating subsidiary for four million
dollars, which agreement is subject to both approval by the Company's
shareholders and satisfactory due diligence by the purchaser. The Company's
shareholders have approved the sale. If such a sale is consummated, certain of
the sale proceeds will be utilized for development of Pakistan concession but
the Company's sole source of revenues from existing operations would terminate
with the sale. Subsequent to such a sale, the funding of ongoing operations
could only be accomplished by utilizing a cash reserve from the sale proceeds or
funds derived from future loans, sales of securities or other outside sources.
(See " EVENTS AFFECTING CAPITAL RESOURCES AND MATERIAL ASSETS")
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
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 3
<PAGE>
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. On May 9,
2000 the Company entered into an Asset and Stock Purchase and Sale Agreement
with Northern Lights Energy, Ltd. to sell the U.S. oil and gas mineral leases,
all related equipment to operate such leases, and 100% of the outstanding stock
of the operating subsidiary, the American Energy Operating Corp., for a total of
$4,000,000. As of June 30, 2000, as well as the date of this report, a total of
$750,000 of the $4,000,000 had been received by the Company. Pursuant to SFAS
121, " Accounting for the Impairment of Long-Lived Assets", the Company has
recorded an asset impairment loss of $11,643,262 for the year ended June 30,
2000 to reflect the write-down of the book value of assets included in the
potential sale to the negotiated sales price of $4,000,000. The Company's
financial statements currently reflect $8,835,706 in capitalized costs related
to the Pakistan concession.
FORWARD LOOKING INFORMATION
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, the ability of
the Company to obtain financing on reasonable terms, 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.
COMPETITION
The oil and gas business is highly competitive in every phase. The Company
competes with numerous companies and individuals in its activities. Many on
these competitors have far greater financial and technical resources with
established multi-national operations. As a result, unless the Company obtains
additional capital investment and /or joins in partnerships and joint ventures,
it may be prevented from participating in large drilling and acquisition
programs. Since the Company is smaller and has limited resources in comparison
to many of its competitors, its ability to compete for oil and gas properties is
also limited.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 4
<PAGE>
REGULATIONS
The following discussion of various government regulations is presented only as
an overview and is necessarily brief. It is not intended to constitute a
comprehensive dissertation of the various statutes, rules, regulations and other
governmental rulings, policies and orders which may affect the Company.
State and Local Regulations:
The various states have established statutes and regulations requiring permits
for drilling, drilling bonds to cover plugging contingencies, and reporting
requirements on drilling and production activities. Activities such as well
location, method of drilling and casing wells, surface use and restoration,
plugging and abandonment, well density, and other matters are all regulated by a
governing body. Texas, the state in which the Company operates, has rules and
regulations covering all of these matters. It also has regulations addressing a
number of environmental and conservation matters, including the unitization and
pooling of oil and gas properties.
Environmental Regulations:
The activities of the Company are subject to numerous state and federal statutes
and regulations concerning the storage, use and discharge of materials into the
environment, and many other matters relating to environmental protection. These
regulations may adversely affect the Company's operations and cost of doing
business. It is likely that these laws will become more stringent in the future.
Safety and Health Regulations:
The Company must also conduct its operations in accordance with laws governing
occupational safety and health. Currently, the Company does not foresee
expending substantial amounts in order to comply with these regulations.
Foreign Laws and Regulations:
The Company intends to commit a significant amount of its resources to develop
its oil and gas Concession in Pakistan. There are inherent risks in operating a
business in a foreign country, where unfamiliar laws and business practices may
exist. The Company intends to minimize this risk by engaging appropriate
professional and support personnel as the operations develop.
MARKETING
The availability of a ready market for the Company's oil and gas production
depends on numerous factors over which the Company has no control, including the
cost and availability of alternative fuels, the extent of other production,
costs and proximity of pipelines, regulations of governmental authorities and
cost of compliance with environmental concerns. Consumer demand and governmental
action can force the price of the Company's products both upwards and downwards,
depending on the circumstances. Future prices are virtually impossible to
predict. The Company does not have a significant share of any market segment and
cannot set or influence the price of its products.
TEXAS GULF COAST OPERATIONS
The Company currently owns and operates a total of 107 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 fiscal
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 5
<PAGE>
year ended June 30, 2000, the Company, through its operating subsidiary, The
American Energy Operating Corp., drilled and successfully completed two (2) new
developmental wells in the Blue Ridge Field. One (1) additional well was drilled
and subsequently plugged and abandoned as a dry hole.
In addition to new developmental wells already drilled by the Company, the
Company continued its ongoing efforts to rework and reactivate certain of the
existing inactive wells present on the Texas leases at the time of acquisition.
During the fiscal year ended June 30, 2000, an average of twenty-eight (28) of
the Company's 107 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. Moderate increases in the overall daily production rate
occurred throughout the year as a result of field work in progress. Quoted oil
prices during the year, at one point, exceeded $30.00 per barrel and sales of
oil by the Company during the year averaged $24.91 per barrel.
During the fiscal year ended June 30, 2000, Management initiated negotiations
with interested parties for the sale of the Texas oil and gas leases in order to
focus its exploration activities on its Pakistan concession and in order to
raise a portion of the working capital necessary to continue such activities.
Subsequent to the end of the quarter and after consideration of the relative
terms of a number of verbal and written offers to purchase these assets, the
Company entered into an agreement to sell for four million dollars all of the
Texas oil and gas leases, Texas-based equipment and the stock of its operating
subsidiary, The American Energy Operating Corp. to Northern Lights Energy, Ltd.
The anticipated sale of the Texas oil and gas leases would eliminate the
Company's current source of operating revenues, as previous exploration
activities by the Company on its Pakistan concession were unsuccessful. As of
the date of this report, Northern Lights Energy, Ltd. has failed to close the
transaction and management of the Company has take the position that Northern
Lights Energy, Ltd. is no longer entitled to purchase the oil and gas leases
under the existing contract. The Company has initiated litigation during the
quarter commencing October 1, 2000, to cancel the contract and has begun
preliminary efforts to market the oil and gas leases to alternative prospective
purchasers. There can be no assurance that such marketing efforts will be
successful. Additionally, under the terms of the contract with Northern Lights
Energy, Ltd., if the purchase transaction does not close, for any reason, the
Company must repay to Northern Lights Energy, Ltd. $750,000 advanced by Northern
Lights Energy, Ltd. at the time of the execution of the contract. The repayment
must be made out of twenty five percent 25% of the Company's percentage of
monthly production from the Texas oil and gas leases. The non-availability to
the Company of this twenty five percent (25%) portion of monthly production
until the indebtedness is repaid could have an adverse affect on the Company.
(See "LEGAL PROCEEDINGS").
In the event that the Texas oil and gas leases are not sold in the near term,
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 would facilitate the generation of a portion of the operating capital
necessary to maintain its ongoing reactivation and development programs.
However, if these oil and gas leases are not sold in the near term, as
anticipated, 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, because several of the Texas leases require continuous
development at specified time
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 6
<PAGE>
intervals. Generally, the failure to comply with these time sensitive
development obligations will result in the automatic forfeiture of the
undeveloped portions of the particular lease. (See "EVENTS AFFECTING CAPITAL
RESOURCES AND MATERIAL ASSETS")
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 $8.0 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
hydrogen sulfide and carbon dioxide. The plugging and abandonment of the David
#1A well in the spring of 1999 due to the contact with hydrogen sulfide and
carbon dioxide triggered a requirement under the exploration license that a
substitute well be drilled. Upon the company's request, the Government of
Pakistan has extended the commencement deadline for the replacement well to
November 30, 2000, subject to continued compliance with all other license
requirements.
Subsequent to June 30, 2000 the Company shot an additional 40km of seismic line
in the vicinity of proposed drilling locations. The Company's technical team is
evaluating this newly acquired seismic data, along with geological and
geophysical data derived from previously drilled wells to optimize the selection
of future drillsites on the approximate one million acres (fifteen hundred
square miles) comprising the concession. Based upon the preliminary testing of
the initial well drilled in 1998, the Kharnhak #1, the geological information
obtained while drilling the second and third exploratory wells, and the newly
acquired seismic data, management believes that further drilling and testing in
Pakistan is warranted.
The Company has on deposit in its Pakistan bank account, as a reserve, certain
cash funds for application to the future costs incurred in connection with the
required replacement well to be drilled in the calendar year 2000. The funds on
deposit are insufficient to cover the anticipated costs of drilling and
completing the well and must be supplemented by additional funds. Upon execution
of the agreement entered into by the Company to sell its Texas oil and gas
leases, the purchaser paid $500,000 to the Company for its immediate use in
Pakistan. Subsequent to June 30, 2000 the Company likewise completed a private
placement of common stock that resulted in proceeds to the Company of $933,102.
Management believes that aggregate funds available to the Company will be
sufficient to cover the costs of drilling and completing the next well. The
Company's technical personnel are currently securing bids for materials and
services required the upcoming well. In the event pricing is received that is in
excess of funds available to the Company, such a lack of funds could cause the
Company to default on its drilling obligations, resulting in the forfeiture of
the Concession due to non-performance. The closing proceeds from a sale of the
Texas oil and gas leases would assure the capital to drill this required well,
even if the actual costs exceed the costs estimated by management and the
currently available funds. There can be no assurance, however, that a sale of
the Texas assets will be consummated. (See "EVENTS AFFECTING CAPITAL RESOURCES
AND MATERIAL ASSETS")
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 7
<PAGE>
RESULTS OF OPERATIONS
GLOSSARY
Bbl or Barrel: Forty-two (42) United States gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE or Barrel of Oil Equivalent: Generally, the conversion of gas to oil at a
ratio of 6,000 cubic feet of gas to one Bbl of oil. Oil and gas are added
together for total BOE.
BOPD: Barrels of oil per day.
Developmental Well: A well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
Exploration: The search for economic deposits of minerals, petroleum and other
natural earth resources by any geological, geophysical, or geochemical
technique.
Exploratory Well: A well drilled either in search of a new, as-yet undiscovered
oil or gas reservoir or to greatly extend the known limits of a previously
discovered reservoir, as indicated by reasonable interpretation of available
data, with the objective of completing in that reservoir.
Field: A geographic area in which a number of oil or gas wells produce from a
continuous reservoir.
Mcf: One thousand cubic feet of natural gas.
Net Acres or Net Wells: The sum of fractional working interests owned in gross
acres or gross wells. By way of example, a 50% working interest in 100 gross
acres is equivalent to 50 net acres.
Operator: The person or company actually operating an oil or gas well.
PV-10 Value: The present value, employing a 10% discount factor, of the future
net revenues computed using current prices from the production of proven
reserves.
REVENUES AND NET OPERATING PROFITS
In the fiscal year ended June 30, 2000, the Company incurred a net operating
loss of $12,114,616, with oil and gas sales of $1,823,276 as compared to a net
operating loss of $818,561 on oil and gas sales of $417,136 in the prior fiscal
year ended June 30, 1999. This reflects an increase of Four Hundred Thirty Seven
Percent (437%) in revenues and an increase of approximately $11,296,055 in net
operating loss, including the $11,643,262 asset impairment loss previously
discussed, in comparison with the prior fiscal year ending June 30, 1999.
The increases noted above resulted from the increases in barrels of oil sold
from the Company's Texas properties at prices which were significantly higher
than those received during fiscal 1999. The average
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 8
<PAGE>
price per barrel of oil sold by the Company in the fiscal year ending June 30,
1999, was $12.93, as compared to $24.91 per barrel in the fiscal year ending
June 30, 2000.
Operating costs increased during the fiscal year ending June 30, 2000, as
compared to the previous fiscal year. The contributing factors to the operating
cost increase were increased field-based activities by the Company and higher
average costs for labor, materials, and technical and other third party services
brought about by diminished availability resulting from industry-wide increases
in activity.
OIL SALES
During the fiscal year ending June 30, 2000, the Company sold 73,195 barrels of
oil net to the Company's interest. The Company's net barrels of sales generated
$1,823,276 and reflects an average daily sales of 201 net barrels of oil per day
("BOPD"), net to the Company after deducting landowner royalties.
NET INCOME
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, asset impairment loss, and including interest, reported
a net loss of $12,283,248 in the fiscal year ended June 30, 2000, versus a net
loss of $754,349 in the prior fiscal year ended June 30, 1999. Exclusive of the
asset impairment loss of $11,643,262 on U.S. assets, net loss decreased by
$114,363. Increases in net daily production and oil sale prices were the major
contributing factors.
COMPARISON TO PREVIOUS YEARS
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales oil for fiscal year ended
June 30, bbls ............................ 73,195 32,272 42,663
Net revenue from sales oil, $ ............. 1,823,276 417,136 641,203
Average price received for sales oil,
$/bbl .................................... 24.91 12.93 15.03
Average lifting costs, $/bbl .............. 4.76 5.08 6.05
Net (loss), $ ............................. (12,283,248) (754,349) (527,991)
</TABLE>
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 9
<PAGE>
OIL AND GAS RESERVES
The Company did not report reserves to any other agency of the U. S. government.
The Company's proved reserves and PV-10 Value from its U.S. proved developed and
undeveloped oil and gas properties have been estimated by Sigma Energy
Corporation in Houston, Texas. The Company's Pakistan Probable Recoverable
Reserves and PV-10 Value from its Pakistan undeveloped gas properties have been
estimated by Martin Petroleum and Associates in Calgary, Alberta, Canada. The
estimates of these independent petroleum engineering firms were based upon
review of production histories and other geologic economic, ownership and
engineering data provided by the Company. In accordance with SEC guidelines, the
Company's estimates of future net revenue from the Company's proved and probable
reserves and the present value thereof are made on the basis of oil and gas
sales prices in effect as of the dates of such estimates and are held constant
throughout the life of the properties, except where such guidelines permit
alternate treatment. Future net revenues at June 30, 2000 on the Company's U.S.
properties reflect a weighted average price of $23.00 per BOE vs. $18.50 in its
June 30, 1999 estimates.
The proved developed and undeveloped oil and gas reserve figures presented in
this report are estimates based on reserve reports prepared by independent
petroleum engineers. The estimation of reserves requires substantial judgment on
the part of the petroleum engineers, resulting in imprecise determinations
particularly with respect to new discoveries. Estimates of reserves and of
future net revenues prepared by different petroleum engineers may vary
substantially, depending, in part, on the assumptions made and may be subject to
material adjustment. Estimates of proved undeveloped reserves, which comprise a
substantial portion of the Company's reserves, are, by their nature, much less
certain than proved developed reserves. The accuracy of any reserve estimate
depends on the quality of available data as well as engineering and geological
interpretation and judgment. Results of drilling, testing and production or
price changes for produced hydrocarbons subsequent to the date of the estimate
may result in changes to such estimates. The estimates of future net revenues in
this report reflect oil and gas prices and production costs as of the date of
estimation, without escalation, except where changes in prices were escalated
under the terms of existing contracts. There can be no assurance that such
prices will be real or that the estimated production volumes will be produced
during the period specified in such reports. Since June 30, 1998, (the date of
the Pakistan estimate) oil and gas prices have fluctuated significantly. The
estimated reserves and future net revenues may be subject to material downward
or upward revision based upon production history, results of future development,
prevailing oil and gas prices and other factors. A material change in estimated
proved reserves or future net revenues could have a material effect on the
Company.
UNITED STATES RESERVE ESTIMATES
The following tables present total proved developed and proved undeveloped
reserve volumes as of June 30, 2000, and June 30, 1999, and estimates of the
future net revenues and PV-10 Value there from. There can be no assurance that
the estimates are accurate predictions of future net revenues from oil reserves
or their present value.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 10
<PAGE>
Estimated Net Proved Oil Reserves - United States Properties:
AS OF JUNE 30 AS OF JUNE 30
2000 1999
------------- -------------
Proved Developed, Bbls ......................... 426,910 471,430
Proved Shut In, Bbls ........................... 275,600 634,040
Proved Undeveloped, Bbls ....................... 2,297,918 2,341,420
Total Estimated Proved Oil Reserves, Bbls ...... 3,000,428 3,446,890
Estimated Future Net Revenues - United States Properties:
The present value of future net revenues (using discount factor of 10 percent
per annum) before income taxes for the Company's proved developed and proved
undeveloped oil reserves as of June 30, 1999 and 1998 are as follows:
AS OF JUNE 30 AS OF JUNE 30
2000 1999
------------- -------------
Proved Developed PV-10, $ .................... 5,081,728 6,840,405
Proved Shut In PV-10, $ ...................... 5,087,524 9,159,680
Proved Undeveloped PV-10, $ .................. 30,745,768 23,872,376
Total ........................................ 40,915,020 39,872,461
"Proved developed" oil and gas reserves are reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
"Proved undeveloped" oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing, wells where
relatively major expenditures are required for recompletion. In recent years,
the market for oil and gas has experienced substantial fluctuations, which have
resulted in significant swings in the prices for oil and gas. The Company cannot
predict the future of oil and gas prices or whether a future decline in prices
will occur. Any such decline would have an adverse effect on the Company.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 11
<PAGE>
PAKISTAN RESERVE ESTIMATES - PROBABLE RECOVERABLE RESERVES
As previously reported and filed in a Form 8-K dated September 22, 1998, the
Company retained Martin Petroleum and Associates to perform a preliminary
reserve study on its Jacobabad Concession in the Middle Indus basin in central
Pakistan. These reserves are not categorized as proven. Further, these reserves
remain categorized by the company as unproven. However, management has
determined that the independent estimates of Probable Recoverable Reserves in
the preliminary reserve study represent material information which merited
disclosure to the shareholders. These independent estimates also served as
justification to management to continue further exploratory drilling on its
Pakistan Concession. The following summary represents Martin Petroleum and
Associates total probable recoverable undeveloped natural gas reserve estimates
as of June 30, 1998, and estimates of the future net revenues and PV-10 Value
there from. There can be no assurance that the estimates are accurate
predictions of future net revenues from these gas reserves or their present
value. Such estimates likewise do not reflect the quality or marketability of
any gas recovered in the development of these properties.
GROSS PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES......................... 5.159 TCF (Trillion Cubic Feet)
NET PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES......................... 3.231 TCF (Trillion Cubic Feet)
NET PRESENT VALUE (Discounted @ 10%) 1,767,600,000
(TO THE COMPANY'S INTEREST AS OF JUNE 30, 1998)
Probable Recoverable Reserves as defined in the preliminary reserve study
performed by Martin Petroleum and Associates are "reserves which analysis of
drilling, geological, geophysical and engineering data does not demonstrate to
be proved under current technology and existing economic conditions, but where
such analysis suggests the likelihood of their existence and future recovery".
Probable Recoverable Reserves estimates are far less reliable estimates of
existence and future recoverability than are Proved Developed and Proved
Undeveloped reserve estimates.
The estimation of reserves requires substantial judgment on the part of the
petroleum engineers, resulting in imprecise determinations particularly with
respect to new discoveries. Estimates of reserves and of future net revenues
prepared by different petroleum engineers may vary substantially, depending, in
part, on the assumptions made, and may be subject to material adjustment.
Estimates of probable undeveloped reserves, which are a substantial portion of
the Company's reserves, are, by their nature, much less certain than proved
developed reserves. The accuracy of any reserve estimate depends on the quality
of available data as well as engineering and geological interpretation and
judgment. Results of drilling, testing and production or price changes
subsequent to the date of the estimate may result in changes to such estimates.
The estimates of future net revenues in this report reflect gas prices and
production costs as of the date of estimation, without escalation, except where
changes in prices were escalated under the terms of existing contracts. There
can be no assurance that such prices will be real or that the estimated
production volumes will be produced during the period specified in such reports.
Since June 30, 1998, (the date of the Pakistan estimate) gas prices have
generally remained stable. The estimated reserves and future net revenues may be
subject to material downward or upward revision based upon production history,
results of future development, prevailing gas
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 12
<PAGE>
prices and other factors. A material change in categorization of reserves or
future net revenues could have a material effect on the Company.
TOTAL ASSETS/SHAREHOLDER'S EQUITY
In the fiscal year ended June 30, 2000, Total Assets of the Company decreased to
$14,484,273, In the year ended June 30, 1999, Total Assets were $23,456,438. The
decrease of $8,972,165 is a result of the decrease attributed to the asset
impairment loss of $11,463,262 and increases in other assets, including
development of the Pakistan concession, cash and accounts receivable in the
amount of $2,491,097.
Net Shareholders Equity decreased to $9,790,323 as of June 30, 2000, from
$21,362,502 as of June 30, 1999.
EVENTS AFFECTING CAPITAL RESOURCES AND MATERIAL ASSETS
The Company's wholly owned subsidiary, Hycarbex-American Energy, Inc. has been
granted an extension until November 30, 2000 for the drilling of a substitute
well on its Pakistan Concession. The requirement for a substitute well was
brought about when the Company plugged and abandoned its David #1A well in the
Spring of 1999 after encountering carbon dioxide and dangerous levels of
hydrogen sulfide gas. The extension is conditioned upon the Company's compliance
with all other requirements of the exploration license, including the
requirement that a minimum of $1,100,000 be maintained on deposit in its
Pakistan operating account toward the anticipated costs associated with the
drilling of the substitute well, as well as an additional $1,100,000 for the
anticipated costs of the next exploration well required by the exploration
license. An additional $500,000 was deposited in Pakistan subsequent to the end
of the fiscal year. These funds were received upon the execution by the Company
of the agreement to sell to Northern Lights Energy, Ltd. the Texas oil and gas
leases for four million dollars. Should a sale of the Texas oil & gas leases be
consummated, the transaction funds would be paid in cash to the Company and
would be applied to discharge the existing liens against these assets, operating
expenses and the Pakistan deposit and drilling requirements. Currently, the
Company has slightly in excess of $ 1,100,000 on deposit in Pakistan.
Management believes that aggregate funds currently available to the Company are
sufficient to cover costs associated with the drilling of the next well whether
or not a near term sale of the Texas oil and gas leases occurs; however, final
cost estimates for this well are not complete. Recent increased activity in the
oil and gas industry has increased demand for key materials and services
associated with oil and gas well drilling operations. In some instances pricing
for these materials and services have increased substantially. The Company is
currently negotiating for these materials and services, and will complete cost
estimates upon their receipt. There can be no assurance that the actual drilling
costs will remain at a level within funds currently available to the Company.
Under the applicable local rules pertaining to petroleum concessions, the
Government of Pakistan can revoke the exploration license for any material
breach which is not cured within sixty days of written notice of noncompliance.
Hycarbex has not received a notice of default as of the date of this report. A
failure to make the required deposits after a default notice from the Pakistan
Government could result in a forfeiture
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 13
<PAGE>
of the exploration license and a loss of the concession. The exploration license
could also be revoked if Hycarbex is unable to comply with the November 30, 2000
drilling deadline for the replacement well. Upon any revocation of the license,
Hycarbex could remain liable to the Pakistan Government for liquidated damages
equal to the required deposit amounts.
The Company's cash position is critical given the current deposit requirements
in Pakistan and given future development requirements under certain of its Texas
oil and gas leases if those leases are not sold in the near future as
anticipated. Management intends to continue to explore and pursue all available
sources of working capital through potential loans, sales of securities, sales
of assets, joint venture affiliations, and other transactions in order to meet
its anticipated near term needs. In conjunction with these efforts, the Company
has retained an investment banking firm to assist in these efforts. A private
placement of common stock conducted by the investment banking firm resulted in
proceeds of $933,102 to the Company. There can be no assurance that these
efforts will continue to prove successful. In the event that additional capital
raising efforts by the Company are unsuccessful, the likely effects would be the
forfeiture of the Pakistan concession and, if the Texas oil and gas leases are
not sold, a slowdown or postponement of scheduled reactivation and development
activities on those Texas properties.
During the fiscal year ended June 30, 2000, the Company announced its intention
to sell its Texas oil and gas leases in order to focus the Company's activities
and resources toward the development of its Pakistan concession and immediately
engaged in active negotiations with interested parties. The timing of the
decision permits the Company to take advantage of opportunities for a more
favorable sale created by recent increases in market prices for oil. Such a sale
is expected to provide funds to the Company which will be used to meet the
current deposit requirements in Pakistan. During the fiscal year, the Company
entered into an agreement with Northern Lights Energy, Ltd. to sell its Texas
oil and gas leases for four million dollars after considering the relative terms
of a number of verbal and written offers from the interested parties. Northern
Lights Energy, Ltd. failed to consummate the transaction and management
initiated litigation during the quarter commencing October 1, 2000, to cancel
the contract, while simultaneously commencing efforts to market the oil and gas
leases to alternative prospective purchasers. There can be no assurance that
such a sale will be consummated or, if consummated, will generate sufficient
cash resources to meet all of the near term capital requirements in Pakistan. It
is likely that such cash resources will have to be supplemented by capital from
the sale of the Company's securities, loans or other sources. Sale of the Texas
leases would also eliminate the Company's ongoing revenue stream which would
create the need for a reserve from the sale proceeds or the need for capital
from other sources in order to meet near term administrative and operating
expenses. The Company does not currently have a line of credit or other credit
facility which can meet these needs and there can be no assurance that efforts
to sell its securities or raise capital by other means will be successful.
The book value of the Company's Total Assets is currently at $14,484,273, based
upon the full cost method of accounting for the Company's oil and gas properties
whereby all costs associated with the acquisition, exploration and development
of the properties are capitalized in a "full cost pool". (See "GENERAL
INFORMATION" above). The portion of these Total Assets capitalized in connection
with the Pakistan concession is $8,835,706. The book value of an oil and gas
property which is calculated using the full cost method of accounting does not
necessarily approximate the fair market value of the particular property. The
fair market value approach is generally determined by the price a willing
purchaser will pay for the property. Many factors can affect the market value,
including the recoupment period for the
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 14
<PAGE>
investment based upon the particular property's income generating potential over
a finite period. Book value, on the other hand, will generally incorporate as a
part of the calculation the long-term income based upon development of the
proven reserves.
The Company incurred certain long term convertible debt in the amount of
$1,500,000 in the quarter ended September 30, 1999, which debt is convertible at
the option of the holder at the rate of one Common share for each one dollar of
principal converted. A contractual provision within the lending documents
required the Company to initiate a registration with the Securities & Exchange
Commission of the underlying Common shares by December 16, 1999. The Company has
not complied with this registration requirement, triggering a financial penalty
of $45,000 per month beginning January 20, 2000, and continuing until such time
that the registration is accomplished. The Company has elected to pay the
penalty sum in common stock as permitted in the lending documents and will
continue to incur this monthly penalty until the registration is completed.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. sought 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 obtained a final judgment in their favor prior to the end of
the fiscal year which disallowed Alpha Tech International, Inc.'s requested
relief and brought an end to the litigation.
During the quarter commencing October 1, 2000, the Company initiated litigation
in Cause No. 115917 in the 240th Judicial District Court of Fort Bend County,
Texas, against Northern Lights Energy, Ltd., ("Northern Lights") seeking
judicial interpretation of the existing purchase agreement with Northern Lights'
which would result in a cancellation of Northern Lights' right to purchase the
Texas oil and gas leases under the contract as a result of Northern Lights
failure to consummate the purchase in a timely fashion, and which would result
in the Company's immediate ability to market the oil and gas leases to
alternative prospective purchasers. The Company has likewise requested the Court
to appoint a temporary receiver for the sole purpose of prudent management,
operation and development of the Texas oil and gas leases during the pendency of
the lawsuit. Management anticipates that the final interpretation of the issues
in dispute under the purchase agreement will be completed in the near term.
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the fiscal year ending June 30, 2000, is provided below:
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 15
<PAGE>
COMMON STOCK
A net increase of 2,419,493 shares of Common Stock occurred during the year,
thereby increasing the total number of shares of outstanding Common Stock to
35,297,881 shares in the following manner:
A total of 583,659 shares were issued to a prior investor in conjunction with
the Company's deficiency with regard to the registration of the investor's
common stock. (SEE EVENTS AFFECTING CAPITAL RESOURCES AND MATERIAL ASSETS)
During the quarter ended March 31, 2000, the entire 400,000-share class of Block
F Convertible Preferred Stock was converted into 1,400,000 shares of Common
Stock. Due to the price decline in the average closing price of the shares and
due to certain conversion adjustment provisions, the shares were converted at
better than the anticipated one-for-one basis as described in previous filings.
The balance of shares constructing the increase were issued upon conversion of
Block E Convertible Preferred Stock.
CONVERTIBLE PREFERRED STOCK
In the quarter ended March 31, 2000, the number of outstanding Convertible
Preferred shares (Blocks A through E) totaled 41,500 shares which, pursuant to
their terms, are convertible on the basis of five Common shares for each one
Convertible Preferred share. The respective conversion dates for each of the
Block A through E Convertible Preferred shares have expired. These shares, which
are no longer convertible, may be redeemed by the Company, at its election, for
$0.50 per share.
All of the 400,000 outstanding Block F Convertible Preferred shares issued
during the Quarter ended September 30, 1999, were converted in the Quarter
ending March 31, 2000, into 1,400,000 shares of Common Stock.
WARRANTS
Outstanding warrants or options as of December 31, 1999 totaled 11,100,000,
ranging in exercise price from $.50 to $5.31 per share and in term from one year
to seven years. The net increase by 325,000 warrants to 11,425,000 warrants
outstanding during the quarter ended March 31, 2000 is as a result of (i) no
warrants being exercised, (ii) no warrants expiring unexercised and (iii) a
total of 325,000 warrants being issued to five individuals described below:
A total of 250,000 warrants were issued to new directors. Two new Directors were
appointed during the quarter ending March 31, 2000. Each director received
125,000 warrants with an exercise term of seven years, one with an exercise
price of $0.75 per share and one with an exercise price of $0.50 per share. The
exercise price was determined by using the closing price on the date upon which
each individual joined the Board.
Three individuals serve the Company in the capacity of the Disclosure Committee
of the Company. Each of these individuals received 25,000 warrants, exercisable
at $0.75 per share, with a term of seven years.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 16
<PAGE>
MARKET INFORMATION
The price of the Common Stock of the Company is quoted in the "pink sheets"
published by the National Quotation Bureau and the Bulletin Board, an
inter-dealer quotation system operated by the National Association of Securities
Dealers under the symbol "AMEL". These over the counter market quotations may
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual transaction prices.
HIGH BID LOW BID
-------- --------
Fiscal years ended
June 30,
2000
First Quarter ................ $ 2.46 $ 0.93
Second Quarter ............... $ 2.06 $ 1.00
Third Quarter ................ $ 1.25 $ 0.15
Fourth Quarter ............... $ 1.01 $ 0.25
1999
First Quarter ................ $ 6.69 $ 3.50
Second Quarter ............... $ 5.81 $ 3.38
Third Quarter ................ $ 4.13 $ 2.19
Fourth Quarter ............... $ 3.75 $ 1.03
DIVIDENDS
The Company has not declared, distributed or paid any cash dividends in the
past. There is no current expectation that the Company will have sufficient net
profit and cash flow in amounts that would allow a cash dividend to be paid to
it's shareholders.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
During the fiscal year, shareholders were requested to vote on the sale of the
Texas assets of the Company as proposed by the Board of Directors by the
submission of consent documents to the shareholders of record. In accordance
with the terms of the Company's bylaws, a majority of the shareholders of record
consented to the proposed sale to Northern Lights Energy, Ltd. and to any
alternative purchaser selected by the Board of Directors in the event the
Northern Lights transaction is not consummated.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 17
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
---- --- --------
Manfred Welser 43 Chairman, Board of Directors
Charles Valceschini 42 Director, President, Chief Executive Officer
Hooman Zadeh 29 Director
Georg von Canal 52 Director
Linda F. Gann 43 Secretary
MANFRED WELSER
CHAIRMAN, BOARD OF DIRECTORS
Mr. Welser is Managing Director and President of The Combus Group, an
international trust company and an American Energy shareholder which is based in
Zurich, Switzerland. Mr. Welser is a graduate of the Business School of
Economics in Zurich and has established a successful career in international
private banking. Mr. Welser has extensive experience in matters pertaining to
natural resource companies and international finance. Mr. Welser joined the
American Energy Board of Directors in March, 1999, and became Chairman in May,
1999.
CHARLES VALCESCHINI
PRESIDENT, DIRECTOR & C.E.O.
PRESIDENT, HYCARBEX-AMERICAN ENERGY, INC.
Mr. Valceschini has participated in international exploration and operations
projects conducted in North America, the Middle East, Russia, and Eastern Europe
for a variety of operating and consulting companies. Mr. Valceschini is a
graduate of the University of Wyoming with a B.S. Degree in Petroleum
Engineering, and also holds a Masters in Engineering Management from Portland
State University. He has recently been serving as Director of Engineering and
Operations for a major oil field rehabilitation project in Eastern Europe.
HOOMAN E. ZADEH
DIRECTOR
Hooman Zadeh is Founder, President and Chief Executive Officer of Allfinanz
Zentrum AG, a Swiss Corporation, and Chief Executive Officer of Allfinanz
Zentrum Investmentberatung (Germany) AG, a German Corporation. The two companies
are engaged in investment management. Mr. Zadeh joined the American Energy Board
of Directors in September, 1998.
GEORG VON CANAL
DIRECTOR
Georg von Canal is an independent Corporate Finance Consultant and has
represented interests of major American Energy shareholders since March 1998.
Prior to his present occupation, he was an Investment Manager, Corporate
Finance, with APAX Partners & Co., Germany and Switzerland, (now Atrium AG) and
a Managing Partner of Transconnect Group, Munich, a business consultancy and
investment company. Mr. Von Canal holds a first class PhD in Economics from the
University of St. Gallen, Switzerland. He has joined the Board of Directors in
March 2000.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 18
<PAGE>
LINDA F. GANN
SECRETARY
Linda F. Gann was appointed Secretary of the Company on June 18, 1998. She has
been employed by the Company since January, 1995, where she has held various
positions including Office Manager, Accounting Supervisor, and Assistant to the
President. Prior to her employment with the company, she was employed by Igloo
Corporation, where she was Production Manager. She had previously worked for
Guaranty National Bank in Accounting and Commercial Customer Service. Ms. Gann
has pursued various course work in attempting to obtain a college degree,
subject to the constraints of her workload and responsibilities at the Company.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data presented under the captions
"Statements of Earnings Data" and "Balance Sheet Data' for, and as of the end
of, each of the years in the five year period ended June 30, 2000, are derived
from the consolidated financial statements of The American Energy Group, Ltd,
and Subsidiaries. The financial data for the four years ended June 30, 1996
through 1999 have been audited by Jones, Jensen & Company, Independent Public
Accountants. The financial data for the year ended June 30, 2000 has been
audited by HJ & Associates, Inc. (previously Jones Jensen & Company. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial statements as of June 30, 2000 & 1999, and for each of
the three years ended June 30, 1996, 1997 and 1998, the accompany notes and the
report thereon, which are included elsewhere in the respective Forms 10-K.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
EARNINGS DATA ($)
Oil & Gas sales ........... $ 1,823,276 417,136 641,203 283,485 50,390
Lease Operating
& Production Costs ........ 592,502 339,340 258,032 83,826 81,087
Legal & Professional ...... 414,308 393,877 541,031 143,622 129,866
Administrative Labor ...... 135,529 22,661 122,089 77,194 118,827
Depreciation and
Amortization Expense ...... 413,570 151,239 275,803 37,416 2,163
Impairment loss ........... 11,643,262 -- -- -- --
Other G & A ............... 738,721 328,580 144,172 113,625 136,521
============ =========== ============ ============ ============
Total Expenses ............ 13,937,892 1,235,697 1,341,127 455,683 468,464
Other Income & Expenses ... (168,632) 64,212 48,851 (11,808) (85,512)
Extraordinary Item ........ -0- -0- 123,082 17,343 0
============ =========== ============ ============ ============
Net Loss .................. (12,283,248) (754,349) (527,991) (156,663) (503,586)
============ =========== ============ ============ ============
Basic Loss per Common Share (0.365) (0.024) (0.020) (0.014) (0.076)
============ =========== ============ ============ ============
Weighted Ave. Shares
Outstanding ............... 33,653,953 31,133,813 26,252,631 11,548,539 6,650,850
Fully Diluted Loss
per Common Share .......... (0.273) (0.0155) (0.014) (0.006) (0.028)
============ =========== ============ ============ ============
Fully Diluted Ave .........
Shares Outstanding ........ 45,078,953 48,913,388 38,374,941 27,174,937 17,997,688
============ =========== ============ ============ ============
BALANCE SHEET DATA
Cash & Cash Equivalents ... $ 1,344,513 1,196,566 3,214,205 3,132,294 424,698
Working Capital (deficit) . 221,123 264,005 650,004 2,434,012 (84,160)
Total Assets .............. 14,484,273 23,456,438 20,864,635 13,092,370 4,362,126
============ =========== ============ ============ ============
Long Term Debt ............ 1,994,284 544,551 698,677 1,792,318 1,397,700
(Including Current Portion)
Stockholders Equity ....... 9,790,323 21,362,502 $ 17,476,355 $ 10,457,095 $ 2,450,380
============ =========== ============ ============ ============
</TABLE>
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 20
<PAGE>
ITEM 7. EXECUTIVE COMPENSATION
Summary Compensation Table:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ---------------------------------------------
AWARDS PAYOUTS
------ -----------------------------------
OTHER
NAMEE AND ANNUAL RESTRICTED SECURITIES
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP
POSITION YEAR SALARY(L) BONUS SATION AWARDS OPTIONS/SARS PAYOUTS
=========== ==== ========= ======= ======= ========== ============ =======
<S> <C> <C> <C> <C> <C> <C> <C>
Charles 2000 $ -0- -0- -0- -0- -0- -0-
Valceschini
CEO
Bradley J 2000 $ 95,000 -0- -0- -0- -0- -0-
Simmons
CEO 1999 $ 120,000 44,566 60,000 -0- 1,550,000 -0-
1998 $ 110,000 12,000 -0- -0- 525,000 -0-
1997 $ 100,000 25,000 -0- -0- 200,000 -0-
</TABLE>
(FN 1) Bradley Simmons resigned as an officer effective April 10, 2000.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 21
<PAGE>
Aggregate Option/SAR Exercises and Option/SAR Value:
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
SHARES VALUE ($) ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
---------- ----------- -------- ---------------- ----------------
Bradley J. -0- -0- 2,275,000 / -0- $-0- / -0-
Simmons
CEO (FN 1, 2)
(FN 1) Closing price at fiscal year end was $0.5625, while the lowest warrant
strike price for this individual is $1.25
(FN 2) Bradley Simmons resigned as an officer effective April 10, 2000.
ITEM 8. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has two classes of voting equity securities, Common and Convertible
Preferred, which are combined to accumulate the total voting shares of the
Company.
The following table sets forth certain information as of October 1, 2000, with
respect to the beneficial ownership of shares of common stock by (i) each person
who is known to the Company to beneficially own more than 5% of the outstanding
shares of common stock, (ii) each director of the Company, (iii) each executive
officer of the Company and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each stockholder has sole voting
and investment power with respect to the shares shown.
NUMBER PERCENT
NAME TYPE OF SHARES OF CLASS
---- ------ --------- --------
CURRENT OFFICERS AND DIRECTORS
Manfred Welser (FN 1) Common 275,000 0.8 %
Charles Valceschini (FN 2) Common 125,000 0.3 %
Hooman Zadeh (FN 3) Common 925,000 2.0 %
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 22
<PAGE>
NUMBER PERCENT
NAME TYPE OF SHARES OF CLASS
---- ------ --------- --------
Georg Von Canal (FN 4) Common 125,000 0.3 %
Linda F. Gann (FN 5) Common 75,600 0.2 %
All current officers and
Directors as a group
(five persons) Common 1,525,600 3.60 %
PREVIOUS OFFICERS AND DIRECTORS
Bradley J. Simmons (FN 6) Common 2,325,585 5.16 %
Don D. Henrich (FN 7) Common 1,480,000 3.29 %
Gilbert Torner (FN 8) Common 875,000 1.95 %
Eli Bebout (FN 9) Common 875,000 1.95 %
OTHERS
The Farrington Family Trust Common 3,792,105 8.42 %
(FN 1) Mr. Welser's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of $2.50 per
share.
An option to purchase up to 150,000 shares at an exercise price of $1.56 per
share.
(FN 2) Mr. Valceschini's holdings include options to purchase shares of common
stock which are presently exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of $0.50 per
share.
(FN 3) Mr. Zadeh's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 250,000 shares at an exercise price of $3.50 per
share.
An option to purchase up to 400,000 shares at an exercise price of $3.00 per
share.
An option to purchase up to 150,000 shares at an exercise price of $1.56 per
share.
(FN 4) Mr. Valceschini's holdings include options to purchase shares of common
stock which are presently exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of $0.75 per
share.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 23
<PAGE>
(FN 5) Ms. Gann's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 5,000 shares at an exercise price of $1.25 per
share.
An option to purchase up to 5,000 shares at an exercise price of $3.97 per share
An option to purchase up to 50,000 shares at an exercise price of $3.97 per
share
An option to purchase up to 10,000 shares at an exercise price of $4.03 per
share
An option to purchase up to 5,000 shares at an exercise price of $1.56 per
share.
(FN 6) Mr. Simmons resigned as an officer and director of the Company effective
April 10, 2000. Mr. Simmon's holdings include options to purchase shares of
common stock which are presently exercisable at prices as follows:
An option to purchase up to 200,000 shares at an exercise price of $1.38 per
share.
An option to purchase up to 150,000 shares at an exercise price of $2.31 per
share.
An option to purchase up to 125,000 shares at an exercise price of $1.25 per
share.
An option to purchase up to 250,000 shares at an exercise price of $3.97 per
share.
An option to purchase up to 100,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 350,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 250,000 shares at an exercise price of $3.50 per
share.
An option to purchase up to 250,000 shares at an exercise price of $4.03 per
share.
An option to purchase up to 400,000 shares at an exercise price of $3.00 per
share.
An option to purchase up to 200,000 shares at an exercise price of $1.56 per
share.
(FN 7) Mr. Henrich resigned as a director of the Company effective March 21,
2000. Mr. Henrich's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 30,000 shares at an exercise price of $2.00 per
share.
An option to purchase up to 25,000 shares at an exercise price of $4.00 per
share.
An option to purchase up to 125,000 shares at an exercise price of $5.31 per
share.
An option to purchase up to 100,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 100,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 250,000 shares at an exercise price of $3.50 per
share.
An option to purchase up to 250,000 shares at an exercise price of $4.03 per
share.
An option to purchase up to 400,000 shares at an exercise price of $3.00 per
share.
An option to purchase up to 200,000 shares at an exercise price of $1.56 per
share.
(FN 8) Mr. Torner resigned as a director of the Company effective April 30,
2000. Mr. Torner's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of $5.00 per
share.
An option to purchase up to 250,000 shares at an exercise price of $3.50 per
share.
An option to purchase up to 400,000 shares at an exercise price of $3.00 per
share.
An option to purchase up to 100,000 shares at an exercise price of $1.56 per
share.
(FN 9) Mr. Bebout resigned as a director of the Company effective April 30,
2000. Mr. Bebout's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows:
An option to purchase up to 75,000 shares at an exercise price of $1.50 per
share.
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 24
<PAGE>
ITEM 9. OTHER INFORMATION
On July 16, 1999, Chuck Valceschini was appointed President of Hycarbex-American
Energy, Inc., succeeding Bradley J. Simmons.
On January 25, 2000, Gerald N. Agranoff resigned as an officer and director of
the Company. The Board vacancy was filled on February 9, 2000 by the appointment
of Georg von Canal for the unexpired portion of Mr. Agranoff's term.
On March 21, 2000, Don Henrich resigned as a director and was replaced with the
appointment by the Board of Charles Valceschini. Mr. Valceschini had been
serving in the capacity of President of Hycarbex-American Energy, Inc.
On April 10, 2000, Bradley J. Simmons resigned as an officer and director of the
Company. Charles Valceschini was appointed to fill Mr. Simmons positions as
President of the Company and various subsidiaries, including the above
referenced Hycarbex subsidiary. No appointment has been made to fill this
vacancy on the Board. In addition, Mr. Gilbert Torner resigned as a director of
the Company effective April 30, 2000. No appointment has been made to fill this
vacancy on the Board.
Immediately prior to the year ended June 30, 2000, Eli Bebout resigned as a
director of the company. No appointment has been made to fill this vacancy on
the Board.
ITEM 10. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)
(A) EXHIBITS
The Financial Statement Schedules required herein are included as
set forth as Exhibit A and beginning on page F-1
(B) REPORTS ON FORM 8-K
NONE
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on October 13, 2000.
THE AMERICAN ENERGY GROUP, LTD.
by: /s/ Charles Valceschini
Director, President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ Charles Valceschini Director, President October 13, 2000
and Chief Accounting Officer
/s/ Manfred Welser Director October 13, 2000
/s/ Hooman E. Zadeh Director October 13, 2000
/s/ Georg von Canal Director October 13, 2000
/s/ Linda F. Gann Secretary October 13, 2000
THE AMERICAN ENERGY GROUP, LTD.
SEC FORM 10K, JUNE 30, 2000 26
<PAGE>
THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, 1999 AND 1998
F-1
<PAGE>
C O N T E N T S
Independent Auditors' Report.............................................. F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Operations..................................... F-6
Consolidated Statements of Stockholders' Equity........................... F-7
Consolidated Statements of Cash Flows..................................... F-10
Notes to the Consolidated Financial Statements............................ F-12
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
The American Energy Group, Ltd. and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 2000, 1999 and 1998. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
American Energy Group, Ltd. and Subsidiaries as of June 30, 2000 and 1999 and
the consolidated results of their operations and their cash flows for the years
ended June 30, 2000, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Companies will continue as going concerns. As discussed in Note 1 to
the consolidated financial statements, the Companies have suffered recurring
losses to date, which raises substantial doubt about its their ability to
continue as going concerns. Management's plans with regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
October 9, 2000
F-3
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
JUNE 30,
-----------------------------
2000 1999
------------ ------------
CURRENT ASSETS
Cash (Note 1) ............................. $ 1,344,513 $ 1,196,566
Receivables ............................... 163,947 73,166
Receivable-related party .................. -- 1,626
Other current assets ...................... 19,660 13,602
------------ ------------
Total Current Assets ................... 1,528,120 1,284,960
------------ ------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING (Notes 1 and 2)
Properties being amortized ................ 16,247,874 14,388,253
Properties not subject to amortization .... 8,835,706 7,913,414
Accumulated amortization .................. (824,307) (437,450)
Impairment reserve (Note 2) ............... (11,643,262) --
------------ ------------
Net Oil and Gas Properties ............. 12,616,011 21,864,217
------------ ------------
OTHER PROPERTY AND EQUIPMENT (Note 1)
Drilling and related equipment ............ 384,679 384,679
Vehicles .................................. 139,801 155,811
Office equipment .......................... 48,933 48,933
Accumulated depreciation .................. (353,718) (287,682)
------------ ------------
Net Other Property and Equipment ....... 219,695 301,741
------------ ------------
OTHER ASSETS
Debt issuance costs, net (Note 1) ......... 113,447 --
Investments ............................... 1,900 420
Deposits .................................. 5,100 5,100
------------ ------------
Total Other Assets ..................... 120,447 5,520
------------ ------------
TOTAL ASSETS ........................... $ 14,484,273 $ 23,456,438
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ......................................................... $ 1,287,337 $ 1,299,152
Accrued liabilities ...................................................... 632,329 250,233
Deposit on sale of assets (Note 2) ....................................... 750,000 --
Note payable - related party (Note 3) .................................... 30,000 --
Current portion of capital lease obligations (Note 4) .................... 2,627 4,078
Current portion of notes payable and long-term
debt (Note 3) .......................................................... 765,414 324,347
------------ ------------
Total Current Liabilities ............................................. 3,467,707 1,877,810
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt (Note 3) ................................ 1,220,000 207,401
Capital lease obligations (Note 4) ....................................... 6,243 8,725
------------ ------------
Total Long-Term Liabilities ........................................... 1,226,243 216,126
------------ ------------
Total Liabilities ..................................................... 4,693,950 2,093,936
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 5, 6 and 7)
Convertible voting preferred stock; par value $0.001 per share; authorized
15,000,000 shares; 41,499 and 101,995 shares issued and outstanding,
respectively ............................................................ 42 102
Common stock; par value $0.001 per share; authorized 80,000,000 shares;
35,297,881 and 32,878,388 shares issued and outstanding, respectively ... 35,298 32,878
Capital in excess of par value ........................................... 24,395,789 23,687,080
Accumulated deficit ...................................................... (14,640,806) (2,357,558)
------------ ------------
Total Stockholders' Equity ............................................ 9,790,323 21,362,502
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $ 14,484,273 $ 23,456,438
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Oil and gas sales ................... $ 1,823,276 $ 417,136 $ 641,203
------------ ------------ ------------
Total Revenue .................... 1,823,276 417,136 641,203
------------ ------------ ------------
EXPENSES
Lease operating and production costs 592,502 163,838 258,032
Legal and professional .............. 414,308 393,877 541,031
Administrative labor ................ 135,529 88,475 122,089
Depreciation and amortization expense 413,570 151,239 275,803
Asset impairment loss (Note 2) ...... 11,643,262 -- --
Other general and administrative .... 738,721 438,268 144,172
------------ ------------ ------------
Total Expenses ................... 13,937,892 1,235,697 1,341,127
------------ ------------ ------------
NET OPERATING LOSS ..................... (12,114,616) (818,561) (699,924)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income ..................... 5,850 73,969 99,958
Interest expense .................... (123,800) (6,877) (6,460)
Debt issuance costs ................. (48,620) -- --
Loss on investments ................. -- -- (44,647)
Unrealized gain on investment ....... 1,480 -- --
Gain (loss) on sale of assets ....... (3,542) (2,880) --
------------ ------------ ------------
Total Other Income (Expenses) .... (168,632) 64,212 48,851
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .................................. (12,283,248) (754,349) (651,073)
EXTRAORDINARY ITEM (Note 9) ............ -- -- 123,082
------------ ------------ ------------
NET LOSS ............................... $(12,283,248) $ (754,349) $ (527,991)
============ ============ ============
BASIC LOSS PER COMMON SHARE ............ $ (0.365) $ (0.024) $ (0.020)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING .................... 33,653,953 31,133,813 26,252,631
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL IN STOCK
---------------------- --------------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
----------- -------- ---------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 .......... 22,509,293 $ 22,509 1,075,558 $ 1,076 $ 13,893,728 $ (2,385,000) $(1,075,218)
Common stock issued for cash
at $0.65 per share as a result
of a prior year placement ...... 405,562 406 -- -- 264,595 -- --
Common stock issued for cash
at $1.00 per share ............. 550,000 550 -- -- 549,450 -- --
Common stock issued for cash
at $1.50 per share ............. 2,610,000 2,610 -- -- 3,912,390 -- --
Common stock issued upon
conversion of preferred shares . 2,700,485 2,700 (540,096) (541) (2,159) -- --
Common stock issued for
retirement of notes payable at
$2.31 per share ................ 140,383 140 -- -- 325,137 -- --
Common stock issued for oil
and gas properties at $1.50 per
share .......................... 150,000 150 -- -- 224,850 -- --
Common stock issued for services
rendered at $1.50 per share .... 77,982 78 -- -- 116,895 -- --
Cancellation of common stock .... (565,833) (565) -- -- 565 -- --
Common stock issued in connection
with a settlement with prior
shareholders (Note 6) .......... 350,000 350 -- -- (350) -- --
----------- -------- ---------- -------- ------------ ------------- -----------
Balance Forward ................. 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $ (2,385,000) $(1,075,218)
----------- -------- ---------- -------- ------------ ------------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL IN STOCK
----------------------- ------------------ EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
----------- -------- -------- ------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Forward .................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $ (2,385,000) $(1,075,218)
Cash received on subscriptions
receivable ........................ -- -- -- -- -- 2,385,000 --
Offering costs related to sales of
common stock ...................... -- -- -- -- (235,000) -- --
Net (loss) for the year ended
June 30, 1998 ..................... -- -- -- -- -- -- (527,991)
----------- -------- -------- ------ ------------ ------------- -----------
Balance, June 30, 1998 ............. 28,927,872 28,928 535,462 535 19,050,101 -- (1,603,209)
Common stock issued for cash at
approximately $2.32 per share ..... 1,663,572 1,664 -- -- 3,853,336 -- --
Common stock issued upon
conversion of preferred shares .... 2,167,330 2,167 (433,467) (433) (1,734) -- --
Common stock issued for oil and
gas properties at $3.50 per share . 194,000 194 -- -- 678,805 -- --
Common stock issued in lieu of
accounts payable at $3.51 per share 39,441 39 -- -- 138,425 -- --
Common stock issued for services
at approximately $2.18 per share .. 138,223 138 -- -- 301,030 -- --
Cancellation of common stock ....... (252,050) (252) -- -- 252 -- --
----------- -------- -------- ------ ------------ ------------- -----------
Balance Forward .................... 32,878,388 $ 32,878 101,995 $ 102 $ 24,020,215 $ -- $(1,603,209)
----------- -------- -------- ------ ------------ ------------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL IN STOCK
-------------------- ------------------ EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
---------- ------- -------- ------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Forward ........................ 32,878,388 $32,878 101,995 $ 102 $ 24,020,215 $ -- $ (1,603,209)
Offering costs related to sales of
common stock .......................... -- -- -- -- (333,135) -- --
Net (loss) for the year ended
June 30 1999 .......................... -- -- -- -- -- -- (754,349)
---------- ------- -------- ------ ------------ ------------- ------------
Balance, June 30, 1999 ................. 32,878,388 32,878 101,995 102 23,687,080 -- (2,357,558)
Preferred stock issued for cash at
$1.00 per share ....................... -- -- 400,000 400 399,600 -- --
Common stock issued for cash at
$0.75 per share ....................... 133,334 134 -- -- 99,866 -- --
Common stock issued upon
conversion of preferred shares ........ 1,702,500 1,702 (460,496) (460) (1,242) -- --
Common stock issued in
satisfaction of penalty fee at
an average price of $0.46 per
share (Note 3) ........................ 583,659 584 -- -- 269,418 -- --
Offering costs related to sale
of preferred stock .................... -- -- -- -- (58,933) -- --
Net (loss) for the year ended
June 30, 2000 ......................... -- -- -- -- -- -- (12,283,248)
---------- ------- -------- ------ ------------ ------------- ------------
Balance, June 30, 2000 ................. 35,297,881 $35,298 41,499 $ 42 $ 24,395,789 $ -- $(14,640,806)
========== ======= ======== ====== ============ ============= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................... $(12,283,248) $ (754,349) $ (527,991)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ................... 464,688 202,578 331,037
Less amount capitalized to oil and gas properties (51,118) (51,339) (55,234)
Common stock issued for services rendered ....... -- 301,168 116,973
Loss on sale of asset ........................... 3,542 -- --
Asset impairment loss ........................... 11,643,262 -- --
(Gain) loss on investment ....................... (1,480) -- 44,647
Changes in operating assets and liabilities:
(Increase) decrease in receivables .............. (90,781) (64,182) 62,005
(Increase) decrease in receivables-related party 1,626 (1,626) 9,702
(Increase) decrease in other current assets ..... (6,058) 99,516 (49,134)
(Increase) in other assets ...................... (113,447) -- --
(Increase) decrease in deposits ................. -- (2,250) --
Increase (decrease) in accounts payable ......... (11,815) (929,264) 1,820,893
Increase (decrease) in accrued liabilities and
other current liabilities ...................... 817,725 (72,490) 25,753
------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities ......................... 372,896 (1,272,238) 1,778,651
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit on sale of assets .......................... 750,000 -- --
Purchase of investments ............................ -- -- (47,947)
Sale of assets ..................................... 10,000 2,880 --
Expenditures for oil and gas properties ............ (2,730,795) (3,934,076) (7,708,841)
Expenditures for other property and equipment ...... (9,327) (181,944) (7,959)
------------ ------------ ------------
Net Cash (Used) by Investing Activities ....... (1,980,122) (4,113,140) (7,764,747)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term
liabilities ....................................... 1,740,000 -- --
Proceeds from issuance of preferred and
common stock ...................................... 500,000 3,855,000 4,730,001
Expenditures for offering costs .................... (58,933) (333,135) (235,000)
Cash received on stock subscription ................ -- -- 2,385,000
Payments on notes payable and long-term
liabilities ....................................... (425,894) (154,126) (811,994)
------------ ------------ ------------
Net Cash Provided by Financing Activities ..... $ 1,755,173 $ 3,367,739 $ 6,068,007
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
-------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH .................... $ 147,947 $ (2,017,639) $ 81,911
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ................................. 1,196,566 3,214,205 3,132,294
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR ........................................... $ 1,344,513 $ 1,196,566 $ 3,214,205
============ ============ ============
CASH PAID FOR:
Interest ........................................ $ 3,800 $ 41,805 $ 40,020
Income taxes .................................... $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisition of oil
and gas properties ............................ $ -- $ 678,999 $ 225,000
Common stock issued to retire notes payable
and accounts payable .......................... $ -- $ 138,464 $ 325,277
Notes payable and capital lease obligations
for acquisition of other property and equipment $ -- $ -- $ 13,159
Common stock issued in satisfaction of
penalty fees .................................. $ 270,002 $ -- $ --
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 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 5).
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 120,000 shares of common stock of the Company, a 1% overriding
royalty on the Pakistan Project (see Note 2) 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 (the Companies) are principally in the
business of acquisition, exploration, development and production of oil
and gas properties.
b. Going Concern
The accompanying consolidated financial statements have been prepared
assuming the Companies will continue as going concerns. The Companies
have experienced recurring losses and negative cash flows from
operations which raise substantial doubt about the Companies' ability
to continue as going concerns.
As discussed in Note 2, the Companies entered into an Asset and Stock
Purchase and Sale Agreement on May 9, 2000 with Northern Lights Energy,
Ltd., to sell the U.S. oil, gas and mineral leases, all related
equipment to operate the leases and the stock in and to the operating
subsidiary, The American Energy Operating Corp., for a total of
$4,000,000.
F-12
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
b. Going Concern (Continued)
As of June 30, 2000 as well as the date of our audit report, a total of
$750,000 of the $4,000,000 purchase price had been received by the
Companies and thus the sale has not been completed. The continuation of
future operations in Pakistan is dependent upon receiving the remaining
$3,250,000 from the sale. If the sale is not completed, the $750,000
deposit must be returned. Once the U.S. operations are sold, the
Company intends to focus primarily on the development of the Pakistan
concession with its subsidiary, Hycarbex.
The recovery of assets and continuation of future operations are
dependent upon the Companies' ability to obtain additional debt or
equity financing, the sale of the U.S. operations 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 an
increase in revenues from oil and gas production during the coming year
if the U.S. operations are not sold.
c. Accounting Methods
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a June 30
year-end.
Oil and Gas Properties-
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 years ended June 30, 2000 and
1999 was $40,000 and $52,842, respectively. In addition, depreciation
capitalized during the years ended June 30, 2000 and 1999 totaled
$51,118 and $51,339, respectively. 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, 2000, 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 $386,857 and $133,523
has been recognized in the accompanying consolidated financial
statements for the years ended June 30, 2000 and 1999, respectively, on
proved and impaired or abandoned oil and gas properties.
F-13
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 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 years ended June 30, 2000, 1999 and 1998, the Companies
incurred total depreciation of $77,831, $69,055 and $60,110,
respectively.
In accordance with full cost accounting, $51,118 and $51,339 of
depreciation was capitalized as costs of oil and gas properties for the
years ended June 30, 2000 and 1999, respectively, as previously
discussed.
g. Basic Loss Per Share of Common Stock
FOR THE YEARS ENDED
JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Loss (numerator) ... $(12,283,248) $ (754,349) $ (527,991)
Shares (denominator) 33,653,953 31,133,813 26,252,631
------------ ------------ ------------
Per share amount ... $ (0.365) $ (0.024) $ (0.020)
============ ============ ============
The basic loss per share of common stock is based on the weighted
average number of shares issued and outstanding during the period of
the consolidated financial statements. Stock warrants and preferred
shares prior to conversion are not included in the basic calculation
because their inclusion would be antidilutive, thereby reducing the net
loss per common share.
h. Concentrations of Risk
From time to time, the cash balances in the Companies bank accounts
exceed Federally insured limits. At June 30, 2000 and 1999, the
balances in excess of the limits were approximately $1,244,513 and
$1,096,566, respectively. Of these balances, approximately $1,206,228
and $594,256, respectively, was in the country of Pakistan.
F-14
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Foreign Operations
A significant portion of the assets of the Companies relate to an oil
and gas concession located in the country of Pakistan (see Note 2).
Pakistan has experienced recently, or are experiencing currently,
economic or political instability. Hyperinflation, volatile exchange
rates and rapid political and legal change, often accompanied by
military insurrection, have been common in these and certain other
merging markets in which the Companies are conducting operations. The
Companies may be materially adversely affected by possible political or
economic instability in Pakistan. The risks include, but are not
limited to terrorism, military repression, expropriation, changing
fiscal regimes, extreme fluctuations in currency exchange rates, high
rates of inflation and the absence of industrial and economic
infrastructure. Changes in drilling or investment policies or shifts in
the prevailing political climate in Pakistan could adversely affect the
Companies business. Operations may be affected in varying degrees by
government regulations with respect to production restrictions, price
controls, export controls, income and other taxes, expropriation of
property, maintenance of claims, environmental legislation, labor,
welfare benefit policies, land use, land claims of local residents,
water use and well safety. The effect of these factors cannot be
accurately predicted.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
k. Debt Issuance Costs
In connection with the receipt of the $1,100,000 note payable, the
Company incurred costs of $162,067. The Company capitalized these costs
and amortizes these costs over the term of the note payable (2.5 years)
as follows:
JUNE 30,
2000
---------
Total costs incurred ...................... $ 162,067
Accumulated amortization .................. (48,620)
---------
Net Debt Issuance Costs ................... $ 113,447
=========
F-15
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
l. Long Lived Assets
All long lived assets are evaluated yearly for impairment per SFAS 121.
Any impairment in value is recognized as an expense in the period when
the impairment occurs.
m. Changes in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption
of this statement had no material impact on the Company's 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.
During the years ended June 30, 2000 and 1999, the Companies expended
funds in exploration and development activities and work over of
existing wells on those properties and other oil and gas properties
acquired during those years.
On March 10, 1995, American Energy - Deckers Prairie, Inc., a
wholly-owned subsidiary of the Company, entered into an agreement with
an unrelated entity to accept the transfer of all rights, title and
interest to certain oil and gas leases located in the State of Texas
along with all personal property and equipment located on and used in
connection with those leases. In exchange, American Energy - Deckers
Prairie, Inc. assumed all contractual covenants related to those oil
and gas leases. The selling entity had previously sold working
interests in these oil and gas leases totaling from 33% to 48%
depending on the property.
As part of the acquisition agreement, American Energy - Deckers
Prairie, Inc. agreed to purchase the working interests from the
individual holders for the amount of their original investment plus
interest at 7% from the date of their investment, evidenced by a
"Drilling Investor Note" to each investor, due and payable on September
15, 1995. Each working interest holder has the option to retain his
working interest or sell it to American Energy - Deckers Prairie, Inc.
F-16
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 2 - OIL AND GAS PROPERTIES (Continued)
At June 30, 1997, the Companies had been unable to satisfy this
obligation and the financial guaranty bond securing the payment of the
Drilling Investor Notes had not been enforced, although the Companies
intended to satisfy this obligation. Most of the obligation was settled
during the year ended June 30, 1998 by issuing 140,383 shares of common
stock valued at $325,278. Accordingly, the value of the acquisition of
these working interest has been included in the accompanying
consolidated financial statements as part of the cost of oil and gas
properties along with the corresponding remaining liability (See Note
3).
On April 6, 1995, Hycarbex entered into a concession agreement with and
was issued an exploration license by the President and the Federal
Government of the Islamic Republic of Pakistan. This agreement and
license relate to oil and gas property known as the "Jacobabad Block"
(Block 2768-4) or the Pakistan concession and entitles Hycarbex to a
95% working interest in the property. The exploration license was
originally issued for a period of three years which was subsequently
extended for an additional year. During the first year Hycarbex
expended the minimum required $26,000 for processing and interpreting
data already available. In the second year which was included in the
year ended June 30, 1997, Hycarbex performed the minimum seismic work,
evaluating and interpreting the data from the work performed. As part
of the agreement, Hycarbex was to drill one exploratory well prior to
April 1998 to an agreed upon depth. During May 1998, the Company
obtained preliminary results of its first Middle Indus Basin
exploratory well in Pakistan. The well was spudded during March 1998
and was drilled to total depth during May 1998. A second exploratory
well was drilled during the year ended June 30, 1999. This well was
subsequently plugged because of encountered downhole and mechanical
conditions short of the target depth. As a result, the well bore was
plugged and the drill site moved. A replacement well was spudded on
April 5, 1999 which also was plugged due to encountering a combination
of dangerous levels of hydrogen sulfide gas and loss of circulation
while drilling and testing the well. The well was plugged to prevent
possible further release of dangerous gas. The Company does not
believe, however, that these results will affect the ultimate success
of the exploration efforts. The Company intends to pursue further plans
for the drilling of another exploratory well upon completion of
geological and geophysical analysis of the test results. Having
completed its three years of work requirements and initial license
term, the Company, per the provisions of the original exploration
license, relinquished 20% of the acreage originally held under the
concession, thereby retaining approximately one million acres for
further exploration and development. The relinquished acreage is not
part of the potentially productive structure to be evaluated by the
Company on the Jacobabad concession.
Effective May 29, 1999, the Government of Pakistan granted an
additional six-month extension in the existing terms of the Jacobabad
Exploration License so as to enable the Company to drill a substitute
well for the previously abandoned wells with a commitment and
obligation to expend an additional $1,100,000. The Company was granted
a second renewal of the license to November 28, 2000 to drill an
exploration well. This second renewal period is dependent on the
Company fulfilling its obligations of drilling the replacement well.
The Company is currently working on the arrangements to begin drilling
the well. The Company is required under the concession agreement to
have on deposit with its bank a total of $2,200,000 to cover the
minimum expenditure obligation with respect to the replacement well and
the exploration well for the second renewal period.
F-17
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 2 - OIL AND GAS PROPERTIES (Continued)
The Company currently is in default of this obligation. The Federal
Government of the Islamic Republic of Pakistan granted the extension
under the condition that the Company immediately start seismic survey
in the block and provide a copy of the executed contract with the
service contractor. The Company, as of the date of our audit report, is
working on providing the necessary documents and performing the
necessary work in order to be in compliance with the agreement. Any
default in meeting the requirements, however, prior to the expiration
of the renewal license, would result in the automatic termination of
the Jacobabad License and revocation of the Jacobabad Petroleum
Concession Agreement and recovery of liquidated damages of
approximately $1,100,000.
On May 15, 1996, an unrelated entity acquired an option to purchase a
1% overriding royalty interest in the Pakistan concession.
Consideration of $3,800 was paid and the option exists for the life of
the Pakistan concession. The purchase price of the 1% overriding
royalty interest is $100,000. This option had not been exercised as of
June 30, 2000.
As part of compensation arrangements with key management, the Company
established a royalty pool consisting of a 1% overriding royalty on the
Pakistan concession upon discovery and establishment of production.
The concession agreement also required Hycarbex to provide a bank
guaranty for $551,000 which was done by an unrelated surety company.
That surety company received common stock of the Company as
compensation for providing the bond.
In May 1997, the Companies entered into an agreement to acquire certain
oil and gas properties and equipment in the state of Texas for a total
of $1,000,000 from an unrelated party. $75,000 cash was paid with the
balance of $925,000 to be paid over a maximum of four years with a
minimum of $175,000 the first year and $250,000 per year thereafter
until paid in full (see Note 3). This liability may be paid during each
year in the form of $10,000 per drill site and certain royalty
payments.
During the year ended June 30, 1997, the Companies received $800,000 as
a joint venture investment in certain of the Companies oil and gas
properties. In June 1997, the Companies entered into agreements
representing $500,000 of the joint venture investors to repurchase
their interests for a total of 250,000 shares of common stock and notes
payable totaling $389,000 (see Notes 6 and 3, respectively). During the
year ended June 30, 1998, the Companies acquired the remaining $300,000
joint venture interest for 150,000 shares of common stock (valued at
$1.50 per share) and a note payable of $121,564 with additional
payments made to that individual prior to the consummation of that
transaction.
F-18
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 2 - OIL AND GAS PROPERTIES (Continued)
On May 9, 2000, the Companies entered into an Asset and Stock Purchase
and Sale Agreement with Northern Lights Energy, Ltd. to sell the U.S.
oil, gas and mineral leases, all related equipment to operate such
leases, and 100% of the outstanding stock of the operating subsidiary,
The American Energy Operating Corp., for a total of $4,000,000. As of
June 30, 2000 as well as the date of our audit report, a total of
$750,000 of the $4,000,000 had been received by the Company which has
been recorded in the accompanying consolidated balance sheet as a
deposit on the sale of assets as of June 30, 2000. The Company is
uncertain as to when or if the remaining $3,250,000 will be received,
and accordingly, has not recorded the sale effective until the
remaining funds are received.
Pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived
Assets", the Company has recorded an asset impairment loss of
$11,643,262 for the year ended June 30, 2000 summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Capitalized oil and gas properties included as part of the sale ...... $ 16,247,874
Accumulated amortization on capitalized costs ........................ (824,307)
Property and equipment included as part of the sale .................. 219,695
------------
Total assets included in the sale .................................... 15,643,262
Proposed proceeds of sale ............................................ (4,000,000)
------------
Recognized loss on impairment ........................................ $ 11,643,262
============
</TABLE>
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of
June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 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 assets ............................... $ 132,140 $ 539,404
Original issue discount note payable with a face value of
$1,500,000 bearing no interest, due March 17, 2002, secured by
certain oil and gas properties (see note below) ..................... 1,500,000 --
Notes payable to various individuals, non-interest
bearing, due on demand, unsecured ................................... 610,000 --
Note payable to Company's President,
non-interest bearing, due on demand, unsecured ...................... 30,000 --
8.5% note payable, due in monthly installments of
$950 for 36 months; secured by two vehicles ......................... -- 9,069
------------ ------------
Balance Forward ...................................................... $ 2,272,140 $ 548,473
------------ ------------
</TABLE>
F-19
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Balance Forward ............................................ $ 2,272,140 $ 548,473
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 ..................... 2,310,257 586,590
Less: unamortized discount ................................. (294,843) (54,842)
------------ ------------
Net notes payable and long-term debt ....................... 2,015,414 531,748
Less: related party note ................................... (30,000) --
Less: current portion ...................................... (765,414) (324,347)
------------ ------------
Long-Term Liabilities ...................................... $ 1,220,000 $ 207,401
============ ============
</TABLE>
In connection with the $1,500,000 note payable, the Company has the
right to call the loan at its face value of $1,500,000. When the
Company calls the note, the investor has 20 days to exercise the
conversion of the note into shares of common stock at $1.00 per share
or receive payment of funds. The Company originally agreed to arrange
third party escrow of 2,000,000 free-trading shares of common stock to
secure the Company's covenant to register the stock. If the shares were
not registered within 90 days, the Company further agreed to pay a
penalty of 3% of the face value of the note, in either common stock or
cash for each full month the Registration Statement is not declared
effective. Accordingly, the Company issued 583,659 shares of common
stock valued at $270,002 as a result of this penalty fee for the year
ended June 30, 2000.
The following are the scheduled annual repayments of notes payable and
long-term debt:
YEAR ENDING JUNE 30,
2001 ................................... $ 795,414
2002 ................................... 1,220,000
2003 ................................... --
2004 ................................... --
2005 ................................... --
2006 and thereafter .................... --
----------
$2,015,414
==========
Discounts on non-interest bearing notes payable have been determined
using an imputed interest rate ranging from 10% to 15%. These discounts
have been reflected as reductions in notes payable and long-term debt
in the accompanying consolidated financial statements.
F-20
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 4 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the years
ended June 30, 1998 and 1997 relating to office equipment and portable
buildings used in the field which have been accounted for as capital
leases. These leases have terms of 32 to 60 months with total monthly
lease payments of $662.
The following are the scheduled annual payments on these capital
leases:
YEAR ENDING JUNE 30,
2001 .......................................... $ 5,477
2002 .......................................... 3,355
2003 .......................................... 2,278
2004 .......................................... --
2005 .......................................... --
----------
Total minimum lease commitments ......................... 11,110
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ............. (600)
----------
Net minimum lease payments .............................. 10,510
Less: amount representing interest ...................... (1,640)
----------
Total capital lease obligations ......................... 8,870
Less: current portion ................................... (2,627)
----------
Total Long-Term Capital Lease Obligations ............... $ 6,243
==========
NOTE 5 - CONVERTIBLE VOTING PREFERRED STOCK
On September 22, 1994, the board of directors of the Company approved
the issuance of 2,074,521 shares of the authorized preferred stock of
the Company, to be issued in a series, to be known as the "Convertible
Voting Preferred Stock, $.025 Non-Cumulative Dividend". A
corresponding certificate of issuance was filed with the State of
Nevada. Holders of these shares are entitled to a noncumulative,
preferential dividend of $.025 per share per annum, when declared by
the board of directors, payable from the surplus, net profits or assets
of the Company. At any time after September 30, 1999, the board of
directors of the Company may elect to redeem this Convertible Voting
Preferred Stock at a redemption price of $0.50 per share. Each share of
this Convertible Voting Preferred Stock shall be convertible into five
shares of the common stock of the Company.
Under the conversion privileges of these shares, the holder may elect
to convert 20% of the Convertible Voting Preferred Stock prior to
September 30, 1995 and an additional 20% every year thereafter until
September 30, 1999. The right to convert shall terminate if not
exercised before September 30, 1999. At June 30, 2000, the remaining
41,499 preferred shares are no longer convertible. The Company has the
right to redeem these shares for $0.50 per share. Each share of this
Convertible Voting Preferred Stock shall be entitled to one shareholder
vote. These 2,074,521, shares were issued pursuant to the acquisition
by the Company of Simmons Oil Company, Inc. and its subsidiaries. One
share of Convertible Voting Preferred Stock was issued for every four
shares of common stock of Simmons Oil Company, Inc.
F-21
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 5 - CONVERTIBLE VOTING PREFERRED STOCK (Continued)
During the years ended June 30, 2000, 1999 and 1998, holders of shares
of the Convertible Voting Preferred Stock elected to convert their
shares into common stock of the Company in accordance with the
conversion provisions. Accordingly, 60,496 shares of convertible voting
preferred stock were converted into 302,500 shares of the Company's
common stock in 2000, 433,467 shares of convertible voting preferred
stock were converted into 2,167,330 shares of the Company's common
stock in 1999 and 540,096 shares of convertible voting preferred stock
were converted into 2,700,485 shares of the Company's common stock in
1998 (Note 6).
During the year ended June 30, 2000, the Company issued 400,000 Series
F Convertible Preferred Shares for total proceeds of $400,000. These
400,000 preferred shares were later converted into 1,400,000 shares of
common stock at a conversion ratio of 3.5 common shares.
NOTE 6 - COMMON STOCK
During the year ended June 30, 1998, 540,096 shares of convertible
voting preferred stock were converted into 2,700,485 shares of common
stock. During the year ended June 30, 1999, 433,466 shares of
convertible voting preferred stock were converted into 2,167,330 shares
of common stock. During the year ended June 30, 2000, 60,496 shares of
convertible voting preferred stock were converted into 302,500 shares
of common stock, and 400,000 shares of Series F convertible preferred
stock were converted into 1,400,000 shares of common stock (see Note
5).
As discussed in Note 2, an unrelated foreign entity assumed the
investment obligations of another entity in December 1995. In January
1996, the Companies received $500,000 from that foreign entity. In
accordance with the terms of the original and assumption agreement, the
$500,000 should be applied toward the acquisition of 500,000 shares of
the Company's common stock. This foreign entity defaulted on the
performance of the funding commitments and the 500,000 shares of common
stock associated with this transaction were canceled. During the year
ended June 30, 1998, the Company entered into a settlement agreement
with the original investors of the $500,000 and the Company issued
350,000 shares of its common stock in a preliminary settlement. 252,050
of these shares were subsequently canceled during the year ended June
30, 1999.
During the year ended June 30, 1998, the Company sold 3,565,562 shares
of common stock for which the Company received $4,730,001 at an average
of $1.33 per share. The Company incurred costs associated with the sale
of common stock of $235,000 which has been reflected as a reduction on
capital in excess of par value in the accompanying consolidated
financial statements.
An additional 10,000 shares of common stock were issued during the year
ended June 30, 1998 as payment for services rendered. These shares have
been valued at $1.50 per share for a total of $15,000.
F-22
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 6 - COMMON STOCK (Continued)
140,383 shares of common stock were issued during the year ended June
30, 1998 to retire $325,277 of notes payable at $2.31 per share and
were recorded as shares issued for services since no cash was received
in the transaction.
During the year ended June 30, 1998, the Company issued 150,000 shares
of common stock in conjunction with the buyout of certain joint venture
interests in oil and gas properties. These shares have been valued at
$1.50 per share or $225,000.
In conjunction with a settlement arrangement with a former officer and
shareholder, the Company canceled 565,833 shares of common stock
originally issued to that individual.
67,982 shares of common stock were issued during the year ended June
30, 1998 in conjunction with the exercise of 100,000 common stock
warrants. The warrants were recorded at $1.50 per share and were
recorded as shares issued for services since no cash was received in
the transaction.
During the year ended June 30, 1999, the Company sold 1,663,572 shares
of common stock for which the Company received $3,855,000 at an average
of $2.32 per share. The Company incurred costs associated with the sale
of common stock of $333,135 which has been reflected as a reduction on
capital in excess of par value in the accompanying consolidated
financial statements.
194,000 shares of common stock were issued in conjunction with the
buyout of certain joint venture interests in oil and gas properties
during the year ended June 30, 1999. These shares have been valued at
$3.50 per share or $678,999.
39,441 shares of common stock were issued in lieu of outstanding
accounts payable during the year ended June 30, 1999. These shares have
been valued at $3.51 per share or $138,464. In addition, 138,223 shares
of common stock were issued for services rendered. These shares have
been valued at $2.18 per share or $301,168.
In conjunction with a settlement arrangement, the Company canceled
252,050 shares of common stock originally issued.
During the year ended June 30, 2000, the Company issued 133,334 shares
of common stock at $0.75 per share for a total of $100,000. As
discussed in Note 3, the Company issued 583,659 shares of common stock
valued at $270,002 as a result of a penalty fee related to a late
Registration filing for certain shares of stock.
F-23
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 7 - COMMON STOCK WARRANTS
Prior to the year ended June 30, 2000, the Company had 16,030,000
outstanding warrants. In the current fiscal year ended June 30, 2000,
the Company issued a total of 3,575,000 warrants at varying exercise
prices and expiration dates. 8,180,000 warrants expired unexercised,
leaving a remaining balance of 11,425,000 warrants outstanding as of
June 30, 2000. A recap of the various warrants are described below.
The Board of Directors of the Company have granted to officers and
directors 7,730,000 warrants to acquire common shares of the Company
under the following conditions:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Bradley J. Simmons 200,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
450,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
400,000 1/6/2006 $3.00
200,000 1/6/2006 $1.56
---------
Total 2,275,000
Gerald N. Agranoff 125,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
350,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
---------
Total 1,500,000
Linda F. Gann 5,000 5/1/2005 $1.25
55,000 6/18/2005 $3.97
10,000 12/9/2005 $4.03
5,000 5/4/2006 $1.56
---------
Total 75,000
Don D. Henrich 30,000 3/15/2001 $2.00
25,000 3/15/2001 $4.00
125,000 6/29/2005 $5.31
200,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
400,000 1/6/2006 $3.00
200,000 1/6/2006 $1.56
---------
Total 1,480,000
</TABLE>
F-24
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 7 - COMMON STOCK WARRANTS (Continued)
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Hooman Zadeh 125,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
400,000 1/6/2006 $3.00
150,000 1/6/2006 $1.56
---------
Total 925,000
Gilbert Torner 125,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
400,000 1/6/2006 $3.00
100,000 1/6/2006 $1.56
---------
Total 875,000
Malfred Welser 125,000 3/4/2006 $2.50
150,000 1/6/2006 $1.56
---------
Total 275,000
Chuck Valeschini 125,000 3/17/2007 $0.50
---------
George Von Canal 125,000 3/17/2007 $0.75
---------
Eli Bebort 75,000 5/17/2006 $1.50
---------
Grand Total 7,730,000 Warrants
</TABLE>
Management had previously received 78,608 warrants which expired
unexercised in April, 1998.
In conjunction with the sale of common stock discussed in Note 6, the
Company has issued warrants for 9,325,000 shares of common stock.
These warrants have been issued with a grant date of August 12, 1996,
exerciseable at $1.50 per share until June 1, 1998 at which time the
exercise price increased to $3.00 per share until August 12, 1999, at
which time the warrants expired. During the year ended June 30, 1998,
a total of 2,610,000 of these warrants were exercised at $1.50 per
share, leaving a remaining balance of 6,715,000 warrants, exercisable
at $3.00 per share, unexercised at June 30, 1998. An additional
135,000 of these warrants were exercised at $3.00 per share during the
year ended June 30, 1999. The remaining balance of 6,580,000 warrants
exercisable at $3.00 per share expired unexercised on August 12, 1999.
During the year ended June 30, 1998, the Company established a three
member "Disclosure Committee" comprised of certain of the Company's
attorneys and market relations consultants. Each of these parties have
received 50,000 warrants, making a total of 150,000 warrants issued,
exercisable at $1.25 per share which expire in May, 2005.
F-25
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
NOTE 7 - COMMON STOCK WARRANTS (Continued)
Also during the year ended June 30, 1998, the Company engaged certain
technical and market relations professional consultants in various
contracts. In conjunction with retaining their services, the Company
issued 200,000 warrants ranging in exercise prices from $2.31 to $3.97
per share which expire in May, 2005.
During the year ended June 30, 1999, the Company issued 845,000
warrants ranging in exercise prices from $1.50 to $4.03 per share.
These warrants were issued to various consultants for services
rendered and to certain employees as a bonus.
During the year ended June 30, 2000, the Company issued 225,000
warrants ranging in exercise prices from $0.75 to $1.00 per share.
These warrants were issued to various consultants for services
rendered. In addition, the Company issued 1,500,000 warrants
exercisable at $1.00 per share which expired unexercised after 60
days. The Company also issued an additional 1,600,000 warrants
exercisable at $1.00 per share. 400,000 expire on September 15, 2001,
400,000 expire on September 15, 2002, 400,000 expire on September 15,
2003 and 400,000 expire on September 15, 2004.
The exercise price of the warrants to the officers, directors,
attorneys, consultants, and other parties approximates fair market
value of the Company's common stock on the date the warrants were
granted.
NOTE 8 - INCOME TAXES
Through June 30, 2000, the Companies have sustained net operating loss
carryforwards totaling approximately $3,000,000 that may be offset
against future taxable income through 2020. No tax benefit has been
reported in the accompanying consolidated financial statements,
because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
NOTE 9 - EXTRAORDINARY ITEMS
During the year ended June 30, 1998, the Company recorded an
extraordinary gain of $123,082 related to the forgiveness of debt in
the settlement of various notes payable and an account payable.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 2, the Companies defaulted on the payment of the
Drilling Investor Notes due and payable September 15, 1995 related to
the acquisition of oil and gas leases in Harris County, Texas.
Although these notes are secured by a financial guarantee bond, there
is no assurance that the bond can be enforced. The Companies intend to
settle these obligations, along with the related accrued interest. The
ultimate effect on the Companies and outcome of the satisfaction of
this obligation cannot be determined.
F-26
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000, 1999 and 1998
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. In the event of the sale of the Texas based
assets, this obligation is expected to be assumed by the purchaser.
The Companies have minimum lease and royalty obligations associated
with their oil and gas properties of $77,300 annually, see also Note
2.
During the year ended June 30, 1997, the Board of Directors authorized
the establishment of a Management Royalty Pool equal to 1% of the
revenues from domestic oil and gas production. 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.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the following significant transactions
occurred:
a. The Company issued 8,152,108 shares of common stock at an average
price of $0.30 per share for total proceeds of $2,445,632.
b. The Company issued 1,391,180 shares of common stock in lieu of
outstanding debt at an average price of $0.30 per share for a total
of $474,879.
F-27
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2000 and 1999
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Proved oil and gas producing properties and related
lease and well equipment ........................ $ 1,481,220 $ 1,453,990
Accumulated depreciation and depletion ............ (386,857) (133,523)
------------ ------------
Net Capitalized Costs ............................. $ 1,094,363 $ 1,320,467
============ ============
</TABLE>
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
FOR THE YEARS ENDED
JUNE 30,
---------------------------
2000 1999
------------ ------------
Acquisition of Properties
Proved ............................ $ -- $ 678,999
Unproved .......................... -- --
Exploration Costs .................... 1,249,575 2,480,086
Development Costs .................... 1,481,220 1,453,990
The Company does not have any investments accounted for by the equity
method.
(3) Results of Operations for
Producing Activities
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales ............................................ $ 1,823,276 $ 417,136
Production costs ................................. (592,502) (163,838)
Depreciation and depletion ....................... (386,857) (133,523)
------------ ------------
Results of operations for producing activities
(excluding corporate overhead and interest costs) $ 843,917 $ 119,775
============ ============
</TABLE>
F-28
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2000 and 1999
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
<TABLE>
<CAPTION>
OIL GAS
BBL MCF
---------- ----------
<S> <C> <C>
Proved developed and undeveloped reserves:
Balance, June 30, 1999 ..................................... 3,446,890 --
Change in estimates ...................................... (373,267) --
Production ............................................... (73,195) --
---------- ----------
Balance, June 30, 2000 ..................................... 3,000,428 --
========== ==========
<CAPTION>
OIL GAS
BBL MCF
---------- ----------
Proved developed reserves:
Beginning of the year ended June 30, 2000 ................ 1,105,470 --
End of the year ended June 30, 2000 ...................... 702,508 --
</TABLE>
During the year ended June 30, 2000, the Company had reserve studies
and estimates prepared on the various properties acquired and
developed. The difficulties and uncertainties involved in estimating
proved oil and gas reserves makes comparisons between companies
difficult. Estimation of reserve quantities is subject to wide
fluctuations because it is dependent on judgmental interpretation of
geological and geophysical data.
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At June 30, 2000
THE AMERICAN
ENERGY GROUP
LTD. AND
SUBSIDIARIES
------------
Future cash inflows .................................... $ 69,009,859
Future production and development costs ................ (12,531,500)
------------
Future net inflows before income taxes ................. 56,478,359
Future income tax expense .............................. (3,962,740)
------------
Future net cash flows .................................. 52,515,619
10% annual discount for estimated timing of cash flows . (11,600,599)
------------
Standardized measure of discounted future net cash flows $ 40,915,020
============
F-29
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2000 and 1999
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and changes
in the standardized measure of discounted future net cash flows have
their foundation in engineering estimates of future net revenues that
are derived from proved reserves and with the assumption of current
pricing and current costs of production for oil and gas produces in
future periods. These reserve estimates are made from evaluations
conducted by Reuven Hollo, Ph.D., a registered professional engineer
with Sigma Energy Corporation, of such properties and will be
periodically reviewed based upon updated geological and production
data . Estimates of proved reserves are inherently imprecise. The
above standardized measure does not include any restoration costs due
to the fact the Company does not own the land.
Subsequent development and production of the Company's reserves will
necessitate revising the present estimates. In addition, information
provided in the above schedules does not provide definitive
information as the results of any particular year but, rather, helps
explain and demonstrate the impact of major factors affecting the
Company's oil and gas producing activities. Therefore, the Company
suggests that all of the aforementioned factors concerning assumptions
and concepts should be taken into consideration when reviewing and
analyzing this information.
F-30
