UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 2000
[ ] 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 105 SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip code)
(281)-346-0414
(Registrant's telephone number, including area code)
N/A
(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.
51,037,974 COMMON SHARES
SEC Form 10-Q
The American Energy Group, LTD. Page 1 of 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Company has included herewith the unaudited consolidated financial
statements for the three months ended September 30, 2000 and 1999, presented
with the audited consolidated financial statements for the twelve months (Fiscal
Year) ended June 30, 2000. In the opinion of management, the Financial
Statements with the related notes reflect a fair presentation of the financial
condition of the Registrant for the period stated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL INFORMATION
The following information should be read in conjunction with the consolidated
financial statements of the Company, attached to this report.
As of September 30, 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 quarter
in connection with the Pakistan concession were limited to preparations for
drilling scheduled to commence in November, 2000. (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. The Company 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.
The Company has initiated litigation to cancel the agreement, while commencing
negotiations with other interested parties. If a sale is ultimately consummated,
certain of the sale proceeds will be utilized for development of the 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",
"TEXAS GULF COAST OPERATIONS" and "LEGAL PROCEEDINGS")
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
Page 2 of 10
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properties are capitalized in a "full cost pool". Costs included in the full
cost pool are charged to operations as depreciation, depletion and amortization
using the units of production method based on the ratio of current production to
estimated proven reserves as defined by regulations promulgated by the U.S.
Securities and Exchange Commission. Gain or loss on disposition of oil and gas
properties is not recognized unless it would materially alter the relationship
between the capitalized costs and estimated proved reserves. Disposition of
properties are reflected in the full cost pool. The full cost method of
accounting limits the costs the Company may capitalize by requiring the Company
to recognize a valuation allowance to the extent that capitalized costs of its
oil and gas properties in its full cost pool, net of accumulated depreciation,
depletion and amortization and any related deferred income taxes, exceed the
future net revenues of proved oil and gas reserves plus the lower of cost or
estimated fair market value of non-evaluation properties, net of federal income
tax.
On May 9, 2000 the Company entered into a 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 $9,150,718 in capitalized Costs related
to the Pakistan concession.
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 three (3) months ending September 30, 2000, the Company
did not commence any new drilling of wells in these fields.
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 quarter ended September 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 50 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 for sales of oil by
the Company during the quarter averaged $30.44 per barrel.
Page 3 of 10
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During the quarter ended March 31, 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.
During the final quarter of the fiscal year ending June 30, 2000, 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. A 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 taken 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 assurances 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 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 generate 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, 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 intervals. Generally, the failure to
comply with these time sensitive development obligations, unless extended by
contract, 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 $9.0 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
Page 4 of 10
<PAGE>
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.
During the current quarter, the Company shot an additional 40km of seismic line
in the vicinity of proposed drilling locations. The Company's technical team has
been 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 sufficient to cover the anticipated costs of drilling and completing
the well if actual costs resemble those estimated by management. 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 within the
scheduled drilling period for this well, if at all. (See "EVENTS AFFECTING
CAPITAL RESOURCES AND MATERIAL ASSETS")
RESULTS OF OPERATIONS
REVENUES AND NET OPERATING PROFITS
In the quarter ended September 30, 2000, the Company incurred a net operating
profit of $104,162, with oil and gas sales of $588,023 as compared to a net
operating profit of $20,550 on oil and gas sales of $315,712 in the prior fiscal
year's quarter ended September 30, 1999. This reflects an increase of $272,311
in revenues and an increase of $83,612 in net operating profit in comparison
with the prior year's quarter ending September, 1999.
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, higher
than the price obtained in the quarter ending September 30,1999. The average
price per barrel of oil sold by the Company in the quarter ending September 30,
1999, was $19.38, as compared to $30.44 per barrel in the quarter ending
September 30, 2000.
Page 5 of 10
<PAGE>
OIL SALES
During the quarter ending September 30, 2000, the Company sold 19,320 barrels of
oil net to the Company's interest. The Company's net barrels of sales generated
$588,023 and reflects average daily sales of 210 barrels of oil per day
("BOPD"), net after deducting landowner royalties.
COMPARISON TO PREVIOUS QUARTER ENDED JUNE 30, 2000
As compared with the prior quarter ending June 30, 2000 in the previous fiscal
year, the Company realized a Thirteen (13%) percent increase in revenues from
oil sales, as well as an average net oil price increase of Thirteen (13%)
percent, or $3.37 per barrel.
NET INCOME
The Company, with the inclusion of other income, foreign and domestic
administrative expenses, and including interest, reported a net profit of
$44,453 in the quarter ended September 30, 2000, versus a net profit of $20,607
in the prior fiscal year's quarter ended September 30, 1999. Net income
increased by $23,846 from the prior year's comparative quarter. Stability in net
daily production and higher oil sale prices for the latter period were the major
contributing factors.
TOTAL ASSETS/SHAREHOLDER'S EQUITY
In the quarter ended September 30, 2000, Total Assets of the Company increased
to $17,081,405 over the prior quarter of $14,484,273, or a net increase of
17.9%. Net Shareholders Equity increased to $12,382,518 as of September 30,
2000, from $9,790,323 as of June 30, 2000, or a net increase of 26.5%.
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. The deposit of an additional $1,100,000 for the
anticipated costs of the next exploration well required by the exploration
license prior to drilling that well. 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.
Page 6 of 10
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Management believes that aggregate funds currently available to the Company are
sufficient to cover costs associated with the drilling of the substitute well,
whether or not a near term sale of the Texas oil and gas leases occurs; however,
final cost estimates for this well may not resemble the actual costs which are
ultimately incurred. 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. 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 of the exploration license and a loss of
the concession. 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 possibility of cost overruns
related to the near term drilling of the substitute well and the future deposit
requirements in Pakistan, as well as 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. 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 quarter ended March 31, 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 was anticipated to permit the Company to take advantage of
opportunities for a more favorable sale created by recent increases in market
prices for oil. On May 9, 2000, 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
Page 7 of 10
<PAGE>
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 $17,081,405, 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 $9,150,718. 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 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
No significant legal proceedings affecting the Company occurred during the
current quarter. 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 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 but stipulations between the litigants made the
appointment of a temporary receiver unnecessary while
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the other issues in the litigation are being resolved. 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 quarter ending September 30, 2000, is provided below:
COMMON STOCK
A net increase of 9,167,029 shares of Common Stock occurred during the quarter,
thereby increasing the total number of shares of outstanding Common Stock as of
September 30, 2000 to 44,464,910 shares in the following manner:
A total of 599,225 shares were issued to various parties at $0.30 per share for
satisfaction of debt and a total of 258,239 shares were issued to a prior
investor in conjunction with a deficiency in the registration of his shares. The
balance of the shares were issued under a private placement to various investors
at $0.30 per share.
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.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)
(A) EXHIBITS
The Consolidated Financial Statements dated September 30, 2000 and
1999 (unaudited), and June 30, 2000 (Audited) are appended hereto
and expressly made a part hereof as Exhibit A.
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(B) REPORTS ON FORM 8-K
NONE
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
11/17/2000 C/V
Charles Valceschini, President
11/17/2000 L/F/G
Linda F. Gann, Secretary
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EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2000
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
AND JUNE 30, 2000 (AUDITED)
<PAGE>
C O N T E N T S
This page intentionally left blank........................................ 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-8
Notes to the Consolidated Financial Statements............................ F-9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 JUNE 30, 2000
(UNAUDITED) (AUDITED)
------------------ -------------
ASSETS
CURRENT ASSETS
Cash .................................. $ 3,539,021 $ 1,344,513
Receivables ........................... 158,373 163,947
Other current assets .................. 59,792 19,660
------------ ------------
Total Current Assets .................. 3,757,186 1,528,120
------------ ------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING
Properties being amortized ............ 16,355,319 16,247,874
Properties not subject
to amortization ..................... 9,150,718 8,835,706
Accumulated amortization .............. (848,963) (824,307)
Impairment reserve .................... (11,643,262) (11,643,262)
------------ ------------
Net Oil and Gas Properties ............ 13,013,812 12,616,011
------------ ------------
PROPERTY AND EQUIPMENT
Drilling and related equipment ........ 384,679 384,679
Vehicles .............................. 139,801 139,801
Office equipment ...................... 48,933 48,933
Less: Accumulated depreciation ........ (372,108) (353,718)
------------ ------------
Net Property and Equipment ............ 201,305 219,695
------------ ------------
OTHER ASSETS
Debt issue costs ...................... 102,102 113,447
Investments ........................... 1,900 1,900
Deposits and other assets ............. 5,100 5,100
------------ ------------
Total Other Assets .................... 109,102 120,447
------------ ------------
TOTAL ASSETS ............................ $ 17,081,405 $ 14,484,273
============ ============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F - 4
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED)
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable ........................... $ 1,159,039 $ 1,287,337
Accrued liabilities ........................ 791,449 632,329
Deposit on sale of assets .................. 750,000 750,000
Notes payable - related party .............. 30,000 30,000
Lease obligations - current ................ 2,627 2,627
Notes payable - current .................... 739,529 765,414
------------ ------------
Total Current Liabilities .................. 3,472,644 3,467,707
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt ........... 1,220,000 1,220,000
Capital lease obligations .................. 6,243 6,243
------------ ------------
Total Long-Term Liabilities ................ 1,226,243 1,226,243
------------ ------------
Total Liabilities .......................... 4,698,887 4,693,950
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock par value
$.001 per share authorized 20,000,000
shares issued and outstanding
At June 30, 2000: 41,500 shares
At September 30, 2000: 41,500 shares ...... 42 42
Common stock, par value $.001
per share, authorized: 80,000,000
shares, issued and outstanding:
At June 30, 2000: 35,297,881 shares
At September 30, 2000: 44,464,910 shares .. 44,464 35,298
Paid in excess of par value ................ 26,934,365 24,395,789
Accumulated deficit ........................ (14,596,353) (14,640,806)
------------ ------------
Net Shareholders' Equity ................... 12,382,518 9,790,323
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ... $ 17,081,405 $ 14,484,273
============ ============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F - 5
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THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
(UNAUDITED) (UNAUDITED)
--------- ---------
REVENUES
Oil and gas sales ..................... $ 588,023 $ 315,712
Lease operating and production costs .. 179,271 159,904
--------- ---------
Gross Profit ....................... 408,752 155,808
--------- ---------
OTHER EXPENSES
Legal and professional fees ........... 215,703 80,641
Administrative salaries ............... 32,750 17,250
Office overhead expense ............... 8,220 13,233
Depreciation and amortization expense . 27,837 3,381
General and administrative expense .... 20,080 20,753
--------- ---------
Total Other Expenses ............... 304,590 135,258
--------- ---------
NET OPERATING PROFIT (LOSS) ............. 104,162 20,550
--------- ---------
OTHER INCOME (EXPENSE)
Interest income ....................... 868 4,683
Interest expense ...................... (49,232) (210)
Debt issuance costs ................... (11,345) 0
Loss on asset sales ................... 0 (4,416)
--------- ---------
Net Other Income (Expenses) ........ (59,709) 57
--------- ---------
NET INCOME BEFORE TAX ................... 44,453 20,607
Federal Income Tax .................... 0 0
--------- ---------
NET INCOME FOR PERIOD ................... $ 44,453 $ 20,607
========= =========
EARNINGS PER SHARE ...................... 0.001 0.001
========= =========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F - 6
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 2000 THROUGH SEPTEMBER 30, 2000
<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, 2000 ................... 35,297,881 $ 35,298 41,500 $ 42 $ 24,395,789 ($14,640,806)
Common stock issued for cash
@ $0.30 per share ...................... 8,443,249 8,443 -- -- 2,524,532 --
Common stock issued upon
conversion of debt @ $0.30 per share ... 599,225 599 -- -- 179,169 --
Common stock issued in
satisfaction of penalty fee at an
average price of $0.53 per share ....... 258,239 258 -- -- 134,741 --
Cancellation of common stock - net ....... (133,684) (134) -- -- 134 --
Offering costs related to the
issuance of comon stock ................ -- -- -- -- (300,000) --
Net income for the quarter
ended September 30, 2000 ............... -- -- -- -- -- 44,453
---------- --------- --------- ------- ------------ ------------
Balance, September 30, 2000 .............. 44,464,910 $ 44,464 41,500 $ 42 $ 26,934,365 ($14,596,353)
========== ========= ========= ======= ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F - 7
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 44,453 $ 20,607
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ....................... 103,532 85,079
Less amount capitalized to oil & gas properties ..... (15,209) (5,772)
Common stock issued for services rendered ........... 179,768 --
Common stock issued for penalty fee ................. 135,000 --
Changes in operating assets and liabilities:
(Increase) decrease in receivables .................. 5,574 (41,445)
(Increase) decrease in deposits and other assets .... (40,132) (521)
(Increase) decrease in other current assets ......... 0 (8,903)
Increase (decrease) in accounts payable ............. (128,298) (378,473)
Increase (decrease) in accrued expenses and
other current liabilities ......................... 159,120 14,568
----------- -----------
Cash Provided by (Used in) Operating Activities .. 443,808 (314,860)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ............. (407,249) (887,172)
Proceeds from the sale of equipment ................. -- 10,000
Expenditures for other property and equipment ....... -- (2,715)
----------- -----------
Cash Provided By (Used in) Investing Activities .. (407,249) (879,887)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
long-term liabilities ............................. -- 1,100,000
Proceeds from the issuance of common stock .......... 2,532,975 --
Expenditures for offering costs ..................... (300,000) (301,994)
Proceeds from the issuance of convertible
voting preferred stock ............................ -- 400,000
Payments on notes payable and long-term liabilities . (75,026) (21,207)
----------- -----------
Cash Provided By (Used in) Financing Activities .. 2,157,949 1,176,799
----------- -----------
NET INCREASE (DECREASE) IN CASH ....................... 2,194,508 (17,948)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ......... 1,344,513 1,196,566
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ............... $ 3,539,021 $ 1,178,618
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F - 8
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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 - 9
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Going Concern (Continued)
As of September 30, 2000 as well as the date of this review 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. While the
Company has the funds to drill the next succeeding well in Pakistan,
assuming the absence of unforeseen substantial cost overruns, the
continuation of future operations in Pakistan is dependent upon either
receiving the remaining $3,250,000 from the sale or obtaining funds
from other sources. If the sale is not completed, the $750,000 deposit
must be returned as a loan repayment. Once the U.S. operations are
sold, the Company intends to focus primarily on the development of the
Pakistan concession with its subsidiary, Hycarbex.
As of September 30, 2000, the Companies have partially completed a
private placement whereby 8,443,249 shares of its common stock has been
issued for $2,524,532. A significant amount of these proceeds are being
allocated to the development of the Pakistan concession mentioned
above.
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. No interest was capitalized during the quarters ended
September 30, 2000 and September 30, 1999. In addition, depreciation
capitalized during the quarters ended September 30, 2000 and 1999
totaled $15,209 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 September 30, 2000 and 1999,
proved oil and gas reserves had been identified on some of the
F-10
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Companies oil and gas properties with revenues generated and barrels of
oil produced from those properties. Accordingly, amortization totaling
$24,656 and $66,756 has been recognized in the accompanying
consolidated financial statements for the three months ended September
30, 2000 and 1999, respectively, on proved and impaired or abandoned
oil and gas properties.
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 three months ended September 30, 2000 and 1999, the Companies
incurred total depreciation of $18,390 and $18,323, respectively.
In accordance with full cost accounting, $15,209 and $5,772 of
depreciation was capitalized as costs of oil and gas properties for the
three months ended September 30 30, 2000 and 1999, respectively, as
previously discussed.
g. Basic Income Per Share of Common Stock For the Three Months Ended
SEPTEMBER 30
---------------------------
2000 1999
----------- -----------
Income (numerator) ........... $ 44,453 $ 20,607
Shares (denominator) ......... 39,877,646 33,180,888
----------- -----------
Per share amount ............. $ 0.001 $ 0.001
=========== ===========
h. Concentrations of Risk
From time to time, the cash balances in the Companies bank accounts
exceed Federally insured limits. At September 30, 2000 and June 30,
2000, the balances in excess of the limits were approximately
$3,439,021 and $1,244,513, respectively. Of these balances,
approximately $1,332,143 and $1,206,228, respectively, was in the
country of Pakistan.
F - 11
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September30, 2000 and June 30, 2000
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:
SEPTEMBER 30,
2000
------------
Total costs incurred ...................... $ 162,067
Accumulated amortization .................. (59,965)
---------
Net Debt Issuance Costs ................... $ 102,102
=========
F-12
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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 quarter ended September 30, 2000 and year ended June 30,
2000, 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 periods.
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 right, 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-13
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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
F - 14
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 2 - OIL AND GAS PROPERTIES (Continued)
to begin drilling the well. The Company is required under the
concession agreement to have on deposit with its bank prior to drilling
a total of $1,100,000 per well to cover the minimum expenditure
obligation with respect to the replacement well and, ultimately, the
exploration well for the second renewal period.
The Company met the deposit requirement for the replacement well prior
to June 30, 2000, but has not yet deposited the $1,100,000 for the
succeeding exploration well. 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, could 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
September 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. As of September 30, 2000, the remaining liability under this
obligation was $57,114.
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
F - 15
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 2 - OIL AND GAS PROPERTIES (Continued)
consummation of that transaction.
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 this 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:
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
============
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
The following is a summary of notes payable and long-term debt as of
September 30, 2000 and June 30, 2000, respectively:
SEP 30, 2000 JUNE 30, 2000
---------- ----------
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 ............ $ 57,114 $ 132,140
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 1,500,000
Notes payable to various individuals,
non-interest bearing, due on demand,
unsecured ............................. 610,000 610,000
Note payable to Company's President,
non-interest bearing, due on demand,
unsecured ............................. 30,000 30,000
---------- ----------
Balance Forward ......................... $2,197,114 $2,272,140
---------- ----------
F - 16
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30 2000 and June 30, 2000
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
SEP 30, 2000 JUNE 30, 2000
----------- -----------
<S> <C> <C>
Balance Forward ......................... $ 2,197,114 $ 2,272,140
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 .. 2,235,231 2,310,257
Less: unamortized discount .............. (245,702) (294,843)
----------- -----------
Net notes payable and long-term debt .... 1,989,529 2,015,414
Less: related party note ................ (30,000) (30,000)
Less: current portion ................... (739,529) (765,414)
----------- -----------
Long-Term Liabilities ................... $ 1,220,000 $ 1,220,000
=========== ===========
</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, and an additional 258,239 shares for the quarter
ended September 30, 2000.
The following are the scheduled annual payments of notes payable and
long-term debt:
YEAR ENDING JUNE 30,
-------------------
2001 $ 769,529
2002 1,220,000
2003 -
2004 -
2005 -
2006 and thereafter -
----------
$1,989,529
==========
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 - 17
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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 September 30, 2000, the
remaining 41,500 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 - 18
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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, 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).
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.
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.
During the three months ended September 30, 2000, the Company issued
8,443,249 shares of common stock at $0.30 per share for a total of
$2,532,975. As discussed in Note 3, the Company issued 258,239 shares
of common stock valued at $134,999 as a result of a penalty fee related
to a late Registration filing for certain shares of stock.
During the three months ended September 30, 2000, the Company issued
599,225 shares of common stock to various entities at $0.30 per share
for the satisfaction of debt.
F - 19
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 7 - COMMON STOCK WARRANTS
Prior to the year ended June 30, 2000, the Company had 16,030,000
outstanding warrants. In the 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 September
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
as follows:
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
---- ---------------- --------------- --------------
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
F - 20
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 7 - COMMON STOCK WARRANTS (Continued)
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
---- ---------------- --------------- --------------
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
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. As of September 30, 2000,
a total of 150,000 warrants have been issued to these parties. These
warrants are exerciseable within seven years of issuance at prices
ranging from $0.75 to $1.25 per share.
F - 21
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
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 September 30, 2000, the Companies have sustained net operating
loss carryforwards totaling approximately $14,596,353 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 - 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 - 22
<PAGE>
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and June 30, 2000
NOTE 9 - 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 previously 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 disputed
this right. 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. There have not been any discussions between this
shareholder and the Company since 1998.
