-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MdNiaTTRZePLPHGglW7n1NDyqMOFj5E64Ky0H5TLJTpUFM4iXr2daHanWmhcrTf4 ezzX3xGddEefOMoOSGSv+w== /in/edgar/work/0000890566-00-001655/0000890566-00-001655.txt : 20001120 0000890566-00-001655.hdr.sgml : 20001120 ACCESSION NUMBER: 0000890566-00-001655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ENERGY GROUP LTD CENTRAL INDEX KEY: 0000843212 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 870448843 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26402 FILM NUMBER: 772675 BUSINESS ADDRESS: STREET 1: P O BOX 489 STREET 2: 1861 BROWN BLVD,STE 655 CITY: SIMONTON STATE: TX ZIP: 77476 BUSINESS PHONE: 2813462652 MAIL ADDRESS: STREET 1: PO BOX 489 CITY: SIMONTON STATE: TX ZIP: 77476 FORMER COMPANY: FORMER CONFORMED NAME: BELIZE AMERICAN CORP INTERNATIONALE DATE OF NAME CHANGE: 19941004 FORMER COMPANY: FORMER CONFORMED NAME: DIM INC DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt 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 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 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 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 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 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 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 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 Page 8 of 10 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. Page 9 of 10 (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 Page 10 of 10 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) 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 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 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 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 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD JUNE 30, 2000 THROUGH SEPTEMBER 30, 2000
CONVERTIBLE VOTING CAPITAL IN COMMON STOCK PREFERRED STOCK EXCESS OF ACCUMULATED SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT ---------- --------- --------- ------- ------------ ------------ 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) ========== ========= ========= ======= ============ ============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. F - 7 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 2000 1999 ----------- ----------- 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 =========== ===========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. F - 8 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 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 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 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 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 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 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 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 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)
SEP 30, 2000 JUNE 30, 2000 ----------- ----------- 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 =========== ===========
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 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 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 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 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 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 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. EX-27 2 0002.txt
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM [IDENTIFY SPECIFIC FINANCIAL STATEMENTS] AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 3-MOS JUN-30-2001 SEP-30-2000 3,757,186 1,900 158,373 0 0 3,757,186 13,587,225 372,108 17,081,405 3,472,644 0 0 42 44,464 12,338,012 17,081,405 588,023 588,891 179,271 179,271 315,935 0 49,232 44,453 0 44,453 0 0 0 44,453 .001 .001
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