UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended: DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _________________ to _________________
Commission File Number: 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 87-0448843
(state or other jurisdiction of IRS Employer
incorporation or organization) Identification Number)
P O BOX 489 SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip code)
(281)-346-2652
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report) Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check-mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
33,314,222 COMMON SHARES
SEC Form 10-Q
The American Energy Group, LTD. Page 1 of 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company has included herewith the unaudited consolidated financial
statements for the three months ended December 31, 1999 and 1998, presented with
the audited consolidated financial statements for the twelve months (Fiscal
Year) ended June 30, 1999. In the opinion of management, the Financial
Statements with the related notes reflect a fair presentation of the financial
condition of the Registrant for the period stated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL INFORMATION
The following information should be read in conjunction with the consolidated
financial statements of the Company, attached to this report.
As of December 31, 1999, the Company was engaged in its principal activity of
developmental drilling of new wells and reworking operations on existing wells
situated on its Texas oil and gas properties. The Company, through its wholly
owned subsidiary, Hycarbex-American Energy, Inc., likewise holds an oil and gas
exploration license near Jacobabad, Pakistan, but activities during the quarter
in connection with the Pakistan concession were limited to preparations for
drilling activities which will not occur until calendar year 2000, subject to
obtaining additional financing for the project. (See "PAKISTAN OPERATIONS")
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. (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 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,
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 2 of 9
<PAGE>
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.
TEXAS GULF COAST OPERATIONS
The Company currently owns and operates a total of 105 existing wellbores in two
producing oil fields, the Blue Ridge Field and the Boling Dome Field, each of
which are within fifty (50) miles of the Houston, Texas metropolitan area. Most
of these existing wells were drilled by other oil companies prior to the
Company's acquisition of the properties and were inactive at the time of such
acquisition. During the three (3) months ending December 31, 1999, the Company,
through its operating subsidiary, The American Energy Operating Corp., drilled
and successfully completed one (1) new developmental well in the Blue Ridge
Field. A second developmental well in the Blue Ridge Field was commenced prior
to the end of the quarter but has not yet been completed.
In addition to new developmental wells already drilled by the Company and
additional wells which management anticipates will be drilled in the future, the
Company has continued its ongoing efforts to rework and reactivate certain of
the existing inactive wells present on the Texas leases at the time of
acquisition. During the quarter ended December 31, 1999, an average of
twenty-six (26) of the Company's 105 wells were producing daily with varying
production ranging from 2 barrels per day to 55 barrels per day. A small number
of these producing wells flow without mechanical pumping but the majority
require mechanical pumping assistance. Both the number of producing wells and
the daily production from those wells remained stable throughout the quarter.
Moderate increases in the overall daily production rate occurred throughout the
quarter as a result of field work in progress. Quoted oil prices during the
quarter were as high as $27.00 per barrel and sales of oil by the Company during
the quarter averaged $22.67 per barrel net of severance taxes assessed by the
State of Texas.
Management anticipates that its domestic fields will continue to experience a
gradual increase in average daily production as additional existing wells are
reactivated and new developmental wells are drilled. Management believes that
such steadily increasing domestic production in an environment of favorable oil
prices will facilitate the generation of a portion of the operating capital
necessary to maintain its ongoing reactivation and development programs.
However, management believes that the Company must continue to raise additional
capital through outside sources in order for the reactivation and development
programs to progress, even if oil prices remain stable at a favorable level,
because several of the Texas leases require continuous development at specified
time 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
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 3 of 9
<PAGE>
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 June 1, 2000, subject to continued
compliance with all other license requirements. The Company's technical team is
evaluating the geological and geophysical data derived from these wells to
optimize the selection of future drillsites on the approximate one million acres
(fifteen hundred square miles) comprising the concession. Based upon the
preliminary testing of the initial well drilled in 1998, the Kharnhak #1, and
the geological information obtained while drilling the second and third
exploratory wells, 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 calendar 2000. The funds on deposit
are insufficient to cover the anticipated costs of drilling and completing the
well and must be supplemented by funds from outside loans and/or private sales
of securities. Management's efforts to raise the necessary capital during the
quarter ended December 31, 1999 were unsuccessful. In the event that continued
capital raising efforts are unsuccessful within the current fiscal quarter, the
company will not have sufficient funds to meet its current proposed Pakistan
exploration schedule. Such a lack of funds would likely cause the Company to
default on its drilling obligations, resulting in the forfeiture of the
Concession due to non-performance. (See "EVENTS AFFECTING CAPITAL RESOURCES AND
MATERIAL ASSETS")
RESULTS OF OPERATIONS
REVENUES AND NET OPERATING PROFITS
In the quarter ended December 31, 1999, the Company incurred a net operating
profit of $175,330, with oil and gas sales of $476,763 as compared to a net
operating loss of $248,883 on oil and gas sales of $107,724 in the prior fiscal
year's quarter ended December 31, 1998. This reflects an increase of
approximately Three Hundred Forty Percent (340%) in revenues and an increase of
approximately $424,213 in net operating profit in comparison with the prior
year's quarter ending December 31, 1998.
The increases noted above resulted from the increases in barrels of oil sold
from the Company's Texas properties at prices which were on the average, double
the price obtained in the quarter ending December 31, 1998. The average price
per barrel of oil sold by the Company in the quarter ending December 31, 1998,
was $11.28, as compared to $22.67 per barrel in the quarter ending December 31,
1999.
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 4 of 9
<PAGE>
OIL SALES
During the quarter ending December 31, 1999, the Company sold 20,058 barrels of
oil net to the Company's interest. The Company's net barrels of sales generated
$476,763 and reflects an average daily sales of 218 net barrels of oil per day
("BOPD"); net after deducting landowner royalties. This is a one hundred and
nine (109%) percent increase in net oil sales when compared with net oil sales
in the quarter ending December 31, 1998 of 9,550 barrels, or equivalent to 104
BOPD.
COMPARISON TO PREVIOUS QUARTER ENDED SEPTEMBER 30, 1999
As compared with the prior quarter ending September 30, 1999 in the current
fiscal year, the Company realized a fifty one (51%) percent increase in revenues
from oil sales, as well as an average net oil price increase of seventeen (17%)
percent, or $3.29 per barrel. Net operating profit increased from $20,550 in the
prior quarter ending September 30, 1999 to $175,330, reflecting a net increase
of Seven Hundred and Fifty Three (753 %) Percent in net operating profits from
the prior quarter.
NET INCOME
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, and including interest, reported a net profit of
$178,071 in the quarter ended December 31, 1999, versus a net loss of $244,480
in the prior fiscal year's quarter ended December 31, 1998 and versus a net
profit of $20,607 in the quarter ended September 30, 1999. Net income increased
by $422,551 from the prior year's comparative quarter, and by $157,464 from the
prior quarter in the current fiscal year. Increases in net daily production and
oil sale prices were the major contributing factors.
TOTAL ASSETS/SHAREHOLDER'S EQUITY
In the quarter ended December 31, 1999, Total Assets of the Company increased to
$24,501,692, In the quarter ended September 30, 1999, Total Assets were
$24,144,598. Net Shareholders Equity increased to $21,733,510 as of December 31,
1999, from $21,481,116 as of September 30, 1999. This increase is attributed to
the sale of common stock combined with net income.
EVENTS AFFECTING CAPITAL RESOURCES AND MATERIAL ASSETS
During the quarter ended December 31, 1999, the Company raised $100,000.00 in
working capital from the private sale of 133,334 shares of restricted common
stock. The net proceeds from this transaction were predominantly applied to the
Company's domestic drilling efforts during the quarter.
On October 12, 1999, Pakistani military troops seized control of state run
television and radio stations and major airports throughout the country
following what certain media reports described as a surprise dismissal of the
Army Chief of Staff, General Pervaiz Musharraf. Subsequently, the Government was
dismissed, the constitution was suspended, and the country was placed under
martial law. Subsequent to these governmental changes, the Minister and the
Secretary of the Ministry of Petroleum and Natural Resources were replaced. It
is uncertain whether these changes or any future changes within the Ministry or
other governmental posts will have a material affect, adverse or otherwise, upon
the
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 5 of 9
<PAGE>
Company's holdings and proposed operations in Pakistan. Given the recent
political events and the instabilities inherent in the current political
climate, there can be no assurance that additional political and economic
changes will not take place which materially adversely affect, or alternatively,
jeopardize the continuation of the Company's holdings and proposed operations in
Pakistan.
The Company's wholly owned subsidiary, Hycarbex-American Energy, Inc. has been
granted an extension until June 1, 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. Hycarbex has not complied
with these deposit requirements because of a lack of funds and efforts to raise
the funds to date through loans, equity placements or other means have been
unsuccessful. 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. Since the Company does not have the present ability to satisfy the
deposit requirement, a notice of default from the Pakistan Government could only
be cured by successfully raising the necessary funds from a sale of securities,
a sale of assets, or outside sources within the sixty day period. A failure to
make the required deposits after a default notice from the Pakistan Government
would likely result in a forfeiture of the exploration license and a loss of the
concession. Even absent a notice of default regarding the unfulfilled deposit
requirements, the exploration license will likely be revoked and the concession
lost if Hycarbex is unable to comply with the June 1, 2000 drilling deadline for
the replacement well. Upon any revocation of the license, hycarbex would remain
liable to the Pakistan Government for liquidated damages equal to the required
deposit amounts.
The Company's deficient cash position is critical given the current deposit
requirements in Pakistan and given the ongoing continuous development
requirements under certain of its Texas leases. 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. There can be no assurance that these efforts
will prove successful. In the event that capital raising efforts by the Company
are unsuccessful, the likely effects would be a loss of the Pakistan concession
and a slowdown or postponement of scheduled reactivation and development
activities on its Texas properties.
The Company incurred certain long term debt in the amount of $1,500,000 in the
quarter ended September 30, 1999. A contractual provision within the lending
document 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.
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 6 of 9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston,
Texas, charging that specific individuals and companies had conspired to
manipulate stock of the Company which was believed to have been fraudulently
obtained prior to the acquisition by The American Energy Group, Ltd. in 1994.
The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al.,
C.A. No. H97-2450, in the United States District Court, Southern District of
Texas, Houston, Division. The Company subsequently reached a settlement with all
except three of the defendants. The litigation proceeded against three
defendants after the settlement, representing in excess of 400,000 shares of
common stock which the Company believes to have been fraudulently obtained.
Subsequent to the end of the quarter, the Company obtained a judgment against
one of the three defendants and favorable settlements with the other two
remaining defendants which collectively result in a rescission of a majority of
the disputed shares. The Company is in the process of dismissing this litigation
based upon such results.
In the quarter ending June 30, 1999, the Company and its wholly owned
subsidiary, Hycarbex-American Energy, Inc. were named in a lawsuit filed by
Alpha Tech International, Inc. in Cause No. 1999-10941 in the 11th Judicial
District Court of Harris County, Texas. In the lawsuit Alpha Tech International,
Inc. is seeking recovery of cash, common stock, and an overriding royalty in the
Company's Pakistan Concession as a finder's fee under a 1996 agreement in which
Alpha Tech International, Inc. was to be compensated if successful in raising
working capital for the Company from certain named third parties. The Company
and its subsidiary have denied any liability under the Agreement.
ITEM 2. CHANGES IN SECURITIES
A summary of the significant adjustments to the outstanding securities of the
Company in the quarter ending December 31, 1999, is provided below:
COMMON STOCK
A net increase of 133,334 shares of Common Stock occurred during the quarter,
thereby increasing the total number of shares of outstanding Common Stock to
33,314,222 shares in the following manner:
During the quarter ended December 31,1999, one individual purchased a total of
133,334 shares of common stock of the Company at a purchase price of $0.75 per
share. The Company received $100,000 in proceeds in this transactions. The
Company believes that the person had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risk of the
purchase of these securities of the Company, and that the person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. The certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities.
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 7 of 9
<PAGE>
CONVERTIBLE PREFERRED STOCK
In the quarter ended December 31, 1999, the number of outstanding Convertible
Preferred shares (Blocks A through E) totaled 41,500 shares on the basis of five
Common shares for each one convertible preferred share (see Common Stock). The
remaining Block A through E Convertible Preferred shares, if converted, would
require issuance of an additional 207,500 shares of Common Stock. Block F
Convertible Preferred totaled 400,000 shares, convertible into 400,000 shares of
Common Stock. All Convertible Preferred shares, if converted to common stock,
would require the issuance of 607,500 shares of Common Stock.
WARRANTS
Outstanding warrants or options as of September 30,1999 totaled 11,000,000,
ranging in exercise price from $1.00 to $5.31 per share and in term from one
year to seven years. The net increase by 100,000 warrants to 11,100,000 warrants
outstanding during the quarter is as a result of (i) no warrants being
exercised, (ii) a total of 1,500,000 warrants expiring unexercised and (iii) a
total of 1,600,000 warrants being issued to one party described below:
In the quarter ended December 31, 1999, a total of 1,600,000 warrants were
issued to an individual in conjunction with the sale of 400,000 Convertible
Preferred Shares. These Warrants are exercisable on the basis of one share of
Common Stock for each Warrant, at exercise prices of $1.00 per share for a five
year period beginning September 17, 1999. The Company believes that the person
had knowledge and experience in financial and business matters which allowed
them to evaluate the merits and risk of the receipt of these securities of the
Company. In such capacity they were knowledgeable about the Company's operations
and financial condition. These transactions were effected by the Company in
reliance upon exemptions from registration under the Securities Act of 1933 as
amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued
for unregistered securities contained a legend stating that the securities have
not been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Subsequent to the quarter ended December 31, 1999, 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.
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 8 of 9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)
(a) EXHIBITS
The Consolidated Financial Statements dated December 31, 1999 and
1998 (unaudited), and June 30, 1999 (Audited) are appended hereto and
expressly made a part hereof as Exhibit A.
(b) REPORTS ON FORM 8-K
NONE
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
2/7/2000 B/J/S
Bradley J. Simmons, President
2/7/2000 L/F/G
Linda F. Gann, Secretary
SEC Form 10-Q
The Amercan Energy Group, Ltd. 12/31/99 Page 9 of 9
<PAGE>
EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 1999
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 (UNAUDITED)
AND JUNE 30, 1999 (AUDITED)
F-1
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 June 30, 1999
(Unaudited) (Audited)
----------------- ------------
ASSETS
CURRENT ASSETS
Cash ............................. $ 580,182 $ 1,196,566
Receivables ...................... 163,927 73,166
Receivables - related party ...... 0 1,626
Investments ...................... 180 420
Other current assets ............. 19,201 13,602
------------ ------------
Total Current Assets ............. 763,490 1,285,380
------------ ------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING
Properties being amortized ....... 15,497,581 14,388,253
Properties not subject
to amortization ................ 8,550,577 7,913,414
Accumulated amortization ......... (592,785) (437,450)
------------ ------------
Net Oil and Gas Properties ....... 23,455,373 21,864,217
------------ ------------
PROPERTY AND EQUIPMENT
Drilling and related equipment ... 406,778 384,679
Vehicles ......................... 139,801 155,811
Office equipment ................. 48,933 48,933
Less: Accumulated depreciation ... (317,783) (287,682)
------------ ------------
Net Property and Equipment ....... 277,729 301,741
------------ ------------
OTHER ASSETS
Deposits and other assets ........ 5,100 5,100
------------ ------------
Total Other Assets ............... 5,100 5,100
------------ ------------
TOTAL ASSETS ........................... $ 24,501,692 $ 23,456,438
============ ============
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 June 30, 1999
(Unaudited) (Audited)
----------------- -------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable .......................... 1,045,808 1,299,152
Accrued liabilities ....................... 290,419 250,233
Lease obligations - current ............... 4,320 4,078
Notes payable - current ................... 323,456 324,347
------------ ------------
Total Current Liabilities ................. 1,664,003 1,877,810
------------ ------------
LONG-TERM LIABILITIES
Capital lease obligations ................. 4,179 8,725
Notes payable and long-term debt .......... 1,100,000 207,401
------------ ------------
Total Long-Term Liabilities ............... 1,104,179 216,126
------------ ------------
Total Liabilities ......................... 2,768,182 2,093,936
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock
par value $.001 per share
authorized 20,000,000 shares
issued and outstanding
At June 30, 1999: 101,996 shares
At December 31, 1999: 441,500 shares ..... 442 102
Common stock, par value $.001
per share, authorized: 80,000,000
shares, issued and outstanding:
At June 30, 1999: 32,878,388 shares
At December 31, 1999: 33,314,222 shares .. 33,314 32,878
Paid in excess of par value ............... 23,858,634 23,687,080
Accumulated deficit ....................... (2,158,880) (2,357,558)
------------ ------------
Net Shareholders' Equity .................. 21,733,510 21,362,502
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ......................................... $ 24,501,692 $ 23,456,438
============ ============
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales ............ $ 476,763 $ 107,724 $ 792,475 $ 160,295
Lease operating and production
costs ....................... 181,204 83,501 341,108 129,105
--------- --------- --------- ---------
Gross Profit .............. 295,559 24,223 451,367 31,190
--------- --------- --------- ---------
OTHER EXPENSES
Legal and professional fees .. 42,312 191,331 122,953 261,638
Administrative salaries ...... 24,150 25,500 41,400 43,525
Office overhead expense ...... 10,594 13,013 23,827 33,995
Franchise Taxes .............. 18,000 7,500 18,000 7,500
Depreciation ................. 5,349 4,127 8,730 8,254
General and administrative
expense ..................... 19,824 31,635 40,577 59,036
--------- --------- --------- ---------
Total Other Expenses ...... 120,229 273,106 255,487 413,948
--------- --------- --------- ---------
NET OPERATING PROFIT (LOSS) ........ 175,330 (248,883) 195,880 (382,758)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income .............. 3,393 6,136 8,076 21,172
Loss on investments .......... 0 (1,073) 0 (3,373)
Loss on asset sales .......... 0 0 (4,416) 0
Interest expense ............. (652) (660) (862) (2,106)
--------- --------- --------- ---------
Net Other Income (Expenses) 2,741 4,403 2,798 15,693
--------- --------- --------- ---------
NET INCOME (LOSS) BEFORE TAX ....... 178,071 (244,480) 198,678 (367,065)
Federal Income Tax ........... 0 0 0 0
--------- --------- --------- ---------
NET INCOME (LOSS) FOR PERIOD ....... $ 178,071 ($244,480) $ 198,678 ($367,065)
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE .......... $ 0.005 ($ 0.008) $ 0.006 ($ 0.012)
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 198,678 $ (367,065)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ........................ 185,436 99,376
Less amount capitalized to oil & gas properties ...... (21,371) (24,808)
(Increase) decrease in receivables ................... (89,135) (19,571)
(Increase) decrease in deposits and other assets ..... 240 (206,442)
(Increase) decrease in other current assets .......... (5,599) 2,960
(Increase) decrease in restricted cash ............... 0 (1,020,100)
Increase (decrease) in accounts payable .............. (253,344) (1,727,548)
Increase (decrease) in accrued liabilities and
other current liabilities .......................... 40,186 (7,767)
----------- -----------
Cash Provided by (Used in) Operating Activities ... 55,091 (3,270,965)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties .............. (1,743,600) (1,177,898)
Proceeds from the sale of equipment .................. 10,000 --
Expenditures for other property and equipment ........ (6,089) (40,126)
----------- -----------
Cash Provided By (Used in) Investing Activities ... (1,739,689) (1,218,024)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities .............................. 1,100,000 --
Proceeds from the issuance of common stock ........... 100,000 1,905,000
Expenditures for offering costs ...................... (327,673) --
Proceeds from the issuance of convertible
voting preferred stock ............................. 400,000 --
Payments on notes payable and long-term liabilities .. (204,113) (68,740)
----------- -----------
Cash Provided By (Used in) Financing Activities .. 1,068,214 1,836,260
----------- -----------
NET INCREASE (DECREASE) IN CASH ........................ (616,384) (2,652,729)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .......... 1,196,566 3,214,205
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ................ $ 580,182 $ 561,476
=========== ===========
</TABLE>
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1999 THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE VOTING CAPITAL IN
COMMON STOCK PREFERRED STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 ......... 32,878,388 $ 32,878 101,996 $ 102 $ 23,687,080 $ (2,357,558)
============ ============ ============ ============ ============ ============
Convertible preferred stock issed
for cash @ $1.00 per share .... -- -- 400,000 400 399,600 --
Common stock issued upon
conversion of preferred shares 302,500 302 (60,496) (60) (241) --
Offering costs related to the
issuance of comon stock ....... -- -- -- -- (301,994) --
Net income for the quarter
ended September 30, 1999 ...... -- -- -- -- -- 20,607
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 .... 33,180,888 $ 33,180 441,500 $ 442 $ 23,784,445 $ (2,336,951)
============ ============ ============ ============ ============ ============
Common stock issued for cash
at $0.75 per share ............ 133,334 134 -- -- 99,866 --
Offering costs related to the
issuance of comon stock ....... -- -- -- -- (25,677) --
Net income for the quarter
ended December 31, 1999 ....... -- -- -- -- -- 178,071
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 ..... 33,314,222 $ 33,314 441,500 $ 442 $ 23,858,634 $ (2,158,880)
============ ============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTE ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ORGANIZATION
The American Energy Group, Ltd. (the Company) was incorporated in the state of
Nevada on July 21, 1987 as Dimension Industries, Inc. Since incorporation, the
Company has had several name changes including DIM, Inc. and Belize-American
Corp. Internationale with the name change to The American Energy Group, Ltd.
effective November 18, 1994.
Effective September 30, 1994, the Company entered into an agreement to acquire
all of the issued and outstanding common stock of Simmons Oil Company, Inc.
(Simmons), a Texas Corporation, in exchange for the issuance of certain
convertible voting preferred stock (see Note 6). The acquisition included wholly
owned subsidiaries of Simmons, Sequoia Operating Company, Inc. and Simmons
Drilling Company, Inc. The acquisition was recorded at the net book value of
Simmons of $1,044,149 which approximates fair value.
During the year ended June 30, 1995, the Company incorporated additional
subsidiaries including American Energy-Deckers Prairie, Inc., The American
Energy Operating Corp., Tomball American Energy, Inc., Cypress-American Energy,
Inc., Dayton North Field-American Energy, Inc. and Nash Dome Field-American
Energy, Inc. In addition, in May 1995, the Company acquired all of the issued
and outstanding common stock of Hycarbex, Inc. (Hycarbex), a Texas corporation,
in exchange for common stock of the Company, a 1% overriding royalty on the
Pakistan Project and a future $200,000 production payment if certain conditions
are met. In April 1995, the name of that Company was changed to
Hycarbex-American Energy, Inc. All of these companies are collectively referred
to as "the Companies".
The Company and its subsidiaries are principally in the business of acquisition,
exploration and development of oil and gas properties with the ultimate goal of
production and operation of those properties and the contracting of those
services to other unrelated businesses.
b. DEVELOPMENT STAGE AND CONTINUED EXISTENCE
The recovery of assets and continuation of future operations were previously
dependent upon the Companies ability to obtain additional debt or equity
financing and their ability to generate revenues sufficient to continue pursuing
their business purpose. Management is actively pursuing additional equity and
debt financing sources to finance future operations and anticipates the
realization of more significant revenues from oil and gas production in the near
future.
F-7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. ACCOUNTING METHODS
The full cost method is used in accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of oil and gas reserves, including directly related overhead costs, are
capitalized. In addition, depreciation on property and equipment used in oil and
gas exploration and interest costs incurred with respect to financing oil and
gas acquisition, exploration and development activities are capitalized in
accordance with full cost accounting. Capitalized interest for the year ended
June 30, 1999 was $52,842 . No interest was capitalized during the three & six
months ended December 31, 1999. In addition, depreciation capitalized during the
year ended June 30, 1999 totaled $51,339. Depreciation capitalized during the
quarters ended December 31, 1999, and September 30, 1999 was $15,649 and $5,772,
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, 1999, proved oil and gas reserves had been identified
on some of the Companies oil and gas properties with revenues generated and
barrels of oil produced from those properties. Accordingly, amortization
totaling $133,523 has been recognized in the accompanying consolidated financial
statements for the year ended June 30, 1999 and for the quarters ended December
31, 1999 and September 30, 1999, was $88,759 and $66,756, respectively, on
proved and impaired or abandoned properties.
The acquisition of Simmons Oil Company, Inc. and it's subsidiaries has been
accounted for using the purchase method. Accordingly, the accompanying
consolidated financial statements for the period up until the date of
acquisition, September 30, 1994, do not include the financial position, the
results of operations or cash flows of the Simmons companies for those periods.
The acquisition of Hycarbex, Inc. has been accounted for using the
pooling-of-interests method. Hycarbex had no assets or liabilities or results of
operations through the date of the acquisition and, therefore, had no effect on
the consolidated financial statements through April 6, 1995.
d. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its wholly owned
subsidiaries as detailed previously. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
f. PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation on drilling and related
equipment, vehicles and office equipment is provided using the straight-line
method over expected useful lives of five to seven years. For the three and six
months ended December 31, 1999, the Companies incurred total depreciation
expense of $30,100 of which $15,649 and $5,772, respectively, was capitalized as
costs of oil and gas properties.
g. EARNINGS AND LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average number of
shares issued and outstanding at the date of the consolidated financial
statements. The earnings per share of common stock is based on the weighted
average number of shares issued and outstanding on a fully diluted basis at the
date of the consolidated financial statements.
NOTE 2 - OIL AND GAS PROPERTIES
At the time the Company acquired Simmons Oil Company, Inc. and its subsidiaries,
those companies had ownership interests in oil and gas prospects located in
Texas. These properties contained oil and gas leases on which existing wells had
been shut-in and abandoned and had additional sites available for further
exploration and development.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
F-9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of June 30,
1999 and December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1999 1999
----------- -----------
<S> <C> <C>
Note payable bearing no interest; payable $175,000
the first year and $250,000 annually thereafter until
paid in full; secured by certain oil and gas property
and equipment ........................................ $ 320,182 $ 539,404
Note payable to individual secured by certain oil and
gas properties of the Company, payable March 17, 2003,
bearing no interest, payable at face value of note of
$1,500,000 at time of payment ........................ $ 1,100,000 $-0-
8.5% note payable to a financial institution due in
monthly installments of $950 for 36 months; secured
by two vehicles ...................................... $ -0- $ 9,069
7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties 38,117 38,117
----------- -----------
Total notes payable and long-term debt ............... $ 1,458,299 $ 586,590
----------- -----------
Less: Unamortized discount ........................... (34,843) (54,842)
----------- -----------
Net notes payable and long-term debt ................. $ 1,423,456 $ 531,748
Less: Current portion of notes payable
and long-term debt ................................... (323,456) (324,347)
----------- -----------
Long-Term Liabilities ................................ $ 1,100,000 $ 207,401
=========== ===========
</TABLE>
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company entered into certain lease agreements during the year ended June 30,
1997 and quarter ended December 31, 1998, relating to office equipment and
portable buildings used in the field which have been accounted for as capital
leases. These leases have terms of from 32 to 60 months with total monthly lease
payments of $662.The following are the scheduled annual payments on these
capital leases:
F-10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 5 - CAPITAL LEASE OBLIGATIONS ( CONTINUED)
Year ending June 30
2000 $2,056
2001 $3,355
2002 $3,355
2003 $2,278
2004 $ -0-
------
$11,044
Total minimum lease commitments ....................... $ 11,044
Less: Executory costs (such as taxes and insurance)
included in capital lease payments .............. (525)
--------
Net minimum lease payments ............................ 10,519
Less: Amount representing interest .................... (2,020)
--------
Total Capital Lease Obligations ....................... 8,499
Current Portion ....................................... (4,320)
--------
Long Term Portion ..................................... $ 4,179
========
NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK
During the quarter ended September 30,1999, the Company's issued 400,000 shares
of Block F convertible preferred stock, for which the Company received $400,000.
Each share is convertible into one share of common stock of the Company. No
further Preferred shares were issued in the quarter ended December 31, 1999.
The number of outstanding Convertible Preferred (Block A-E) shares totaled
41,500 shares All remaining Convertible Preferred shares in all classes, if
converted, would require issuance of an additional 607,500 shares of Common
Stock
NOTE 7- COMMON STOCK
During the quarter ended September 30, 1999, a net increase of 133,334 shares of
Common Stock of the Company was incurred through private sale of common stock.
(See Consolidated Statement of Stockholders Equity). This addition brings total
outstanding Common Stock to 33,314,222 shares.
F-11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 1999
NOTE 8- COMMON STOCK WARRANTS
As of the quarter ended September 30, 1999, outstanding warrants totaled
11,000,000. Total outstanding warrants as of December 31,1999 had increased by
100,000 warrants to 11,100,000, ranging in exercise price from $1.00 to $5.31
per share and in term from one year to seven years.
NOTE 9 - INCOME TAXES
Through December 31, 1999, the Companies have sustained net operating loss
carryforward totaling approximately $2,158,880 that may be offset against future
taxable income through 2012. No tax benefit has been reported in the
accompanying consolidated financial statements, because the potential tax
benefits of the net operating loss carryforward are offset by a valuation
allowance of the same amount.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases office space in Simonton, Texas at a monthly cost of $1,033
plus utilities. The lease expires during November 2000 at which time the Company
may lease the space on a month-to-month basis at $1,200 per month.
During the year ended June 30, 1997, the Board of Directors authorized the
establishment of two Management Royalty Pools equal to 1% of the revenues from
domestic oil and gas production and Pakistan oil and gas production,
respectively. The beneficiaries and their ownership in this pool are subject to
variance based upon certain performance criterion.
In May 1997, the Securities and Exchange Commission filed civil charges against
the Company and its President alleging various violations of securities
regulations. In the quarter ended March 31, 1999, the Company and its President
settled the matter, and the lawsuit has been dismissed.
Subsequent to the Quarter ended March 31, 1999, the Company has entered into a
Letter of Intent to acquire Maverick Drilling Company, Inc., an Austin, Texas
based drilling company. Terms have not been disclosed, and the viability and
continued pursuit of the transaction is under review by the Board of Directors.
In the fiscal year ended June 30, 1999, the Company completed the drilling of
two exploratory wells in Pakistan, both of which proved to be non-commercial and
were plugged and abandoned. The Company is currently conducting extensive
geological and geophysical review to determine its next planned drillsite on the
concession, scheduled for drilling, subject to the ability to obtain additional
financing, in mid 2000.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 580,182
<SECURITIES> 180
<RECEIVABLES> 163,297
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 763,490
<PP&E> 24,050,885
<DEPRECIATION> 317,783
<TOTAL-ASSETS> 24,501,692
<CURRENT-LIABILITIES> 1,664,003
<BONDS> 0
0
442
<COMMON> 33,314
<OTHER-SE> 21,699,754
<TOTAL-LIABILITY-AND-EQUITY> 24,501,692
<SALES> 476,763
<TOTAL-REVENUES> 480,156
<CGS> 181,204
<TOTAL-COSTS> 470,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 652
<INCOME-PRETAX> 178,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 178,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,071
<EPS-BASIC> .005
<EPS-DILUTED> .005
</TABLE>
