-----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, J2dPng7vmoc04UdGBXBaFL80J9rr20JFQud3+cUNg92X4gh4aom4QOOso304vsgX T8/0H8o/hsfinbH/72cJoA== 0000890566-98-001862.txt : 19981118 0000890566-98-001862.hdr.sgml : 19981118 ACCESSION NUMBER: 0000890566-98-001862 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ENERGY GROUP LTD CENTRAL INDEX KEY: 0000843212 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLE SUPPLIES & NEW PARTS [5013] IRS NUMBER: 870448843 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26402 FILM NUMBER: 98753915 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-K 1 UNITED STATES SECURITIES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended June 30, 1998 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 (IRS Employer of incorporation or organization) identification Number P.O. Box 489, Simonton, Texas 77476 (Address of principal executive offices) (Zip Code) (281) 346-2652 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practical date: 31,007,059 Common Shares outstanding as of November 1, 1998. The aggregate market value of voting and non-voting common equity held by non-affiliates as of October 31, 1998 was $121,445,095. Table of Contents PART I Item 1. Business...........................................................1 Item 2. Properties.........................................................4 Item 3. Legal Proceedings.................................................15 Item 4. Submission of Matters to a Vote of Security Holders...............16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................16 Item 6. Selected Financial Data...........................................22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........28 Item 8. Financial Statements..............................................28 Item 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure............................28 PART III Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.................28 Item 11. Executive Compensation............................................30 Item 12. Security Ownership of Certain Beneficial Owners and Management....32 Item 13. Certain Relationships and Related Transactions....................33 PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K............34 SIGNATURES PART I ITEM 1. BUSINESS The American Energy Group, Ltd. (formerly Belize-American Corp. Internationale) (formerly Dim, Inc.) (hereinafter "Company") was organized in the State of Nevada on July 21, 1987, as a wholly owned subsidiary of Dimension Industries, Inc. a Utah Corporation (hereinafter "Dimension"). As used herein, the term "Company" means the Company and its subsidiaries. At the time of organization, the Company issued 1,366,250 shares of voting Common Stock to Dimension, which was the sole stockholder. On April 28, 1989, a filing submitted by the Company on form S-18 with the United States Securities and Exchange Commission was declared effective. Dimension distributed the 1,366,250 shares it held to the stockholders of Dimension as a dividend. Also distributed were 1,566,250 warrants to purchase 1 share of voting Common Stock of the Company for each warrant held. The warrant offering expired on August 11, 1989. Exercise of the warrants by shareholders resulted in the Company issuing 1,547,872 shares of Common voting stock for $40,282 received in cash. At this point, the Company had 3,144,122 shares of voting Common Stock issued and outstanding. In 1987, the Company engaged in marketing an automobile carburetor modification kit. The efforts were not successful and were abandoned. From 1987 to 1990, the Company was inactive. In October, 1990, the shareholders of the Company approved a one for ten (1:10) reverse split of the voting Common Stock. In June, 1991, the Company obtained an Oil Prospecting License from the government of Belize. At a special meeting of shareholders, resolutions to change the name of the Company to "Belize-American Corp. Internationale", forward split the voting Common Stock ten for one (10:1) and a vote to ratify the Oil Prospecting License received a vote of approval. During 1991, the Company attempted various means to attract sufficient capital investment to develop the oil prospect in Belize, but were not successful. The license expired due the lack of performance by the Company. From 1992 until 1994, Company activities consisted of attempting to raise capital for a business venture and solicitation of other business enterprises for a possible merger. On September 22, 1994, the Company entered into an agreement with Simmons Oil Company, Inc., a Texas Corporation (hereinafter "Simmons") whereby the Company issued 2,074,521 shares of Convertible Voting Preferred Stock to the shareholders of Simmons in order to acquire Simmons and two subsidiaries of Simmons, Simmons Drilling Company and Sequoia Operating Company. For accounting purposes, the acquisition was treated as a purchase of Simmons by the Company. The agreement was effective September 30, 1994. Prior to the acquisition of Simmons, Simmons had acquired certain oil and gas properties located in Texas. Subsequent to the acquisition, the Company has acquired additional oil and gas properties in the same general area through its subsidiaries. These 1 properties consist of oil and gas leases on which existing wells have been abandoned due to economics or loss of production. The Company intends to evaluate and rework certain of these wells, explore various depths for reservoirs and drill offset wells, if warranted. In April, 1995, the Company acquired all of the outstanding shares of Hycarbex, Inc., a Texas Corporation (hereinafter "Hycarbex) for 120,000 shares of voting Common Stock of the Company, a 1% Overriding Royalty Interest in the revenues generated through the development of Hycarbex's Pakistan Concession, and an agreement to pay the sole shareholder $200,000 conditioned upon the success of that development. For accounting purposes, this acquisition was treated as a pooling of interests. The Company changed the name of Hycarbex, Inc. to Hycarbex-American Energy, Inc. and it is operating as a wholly owned subsidiary of the Company. Hycarbex holds an oil and gas Concession and Exploration License granted by the government of Pakistan. The Concession is located in the Middle Indus Basin near Jacobabad, Pakistan. In addition to the above acquisition consideration, the Company provided a $551,000 Financial Guarantee Bond to the Government of Pakistan to assure performance of Concession requirements. The subsequent seismic surveys performed and drilling of the initial exploratory well by the Company have satisfied the performance requirements to date for Concession requirements. The Company began producing commercial quantities of oil on its domestic properties and emerged from the development stage during the year ended June 30, 1997. The Company has begun a program of drilling developmental wells on its properties, as well as continuing to accumulate an inventory of oil and gas properties on which it intends to explore and develop commercial wells. The Company is further pursuing capital investment to finance a comprehensive drilling and production program, both in Texas and Pakistan, in the next fiscal year. In June, 1997, the Company purchased oil and gas properties totaling approximately 1,400 acres in Texas. During the past year, the Company drilled six developmental wells on these properties of which five wells are currently producing. Two additional developmental wells were drilled subsequent to June 30, 1998. During the past year, the Company drilled an exploratory well in central Pakistan, the Kharnbak #1 well. Based on the preliminary testing of the Kharnbak #1 well, and the reserve study by an independent petroleum engineering firm, the Company believes that further drilling and testing is desirable. FORWARD LOOKING INFORMATION With the exception of historical information, the matters discussed in this Report contain forward looking statements that involve risks and uncertainties. Although the Company believes that its expectations are based upon reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements contained in this report include the time and extent of changes in commodity prices for oil and gas, increases in the cost of conducting operations, including remedial operations, the extent 2 of the Company's success in discovering, developing and producing reserves, political conditions, including those in Pakistan and other areas in which the Company possesses properties, condition of capital and equity markets, the ability of the Company to obtain financing on reasonable terms, changes in environmental laws and other laws affecting the ability of the Company to explore for and produce oil and gas and the cost of so doing and other factors which are described in this report. COMPETITION The oil and gas business is highly competitive in every phase. The Company competes with numerous companies and individuals in its activities. Many on these competitors have far greater financial and technical resources with established multi-national operations. As a result, unless the Company obtains additional capital investment and /or joins in partnerships and joint ventures, it may be prevented from participating in large drilling and acquisition programs. Since the Company is smaller and has limited resources in comparison to many of its competitors, its ability to compete for oil and gas properties is also limited. REGULATIONS The following discussion of various government regulations is presented only as an overview and is necessarily brief. It is not intended to constitute a comprehensive dissertation of the various statutes, rules, regulations and other governmental rulings, policies and orders which may affect the Company. STATE AND LOCAL REGULATIONS The various states have established statutes and regulations requiring permits for drilling, drilling bonds to cover plugging contingencies, and reporting requirements on drilling and production activities. Activities such as well location, method of drilling and casing wells, surface use and restoration, plugging and abandonment, well density and other matters are all regulated by a governing body. Texas, the state in which the Company operates, has rules and regulations covering all of these matters. It also has regulations addressing a number of environmental and conservation matters, including the unitization and pooling of oil and gas properties. ENVIRONMENTAL REGULATIONS The activities of the Company are subject to numerous state and federal statutes and regulations concerning the storage, use and discharge of materials into the environment, and many other matters relating to environmental protection. These regulations may adversely affect the Company's operations and cost of doing business. It is likely that these laws will become more stringent in the future. SAFETY AND HEALTH REGULATIONS The Company must also conduct its operations in accordance with laws governing occupational safety and health. Currently, the Company does not foresee expending substantial amounts in order to 3 comply with these regulations. FOREIGN LAWS AND REGULATIONS The Company intends to commit a significant amount of its resources to develop its oil and gas Concession in Pakistan. There are inherent risks in operating a business in a foreign country where unfamiliar laws and business practices may exist. The Company intends to minimize this risk by engaging appropriate professional and support personnel as the operations develop. MARKETING The availability of a ready market for the Company's oil and gas production depends on numerous factors over which the Company has no control, including the cost and availability of alternative fuels, the extent of other production, costs and proximity of pipelines, regulations of governmental authorities and cost of compliance with environmental concerns. Consumer demand and governmental action can force the price of the Company's products both upwards and downwards, depending on the circumstances. Future prices are virtually impossible to predict. The Company does not have a significant share of any market segment and cannot set or influence the price of its products. EMPLOYEES At June 30, 1998, the Company and its subsidiaries had 17 employees, including 11 administrative and clerical personnel and 6 drilling and field personnel. YEAR 2000 The Company believes that its computers are Y2K compliant, and that there will be no impact on the Company as a result of the Company's computers interacting with the computers of its vendors and customers. ITEM 2. PROPERTIES GLOSSARY The following are used in this report and the definitions contained herein are provided for the convenience of the reader: BBL OR BARREL - means 42 United States gallons liquid volume, usually used herein in reference to crude oil or other liquid hydrocarbons. BOE OR BARREL OF OIL EQUIVALENT - generally converts gas to oil at a ratio of 6,000 cubic feet of gas to one Bbl of oil. Then oil and gas are added together for total BOE. 4 BOPD - means barrels of oil per day. DEVELOPED ACREAGE - means the number of acres of oil and gas leases held or owned, which are allocated or assignable to producing wells or wells capable of production. DEVELOPMENTAL WELL - means a well which is drilled to and completed in a known producing formation adjacent to a producing well in a previously discovered field and in a stratigraphic horizon known to be productive. EXPLORATION - means the search for economic deposits of minerals, petroleum and other natural earth resources by any geological, geophysical, or geochemical technique. EXPLORATORY WELL - means a well drilled either in search of a new, as-yet undiscovered oil or gas reservoir or to greatly extend the known limits of a previously discovered reservoir, as indicated by reasonable interpretation of available data, with the objective of completing in that reservoir. FIELD - means a geographic area in which a number of oil or gas wells produce from a continuous reservoir. GROSS ACRES - means the gross surface acreage in which a leasehold working interest is owned. MCF - means one thousand cubic feet of natural gas. NET ACRES OR NET WELLS - mean the sum of fractional working interests owned in gross acres or gross wells. By way of example, a 50% working interest in 100 gross acres is equivalent to 50 net acres. OPERATOR - means the person or company actually operating an oil or gas well. PV-10 VALUE - means the present value, employing a 10% discount factor, of the future net revenues computed using current prices from the production of proven reserves. HISTORY OF PROPERTIES The Company has emerged from the development stage and in addition to accumulating an inventory of oil and gas properties for future recovery, has begun to drill selected developmental wells on the properties which it holds. During the fiscal year ended June 30, 1995, the Company acquired Simmons Oil Company, Inc. ("Simmons") through a business combination accounted for as a purchase. Simmons owns certain oil and gas properties that had been acquired prior to the acquisition of Simmons by the Company. The Company intends to further evaluate these properties and develop those which merit such efforts, based upon this continuing evaluation. Many of these properties contain existing wells that are not currently productive and which cannot be expected to become productive, if at all, without additional evaluation, work and repair. The Company has begun an extensive workover program with 5 the purpose of revitalizing these fields. At June 30, 1998, the workover and development program, while commenced, has not progressed to the point of substantial completion. Therefore, oil and gas production and related revenue from these workover properties are relatively minimal and proven reserves have not been allocated to these properties. In some instances, these wells are being plugged and abandoned in favor of more potentially productive properties in the Company's core areas of development. The Company acquired Hycarbex, Inc. in a business combination accounted for as a purchase in April, 1995 and changed the name to Hycarbex-American Energy, Inc. ("Hycarbex") Hycarbex is a wholly owned subsidiary of the Company. Hycarbex holds an Exploration License granted by the government of Pakistan to explore for oil and gas reserves in a particular Concession now comprised of approximately 4,000 square kilometers. The Company shot 256 kilometers of 2D seismic surveys across this Concession, drilled its initial exploratory well on the Concession in early 1998, and is currently preparing to drill the second exploratory well in late 1998. While the prospects of economic productivity have been evaluated by independent consultants to the Company whose report to management indicates certain Probable Recoverable Reserves and additional potential test drillsites, there can be no definitive evaluation of the potential value of this project until additional drilling and testing is completed. In June, 1997, the Company acquired oil and gas properties totaling approximately 1,400 acres located in the Blue Ridge, Boling, and Manvel Fields, Fort Bend County, Texas. The acquisition included 82 producing and non-producing wells and all associated production equipment on the properties. The purchase price was $1,000,000 payable in a combination of cash and production payments over a maximum of four years. The Company paid $75,000 as down payment and executed a Note for $925,000. Under the terms of the purchase, the Company is committed to pay a minimum of $250,000 per year for the next four years, or until a total of $1,000,000 has been paid, whichever occurs first, through a combination of payments of $10,000 for each new drillsite that is drilled and payments to the seller in the form of an overriding royalty interest from gross production. During the fiscal year, the Company commenced its program to drill new wells on the properties acquired and to rework some of the previously existing wells. A summary of the oil and gas properties areas in which the Company owns an interest are as follows: FORT BEND COUNTY, TEXAS. The Company owns interests in the Blue Ridge and Boling oil fields with 11 leases comprising approximately 1846 gross acres and 1729 net acres. During the fiscal year ended June 30, 1998, the Company drilled six developmental wells in the Boling Field, with five of the six currently in various stages of completion or production. The Company has a significant number of proved undeveloped locations which it plans to drill in the Boling and Blue Ridge Fields. Subsequent to June 30, 1998, the Company drilled two additional developmental wells in the 6 Boling field, with both currently in various stages of completion and production. The Company intends to drill a significant number of additional developmental wells in this field, pending the ultimate outcome of the initial eight tests. LIBERTY COUNTY, TEXAS. The Company previously held interests in the North Dayton oil field with nine wells previously drilled by other operators located on approximately 211 acres. Subsequent to June 30, 1997, the Company relinquished 161 acres of these properties, and has drilled 5 new wells in this field on the remaining 50 acres all of which are currently shut in, . The Company is in the process of evaluating the economic potential of these wells as they are completed and tested, and reviewing the viability of prospective recompletions of the old wells on this property. GALVESTON COUNTY, TEXAS. The Company previously held interests in the Dickinson and Gillock fields with leases comprising approximately 220 acres. The Company relinquished its interest in the Dickinson field and added the acquisition of an additional lease in the Gillock field comprised of 673 acres. The Company also sold one lease in the Gillock field. The remaining holdings of the Company are currently comprised of 673 net acres in the Gillock field. JACOBABAD, PAKISTAN. The Company, through its wholly owned subsidiary Hycarbex-American Energy, Inc., obtained an Exploration License from the government of Pakistan to explore for oil and gas reserves . The Concession is located in the Middle Indus Basin, near the city of Jacobabad, Pakistan. The prospect covers 4,000 square kilometers (approximately 1 million acres ). The Company is currently studying all phases of this project in order to adopt a plan that will maximize the financial return from the Concession. Preparations for the drilling of the second exploratory well by the Company in late 1998 are currently underway. 7 A. DRILLING HISTORY Set forth below is a tabulation of wells completed in the period indicated in which the Company has participated and the results thereof for each of the three years ended June 30, 1998. YEAR ENDED JUNE 30 ---------------------------------------- 1998 1997 1996 ------------ ------------ ------------ GROSS NET GROSS NET GROSS NET ----- ----- ----- ----- ----- ----- DEVELOPMENTAL WELLS: DRY ........ 0 0 0 0 0 0 OIL ........ 6 5 8 7 0 0 GAS ........ 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- TOTALS ..... 6 5 8 7 0 0 EXPLORATORY WELLS: The Company drilled one exploratory well in Pakistan, the Kharnhak #1. As of the year ended June 30, 1998, operations on this well had been suspended without a completion attempt in any of the geologic horizons encountered during drilling. B. PRODUCING WELLS Shown below is a tabulation of the productive oil wells owned by the Company as of June 30, 1998. This summary includes wells which may currently be shut in and awaiting recompletion in order to restore commercial productivity. There have been no productive gas wells since 1996. All of the wells are located in the Company's oil and gas properties in Texas. As of June 30, 1998 PRODUCTIVE WELLS ------------------- GROSS NET ----- ----- OIL .......................................... 94 91.5 GAS .......................................... 0 0 ----- ----- TOTAL .................... 94 91.5 8 C. ACREAGE HOLDINGS The developed and undeveloped acreage owned by the Company as of June 30, 1998 are as follows. DEVELOPED UNDEVELOPED -------------- ------------------------ ACREAGE ACREAGE GROSS NET GROSS NET ----- --- --------- ------- TEXAS .................... 172 147 2,402 2,402 PAKISTAN ................. 0 0 1,000,000 950,000 ----- --- --------- ------- TOTAL .................... 172 147 1,002,402 952,402 ===== === ========= ======= D. PRODUCTION AND SALE OF OIL AND GAS As of June 30, 1997 and 1998, the Company received oil revenues from 10 and 14 wells, respectively. All of these wells are oil producers, with no sales of gas. The additional productive wells identified herein are in various stages of recompletion. Many have begun or are expected to begin to generate production subsequent to June 30, 1998, which production is not reflected in the following production numbers: 1996 (FN 1) 1997 1998 ----------- ------- ---------- Net Oil Sales (Bbls) in the Fiscal Year ended June 30: ............. N/A 14,241 42,663 =========== ======= ========== Avg. Price per Barrel: ................. N/A $ 19.90 $ 15.03 =========== ======= ========== - ---------------------- FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis sales of oil and gas which consisted only of production from preliminary testing of wells. 9 All wells in the U.S. fields were shut in for repairs and maintenance as of June 30, 1998, and had been shut in for varying periods of time prior to June 30, 1998, thereby reducing the amount of net sales by the Company during the fiscal year ended June 30, 1998. AVERAGE LIFTING COST 1996 (FN 1) 1997 1998 ----------- ----- ----- Per BBL ................................. N/A $5.89 $6.05 Per MCF (FN 2) .......................... N/A N/A N/A - --------------------- FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis sales of oil and gas which consisted only of oil production from preliminary testing of wells. FN 2 The Company does not presently produce natural gas. E. OIL AND GAS RESERVES The Company did not report reserves to any other agency of the U. S. government. The Company's proved reserves and PV-10 Value from its U.S. proved developed and undeveloped oil and gas properties have been estimated by Sigma Energy Corporation in Houston, Texas. The Company's Pakistan Probable Recoverable Reserves and PV-10 Value from its Pakistan undeveloped gas properties have been estimated by Martin Petroleum and Associates in Calgary, Alberta, Canada. The estimates of these independent petroleum engineering firms were based upon review of production histories and other geologic economic, ownership and engineering data provided by the Company. In accordance with SEC guidelines, the Company's estimates of future net revenue from the Company's proved and probable reserves and the present value thereof are made on the basis of oil and gas sales prices in effect as of the dates of such estimates and are held constant throughout the life of the properties, except where such guidelines permit alternate treatment. Future net revenues at June 30, 1998 on the Company's U.S. properties reflect a weighted average price of $12.50 per BOE vs. $19.50 in its June 30, 1997 estimates. The proved developed and undeveloped oil and gas reserve figures presented in this report are estimates based on reserve reports prepared by independent petroleum engineers. The estimation of reserves requires substantial judgment on the part of the petroleum engineers, resulting in imprecise determinations particularly with respect to new discoveries. Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially, depending, in part, on the assumptions made and may be subject to material adjustment. Estimates of proved undeveloped reserves, which comprise a substantial portion of the Company's reserves, are, by their nature, much less certain than proved developed reserves. The accuracy of any reserve estimate depends on the quality of available 10 data as well as engineering and geological interpretation and judgment. Results of drilling, testing and production or price changes for produced hydrocarbons subsequent to the date of the estimate may result in changes to such estimates. The estimates of future net revenues in this report reflect oil and gas prices and production costs as of the date of estimation, without escalation, except where changes in prices were escalated under the terms of existing contracts. There can be no assurance that such prices will be real or that the estimated production volumes will be produced during the period specified in such reports. Since June 30, 1998, (the date of the estimate and the date of this report) oil and gas prices have generally remained stable. The estimated reserves and future net revenues may be subject to material downward or upward revision based upon production history, results of future development, prevailing oil and gas prices and other factors. A material change in estimated proved reserves or future net revenues could have a material effect on the Company. UNITED STATES RESERVE ESTIMATES The following tables present total proved developed and proved undeveloped reserve volumes as of June 30, 1998, and June 30, 1997, and estimates of the future net revenues and PV-10 Value therefrom. There can be no assurance that the estimates are accurate predictions of future net revenues from oil reserves or their present value. ESTIMATED NET PROVED OIL RESERVES - UNITED STATES PROPERTIES PROVED OIL RESERVE CATEGORY (BBLS) ---------------------------------------------------------- AS OF JUNE 30: PROVED DEVELOPED PROVED SHUT IN PROVED UNDEVELOPED - ----------------- ----------------- --------------------- 1998 1997 1998 1997 1998 1997 - ------- ------- ------- ------- --------- --------- -0- 176,413 671,050 200,200 1,689,950 2,037,950 ======= ======= ======= ======= ========= ========= Total estimated Proved oil reserves as of June 30: 1998 1997 ----------------- ----------------- 2,361,000 Barrels 2,414,563 Barrels ================= ================= ESTIMATED FUTURE NET REVENUES - UNITED STATES PROPERTIES The comparative estimated future net revenues (using current prices and costs at the years end) and the present value of future net revenues (using discount factor of 10 percent per annum) before 11 income taxes for the Company's proved developed and proved undeveloped oil reserves as of June 30, 1998 and 1997 are as follows: PROVED DEVELOPED OIL RESERVE CATEGORY ---------------------------------------------------------- AS OF JUNE 30, 1998 AS OF JUNE 30, 1997 PROVED DEVELOPED PROVED DEVELOPED - ------------------------------------------- ------------------------------ FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF REVENUES FUTURE NET REVENUES FUTURE NET REVENUE REVENUE PV 10% PV 10% - ------------------------------------------- ------------------------------ $ - 0 - $ - 0 - $3,440,057 $2,921,183 ======== ======== ========== ========== PROVED SHUT IN OIL RESERVE CATEGORY ---------------------------------------------------------- AS OF JUNE 30, 1998 AS OF JUNE 30, 1997 PROVED SHUT-IN PROVED SHUT-IN - ------------------------------------------- ------------------------------ FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF REVENUES FUTURE NET REVENUES FUTURE NET REVENUE REVENUE PV 10% PV 10% - ------------------------------------------- ------------------------------ $7,257,990 $6,077,565 $3,903,900 $3,105,102 ========== ========== ========== ========== PROVED UNDEVELOPED OIL RESERVE CATEGORY ---------------------------------------------------------- AS OF JUNE 30, 1998 AS OF JUNE 30, 1997 PROVED UNDEVELOPED PROVED UNDEVELOPED - ------------------------------------------- ------------------------------ FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF REVENUES FUTURE NET REVENUES FUTURE NET REVENUE REVENUE PV 10% PV 10% - ------------------------------------------- ------------------------------ $13,395,010 $9,572,141 $39,740,027 $21,693,580 =========== ========== =========== =========== 12 TOTAL OF COMBINED PROVED OIL DEVELOPED, SHUT IN, AND UNDEVELOPED CATEGORIES AS OF JUNE 30, 1998: AS OF JUNE 30, 1997: - --------------------------------------- ----------------------------------- FUTURE NET PRESENT FUTURE NET PRESENT REVENUES VALUE OF REVENUES VALUE OF FUTURE NET FUTURE NET REVENUE REVENUE PV 10% PV 10% - ----------- ----------- ----------- ----------- $20,653,000 $15,649,706 $47,083,977 $27,719,869 =========== =========== =========== =========== The Company attributes the decline in present valuations to the relative decline in oil prices at the time of the estimates - wherein the weighted average price had declined from $19.50 at June 30, 1997, to $12.50 at June 30, 1998. This reflects a 36% decline in product prices, while present value has declined 43%. The differential also includes the downward adjustment of 10,900 barrels, net of actual production, as well as a relatively fixed operating cost base. "Proved developed" oil and gas reserves are reserves that can be expected recovered from existing wells with existing equipment and operating method. "Proved undeveloped" oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where relatively major expenditure is required for recompletion. In recent year the market for oil and gas has experienced substantial fluctuations, which have resulted in significant swings in the prices for oil and gas. The Company cannot predict the future of oil and gas prices or whether a future decline in prices will occur. Any such decline would have an adverse effect on the Company. PAKISTAN RESERVE ESTIMATES - PROBABLE RECOVERABLE RESERVES As previously reported and filed in a Form 8-K dated September 22, 1998, the Company retained Martin Petroleum and Associates to perform a preliminary reserve study on its Jacobabad Concession in the Middle Indus basin in central Pakistan. These reserves are not categorized as proven. Further, these reserves remain categorized by the Company as unproven. However, management has determined that the independent estimates of Probable Recoverable Reserves in the preliminary reserve study represent material information which merited disclosure to the shareholders. These independent estimates also served as justification to management to continue further exploratory drilling on its Pakistan Concession. The following summary represents total probable recoverable undeveloped natural gas reserve estimates as of June 30, 1998, and estimates of the future net revenues and PV-10 Value therefrom. There can be no assurance that the estimates are accurate predictions of future net revenues from these gas reserves or their present value. 13 GROSS PROBABLE RECOVERABLE GAS RESERVE ESTIMATES 5.159 TCF (Trillion Cubic Feet) NET PROBABLE RECOVERABLE GAS RESERVE ESTIMATES 3.231 TCF (Trillion Cubic Feet) NET PRESENT VALUE (Discounted @ 10%) $1,767,600,000 (TO THE COMPANY'S INTEREST) Probable Recoverable Reserves as defined in the preliminary reserve study are "reserves which analysis of drilling, geological, geophysical and engineering data does not demonstrate to be proved under current technology and existing economic conditions, but where such analysis suggests the likelihood of their existence and future recovery." The estimation of reserves requires substantial judgment on the part of the petroleum engineers, resulting in imprecise determinations particularly with respect to new discoveries. Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially, depending, in part, on the assumptions made, and may be subject to material adjustment. Estimates of probable undeveloped reserves, which are a substantial portion of the Company's reserves, are, by their nature, much less certain than proved developed reserves. The accuracy of any reserve estimate depends on the quality of available data as well as engineering and geological interpretation and judgment. Results of drilling, testing and production or price changes subsequent to the date of the estimate may result in changes to such estimates. The estimates of future net revenues in this report reflect gas prices and production costs as of the date of estimation, without escalation, except where changes in prices were escalated under the terms of existing contracts. There can be no assurance that such prices will be real or that the estimated production volumes will be produced during the period specified in such reports. Since June 30, 1998, (the date of the estimate and the date of this report) gas prices have generally remained stable. The estimated reserves and future net revenues may be subject to material downward or upward revision based upon production history, results of future development, prevailing gas prices and other factors. A material change in categorization of reserves or future net revenues could have a material effect on the Company. TITLE TO PROPERTIES Many of the Company's oil and gas properties are held in the form of mineral leases. As is customary in the oil and gas industry, a preliminary investigation of title is made at the time of acquisition of developed and undeveloped properties. Title investigations covering the drillsites are generally completed, however, before commencement of drilling operations or the acquisition of producing properties. Generally, the Company's working interests are subject to customary royalty and overriding royalty interests, liens, current taxes, operating agreements and other customary imperfections of title which do not immediately affect operations. Properties acquired by purchases are also often subject to environmental covenants designed to protect the seller from liability for environmental damage. The Company believes that its methods of investigating title to, and acquisition of, its oil and 14 gas properties are consistent with practices customary in the industry and that it has generally satisfactory title to the leases covering its proved reserves. ITEM 3. LEGAL PROCEEDINGS The Company and its officers and directors are involved in various litigation as described below: The Company and its President, Bradley J. Simmons, have been joined in a civil lawsuit filed by the Securities and Exchange Commission which alleges securities fraud regarding actions of the Company in 1995. The case is styled Securities and Exchange Commission v. Bradley J. Simmons and American Energy Group, Ltd., No. H-97-1384, in the United States District Court, Southern District of Texas, Houston, Division. While the Company has retained securities counsel to vigorously refute these allegations, management intends to move forward in such a matter as to resolve this issue as rapidly as possible. In conjunction with this initiative, the Company has reserved $85,000 in its current Financial Statement toward possible settlement and legals costs associated with this litigation. In 1997, the Company and one its subsidiaries, American Energy - Deckers Prairie, Inc. were named as defendants in four lawsuits involving the collection of several promissory notes delivered by the Company in 1994 to purchase the working interests in the fields in Harris County, Texas. The cases are styled: Horace H. Norman, et. al. v. American Energy Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 103320, in the 268th Judicial District Court, Fort Bend County, Texas; Andrew M. J. Steinhubl and Horace H. Norman v. American Energy Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 103320, in the 268th Judicial District Court, Fort Bend County, Texas;., No. 99044, in the 328th Judicial District Court, Fort Bend County, Texas; Larry M. Graham, et. al. v. American Energy Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 101424, in the 268th Judicial District Court, Fort Bend County, Texas; and J.L.M. Investors et. al. v. American Energy Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 98905, in the 240th Judicial District Court, Fort Bend County, Texas. All of these lawsuits have been settled in their entirety and the lawsuits have been dismissed. On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston, Texas, charging that specific individuals and companies had conspired to manipulate stock of the Company which was believed to have been fraudulently obtained prior to the acquisition by The American Energy Group, Ltd. in 1994. The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al., C.A. No. H- 97-2450, in the United States District Court, Southern District of Texas, Houston, Division. A countersuit and derivative claim was filed in response to the Company's July 30, 1997 lawsuit by one of the defendants. The Company subsequently reached a settlement with all except three of the defendants, whereby 565,833 shares were canceled and returned to the Company, certain debts owed by the Company were forgiven, and, in addition, the Company received a cash settlement. Furthermore, the countersuit was withdrawn. The litigation continues against three defendants, representing in excess of 400,000 shares of common stock which the Company believes to have been fraudulently obtained. At 15 this time, it is not anticipated that litigation costs incurred by the Company will adversely affect ongoing Company operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS NONE. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The price of the Common Stock of the Company is quoted in the "pink sheets" published by the National Quotation Bureau and the Bulletin Board, an inter-dealer quotation system operated by the National Association of Securities Dealers under the symbol "AMEL". These over- the-counter market quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transaction prices. FISCAL YEARS ENDED JUNE 30, HIGH BID LOW BID -------- ------- 1997 First Quarter $4.19 $2.00 Second Quarter $3.12 $1.41 Third Quarter $2.12 $1.25 Fourth Quarter $2.09 $1.00 1998 First Quarter $2.50 $1.53 Second Quarter $3.00 $1.94 Third Quarter $2.56 $1.75 Fourth Quarter $7.00 $1.28 On November 2, 1998, the closing bid for the Common Stock $4.06 per share. On November 2, 1998 there were approximately 1,500 stockholders of record of the Common Stock. 16 DIVIDENDS The Company has not declared, distributed or paid any cash dividends in the past. There is no current expectation that the Company will have sufficient net profit and cash flow in amounts that would allow a cash dividend to be paid to it's shareholders. RECENT SALES OF UNREGISTERED SECURITIES 1. From time to time during 1998, a total of 27 holders of the Company's convertible preferred stock exercised their conversion rights whereby 540,096 shares of convertible preferred stock were converted into common stock of the Company at a conversion ratio of five shares of common stock in exchange for each one share of convertible preferred stock. A total of 2,700,485 shares of common stock were issued. The Company did not received any proceeds. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the purchase of these securities of the Company, and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 2. From time to time during 1997, a total of four foreign investors purchased a total of 2,385,000 shares of common stock of the Company at a price of $0.90 per share. The Company received proceeds of $2,385,000. See, No. 6, below. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the purchase of these securities of the Company, and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 3. In December, 1997, the Company acquired one oil and gas property from one foreign person in exchange for 150,000 shares. The parties valued each share at 1.50 per share for the purposes of this transaction. The Company believes that the person had knowledge and experience in financial and business matters which allowed the person to evaluate the merits and risk of the purchase of these securities of the Company, and that the person was knowledgeable about the Company's operations and financial condition. This transaction was effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and 17 Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 4. In November, 1998, the Company retired a total of approximately $324,277 in debt to eight persons in exchange for a total of a total of 140,383 shares of common stock of the Company. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 5. In December, 1998, the Company compensated two foreign persons for consulting services in connection with the Kharnbak #1 well in Pakistan. The Company issued a total of 15,000 shares of common stock of the Company as payment in kind for these services. The parties valued each share at $1.50 per shares for the purpose of this transaction. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company, and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 6. In August, 1997, the Company made an adjustment to a prior private transaction in involving one person regarding a prior share issuance. The adjustment required a resetting to $0.90 share, of the transactional value of shares issued in the prior transaction. Pursuant to this adjustment, the Company issued a further 405,562 shares to the person. The Company received proceeds of $265,00. See, No. 2, above. The Company believes that the person had knowledge and experience in financial and business matters which allowed the person to evaluate the merits and risk of the receipt of these securities of the Company, and that person was knowledgeable about the Company's operations and financial condition. This transactions was effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not 18 been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 7. In August, 1997, the Company sold 550,000 shares of common stock to one foreign person for proceeds of $550,000. Each share was valued at $1.00 per share. The Company believes that the person had knowledge and experience in financial and business matters which allowed the person to evaluate the merits and risk of the purchase of these securities of the Company, and that the person was knowledgeable about the Company's operations and financial condition. This transactions was effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 8. From time to time during 1998, certain foreign persons exercised a total of 2,610,000 warrants to purchase common stock of the Company at an exercise price of $1.50 per share. The Company received total proceeds of $3,915,000 in these transactions. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the purchase of these securities of the Company, and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 9. During June, 1998, certain persons exercised a total of 100,000 warrants to acquire common stock of the Company whereby 67,982 shares of common stock of the Company were issued. The prior issuance of the warrants and this issuance of common stock was in connection with legal services which the parties valued at $101,973 for the purpose of this transaction. The Company treated this transaction as a payment in kind transaction for legal services rendered. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company, and that each person was knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these 19 transactions. None of the transactions involved a public offering. 10. In April, 1998, the Company and a foreign person settled a dispute. Previously, the person had invested $500,000 in the Company. As a result of the settlement, the Company issued 350,000 shares of common stock of the Company to the person. The Company believes that the person had knowledge and experience in financial and business matters which allowed the person to evaluate the merits and risk of the purchase of these securities of the Company, and that the person was knowledgeable about the Company's operations and financial condition. This transaction was effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Regulation S and Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 11. In the fiscal year ended June 30, 1998, 1,710,000 warrants were issued to directors, officers, and management of the Company. These Warrants are exercisable on the basis of one share of Common Stock for each Warrant, at prices ranging from $1.25 to $5.31 per share for a seven year period. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company. In such capacity they were knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 12. During the fiscal year, the Company established a three member "Disclosure Committee" comprised of certain of the Company's attorneys and market relations consultants. Each of these parties have received 25,000 warrants, making a total of 75,000 warrants issued, exercisable at $1.25 per share which expire in May, 2005. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company. In such capacity they were knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 20 13. During the fiscal year, the Company has engaged certain technical and market relations professional consultants in various contracts. In conjunction with retaining their services, the Company has issued 200,000 warrants ranging in exercise price from $2.31 to $3.97 per share and in expiration date up to May, 2005. The Company believes that each of the persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities of the Company. In such capacity they were knowledgeable about the Company's operations and financial condition. These transactions were effected by the Company in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did the Company pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. 21 ITEM 6. SELECTED FINANCIAL DATA The following Selected Consolidated Financial Data presented under the captions "Statements of Earnings Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five year period ended June 30, 1998, are derived from the consolidated financial statements of The American Energy Group, Ltd, and Subsidiaries. The financial data for the three years ended June 30,1998 have been audited by Jones, Jensen & Company, Independent Public Accountants. The financial data for the two years ended June 30, 1995 have been audited by Charles D. Roe, CPA - Independent Public Accountant. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements as of June 30, 1997 & 1998, and for each of the three years ended June 30, 1994, 1995 and 1996, the accompany notes and the report thereon, which are included elsewhere in the respective Forms 10-K.
FOR THE YEARS ENDED JUNE 30, --------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ----------- STATEMENT OF EARNINGS DATA Oil & Gas sales ....................... $ 641,203 $ 283,485 $ 50,390 $ 43,711 $ 0 Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0 Legal & Professional ................... 541,031 143,622 129,866 123,640 0 Administrative Labor ................... 122,089 77,194 118,827 99,112 0 Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0 Other General & Administrative ......... 144,172 113,625 136,521 88,106 0 ============ ============ ============ ============ =========== Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0 Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0 Extraordinary Item .................. 123,082 17,343 0 0 0 ============ ============ ============ ============ =========== Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0 ============ ============ ============ ============ =========== Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000 ============ ============ ============ ============ =========== Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752 ============ ============ ============ ============ =========== Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000 ============ ============ ============ ============ =========== Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357 ============ ============ ============ ============ ===========
22
Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0 Legal & Professional ................... 541,031 143,622 129,866 123,640 0 Administrative Labor ................... 122,089 77,194 118,827 99,112 0 Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0 Other General & Administrative ......... 144,172 113,625 136,521 88,106 0 ============ ============ ============ ============ =========== Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0 Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0 Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0 Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0 Extraordinary Item .................. 123,082 17,343 0 0 0 ============ ============ ============ ============ =========== Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0 ============ ============ ============ ============ =========== Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000 ============ ============ ============ ============ =========== Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752 ============ ============ ============ ============ =========== Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000 ============ ============ ============ ============ =========== Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357 ============ ============ ============ ============ =========== JUNE 30, -------------------------------------------------------------- 1998 1997 1996 1995 1994 =========== =========== =========== ========== ====== BALANCE SHEET DATA Cash & Cash Equivalents ...... $ 3,214,205 $ 3,132,294 $ 424,698 $ 472,493 $ 0 Working Capital (Deficit) .... 650,004 2,434,012 (84,160) 348,852 0 Total Assets ................. $20,864,635 $13,092,370 $ 4,362,126 $3,243,758 $ 0 =========== =========== =========== ========== ====== Long Term Debt (Including Current Portion) $ 698,677 $ 1,792,318 $ 1,397,700 $ 486,736 $ 0 Stockholders Equity .............. $17,476,355 $10,457,095 $ 2,450,380 $2,568,884 $ 0 =========== =========== =========== ========== ======
ITEM 7. 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 as set forth beginning on page f-1. As of June 30, 1998, the Company had commenced its principal drilling and reworking operations but had not yet generated significant revenues to date. The Company has financed operations through loans and equity capital infusions. During the past year, the Company has incurred general and administrative costs associated with the Company's acquisitions and management of the Company's affairs. Costs incurred in connection with the acquisition and development of oil and gas properties have been capitalized in accordance with the full cost method of accounting for oil and gas properties. Management anticipates the future generation of a regular revenue stream now that the Company has received substantial equity funding with which to develop certain of its properties. The Company previously acquired oil drilling rigs and associated equipment in anticipation of drilling wells for their own account. Some of the older rigs and associated equipment are being sold due to the opportunity to now focus on production operations. The Company utilizes the full cost method of accounting for its oil and gas properties. Under this method, all costs associated with the acquisition, exploration and development of oil and gas properties are capitalized in a "full cost pool". Cost included in the full cost pool are charged to operations as depreciation, depletion and amortization using the units of production method based 23 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 are not recognized unless they would materially alter the relationship between the capitalized costs and the estimated proved reserves. Disposition of properties are reflected in the full cost pool. The full cost method of accounting limits the costs the Company may capitalize by requiring the Company to recognize a valuation allowance to the extent that capitalized cost of its oil and gas properties in its full cost pool, net of accumulated depreciation, depletion and amortization and any related deferred income taxes, exceed the future net revenues of proved oil and gas reserves plus the lower of cost or estimated fair market value of non-evaluated properties, net of federal income tax. This limitation is normally referred to as the "ceiling test limitation." The Company changed significantly on October 1, 1994 with the acquisition of Simmons Oil Company, Inc. and its subsidiaries, Simmons Drilling Company and Sequoia Operating Company. Through this transaction, the Company acquired interests in several oil and/or gas properties located near Houston, Texas. The Company subsequently increased the number of properties in this area by acquiring additional leases. All of the properties are in areas where production had been achieved in the past by other exploration companies. In the initial three years in which the Company held the Jacobabad Concession in the Middle Indus Basin of central Pakistan, it expended in excess of $5.3 Million in acquisition, geological, seismic, drilling, and associated costs. At the time of this filing, the Company is in the planning stages for drilling of the second exploration well in this Concession. The Company has deposited $1.1 Million in its bank account in Islamabad, Pakistan, in preparation for drilling the second exploratory well by the end of 1998, and is currently studying geological data on the area, logistics, mobilization, and other associated matters to devise a sound plan for success. This is a significant undertaking by the Company. SUBSIDIARIES The Company has established several subsidiaries in order to designate certain oil and gas fields to specific companies. In addition, certain companies have been acquired throughout the Company's history. These subsidiaries are further described as follows: HYCARBEX AMERICAN ENERGY, INC. In April 1995, the Company acquired Hycarbex, Inc.(now known as Hycarbex American Energy, Inc.) which it is operating as a wholly owned subsidiary. This subsidiary holds a concession granted by the Government of Pakistan to explore for oil and gas deposits in the Middle Indus Basin near Jacobabad, Pakistan. Pakistan has become progressively more amenable aggressive to exploration activities by foreign corporations and there have been significant discoveries by other exploration companies prospecting in the country and in the vicinity of the Hycarbex concession. 24 AMERICAN ENERGY-DECKERS PRAIRIE, INC. This subsidiary was incorporated by the parent in January, 1995, as a wholly owned subsidiary to develop the Deckers Prairie Field, Harris County, Texas. This subsidiary previously owned controlling working interests in five previously producing gas wells and three wells drilled and ready for completion. The Company has elected to abandon development of this area relative to its core areas of activity and is planning to dissolve this corporation. THE AMERICAN ENERGY OPERATING CORP. This subsidiary was incorporated by the parent in February, 1995, as a wholly owned subsidiary to operate the wells and fields owned by the parent and/or certain of the other subsidiaries. TOMBALL-AMERICAN ENERGY, INC. This subsidiary was incorporated by the parent in March, 1995, as a wholly owned subsidiary to develop the Tomball Field, Harris County, Texas. This subsidiary previously owned controlling working interests in two wells drilled and ready for completion. The Company has elected to abandon development of this area relative to its core areas of activity and is planning to dissolve this corporation. CYPRESS-AMERICAN ENERGY, INC. This subsidiary was incorporated by the parent in March, 1995, as a wholly owned subsidiary to develop the Cypress Field, Harris County, Texas. This subsidiary previously owned 100% working interest in one 3,000 ft. well drilled and ready for completion. The Company has elected to abandon development of this area relative to its core areas of activity and is planning to dissolve this corporation. DAYTON NORTH FIELD-AMERICAN ENERGY, INC. This subsidiary was incorporated by the parent in March, 1995, as a wholly owned subsidiary to develop the North Dayton Field, Liberty County, Texas. This subsidiary previously owned an interest in two 4,200 ft. wells drilled and ready for completion and one 2,500 ft. producing well, along with 300 acres. This property has been consolidated into the parent company and the Company is planning to dissolve this corporation. NASH DOME FIELD-AMERICAN ENERGY, INC. This subsidiary was incorporated by the parent in March, 1995, as a wholly owned subsidiary to develop the Nash Dome Field, Ft. Bend County, Texas. This subsidiary previously owned an interest in three 4,200 ft. producing wells in addition to 900 acres to be developed. The Company has elected to abandon development of this area relative to its core areas of activity. This property 25 has been consolidated into the parent company and management is planning to dissolve this corporation. SIMMONS OIL COMPANY, INC. This subsidiary was acquired in October 1994. The properties of this company have been redistributed to other field specific subsidiaries, and at present, this subsidiary is planned for dissolution in the coming fiscal year. SIMMONS DRILLING CO., INC. This entity is a subsidiary of Simmons Oil Company, Inc., which originally held 4 drilling rigs, 2 service rigs, and associated drilling and completion equipment, including bulldozers, trucks, etc. This equipment is being consolidated into The American Energy Operating Corp., and this company is scheduled to be dissolved in the coming fiscal year. SEQUOIA OPERATING COMPANY, INC. This entity is a subsidiary of Simmons Oil Company, Inc., which originally operated Simmons Oil Company, Inc.'s properties. The wells that this company operated are systematically being consolidated into the operations of The American Energy Operating Corp., and this company is scheduled to be dissolved in the coming fiscal year. POLICY OF CONSOLIDATION As a policy, the Company is currently evaluating the consolidation of its properties in the various subsidiaries into a more centralized structure which would entail dissolving most of the above described companies and creating a more streamlined approach to its activities. RESULTS OF OPERATIONS The Company produced $641,203 in oil revenues in the year ended June 30, 1998, as compared to $283,485 in oil revenues in the year ended June 30, 1997. This represents an increase of 226% from the prior years oil revenues. The Company sold a total of 42,663 net barrels attributable to its interest from properties which it developed, as compared with 14,241 net barrels attributable to the Company's net interest in the prior year. This reflects a 299% increase in net production to the company's interest. However, product prices declined from the prior year's average price per barrel of $19.90 to an average in the current fiscal year of $15.03. The Company produced oil revenues of $641,203 and incurred production costs of $258,032 and an amortization charge of $270,927, thereby generating net results from production operations of a net profit of $112,244 vs. a net profit of $166,659 in the prior fiscal year ending June 30, 1997. Net results for the period were adversely affected by the 24% decline in average price per barrels of 26 oil sold. With respect to operating costs, because of the sustained period in which the wells were shut in during the year, the Company's financial statement reflects an increase in its lifting costs per barrel from $5.89 per barrel in the prior fiscal year to $6.05 per barrel in the current fiscal year. Management anticipates that these "per barrel" lifting costs will be reduced considerably as the wells are placed on line with sustained and uninterrupted production. The Company sustained an overall operating loss of $527,991. Charges to revenues included a relatively large amount of legal and professional expenses in the amount of $541,031 which the Company considers to be a non-recurring item. Management believes that the litigation that the Company has experienced will not cause a detrimental effect to the shareholders of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company increased total assets to $20,864,635 at June 30, 1998 compared to $13,092,370 as of June 30, 1997. This has been primarily due to the sale of equity by the Company. These equity sales were sales of stock and the exercise of warrants. Shareholders equity increased to $17,476,355 at June 30, 1998 compared to $10,457,095 at June 30, 1997. This reflects an increase of $7,019,260 or 67%. The Company has increased its "book value" per share, on a fully diluted basis (excluding warrant exercise), by approximately 34% from $0.41 per share at June 30, 1997 to $0.55 per share at the end of the current fiscal year. This has been primarily through the sale of equity and warrant exercise in the Company at prices higher than its book value per share. In the current year, the Company expended an additional $3,375,233 in connection with exploration related activities on its Pakistan Concession, bringing the costs attributable to this project to a total of $5,433,328 as of June 30, 1998. The Company anticipates additional expenditures in the coming year associated with this project to be approximately $2.5 Million. The second exploratory well is expected to begin drilling in late 1998. While the Company continues to initiate drilling, completion, workover, and evaluation operations on its fields, most of the wells remain in shut in status due to the need for additional work. Reservoir studies on many of its properties cannot begin until this evaluation stage has been completed. The capital for completing this process is now being provided through combined equity placements completed prior to and subsequent to June 30, 1998. 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not enter into market risk sensitive transactions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial Statements for the fiscal years ended June 30, 1998, 1997, and 1996 including supplementary data, if required, are included as set forth beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (FN 1) NAME AGE POSITION Bradley J. Simmons 43 Director, President and Chief Accounting Officer Gerald Agranoff 51 Director, Vice President, Treasurer Don D. Henrich 52 Director Linda F. Gann 42 Secretary - ----------------------------- FN 1 David L. Cox died in June, 1998. He had been a Director and the Secretary of the Company. BRADLEY J. SIMMONS PRESIDENT, DIRECTOR & C.E.O. PRESIDENT, HYCARBEX-AMERICAN ENERGY, INC. Bradley Jay Simmons graduated from Yale University with a Bachelor of Science Degree in Administrative Science in 1979. From 1979 to 1980 he was employed by E.F. Hutton & Co., Tyler, Texas, as an Account Manager. In 1980 he joined Wells Battelstein Oil & Gas, Houston, TX., as Vice President, Marketing. He was instrumental in obtaining over $50 million in joint venture capital, and was promoted to overseeing a diversified subsidiary base including drilling, pipeline, well servicing (workover), and operating companies which drilled over 350 wells. In 1982, he started a private independent operating company, Simcor Energy Corp., Houston, TX., and began drilling and operating Texas oil & gas properties. In 1983 Simcor was merged into Cottonwood Energy Development Corp., Houston, TX., at which time he became President and Chairman of Cottonwood. In the following five year period, Cottonwood drilled over 300 wells and was eventually operating 28 approximately 600 wells throughout Texas. In 1988, Cottonwood was acquired in a "friendly takeover". He subsequently established a private investment banking practice, representing oil companies in negotiations, restructuring, acquisitions, and liquidations. Special emphasis of his practice was in developing and implementing strategies of acquisition and reorganization. Spent time acquiring knowledge of offshore drilling and operations, and began aggressive acquisitions of minerals, acreage, and interests in proven trends, as well as acquisitions of drilling and well servicing equipment. Co-founded Simmons Oil Company, Inc. and Simmons Drilling Co., Inc. When Simmons Oil Company, Inc. was acquired by The American Energy Group, Ltd. in September, 1994, he became President, CEO, and a Director of the Company. Mr. Simmons is a full time employee of the Company. GERALD N. AGRANOFF VICE PRESIDENT, TREASURER, DIRECTOR Gerald N. Agranoff is a general partner of and general counsel to Plaza Securities Company and Edelman Securities Company, Investment Partnerships, all in New York. He has been affiliated with both Plaza and Edelman since January, 1982. Since 1994, he has been Vice President and General Counsel to Datapoint Corp. In addition, Mr. Agranoff is currently of Counsel to Pryor, Cashman, Sherman & Flynn, in New York. From 1975 through 1981, Mr. Agranoff was engaged exclusively in the private practice of law in New York. In addition, he was an adjunct-instructor at New York University's Institute of Federal Taxation. Prior to entering private practice, Mr. Agranoff served as attorney-advisor to a Judge of the United States Tax Court. Mr. Agranoff is a Director of Datapoint Corporation, Canal Capital Corporation, Atlantic Gulf Communities, and Bull Run Corporation. Also, he was a co-founder of Simmons Oil Company, Inc., and became Vice President of The American Energy Group, Ltd. after Simmons Oil was acquired. He holds an L.L.M. degree in Taxation from New York University and J.D. and B.S. Degrees from Wayne State University. Mr. Agranoff serves the Company on a part time, as needed, basis. DON D. HENRICH DIRECTOR Don D. Henrich is President and CEO of Maverick Drilling Co., Inc., a position which he has held since 1977. Maverick Drilling Co. Inc. is an Austin, Texas based drilling contractor with five land based drilling rigs in Texas. Maverick has drilled twenty wells for the Company over the past two years. Mr. Henrich had joined Maverick in 1975 as vice president. He graduated from Tarleton University in 1968 with a BS in Business Administration, and was a sales representative for Xerox Corporation in Austin from 1970 to 1975. Mr. Henrich joined the Board of Directors of the Company on June 29, 1998. LINDA F. GANN SECRETARY Linda F. Gann was appointed Secretary of the Company on June 18, 1998. She has been employed by the Company since January, 1995, where she has held various positions including Office Manager, 29 Accounting Supervisor, and Assistant to the President. Prior to her employment with the company, she was employed by Igloo Corporation, where she was Production Manager. She had previously worked for Guaranty National Bank in Accounting and Commercial Customer Service. Ms. Gann has pursued various course work in attempting to obtain a college degree, subject to the constraints of her workload and responsibilities at the Company. DIRECTOR COMPENSATION Upon becoming a Director, each Director received a warrant to acquire up to 125, 000 shares of common stock of the Company. Each year thereafter, each Director is to receive an additional warrant to acquire up to 75,000 shares of common stock of the Company. These warrants were immediately exercisable and expire seven years from the date that the warrant is issued. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Bradley J. Simmons, Gerald N. Agranoff, Don D. Henrich and Linda F. Gann each failed to timely file one Form 5, all of which were subsequently filed. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------------- ----------------------- AWARDS PAYOUTS OTHER ---------- ------- ALL NAME AND ANNUAL RESTRICTED SECURITIES OTHER PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN- POSITION YEAR SALARY (1) BONUS SATION AWARDS OPTIONS/SARS PAYOUTS SATION - ---------- ----- ---------- ------ ------ --------- ------------ ------- ------ Bradley J 1998 $ 110,000 12,000 -0- -0- 525,000 -0- -0- Simmons 1997 $ 100,000 25,000 -0- -0- 200,000 -0- -0- CEO 1996 $ 62,000 -0- -0- -0- 33,391 -0- -0-
EMPLOYMENT AGREEMENTS The Company does not have any employment agreements. MANAGEMENT INCENTIVE POOL The Board of Directors approved granting the key employees of the Company involved with the development of the Jacobabad Concession and the Domestic Properties a 1% Overriding Royalty Interest. This Royalty Interest Pool will be re-apportioned as key employees are added and according to certain performance criteria with respect to the Pakistan and United States operations. 30 OPTION/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants)
PERCENT OF POTENTIAL REALIZABLE VALUE AT NUMBER OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM OPTIONS/SARS EMPLOYEES OR BASE ----------------------------- GRANTED IN FISCAL PRICE EXPIRATION NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($) - ---------- ------------- ------------ ------- ---------- -------- ---------- Bradley J. 150,000 8.8% $2.31 11/4/04 $720,000 $1,065,000 Simmons 125,000 7.3% $1.25 5/1/05 $776,250 $1,137,500 250,000 14.6% $3.97 6/18/05 $872,500 $1,595,000
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FISCAL YEAR-END FISCAL YEAR-END SHARES VALUE (#) ($) ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE - ---------- ------------- -------- ---------------- ---------------- Bradley J. -0- -0- 725,000 / -0- $2,078,500 / -0- Simmons
31 STOCK PRICE PERFORMANCE GRAPH The below graph compares the cumulative total stockholder return of The American Energy Group, Inc. Common Stock from June 30, 1994 through June 30, 1998, with Standard & Poors 500 Index (the Company's Broad Market Index) and with Standard & Poors Oil Composite Index (the Company's Peer Group Index). The graph assumes that the value of the investment in The American Energy Group, Inc. Common Stock and each index was $100 on June 30, 1994, and that all dividends, if any, were reinvested. The comparisons in this table are not intended to forecast or be indicative of possible future price performance. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF THE AMERICAN ENERGY GROUP, INC., THE S&P 500 INDEX (BROAD MARKET INDEX), AND THE S&P OIL COMPOSITE INDEX (PEER GROUP INDEX) 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- The American Energy Group, Inc........... 100 100 85 107 139 Broad Market Index....................... 100 116 142 189 235 Peer Group Index......................... 100 102 129 156 191 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company has two classes of voting equity securities, Common and Convertible Preferred, which are combined to accumulate the total voting shares of the Company. The following table sets forth certain information as of November 1, 1998, with respect to the beneficial ownership of shares of common stock by (i) each person who is known to the Company to beneficially own more than 5% of the outstanding shares of common stock, (ii) each director of the Company, (iii) each executive officer of the Company and (iv) all executive officers and directors of the Company as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. NUMBER PERCENT NAME TYPE OF SHARES OF CLASS - ------------------------- ---------- ----------- --------------- Bradley J. Simmons (FN 1) Common. 1,337,449 4.6% Conv. Pref. 8,225 1.6% Gerald N. Agranoff (FN 2) Common 1,131,375 3.9% Conv. Pref. 32,500 6.1% Don D. Henrich (FN 3) Common 200,000 0.7% Linda F. Gann (FN 4) Common 60,600 0.3% The Farrington Family Trust Common 3,394,880 11.8% Conv Pref 161,245 30.2% All officers and directors Common 2,729,474 9.3% as a group (four persons) Conv. Pref. 40,725 7.7% - -------------- (FN 1) Includes options to purchase shares of common stock which are presently exercisable at prices as follows: An option to purchase up to 200,000 shares at an exercise price of $1.38 per share. An option to purchase up to 150,000 shares at an exercise price of $2.31 per share. An option to purchase up to 125,000 shares at an exercise price of $1.25 per share. 32 An option to purchase up to 250,000 shares at an exercise price of $3.97 per share. (FN 2) Includes options to purchase shares of common stock which are presently exercisable at prices as follows: An option to purchase up to 125,000 shares at an exercise price of $1.38 per share. An option to purchase up to 150,000 shares at an exercise price of $2.31 per share. An option to purchase up to 125,000 shares at an exercise price of $1.25 per share. An option to purchase up to 250,000 shares at an exercise price of $3.97 per share. (FN 3) Includes options to purchase shares of common stock which are presently exercisable at prices as follows: An option to purchase up to 50,000 shares at an exercise price of $2.00 per share. An option to purchase up to 25,000 shares at an exercise price of $4.00 per share. An option to purchase up to 125,000 shares at an exercise price of $5.31 per share. (FN 4) Includes options to purchase shares of common stock which are presently exercisable at prices as follows: An option to purchase up to 5,000 shares at an exercise price of $1.25 per share. An option to purchase up to 55,000 shares at an exercise price of $3.97 per share. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS NONE 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS FILED ON FORM 8-K. FINANCIAL STATEMENT SCHEDULES The Financial Statement Schedules required herein are included as set forth beginning on page F-1. EXHIBITS 3.1 * Articles of Incorporation as amended 3.2 * Bylaws as amended 4.1 * Form of Common Stock Certificate 4.2 * Designation Certificate of Preferred Stock 21.1 * Subsidiaries 27.1 * Financial Data Schedule -------- * Filed herewith REPORTS FILED ON FORM 8-K On August 13, 1997, the Company filed a Current Report on Form 8-K for events which occurred on June 1, 1997, July 30, 1997, August 1, 1997 and August 12, 1997, which reported the acquisition of assets and other events. On December 16, 1997, the Company filed a Current Report on Form 8-K for events which occurred on December 3, 1997, which reported other events. On May 26, 1998, the Company filed a Current Report on Form 8-K for events which occurred on May 15, 1998, which reported other events. 34 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 16, 1998. THE AMERICAN ENERGY GROUP, LTD. by: /s/ Bradley J. Simmons Director, President and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ Bradley J. Simmons Director, President November 16, 1998. and Chief Accounting Officer /s/ Gerald Agranoff Director, Vice President November 16, 1998. Treasurer /s/ Don D. Henrich Director November 16, 1998. 35 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998, 1997 AND 1996 F-1 C O N T E N T S Independent Auditors' Report ...................................... F-3 Consolidated Balance Sheets ....................................... F-4 Consolidated Statements of Operations ............................. F-6 Consolidated Statements of Stockholders' Equity ................... F-7 Consolidated Statements of Cash Flows ............................. F-11 Notes to the Consolidated Financial Statements .................... F-13 F-2 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors The American Energy Group, Ltd. and Subsidiaries Houston, Texas We have audited the accompanying consolidated balance sheets of The American Energy Group, Ltd. and Subsidiaries as of June 30, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1998, 1997 and 1996. These consolidated financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The American Energy Group, Ltd. and Subsidiaries as of June 30, 1998 and 1997 and the results of their operations and their cash flows for the years ended June 30, 1998, 1997 and 1996, in conformity with generally accepted accounting principles. As discussed in Note 1, the accompanying consolidated financial statements have been prepared assuming that the Companies will continue as going concerns. The Companies have experienced recurring losses from operations which raises substantial doubt about the entities' ability to continue as going concerns. Management's plans with regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Jones, Jensen & Company Salt Lake City, Utah October 31, 1998 F-3 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Balance Sheets ASSETS
JUNE 30, ---------------------------- 1998 1997 ------------ ------------ CURRENT ASSETS Cash (Notes 1 and 2) ......................................... $ 3,214,205 $ 3,132,294 Receivables .................................................. 8,984 70,989 Receivable-related party (Note 3) ............................ -- 9,702 Investments .................................................. 3,300 -- Other current assets ......................................... 113,118 63,984 ------------ ------------ Total Current Assets ....................................... 3,339,607 3,276,969 ------------ ------------ OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING (Notes 1 and 4) Properties being amortized ................................... 12,203,925 5,618,847 Properties not subject to amortization ....................... 5,433,328 3,990,489 Accumulated amortization ..................................... (303,927) (33,000) ------------ ------------ Net Oil and Gas Properties ................................. 17,333,326 9,576,336 ------------ ------------ OTHER PROPERTY AND EQUIPMENT (Note 1) Drilling and related equipment ............................... 246,494 246,494 Vehicles ..................................................... 126,146 126,146 Office equipment ............................................. 34,839 23,021 Accumulated depreciation ..................................... (218,627) (159,446) ------------ ------------ Net Other Property and Equipment ........................... 188,852 236,215 ------------ ------------ OTHER ASSETS Deposits ..................................................... 2,850 2,850 ------------ ------------ Total Other Assets ......................................... 2,850 2,850 ------------ ------------ TOTAL ASSETS ............................................... $ 20,864,635 $ 13,092,370 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, ---------------------------- 1998 1997 ------------ ------------ CURRENT LIABILITIES Accounts payable .................................... $ 2,366,880 $ 545,987 Accrued liabilities ................................. 322,723 296,970 Current portion of capital lease obligations (Note 6) 6,985 4,565 Current portion of notes payable and long-term debt (Note 5) ..................................... 250,876 1,123,899 ------------ ------------ Total Current Liabilities ......................... 2,947,464 1,971,421 ------------ ------------ LONG-TERM LIABILITIES Notes payable and long-term debt (Note 5) ........... 428,280 649,737 Capital lease obligations (Note 6) .................. 12,536 14,117 ------------ ------------ Total Long-Term Liabilities ....................... 440,816 663,854 ------------ ------------ Total Liabilities ................................. 3,388,280 2,635,275 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDERS' EQUITY (Notes 7, 8 and 9) Convertible voting preferred stock; par value $0.001 per share; authorized 15,000,000 shares; outstanding 535,462 and 1,075,558, respectively .... 535 1,076 Common stock; par value $0.001 per share; authorized 80,000,000 shares; 28,927,872 and 22,509,293 shares issued and 28,927,872 and 19,859,293 shares outstanding, respectively ........ 28,928 22,509 Capital in excess of par value ...................... 19,050,101 13,893,728 Common stock subscriptions receivable ............... -- (2,385,000) Accumulated deficit ................................. (1,603,209) (1,075,218) ------------ ------------ Total Stockholders' Equity ........................ 17,476,355 10,457,095 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 20,864,635 $ 13,092,370 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Operations
FOR THE YEARS ENDED JUNE 30, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ REVENUE Oil and gas sales ................... $ 641,203 $ 283,485 $ 50,390 ------------ ------------ ------------ Total Revenue ..................... 641,203 283,485 50,390 ------------ ------------ ------------ EXPENSES Lease operating and production costs 258,032 83,826 81,087 Legal and professional .............. 541,031 143,622 129,866 Administrative labor ................ 122,089 77,194 118,827 Depreciation and amortization expense 275,803 37,416 2,163 Other general and administrative .... 144,172 113,625 136,521 ------------ ------------ ------------ Total Expenses .................... 1,341,127 455,683 468,464 ------------ ------------ ------------ NET OPERATING LOSS ..................... (699,924) (172,198) (418,074) ------------ ------------ ------------ OTHER INCOME (EXPENSES) Interest income ..................... 99,958 22,416 8,768 Interest expense .................... (6,460) (43,224) (91,890) Loss on investments ................. (44,647) -- -- Gain (loss) on sale of assets ....... -- 19,000 (2,390) ------------ ------------ ------------ Total Other Income (Expenses) ..... 48,851 (1,808) (85,512) ------------ ------------ ------------ NET LOSS BEFORE EXTRAORDINARY ITEM .................................. (651,073) (174,006) (503,586) EXTRAORDINARY ITEM (Note 11) ........... 123,082 17,343 -- ------------ ------------ ------------ NET LOSS ............................... $ (527,991) $ (156,663) $ (503,586) ============ ============ ============ BASIC LOSS PER COMMON SHARE ............ $ (0.020) $ (0.014) $ (0.076) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .................... 26,252,631 11,548,539 6,650,850 ============ ============ ============ FULLY DILUTED LOSS PER COMMON SHARE .......................... $ (0.014) $ (0.006) $ (0.028) ============ ============ ============ FULLY DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .................... 38,374,941 27,174,937 17,997,688 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity For the Years Ended June 30, 1998, 1997 and 1996
CONVERTIBLE VOTING COMMON COMMON STOCK PREFERRED STOCK CAPITAL STOCK ------------------------ ------------------------ EXCESS OF SUBSCRIPTIONS ACCUMULATED SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT ----------- ----------- ----------- ----------- ----------- ------------- ----------- Balance, June 30, 1995 ............ 5,906,828 $ 5,907 2,185,721 $ 2,186 $ 2,975,760 $ -- $ (414,969) Common stock issued upon conversion of preferred shares ... 285,375 285 (57,075) (57) (228) -- -- Charge stock issuance costs to the proceeds of the offering .. -- -- -- -- (114,918) -- -- Common stock issued for cash at $1.00 per share ............... 500,000 500 -- -- 499,500 -- -- Cancellation of common stock ...... (72,000) (72) -- -- 72 -- -- Net (loss) for the year ended June 30, 1996 .................... -- -- -- -- -- -- (503,586) ----------- ----------- ----------- ----------- ----------- ------------- ----------- Balance, June 30, 1996 ............ 6,620,203 6,620 2,128,646 2,129 3,360,186 -- (918,555) Common stock issued for oil and gas properties ........... 287,500 288 -- -- 474,712 -- -- Common stock issued upon conversion of preferred shares ... 5,265,424 5,265 (1,053,088) (1,053) (4,213) -- -- Cancellation of common stock ...... (500,000) (500) -- -- 500 -- -- Common stock issued as part of joint venture buy out at $1.00 per share ............................ 250,000 250 -- -- 249,750 -- -- ----------- ----------- ----------- ----------- ----------- ------------- ----------- Balance forward ................... 11,923,127 $ 11,923 1,075,558 $ 1,076 $ 4,080,935 $ -- $ (918,555) ----------- ----------- ----------- ----------- ----------- ------------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-7 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Continued) For the Years Ended June 30, 1998, 1997 and 1996
CONVERTIBLE VOTING COMMON COMMON STOCK PREFERRED STOCK CAPITAL STOCK ------------------- ----------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT ---------- ------- --------- ------ ------------ ----------- ----------- Balance forward ................................. 11,923,127 $11,923 1,075,558 $1,076 $ 4,080,935 $ -- $ (918,555) Common stock issued for retirement of notes payable at $1.00 per share ................................ 150,000 150 -- -- 149,850 -- -- Common stock issued for services rendered at $1.00 per share .................... 30,500 30 -- -- 30,470 -- -- Common stock issued to an officer as a bonus at $1.00 per share .................. 100,000 100 -- -- 99,900 -- -- Common stock issued in satisfaction of accounts payable at $.78 per share ............. 31,000 31 -- -- 24,024 -- -- Common stock issued for cash at $1.00 per share ............................ 350,000 350 -- -- 349,650 -- -- Common stock issued for cash at $.95 per share ............................. 7,274,666 7,275 -- -- 6,922,635 -- -- Common stock subscriptions at $.90 per share ................................. 2,650,000 2,650 -- -- 2,382,350 (2,385,000) -- Offering costs related to sales of common stock .................................. -- -- -- -- (146,086) -- -- Net (loss) for the year ended June 30, 1997 .................................. -- -- -- -- -- -- (156,663) ---------- ------- --------- ------ ------------ ----------- ----------- Balance, June 30, 1997 .......................... 22,509,293 $22,509 1,075,558 $1,076 $ 13,893,728 $(2,385,000) $(1,075,218) ---------- ------- --------- ------ ------------ ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-8 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Continued) For the Years Ended June 30, 1998, 1997 and 1996
CONVERTIBLE VOTING COMMON COMMON STOCK PREFERRED STOCK CAPITAL STOCK ---------------------- -------------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT ----------- -------- ---------- ------- ------------ ----------- ----------- Balance, June 30, 1997 .................. 22,509,293 $ 22,509 1,075,558 $ 1,076 $ 13,893,728 $(2,385,000) $(1,075,218) Common stock issued for cash at $0.65 per share as a result of a prior year placement .............. 405,562 406 -- -- 264,595 -- -- Common stock issued for cash at $1.00 per share ..................... 550,000 550 -- -- 549,450 -- -- Common stock issued for cash at $1.50 per share ..................... 2,610,000 2,610 -- -- 3,912,390 -- -- Common stock issued upon conversion of preferred shares ......... 2,700,485 2,700 (540,096) (541) (2,159) -- -- Common stock issued for retirement of notes payable at $2.31 per share ........................ 140,383 140 -- -- 325,137 -- -- Common stock issued for oil and gas properties at $1.50 per share .................................. 150,000 150 -- -- 224,850 -- -- Common stock issued for services rendered at $1.50 per share ............ 77,982 78 -- -- 116,895 -- -- Cancellation of common stock ............ (565,833) (565) -- -- 565 -- -- Common stock issued in connection with a settlement with prior shareholders (Note 8) .................. 350,000 350 -- -- (350) -- -- ----------- -------- ---------- ------- ------------ ----------- ----------- Balance forward ......................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $(2,385,000) $(1,075,218) ----------- -------- ---------- ------- ------------ ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-9 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Continued) For the Years Ended June 30, 1998, 1997 and 1996
CONVERTIBLE VOTING COMMON COMMON STOCK PREFERRED STOCK CAPITAL STOCK --------------------- ------------------- EXCESS OF SUBSCRIPTIONS ACCUMULATED SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT ---------- --------- --------- --------- ------------ ----------- ----------- Balance forward ........................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,285,101 $(2,385,000) $(1,075,218) Cash received on subscriptions receivable ............................... -- -- -- -- -- 2,385,000 -- Offering costs related to sales of common stock ............................. -- -- -- -- (235,000) -- -- Net (loss) for the year ended June 30, 1998 ............................ -- -- -- -- -- -- (527,991) ---------- --------- --------- --------- ------------ ----------- ----------- Balance, June 30, 1998 .................... 28,927,872 $ 28,928 535,462 $ 535 $ 19,050,101 $ -- $(1,603,209) ========== ========= ========= ========= ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-10 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows
FOR THE YEARS ENDED JUNE 30, ------------------------------------------------- 1998 1997 1996 ----------- ----------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss .............................................................. $ (527,991) $ (156,663) $(503,586) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization ....................................... 331,037 88,719 53,069 Less amount capitalized to oil and gas properties ................... (55,234) (51,303) (50,906) Common stock issued for services rendered ........................... 116,973 130,500 -- Loss on investment .................................................. 44,647 -- -- Changes in operating assets and liabilities: Decrease (increase) in receivables .................................. 62,005 (65,801) 6,900 Decrease (increase) in receivables-related party .................... 9,702 (9,702) -- Decrease (increase) in other current assets ......................... (49,134) (63,984) 903 Decrease in joint venture receivables ............................... -- 4,000 64,727 Decrease in deposits ................................................ -- 275 665 Increase (decrease) in accounts payable ............................. 1,820,893 294,070 171,522 Increase (decrease) in accrued liabilities and other current liabilities .......................................... 25,753 (6,438) 205,891 ----------- ----------- --------- Net Cash Provided (Used) by Operating Activities ............................................. 1,778,651 163,673 (50,815) ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property and equipment ...................... -- 51,001 5,190 Purchase of investments ............................................... (47,947) -- -- Expenditures for unproved oil and gas properties ...................... (7,708,841) (4,024,056) (713,378) Expenditures for other property and equipment ......................... (7,959) (53,885) -- ----------- ----------- --------- Net Cash (Used) by Investing Activities ........................... (7,764,747) (4,026,940) (708,188) ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable and long-term liabilities .......................................................... -- 120,000 381,200 Proceeds from issuance of common stock ................................ 4,730,001 7,279,910 500,000 Expenditures for offering costs ....................................... (235,000) (146,086) (114,918) Cash received on stock subscription ................................... 2,385,000 -- -- Payments on notes payable and long-term liabilities .......................................................... (811,994) (682,961) (55,074) ----------- ----------- --------- Net Cash Provided by Financing Activities ......................... $ 6,068,007 $ 6,570,863 $ 711,208 ----------- ----------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-11 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued)
FOR THE YEARS ENDED JUNE 30, ------------------------------------------------- 1998 1997 1996 ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH ........................................ $ 81,911 $2,707,596 $ (47,795) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..................................................... 3,132,294 424,698 472,493 ---------- ---------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................................... $3,214,205 $3,132,294 $ 424,698 ========== ========== ========= CASH PAID FOR: Interest ............................................................ $ 40,020 $ 39,105 $ 91,890 Income taxes ........................................................ $ -- $ -- $ -- NON-CASH FINANCING ACTIVITIES: Common stock issued for acquisition of oil and gas properties ................................................ $ 225,000 $ 725,000 $ -- Common stock issued to retire notes payable and accounts payable .............................................. $ 325,277 $ 174,055 $ -- Notes payable for acquisition of oil and gas properties ........................................................ $ -- $1,121,866 $ -- Notes payable and capital lese obligations for acquisition of other property and equipment ................... $ 13,159 $ 51,046 $ --
The accompanying notes are an integral part of these consolidated financial statements. F-12 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 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 7). 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 4) 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. Continued Existence 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. The recovery of assets and continuation of future operations are dependent upon the Companies' ability to obtain additional debt or equity financing and their ability to generate revenues sufficient to continue pursuing their business purpose. Management is actively pursuing additional equity and debt financing sources to finance future operations and anticipates an increase in revenues from oil and gas production during the coming year. F-13 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Accounting Methods The Company's consolidated financial statements are prepared using the accrual method of accounting. Oil and Gas Properties- The full cost method is used in accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized. In addition, depreciation on property and equipment used in oil and gas exploration and interest costs incurred with respect to financing oil and gas acquisition, exploration and development activities are capitalized in accordance with full cost accounting. Capitalized interest for the years ended June 30, 1998 and 1997 was $84,448 and $31,028, respectively. In addition, depreciation capitalized during the years ended June 30, 1998 and 1997 totaled $55,234 and $51,303, respectively. All capitalized costs of proved oil and gas properties subject to amortization are being amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects not subject to amortization are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. As of June 30, 1998, proved oil and gas reserves had been identified on some of the Companies oil and gas properties with revenues generated and barrels of oil produced from those properties. Accordingly, amortization totaling $270,927 and $33,000 has been recognized in the accompanying consolidated financial statements for the years ended June 30, 1998 and 1997, 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-14 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) f. Property and Equipment and Depreciation Property and equipment are stated at cost. Depreciation on drilling and related equipment, vehicles and office equipment is provided using the straight-line method over expected useful lives of five to seven years. For the years ended June 30, 1998 and 1997, the Companies incurred total depreciation of $60,111 and $55,719, respectively. In accordance with full cost accounting, $55,234 and $51,303 of depreciation was capitalized as costs of oil and gas properties for the years ended June 30, 1998 and 1997, respectively, as previously discussed. g. Basic Net Loss Per Share of Common Stock The basic net loss per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the consolidated financial statements. Stock warrants and preferred shares prior to conversion are not included in the basic calculation because their inclusion would be antidilutive, thereby reducing the net loss per common share. Stock warrants and preferred shares have been included in the fully diluted loss per share. h. Change in Accounting Principle The Companies adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" during the year ended June 30, 1998. In accordance with SFAS No. 128, diluted earnings per share must be calculated when an entity has convertible securities, warrants, options, and other securities that represent potential common shares. The purpose of calculating diluted earnings (loss) per share is to show (on a pro forma basis) per share earnings or losses assuming the exercise or conversion of all securities that are exercisable or convertible into common stock and that would either dilute or not affect basis EPS. As permitted by SFAS No. 128, the Companies have retroactively applied the provisions of this new standard by showing the fully diluted loss per common share for all years presented. i. Concentrations of Risk From time to time the cash balances in the Companies bank accounts exceed Federally insured limits. At June 30, 1998 and 1997, the balances in excess of the limits were approximately $3,014,200 and $2,622,700, respectively. Of these balances, approximately $964,000 and $0, respectively, was in the country of Pakistan. F-15 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) j. 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 4). 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. k. 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 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. NOTE 2 - CERTIFICATES OF DEPOSIT As of June 30, 1998 and 1997, the Companies held three certificates of deposit totaling $318,538 and $300,000, respectively, at the same financial institution, all in the name of the Company and two of the subsidiaries. All three certificates of deposit bear interest at a rate of 4.25% and mature every 30 days. These certificates of deposit are unencumbered at June 30, 1998 and 1997. NOTE 3 - RECEIVABLES-RELATED PARTY Periodically, the Company makes advances to and receives advances from officers and directors of the Company. As of June 30, 1997, the Company had a net receivable from the president of the Company totaling $9,702. Subsequent to June 30, 1997, these advances were repaid to the Company. F-16 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 4 - 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 were available for further exploration and development. During the years ended June 30, 1998 and 1997, the Companies expended funds in exploration and development activities and work over of existing wells on those properties and other oil and gas properties acquired during those years. On March 10, 1995, American Energy - Deckers Prairie, Inc., a wholly-owned subsidiary of the Company, entered into an agreement with an unrelated entity to accept the transfer of all 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. 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 5). F-17 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 4 - OIL AND GAS PROPERTIES (Continued) 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 has been issued for a period of three years. 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. Based upon the results, the Company extended its exploration license on the Jacobabad concession for one year with a commitment to drill another well by April 1999. 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. On May 15, 1996, an unrelated entity acquired an option to purchase a 1% overriding royalty interest in the Pakistan concession. Consideration of $3,800 was paid and the option exists for the life of the Pakistan concession. The purchase price of the 1% overriding royalty interest is $100,000. This option had not been exercised as of June 30, 1998. 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. The Companies had a joint venture receivable with an unrelated entity totaling approximately $120,000 with that entity also making certain claims against the Companies. These amounts and claims had been in dispute for sometime. During the year ended June 30, 1997, the Companies entered into a settlement arrangement with this entity wherein the Companies forgave this receivable, conveyed certain oil and gas properties and issued 187,500 shares of common stock to that entity in exchange for other oil and gas properties. The effects of this transaction have been reflected in the accompanying consolidated financial statements at June 30, 1997. F-18 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 4 - OIL AND GAS PROPERTIES (Continued) 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 5). This liability may be paid during each year in the form of $10,000 per drill site and certain royalty payments. During the year ended June 30, 1997, the Companies received $800,000 as a joint venture investment in certain of the Companies oil and gas properties. In June 1997, the Companies entered into agreements representing $500,000 of the joint venture investors to repurchase their interests for a total of 250,000 shares of common stock and notes payable totaling $389,000 (see Notes 8 and 5, respectively). During the year ended to June 30, 1998, the Companies acquired the remaining $300,000 joint venture interest for 150,000 shares of common stock (valued at $1.50 per share) and a note payable of $121,564 with additional payments made to that individual prior to the consummation of that transaction. NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT The following is a summary of notes payable and long-term debt as of June 30, 1998 and 1997:
1998 1997 --------- ----------- Note payable bearing no interest; payable $175,000 the first year and $250,000 annually thereafter until paid in full; secured by certain oil and gas property and equipment ........................................................................... $ 723,463 $ 915,000 Notes payable bearing no interest; due in monthly installments of $64,834; secured by joint venture interests in certain oil and gas properties ............................................. -- 389,000 8.5% note payable to a financial institution due in monthly installments of $950 for 36 months; secured by two vehicles ......................................................................... 19,261 28,520 10% notes payable, due on demand, unsecured .............................................. -- 190,000 7% notes payable, due September 15, 1995, secured by working interest in oil and gas properties ................................... 44,117 443,250 --------- ----------- Total notes payable and long-term debt ................................................... 786,841 1,965,770 Less: unamortized discount ............................................................... (107,685) (192,134) --------- ----------- Net notes payable and long-term debt ..................................................... 679,156 1,773,636 Less: Current portion of notes payable and long-term debt .............................................................. (250,876) (1,123,899) --------- ----------- Long-Term Liabilities .................................................................... $ 428,280 $ 649,737 ========= ===========
F-19 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT (Continued) The following are the scheduled annual repayments of notes payable and long-term debt: YEAR ENDING JUNE 30, 1999 ............................................... $250,876 2000 ............................................... 220,879 2001 ............................................... 207,401 2002 ............................................... -- 2003 ............................................... -- 2004 and thereafter ................................ -- -------- $679,156 ======== Discounts on non-interest bearing notes payable have been determined using an imputed interest rate of 10%. These discounts have been reflected as reductions in notes payable and long-term debt in the accompanying consolidated financial statements. NOTE 6 - 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 from 36 to 60 months with total monthly lease payments of $694. The following are the scheduled annual payments on these capital leases: YEAR ENDING JUNE 30, 1999 ........................................... $ 8,325 2000 ........................................... 7,429 2001 ........................................... 3,355 2002 ........................................... 3,355 2003 ........................................... 3,076 -------- Total minimum lease commitments ................................. 25,540 Less: Executory costs (such as taxes and insurance) included in capital lease payments ..................... (600) -------- Net minimum lease payments ...................................... 24,940 Less: amount representing interest .............................. (5,419) -------- Total capital lease obligations ................................. 19,521 Less: current portion ........................................... (6,985) -------- Total Long-Term Capital Lease Obligations ....................... $ 12,536 ======== F-20 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 7 - 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 NonCumulative 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. 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. During the years ended June 30, 1998, 1997 and 1996, 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, 540,096 shares of convertible voting preferred stock were converted into 2,700,485 shares of the Company's common stock in 1998, 1,053,088 shares of convertible voting preferred stock were converted into 5,265,424 shares of the Company's common stock in 1997 and 57,075 shares of convertible voting preferred stock were converted into 285,375 shares of the Company's common stock in 1996 (Note 8.) NOTE 8 - COMMON STOCK A total of 285,375 shares of common stock were issued during the year ended June 30, 1996 as a result of the conversion of 57,075 shares of convertible voting preferred stock. During the year ended June 30, 1997, 1,053,088 shares of convertible voting preferred stock were converted into 5,265,424 shares of common stock. During the year ended June 30, 1998, 540,096 shares of convertible voting preferred stock were converted into 2,700,485 shares of common stock (see Note 7). F-21 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 8 - COMMON STOCK (Continued) As discussed in Note 4, an unrelated foreign entity assumed the investment obligations of another entity in December 1995. In January 1996, the Companies received $500,000 from that foreign entity. In accordance with the terms of the original and assumption agreement, the $500,000 should be applied toward the acquisition of 500,000 shares of the Company's common stock and was reflected accordingly in the accompanying consolidated financial statements as of June 30, 1996. The Company incurred costs in efforts to obtain this funding totaling $114,918. These expenditures have been reflected as stock issuance costs and a decrease in capital in excess of par value in the accompanying consolidated financial statements ended June 30, 1997. This foreign entity defaulted on the performance of the funding commitments and the 500,000 shares of common stock associated with this transaction were canceled as reflected in the accompanying consolidated financial statements for the year ended June 30, 1997. During the year ended June 30, 1998, the Company entered into a settlement agreement with the original investors of the $500,000 and the Company issued 350,000 shares of its common stock in a preliminary settlement. The Company anticipates that a certain portion of these shares may subsequently be returned to the Company and cancelled. During the year ended June 30, 1996, and in conjunction with a settlement arrangement with a previous shareholder of Simmons Oil Company, the Company canceled 72,000 shares of common stock originally issued to that individual in conjunction with the acquisition transaction discussed in Note 1. In conjunction with a settlement and property exchange agreement executed by the Company in August 1996 as discussed at Note 4, the Company issued 187,500 shares of common stock to an unrelated entity valued at $2.00 per share or $375,000. An additional 100,000 shares of common stock were issued to a former director of the Company in November 1996 in exchange for an interest in oil and gas properties. These shares have been valued at $1.00 per share for a total of $100,000 as included in the accompanying consolidated financial statements. During the year ended June 30, 1997, the Company issued 250,000 shares of common stock in conjunction with the buy out of certain joint venture interests in oil and gas properties. These shares have been valued at $1.00 per share or $250,000. 150,000 shares of common stock were issued during the year ended June 30, 1997 to retire $150,000 of notes payable. An additional 30,500 shares of common stock were issued during the year ended June 30, 1997 as payment for services rendered. These shares have been valued at $1.00 per share for a total of $30,500. In satisfaction of $24,055 of accounts payable, the Company issued 31,000 shares of common stock representing $0.78 per share. In May 1997, the Company issued 100,000 shares of common stock as a bonus to an officer and director of the Company. These shares have been valued at $1.00 per share as reflected in the accompanying consolidated financial statements. F-22 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 8 - COMMON STOCK (Continued) The Company received $350,000 of cash during the year ended June 30, 1997 for which 350,000 shares of common stock were issued representing $1.00 per share. During the year ended June 30, 1997, the Company sold 7,274,666 shares of common stock for which the Company received $6,929,910 at an average of $0.95 per share. An additional 2,650,000 shares had been issued at June 30, 1997 for which proceeds of $2,385,000 were received during the year ended June 30, 1998. The 2,650,000 shares have been reflected as issued but not outstanding in the accompanying consolidated financial statements at June 30, 1997 with the corresponding $2,385,000 shown as common stock subscriptions receivable. The Company incurred costs associated with this private placement totaling $146,086 which have been reflected as a reduction on capital in excess of par value in the accompanying consolidated financial statements. During the year ended June 30, 1998, the Company sold 3,565,562 shares of common stock for which the Company received $4,730,001 at an average of $1.33 per share. The Company incurred costs associated with the sale of common stock of $235,000 which has been reflected as a reduction on capital in excess of par value in the accompanying consolidated financial statements. An additional 10,000 shares of common stock were issued during the year ended June 30, 1998 as payment for services rendered. These shares have been valued at $1.50 per share for a total of $15,000. 140,383 shares of common stock were issued during the year ended June 30, 1998 to retire $325,277 of notes payable at $2.31 per share and were recorded as shares issued for services since no cash was received in the transaction. During the year ended June 30, 1998, the Company issued 150,000 shares of common stock in conjunction with the buyout of certain joint venture interests in oil and gas properties. These shares have been valued at $1.50 per share or $225,000. In conjunction with a settlement arrangement with a former officer and shareholder, the Company canceled 565,833 shares of common stock originally issued to that individual. 67,982 shares of common stock were issued during the year ended June 30, 1998 in conjunction with the exercise of 100,000 common stock warrants. The warrants were recorded at $1.50 per share and were recorded as shares issued for services since no cash was received in the transaction. F-23 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 9 - COMMON STOCK WARRANTS Prior to the year ended June 30, 1998, the Company had 10,248,608 outstanding warrants. In the current fiscal year ended June 30, 1998, the Company issued a total of 1,985,000 warrants at varying exercise prices and expiration dates. 2,710,000 warrants have been exercised and a total of 78,608 warrants have expired unexercised, leaving a remaining balance of 9,445,000 warrants outstanding as of June 30, 1998. A recap of the various warrants are described below. The Board of Directors of the Company have granted to officers and directors 2,335,000 warrants to acquire common shares of the Company under the following conditions:
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 ---------------- Total 725,000 David L. Cox 300,000 4/17/2004 $1.38 150,000 11/4/2004 $2.31 250,000 5/1/2005 $1.25 ---------------- Total 700,000 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 ---------------- Total 650,000 Linda F. Gann 5,000 5/1/2005 $1.25 55,000 6/18/2005 $3.97 ---------------- Total 60,000 Don D. Henrich 50,000 3/15/1999 $2.00 25,000 3/15/1999 $4.00 125,000 6/29/2005 $5.31 ---------------- Total 200,000 Grand Total 2,335,000 Warrants
Management had previously received 78,608 warrants which expired unexercised in April, 1998. F-24 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements June 30, 1998, 1997 and 1996 NOTE 9 - COMMON STOCK WARRANTS (Continued) During the year ended June 30, 1997, the Company issued warrants for the issuance of 120,000 shares of common stock at a price of $1.38 per share to various of the Company's attorneys. These warrants were granted on April 17, 1997 and expire April 17, 1999. During the year ended June 30, 1998, 67,892 shares of common stock were issued in lieu of 100,000 of the warrants at $1.38 per share based upon a "cashless exercise formula". These shares are reflected in the accompanying financial statements as shares issued for services at $1.50 per share since no cash was received in the transaction. In conjunction with the sale of common stock discussed in Note 8, 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 expire. 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, exerciseable at $3.00 per share, unexercised at June 30, 1998. During the year ended June 30, 1998, the Company established a three member "Disclosure Committee" comprised of certain of the Company's attorneys and market relations consultants. Each of these parties have received 25,000 warrants, making a total of 75,000 warrants issued, exerciseable at $1.25 per share which expire in May, 2005. 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 price from $2.31 to $3.97 per share which expire in May, 2005. 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 10 - INCOME TAXES Through June 30, 1998, the Companies have sustained net operating loss carryforwards totaling approximately $1,660,000 that may be offset against future taxable income through 2013. 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 11 - EXTRAORDINARY ITEMS Extraordinary items for the years ended June 30, 1998 and 1997 totaling $123,082 and $17,343, respectively, relate to forgiveness of debt in the settlement of various notes payable and an account payable. F-25 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) June 30, 1998, 1997 and 1996 NOTE 12 - COMMITMENTS AND CONTINGENCIES As discussed in Note 4, 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. The Company leases office space in Simonton, Texas at a monthly cost of $1,033 plus utilities. The lease expires during November 2000 at which time the Company may lease the space on a month-to-month basis at $1,200 per month. The Companies have minimum lease and royalty obligations associated with their oil and gas properties of $77,300 annually, see also Note 4. During the year ended June 30, 1997, the Board of Directors authorized the establishment of a Management Royalty Pool equal to 1% of the revenues from domestic oil and gas production. The beneficiaries and their ownership in this pool are subject to variance based upon certain performance criterion. A shareholder of the Company has asserted a right to the exercise (by the payment of money) of 800,000 warrants for common stock at the exercise price of $1.50 per share. The Company disputes this right and the parties are currently negotiating. If asserted successfully in litigation, the potential claims for financial relief would be attorneys fees and the loss, if any, resulting in the difference between the stock value on the date of intended exercise versus the stock price on the date the court permits such exercise. The ultimate outcome, however, cannot be readily determined. In May 1997, the Securities and Exchange Commission filed civil charges against the Company and its President alleging various violations of securities regulations. The Company is engaged in discussions concerning the possible settlement of these matters and has consequently accrued $85,000 as a reserve against a potential settlement or associated legal costs. In July 1997, the Company filed suit against various individuals and entities alleging fraud in the obtaining of common stock of the Company. One defendant asserted a counter claim for unpaid fees of $14,000 with two other defendants asserting counterclaims against the Company and its directors. During the year ended June 30, 1998, the countersuits were withdrawn as part of a settlement agreement without cost to the Company. F-26 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) June 30, 1998, 1997 and 1996 NOTE 13 - SUBSEQUENT EVENTS The Company is currently engaged in the securing of additional capital in the form of a private placement of common stock. At the date of this report, the Company has received $1,500,000 and has yet to close the entire placement. The Company, through its wholly-owned subsidiary, Hycarbex-American Energy, Inc. has obtained a one year extension on its Jacobabad Concession in central Pakistan, and has also awarded contracts for various goods and services associated with the drilling of its second exploratory well on the Concession. The Company has deposited $1,100,000 in its Pakistan bank accounts estimated to be the drilling costs associated with this well. Drilling is expected to begin in early December, 1998. F-27 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES S.F.A.S. 69 Supplemental Disclosures (Unaudited) June 30, 1998 and 1997 S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (1) Capitalized Costs Relating to Oil and Gas Producing Activities JUNE 30, ----------------------- 1998 1997 ----------- --------- Proved oil and gas producing properties and related lease and well equipment ........................... $ 4,169,260 $ 696,450 Accumulated depreciation and depletion ............... (270,927) (33,000) ----------- --------- Net Capitalized Costs ................................ $ 3,898,333 $ 643,450 =========== ========= (2) Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities FOR THE YEARS ENDED JUNE 30, ---------------------------- 1998 1997 ---------- ---------- Acquisition of Properties Proved ................... $ 389,348 $1,800,600 Unproved ................. -- 2,188,749 Exploration Costs ........... 3,375,233 1,306,426 Development Costs ........... 4,169,260 696,450 The Company does not have any investments accounted for by the equity method. (3) Results of Operations for Producing Activities FOR THE YEAR ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Sales ................................................. $ 641,203 $ 283,485 Production costs ...................................... (258,032) (83,826) Depreciation and depletion ............................ (270,927) (33,000) --------- --------- Results of operations for producing activities (excluding corporate overhead and interest costs) .... $ 112,244 $ 166,659 ========= ========= F-28 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES S.F.A.S. 69 Supplemental Disclosures (Unaudited) June 30, 1998 and 1997 S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED) (4) Reserve Quantity Information OIL GAS BBL MCF ---------- --------- Proved developed and undeveloped reserves: Balance, June 30, 1997 .................. 2,414,563 -- Change in estimates ................... (10,900) -- Production ............................ (42,663) -- ---------- --------- Balance, June 30, 1998 .................. 2,361,000 -- ========== ========= Proved developed reserves: OIL GAS BBL MCF ---------- --------- Beginning of the year ended June 30, 1998 376,613 -- End of the year ended June 30, 1998 ... 671,050 -- During the year ended June 30, 1998, the Company had reserve studies and estimates prepared on the various properties acquired and developed. The difficulties and uncertainties involved in estimating proved oil and gas reserves makes comparisons between companies difficult. Estimation of reserve quantities is subject to wide fluctuations because it is dependent on judgmental interpretation of geological and geophysical data. (5) Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves At June 30, 1998 THE AMERICAN ENERGY GROUP LTD. AND SUBSIDIARIES ------------ Future cash inflows ........................................... $ 29,512,500 Future production and development costs ....................... (7,206,800) ------------ Future net inflows before income taxes ........................ 22,305,700 Future income tax expense ..................................... (1,652,700) ------------ Future net cash flows ......................................... 20,653,000 10% annual discount for estimated timing of cash flows ........ (5,003,294) ------------ Standardized measure of discounted future net cash flows ...... $ 15,649,706 ============ F-29 THE AMERICAN ENERGY GROUP, LTD. S.F.A.S. 69 Supplemental Disclosures (Unaudited) June 30, 1998 and 1997 S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED) The above schedules relating to proved oil and gas reserves, standardized measure of discounted future net cash flows and changes in the standardized measure of discounted future net cash flows have their foundation in engineering estimates of future net revenues that are derived from proved reserves and with the assumption of current pricing and current costs of production for oil and gas produces in future periods. These reserve estimates are made from evaluations conducted by Reuven Hollo, Ph.D., a registered professional engineer with Sigma Energy Corporation, of such properties and will be periodically reviewed based upon updated geological and production date. Estimates of proved reserves are inherently imprecise. The above standardized measure does not include any restoration costs due to the fact the Company does not own the land. Subsequent development and production of the Company's reserves will necessitate revising the present estimates. In addition, information provided in the above schedules does not provide definitive information as the results of any particular year but, rather, helps explain and demonstrate the impact of major factors affecting the Company's oil and gas producing activities. Therefore, the Company suggests that all of the aforementioned factors concerning assumptions and concepts should be taken into consideration when reviewing and analyzing this information. F-30 EX-3.1 2 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF DIMENSION INDUSTRIES, INC. We, the undersigned natural persons over the age of 21 years, acting as incorporators of a corporation under the Nevada Business Corporation Law, adopt the following Articles of Incorporation for such corporation. ARTICLE I NAME The name of the Corporation is DIMENSION INDUSTRIES, INC. ARTICLE II DURATION The Corporation shall continue in existence perpetually unless dissolved accordingly to law. ARTICLE III PURPOSES The Corporation shall have unlimited power to conduct any and all lawful businesses not contrary to these Articles of Incorporation and/or the laws of the State of Nevada. ARTICLE IV CAPITALIZATION 4.01. AUTHORIZED SHARES. The aggregate number of shares which the Corporation shall have authority to issue is Fifteen Million (15,000,000) divided into two (2) classes: Common Stock and Preferred Stock. COMMON STOCK. the number of shares of Common Stock which the Corporation shall have authority to issue is Twelve Million Five Hundred Thousand (12,500,000) shares, with par value of $0.001 per share. PREFERRED STOCK. The number of shares of Preferred Stock which the Corporation shall have the authority to issue is Two Million Five Hundred Thousand (2,500,000) shares, with par value of $0.001 per share. 4.02. VOTING. The holders of shares of each class designated as Common Stock and Preferred Stock shall have the right to one (1) vote per share on all issues. 4.03. SERIES OF PREFERRED STOCK. The Board of Directors shall have authority to divide any or all of the Preferred Stock into series, each of which series to be so designated as to distinguish the shares thereof from any other series and classes, and within the limitations set forth in the Nevada Business Corporations Act and in these Articles of Incorporation, to fix and determine the relative rights and preferences of the shares of any series so established including, without limitation, entitlement to cumulative, non-cumulative of partially cumulative dividends. 4.04. DIVIDENDS ON PREFERRED STOCK. The shares of that class designated as Preferred Stock shall be entitled to the payment of a dividend fixed and determined by the Board of Directors for any year or other 2 period, and to the payment of any unpaid cumulative or partially cumulative dividend, before any dividend for such year or other period shall be paid upon the shares of any other class. ARTICLE V AMENDMENTS TO ARTICLES These Articles may be amended at any time at an annual or special meeting of the Shareholders in which notice of the purpose to amend the Articles of Incorporation is set forth and these Articles may be amended only upon the vote to Shareholders owning not less than a majority of all shares entitled to vote upon any matter submitted to a vote at a meeting of Shareholders. ARTICLE VI BY-LAWS Provision for the regulation of the internal affairs of the Corporation shall be set forth in the By-Laws, which shall be adopted by majority vote of the Board of Directors and which may be amended, repealed or restated by majority vote of the Board of Directors. ARTICLE VII DENIAL OF PRE-EMPTIVE RIGHTS No Shareholder shall be entitled, as a matter of right, to subscribe for, purchase or receive any shares of stock or any rights or options of the Corporation which it may issue or sell, whether out of the number of shares authorized by these Articles of Incorporation, or by amendment thereof, or out of the shares of the stock of the Corporation acquired by it after the issuance thereof, nor shall any Shareholder be entitled, as a matter of right, to subscribe for, purchase or receive any bonds, debentures or other securities which the Corporation may issue or sell that shall be convertible into or exchangeable for stock or to which shall be attached or appertain to any warrant or warrants or other instrument or instruments that shall confer upon the holder or owner of such obligations the right to subscribe for, purchase or receive from the Corporation any shares of its authorized capital stock; but all such additional issues of stock, rights and options or of bonds, debentures or other securities convertible into or exchangeable for stock or to which warrants shall be attached or appertain or which shall confer upon the holder the right to subscribe for, purchase or receive any shares of stock, may be issued, optioned for or sold or disposed of by the Corporation pursuant to resolution of its Board of Directors to such persons, firms or corporations and upon such terms as may be lawful and may to such Board of Directors seem proper and advisable, without first offering such stock or securities or any part thereof to the Shareholders. The acceptance of stock in the Corporation shall be a waiver of any preemptive rights or preferential rights which, in the absence of this provision might otherwise be asserted by Shareholders of the Corporation or any of them. ARTICLE VIII PROHIBITION OF CUMULATIVE VOTING At each election for Directors, every Shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected and for whose election he has the right to vote, but it is expressly prohibited for any Shareholder to cumulate his votes by giving one candidate as many votes as the number of such Directors multiplied by his shares shall equal, or by distributing such votes on such principle among any number of such candidates. 3 ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by this corporation against expenses reasonably incurred by him or imposed on him in connection with or resulting from the defense of such action, suit or other proceeding, and in connection with or resulting from any appeal therein, provided that in the context of such action, suit or proceeding he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendre or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. As used herein, the term "expense" shall mean and include all obligations incurred by such person for the payment of money, including without limitation, attorney's fees reasonably incurred, judgments, awards, fines, penalties and amounts paid in satisfaction of judgment or reasonably paid in settlement of any such action, suit or proceeding. ARTICLE X OFFICERS, DIRECTORS AND STOCKHOLDERS CONTRACTS A contract or other transaction with the corporation may be permitted regardless of the fact that an officer, director or stockholder of this company is financially interested in, or may be interested in, such transaction. No contract, act or other transaction of this corporation with any person, firm or corporation shall be affected by the fact that an officer, director or stockholder of this corporation (a) is a party to, or is interested in, such contract, act or transaction, or (b) is in some way connected with such person, firm or corporation. Each person who is now or may become an officer, director or stockholder of this corporation is hereby relieved from any liability that he might otherwise incur in the event such officer, director or stockholder contracts with the corporation, provided said officer, director or stockholder acts in good faith. ARTICLE XI PRINCIPAL OFFICE AND REGISTERED AGENT The initial principal office of the corporation shall be located in Washoe County, State of Nevada, at the following address: The Corporation Trust Company of Nevada 1 East 1st Street Reno, Nevada 89501 The name of the initial registered agent at the principal office is: The Corporation Trust Company of Nevada. 4 ARTICLE XII DIRECTORS The number of directors constituting the initial Board of Directors of the Corporation shall be three (3) provided, however, that the Shareholders, in the By-Laws or by amendment thereto, may increase the number of directors to nine (9). The names and addresses of the persons who are to serve as the initial directors until the first annual meeting of Shareholders or until their successors are duly elected and shall qualify are: NAME - ------------------------------------- Douglas Brown........................ 604 South 1300 East Salt Lake City, Utah 84102 Barbara K. Brown..................... 604 South 1300 East Salt Lake City, Utah 84102 L. Benson Mabey...................... 376 East 400 South, Suite 300 Salt Lake City, Utah 84111 ARTICLE XIII INCORPORATORS The name and address of each incorporator is: NAME - ------------------------------------- 604 South 1300 East Douglas Brown Salt Lake City, Utah 84102 604 South 1300 East Barbara K. Brown Salt Lake City, Utah 84102 376 East 400 South, Suite 300 L. Benson Mabey Salt Lake City, Utah 84111 DATED this 20th day of May, 1987. DOUGLAS BROWN Douglas Brown BARBARA K. BROWN Barbara K. Brown L. BENSON MABEY L. Benson Mabey 5 STATE OF UTAH ) ) ss COUNTY OF SALT LAKE ) On the 20th day of May, 1987, personally appeared before me the above signers, who being by me duly sworn, severally declared that they are the persons who signed the foregoing Articles of Incorporation as incorporators, and that the statements contained therein are true. NOTARY PUBLIC Residing at Salt Lake City, Utah My Commission Expires: 7-2-90 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF DIMENSION INDUSTRIES INC. (5527-87) We, the undersigned President, and Secretary of Dimension Industries Inc., a Nevada corporation do hereby certify: That the Board of Directors of Dimension Industries Inc., a Nevada corporation, at a meeting duly convened and held on the 7th day of October, 1988, adopted a resolution to amend the original Articles of Incorporation as follows: Article I shall be amended to read as follows: "NAME The name of the Corporation is DIM Inc." The number of shares outstanding in the Corporation is 1,366,250, all of which are entitled to vote on said proposed change to the Articles of Incorporation. All of Said shares are held by Dimension Industries Inc., a Utah corporation. By action of its Board of Directors, Dimension Industries Inc. (Utah) has voted to approve the change in the Articles of Incorporation of Dimension Industries Inc. (Nevada). Signed: JAMES BLACKBURN PETER N. WILLIAMS James Blackburn, President Peter N. Williams, Secretary State of Utah County of Salt Lake On October 7, 1988, Peter Williams, and James Blackburn did personally appear before me, and did execute the above instrument. JULIE ANN SHORT My Commission expires 24 August 1992 [NOTARY PUBLIC SEAL] CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF DIM INC. (NEVADA FILE NO. 5527-87) We, the undersigned President, and Secretary of DIM, Inc., a Nevada corporation do hereby certify: That the Board of Directors of DIM Inc., a Nevada corporation, at a meeting duly convened and held on the 4th day of June, 1991, adopted the following resolution: Be it Resolved that Article I of the Articles of Incorporation of the Company be amended to read as follows: "NAME" The name of the Corporation is Belize-American Corp. Internationale. The Board of Directors also called for a shareholders meeting to be held 19th day of June. At that shareholders meeting, there were 312,075 shares outstanding and eligible to vote at this meeting, of which 201,100 were present and voting either in person or by proxy. The shareholders unanimously approved the above change in the Articles of Incorporation. Signed: /s/JAMES BLACKBURN /s/DOUGLAS E BROWN JAMES BLACKBURN, PRESIDENT DOUGLAS E BROWN, SECRETARY State of Utah County of Salt Lake On the 21st day of June, 1991, James Blackburn and Douglas E Brown, whom are personnally known to me to be the President and Secretary respectively of DIM Inc. did appear before me and sign the foregoing. /s/JOLENE STEVENS My commission expires 10/17/94 JOLENE STEVENS, NOTARY PUBLIC NOTARY PUBLIC SEAL STATE OF NEVADA SEAL CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF BELIZE AMERICAN, CORP. INTERNATIONALE We, the undersigned President and Secretary of Belize American, Corp. Internationale, a Nevada corporation, do hereby certify: That the Board of Directors of Belize American, Corp. Internationale, a Nevada corporation, at a meeting duly convened and held on the 3rd day of October, 1994 adopted the following resolutions to amend the Articles of Incorporation of said corporation, as follows: ARTICLE I of the Articles of Incorporation of the corporation shall be amended to read as follows: "The name of the Corporation is The American Energy Group, Ltd." ARTICLE IV, Section 4.01, of the Articles of Incorporation of the corporation shall be amended to read as follows: "4.01. Authorized Shares. The aggregate number of shares which the Corporation shall have the authority to issue is One-Hundred Million (100,000,000) divided into two (2) classes: Common Stock and Preferred Stock. "Common Stock. The number of shares of Common Stock which the Corporation shall have authority to issue is Eighty Million (80,000,000) shares, with par value of $0.001 per share. "Preferred Stock. The number of shares of Preferred Stock which the Corporation shall have authority to issue is Twenty Million (20,000,000) shares, with par value of $0.001 per share." The number of shares of Common Stock outstanding in the corporation as of October 31, 1994, was 5,212,312 shares, all of which were entitled to vote on said proposed amendments to the Articles of Incorporation. By special meeting of the stockholders held on October 31, 1994, said amendments were approved by 2,744,955 shares of the Common Stock, being a majority of said shares. Also, as such meeting, said proposed amendments were also approved by the persons entitled to a majority of the shares of Convertible Voting Preferred Stock, $.025 Non-Cumulative Dividend, being preferred stock of the corporation to be issued pursuant to the plan of exchange adopted by the corporation and Simmons Oil Company, Inc. a Texas corporation. BRADLEY J. SIMMONS BRADLEY J. SIMMONS, PRESIDENT ALBERT R.H. KENNEDY ALBERT R.H. KENNEDY, SECRETARY STATE OF TEXAS ) ) COUNTY OF FORT BEND ) This instrument was acknowledged before me on the 16th day of November, 1994, by Bradley J. Simmons, as President of Belize American, Corp. Internationale, now, by this Certificate, The American Energy Group, Ltd., a Nevada corporation, on behalf of said corporation. KEN DOUCETTE Ken Doucette Notary Public, State of Texas Certificate of Amendment to Articles of Incorporation - Belize American Corp. Internationale Page 1 [NOTARY PUBLIC SEAL] STATE OF TEXAS ) ) COUNTY OF FORT BEND ) This instrument was acknowledged before me on the 16th day of November, 1994, by Gilbert R.H. Kennedy, as Secretary of Belize American, Corp. Internationale, now, by this Certificate, The American Energy Group, Ltd., a Nevada corporation, on behalf of said corporation. KEN DOUCETTE Ken Doucette Notary Public, State of Texas [NOTARY PUBLIC SEAL] Certificate of Amendment to Articles of Incorporation - Belize American Corp. Internationale Page 2 EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.03 BY-LAWS OF DIM INC ARTICLE I OFFICES Section 1. The principal office of the Corporation shall be located in the state of Nevada. The Corporation may have such other offices, either within or without the State of Nevada, as the Board of Directors may designate or as the business of the Corporation may require from time to time. The registered office of the Corporation required by the laws of the State of Nevada, to be maintained in the State of Nevada, may be but need not be identical with the principal office in the State of Nevada, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II MEETING OF SHAREHOLDERS Section 1. ANNUAL MEETING. The annual meeting of shareholders shall be held at the principal office of the first Monday in March, at 10:00 am, or at such other times and places as the Board of Directors may from time to time determine. If the day so designated falls upon a legal holiday, then the meeting shall be held upon the first business day thereafter. In the event of a change in the time, date, or place of the annual meeting, the Secretary shall serve personally, or by mail, a written notice thereof, not less than ten (10) nor more than fifty (50) days previous to meeting, addressed to each shareholder at his address as it appears on the stock book; but at any meeting at which all shareholders shall be present, or at which all shareholders not present have waived notice in writing, the giving of notice as above required may be dispensed with. Section 2. SPECIAL MEETINGS. Special meetings of shareholders, other than those regulated by statute, may be called at any time by a majority of the Directors. Notice of such meeting stating the purpose for which it is called shall be served personally or by mail, not less than ten (10) days before the date set for such meeting. If mailed, it shall be directed to a shareholder at his address as it appears on the stock book; but at any meeting at which all shareholders present, or at which shareholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. The Board of Directors shall also, in like manner, call a special meeting of shareholders whenever so requested in writing by shareholders representing not less than ten percent (10%) of the capital stock of the Corporation entitled to vote at the meeting of shareholders upon ten (10) days notice. No business, other than that specified in the call for the meeting, shall be transacted at any special meeting of the shareholders, except upon the unanimous consent of all the shareholders entitled to notice thereof. Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to receive notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed, for a stated period not to exceed, in any case, fifty (50) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed, and no record date is fixed for the determination of shareholders entitled to receive notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board 1 of Directors declaring such dividend is adopted, as the case may be, shall the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Section 4. VOTING. At all meetings of the shareholders of record having the right to vote, subject to the provisions of Section 3, each stockholder of the Corporation is entitled to one vote for each share of stock having voting power standing in the name of such stockholder of the books of the Corporation. Votes may be cast in person or by written authorized proxy. Section 5. PROXY. Each proxy must be executed in writing by the shareholder of the Corporation of his duly authorized attorney. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution. Every proxy shall be revocable at the discretion to the person executing it or of his person representatives or assigns upon written notice given to the Secretary of the corporation. Section 6. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him either in person or by proxy without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the Court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledge, and thereafter the pledge shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the Corporation or held by is in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 7. ELECTION OF DIRECTORS. At each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected and for whose election he has a right to vote. There shall be no cumulative voting. Section 8. QUORUM. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders. If a quorum shall not be present or represented, the shareholders entitled to a vote thereat, present in person or represented by proxy, shall have power to adjourn from time to time the meeting until a quorum shall be present or represented. At such re-scheduled meeting at which a quorum shall be present or represented, any business or any specified item of business may be transacted which might have been transacted at the meeting originally notified. The number of votes or consents or the holders of any class of stock having voting power which shall be necessary for the transaction of any business or any specified item of business at any meeting of shareholders, including amendments to the Articles of Incorporation, or the giving of any consent, shall be a majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy. Section 9. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may 2 be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE III DIRECTORS Section 1. NUMBER. The affairs and business of this Corporation shall be managed by a Board of Directors. The first Board of Directors shall consist of three (3) members. Thereafter, the number of Directors may be increased to not more than seven (7) by resolution of the Board of Directors. Directors need not be shareholders and need not be residents of the state of Nevada. Section 2. ELECTION. The directors shall be elected at each annual meeting of the shareholders, but if any such annual meeting is held, or the directors are not elected thereat, the directors may be elected at any special meeting of the shareholders held for that purpose. Section 3. DUTIES. The Board of Directors shall have the control and general management of the affairs and business of the Corporation. Such directors shall in all cases act as a Board, except as herein provided in Section 10, regularly covered, by a majority, and they may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, as they may deem proper, not inconsistent with these By-Laws and the laws of the State of Nevada. Section 4. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors shall be held immediately following the annual meeting of the shareholders, and at such other time and place as the Board of Directors may determine. Special meetings of the Board of Directors may be called by the President at any time, and shall be called by the President or the Secretary upon the written request of two directors. Section 5. NOTICE OF MEETINGS. Notice of meetings other than the regular annual meeting, shall be given by service upon each director in person, or by mailing to him at his last known address, at least three (3) days before the date therein designated for such meeting, including the day of mailing, of a written or printed notice thereof specifying the time and place of such meeting, and the business to be brought before the meeting, and no business other than that specified in such notice shall be transacted at any special meeting. At any meeting at which every member of the Board of Directors shall be present, although held without notice, any business may be transacted which might have been transacted if the meeting had been duly called. Any Director may waive notice of any meeting under the provisions of Article XI. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully convened or called. Section 6. VOTING. At all meetings of the Board of Directors, each director is to have one vote, irrespective of the number of shares of stock that he may hold. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 7. VACANCIES. Vacancies in the Board occurring between annual meetings shall be filled for the unexpired portion of the term by a majority of the remaining directors. Section 8. REMOVAL OF DIRECTORS. Any one or more of the Directors may be removed, with or without cause, at any time, by a vote of the shareholders holding a majority of the stock, at any special meeting called for that purpose. Section 9. QUORUM. The number of Directors who shall be present at any meeting of the Board of Directors in order to constitute a quorum for the transaction of any business or any specified item of business shall be a majority. The number of votes of Directors that shall be necessary for the transaction of any business or any specified item of business shall be a majority. 3 If a quorum shall not be present at any meeting of the Board of Directors, those present may adjourn the meeting from time to time, until a quorum shall be present. Section 10. EXECUTIVE COMMITTEE. By resolution of the Board of Directors, and at their option, the Directors may designate an Executive committee which includes at least one (1) Director, to manage and direct the daily affairs of the Corporation. Said Executive Committee shall have and may exercise all of the authority that is vested in the Board of Directors as if the Board of Directors were regularly convened, except that the Executive Committee shall not have authority to amend these By-Laws. At all meetings of the Executive Committee, each member shall have one vote, and the act of a majority of the members present at a meeting at which quorum is present shall be the act of the executive committee members who shall be present at any meeting of the Executive Committee in order to constitute a quorum for the transaction of any business or any specified item of business. The number of votes of Executive Committee members that shall be necessary for the transaction of any business or any specified item of business shall be a majority. Section 11. COMPENSATION. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or each may be paid a stated salary as Director, either in cash, its equivalent, or in shares of stock of the Company. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12. PRESUMPTION OF ASSENT. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken unless his dissent shall be entered in the minutes of the meetings or unless he shall file his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. ARTICLE IV OFFICERS Section 1. NUMBER. The officers of this Corporation shall be: President, Vice-President, Secretary and Treasurer. With respect to the officer of Vice President, the Company may have any number of Vice Presidents, as directed by the Board of Directors. Any officer may hold more than one office. Section 2. ELECTION. All officers of the Corporation shall be elected annually by the Board of Directors at its meeting held immediately after the annual meeting of the shareholders, and shall hold office for the term of one year or until their successors are fully elected. Officers need not be members of the Board of Directors. The Board may appoint such other officers, agents and employees as it shall deem necessary who shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. Section 3. DUTIES OF OFFICERS. The duties and powers of the officers of the Corporation shall be as follows: PRESIDENT The President shall preside at all meetings of the Board of Directors and shareholders. He shall present at each annual meeting of the shareholders and Directors a report of the condition of the business of the Corporation. He shall cause to be called regular and special meetings of the shareholders and Directors in accordance with these By-Laws. He shall appoint and remove, employ and discharge, and fix the 4 compensation of all servants, agents employees, and clerks of the Corporation other than the duly appointed officers, subject to the approval of the Board of Directors. He shall sign and make all contracts and agreements in the name of the Corporation. He shall see that the books, reports, statements and certificates required by the statutes are properly kept, made and filed according to law. He shall sign all certificates of stock, notes, drafts or bills of exchange; warrants or other orders for the payment of money duly drawn by the Treasurer. He shall enforce these By-Laws and preform all of all the duties incident to the position and office, and which are required by law. VICE-PRESIDENT During the absence or inability of the President to render and preform his duties or exercise his powers, as set forth in these By-Laws or in the laws under which this Corporation is organized, the same shall be performed and exercised by the Vice-President; and when so acting, he shall have all powers and be subject to all the responsibilities hereby given to or imposed upon such President. SECRETARY The Secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholder in appropriate books. He shall give and serve all notices of the Corporation. He shall be custodian of the records and of the seal and affix the latter when required. He shall keep the stock and transfer books in the manner prescribed by law, so as to show at all times the amount of capital stock issued and outstanding; the manner and the time compensation for the same was paid in; the names of the owners thereof, alphabetically arranged; the number of shares owned by each; the time at which each person became such owner, and the amount paid thereon; and keep such stock and transfer books open daily during such shareholder to make extracts from said books to the extent prescribed by law. He shall sign all certificates of stock. He shall present to the Board of Directors at their stated meetings all communications addressed to him officially by the President or any officer or shareholder of the Corporation. He shall attend to all correspondence and perform the duties incident to the office of Secretary. TREASURER The Treasurer shall have the care and custody of, and be responsible for, all the funds and securities of the Corporation and deposit all such funds in the name of the Corporation in such bank or banks, trust company or trust companies, or safe deposit vaults as the Board of Directors may designate. He shall exhibit at all reasonable times his books and accounts to any director or shareholder of the Corporation upon application at the office of the Corporation during business hours. He shall render a statement of the conditions of the finances of the Corporation at each regular meeting of the Board of Directors, and at such other times as shall be required of him, and a full financial report at the annual meeting of the shareholders. He shall keep, at the office of the Corporation, correct books of account of all its business and transactions and other such books of account as the Board of Directors may require. He shall do and perform all duties appertaining to the office of Treasurer. Section 4. BOND. The Treasurer shall, if required by the Board of Directors, give to the Corporation such security for the faithful discharge of his duties as the Board may direct. 5 Section 5. VACANCIES, HOW FILLED. All vacancies in any office shall be filled by the Board of Directors without undue delay, at its regular meeting or at a meeting specially called for that purpose. In the absence of any officer of the Corporation or for any reason that the Board of Directors may deem sufficient, The Board may, except as specifically otherwise provided in these By-Laws, delegate the powers of such officers to any other officer of Director for the time being, provided a majority of the entire Board concur therein. Section 6. COMPENSATION OF OFFICERS. The Officers shall receive such salary or compensation as may be determined by the Board of Directors. Section 7. REMOVAL OF OFFICERS. The Board of Directors may remove any officer, by a majority vote, at any time with or without cause. ARTICLE V CERTIFICATES OF STOCK Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock shall be numbered and registered in the order in which they are issued. They shall be bound in a book and shall be issued in consecutive order therefrom, and in the margin thereof shall be entered the name of the person owning the shares therein represented, with the number of shares and the date thereof. Such certificates shall exhibit the holder's name and number of shares. They shall be signed by the President or Vice-President, and countersigned by the Secretary or Treasurer and sealed with the seal of the Corporation. Section 2. TRANSFER OF STOCK. The stock of the Corporation shall be assignable and transferable on the books of the Corporation only by the person in whose name it appears on said books, his legal representatives or by his duly authorized agent. In case of transfer by attorney, the power of attorney, duly executed and acknowledged, shall be deposited with the Secretary. In all cases of transfer, the former certificate must be surrendered up and cancelled before a new certificate may be issued. No transfer shall be made upon the books of the Corporation within ten (10) days next preceding the annual meeting of the shareholders. Section 3. LOST CERTIFICATES. If a shareholder shall claim to have lost or destroyed a certificate or certificates of stock issued by the Corporation, the Board of Directors may direct, at its discretion, that a new certificate or certificates be issued, upon the making of an affidavit or that fact by the person claiming the certificate of stock to be lost or destroyed and upon the deposit of an open ended bond or other indemnity in such form and with such sureties, if any, as the board may require. ARTICLE VI CORPORATE SEAL Section 1. SEAL. The seal of the Corporation shall be as follows: ARTICLE VII DIVIDENDS Section 1. WHEN DECLARED. The Board of Directors shall by vote declare dividends from the surplus profits of the Corporation whenever, in their opinion, the condition of the Corporation's affairs will render it expedient for such dividends to be declared. Section 2. RESERVE. The Board of Directors may set aside out of the net profits of the Corporation available for dividends such sum or sums, before payment or any dividend, as the Directors, in their absolute discretion, think proper as a reserve fund, to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the Directors shall think conducive or modify any such reserve in the manner in which it was created. 6 ARTICLE VIII INDEMNIFICATION Section 1. INDEMNIFICATION. Any person made a party or involved in any civil, criminal or administrative action, suit, or proceeding by reason or the fact that he or his testator or intestate is or was director, officer, or employee of the Corporation, or of any Corporation which he, the testator, or intestate served as such at the request of the Corporation, shall be indemnified by the Corporation against expenses reasonably incurred by him or imposed on him in connection with or resulting from the defense of such action, suit, or proceeding and in connection with or resulting from any appeal thereon, except with respect to matters as to which it is adjudged in such action, suit, or proceeding that such officer, director, or employee was liable to the Corporation, or to such other corporation, for negligence or misconduct in the performance of his duty. As used herein the term "expense" shall include all obligations incurred by such person for the payment or money, including without limitation attorney's fees, judgments, awards, fines, penalties, and amounts paid in satisfaction of judgment or in settlement of any such action, suit, or proceeding, except amounts paid to the Corporation or such other corporation by him. A judgement or conviction whether based on pleas of guilty or nolo contendre or its equivalent, or after trial, shall not of itself be deemed an adjudication that such director, officer, or employee is liable to the Corporation, or such other corporation, for negligence or misconduct in the performance of his duties. Determination of the rights of such indemnification and the amount thereof may be made at the option of the person to be indemnified pursuant to procedure set forth from time to item in the By-Laws, by any of the following procedures: (a) order of the court or administrative body or agency having jurisdiction of the action, suit, or proceeding; (b) resolution adopted by a majority or the quorum of the Board of Directors of the Corporation, without counting in such majority or quorum any directors who have incurred expenses in connection with such action, suit or proceeding; (c) if there is no quorum of directors who have not incurred expenses in connection with such action, suit, or proceeding, then by resolution adopted by a majority of the committee of shareholders and directors who have not incurred such expenses appointed by the Board of Directors; (d) resolution adopted by a majority for the quorum of the Directors entitled to vote at any meeting; or (e) order of any court having jurisdiction over the Corporation. Any such determination that a payment by way of indemnity should be made will be binding upon the Corporation. Such right of indemnification shall not be exclusive of any other right which such directors, officers, and employees of the Corporation and the other persons above-mentioned may have or hereafter acquire, and without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any By-Laws, Agreement, vote of shareholders, provision of law, or otherwise, in addition to their rights under this Article. The provision of this Article shall apply to any member of any committee appointed by the Board of Directors as fully as though such person had been a director, officer or employee of the Corporation. ARTICLE IX AMENDMENTS Section 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or added to by the vote of the Board of Directors of this Corporation at any regular meeting of said Board, or at a special meeting of directors called for the purpose, provided a quorum of the directors, as provided by law and by the Articles of Incorporation, are present at such regular meeting or special meeting. These By-Laws and any amendments thereto and new By-Laws added by the directors may be amended, altered or replaced by the shareholders at any such annual or special meeting of the shareholders. ARTICLE X FISCAL YEAR Section 1. FISCAL YEAR. The fiscal year shall end June 30th. 7 ARTICLE XI WAIVER OF NOTICE Section 1. WAIVER NOTICE. Whenever any notice is required to be given to any shareholder or director of the Corporation under the provisions of the Nevada Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the item stated therein, shall be deemed equivalent to the giving of such notice. These By-Laws approved and adopted at a meeting of the Board of Directors on 1st day of October. /s/ JAMES BLACKBURN James Blackburn, President CERTIFICATE OF SECRETARY I, the undersigned, do hereby certify: (1) That I am the duly elected and acting Secretary of DIM INC; (2) That the foregoing By-Laws comprised of XI Articles, constitute the By-Laws of said Corporation as duly adopted at a meeting of the Board of Directors thereof duly held on the 1st day of October, 1988. /s/ PETER N. WILLIAMS Peter N. Williams, Secretary 8 EX-4.1 4 EXHIBIT 4.1 THE AMERICAN ENERGY GROUP, LTD. NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA PAR VALUE $.001 PER SHARE SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 025636 10 1 This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE AMERICAN ENERGY GROUP, LTD. Transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the signatures of its duly authorized officers. Dated: [SEAL] /s/ Richard A. Majeus Secretary /S/ Bobby J. Simmons President The following abbreviations, when used in the inscription on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-__________ Custodian____________ (Cust) (Minor) under Uniform Gifts to Minors Act____________________________ (State) UNIF TRF MIN ACT- __________ Custodian____________ (Cust) (Minor) under Uniform Transfers to Minors Act____________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, hereby sell, assign and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO SEC RULE 11Ad15. EX-4.2 5 EXHIBIT 4.2 CERTIFICATE OF ISSUANCE OF CONVERTIBLE VOTING PREFERRED STOCK S.025 NON-CUMULATIVE DIVIDEND OF THE AMERICAN ENERGY GROUP, LTD. We, the undersigned President and Secretary of The American Energy Group, Ltd., a Nevada corporation, hereinafter called the "Corporation", do hereby certify that the Board of Directors of the Corporation, at a meeting duly convened and held on the 22nd day of September, 1994, by resolution authorized the issuance of 2,074,521 shares of the authorized preferred stock of the corporation, to be issued in a series, to be known as the "Convertible Voting Preferred Stock, $.025 Non-Cumulative Dividend", which for purposes of this document shall hereinafter be called the "Preferred Stock". The voting powers, designations, preferences, limitations, restrictions and relative rights of said series of Preferred Stock are as follows: DIVIDEND RIGHTS. The holders of Preferred Stock shall be entitled to receive, as and when declared, out of any surplus, net profits or other assets from which the Corporation may legally declare dividends, noncumulative preferential dividends at the rate of $0.025 a share per annum, payable annually, semiannually, or quarterly as the Board of Directors of the Corporation may determine, and no more, before any dividends may be declared on the shares of the Common Stock of the Corporation. REDEMPTION. At any time, and from time to time, after September 30, 1999, the Board of Directors of the Corporation may elect to redeem the Preferred Stock, at a redemption price of $0.50 per share. CONVERSION PRIVILEGE. The Preferred Stock shall, at the option of the holders thereof, be convertible into fully paid and nonassessable Common Stock of the Corporation, upon the following terms and conditions: On or before September 30, 1995, the holder may elect to convert 20% of the Preferred Stock issued to such holder. On or before September 30, 1996, the holder may elect to convert a further 20% of the Preferred Stock issued to such holder. On or before September 30, 1997, the holder may elect to convert a further 20% of the Preferred Stock issued to such holder. On or before September 30, 1998, the holder may elect to convert a further 20% of the Preferred Stock issued to such holder. On or before September 30, 1999, the holder may elect to convert the final 20% of the Preferred Stock issued to such holder. The right and option to convert shall terminate if not exercised on or before September 30, 1999. The annual option rights are cumulated, if not exercised. By way of example, if a holder does not elect to convert prior to September 30, 1996 such holder may elect to convert 40% of the Preferred Stock issued to such holder. Each share of Preferred Stock shall be convertible into five (5) shares of the Common Stock of the Corporation. In order to exercise the conversion privilege, the holder of any of the Preferred Stock to be converted shall surrender the certificate or certificates therefore to any transfer agent of the Corporation, or to the main corporate office of the Corporation or to any transfer agent of the Corporation, duly endorsed, with signature guaranteed by a national banking association, in blank for transfer, accompanied by written notice of election to convert such Preferred Stock or portion thereof, executed on the form set forth on such certificates or on such other form as may be provided from time to time by the Corporation. As soon as practical after the surrender of such certificates by the holder, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to the holder of the certificates thus surrendered, a certificate or certificates in the same name as the holder of the certificates surrendered for the number of full shares of Common Stock issuable hereunder upon the conversion of such Preferred Stock. Such conversion shall be deemed to have been effected on the date on which the certificates for such Preferred Stock have been surrendered. Certificate of Issuance of Convertible Voting Preferred Stock - The American Energy Group, Ltd. Page 1 If at any time the Corporation contracts the number of outstanding Common Stock by combining such shares into a smaller number of shares, the conversion then in effect shall be proportionally increased, and the number of shares of Common Stock into which each share of Preferred Stock shall thereafter be convertible shall be proportionally decreased. In the case of a merger or consolidation of the Corporation, or the reclassification of its Common Stock, other than by way of split-up or contraction, or a change in par value, the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion the kind and amount of shares and securities and property which they would have been entitled to receive had they converted such Preferred Stock into Common Stock of the Corporation as of the record date for the determination of Common Stock shareholders entitled to participate in such merger, consolidation or reclassification. As long as any of the Preferred Stock remains outstanding during the conversion period, the Corporation shall take all steps necessary to reserve and keep available a number of its authorized but unissued Common Stock sufficient for issuance upon conversion of all such outstanding Preferred Stock. In case of the voluntary dissolution, liquidation or winding up of the Corporation, all conversion rights of the holders of the Preferred Stock shall be accelerated and shall terminate, if not exercised, on a date fixed by the Board of Directors of the Corporation, to be not more than 30 days prior to the record date for determining the holders of the Common Stock entitled to receive any distribution upon such dissolution, liquidation, or winding up. The Corporation shall cause notice of the proposed action, and of the date of termination of conversion rights, to be mailed to the holders of record of the Preferred Stock not later than 30 days prior to the date of such termination. All certificates of Preferred Stock surrendered for conversion in the manner herein set forth shall be canceled and retired. The exercise of the conversion privilege shall be subject to such regulations, not inconsistent with the foregoing provisions, as may from time to time be adopted by the Board of Directors of the Corporation. All Common Stock issued upon the conversion of the Preferred Stock shall be validly issued and outstanding and fully paid and nonassessable. VOTING RIGHTS. The holders of the Preferred Stock shall have the right to vote or consent at all meetings of the shareholders of the Corporation, or otherwise, in respect to any matter upon which the vote or the consent in lieu of voting of the shareholders is required, including, without limitation, the election of directors. Each share of the Preferred Stock shall be entitled to one vote. /s/ BRADLEY J. SIMMONS BRADLEY J. SIMMONS, PRESIDENT /s/ GILBERT R.H. KENNEDY GILBERT R.H. KENNEDY, SECRETARY STATE OF TEXAS COUNTY OF HARRIS This instrument was acknowledged before me on the 16th day of November, 1994, by Bradley J. Simmons, as President of The American Energy Group, Ltd., a Nevada corporation, on behalf of said corporation. /s/ KEN DOUCETTE NOTARY PUBLIC, STATE OF TEXAS [NOTARY PUBLIC SEAL] Certificate of Issuance of Convertible Voting Preferred Stock - The American Energy Group, Ltd. Page 2 STATE OF TEXAS COUNTY OF HARRIS This instrument was acknowledged before me on the 16th day of November, 1994, by Gilbert R.H. Kennedy, as Secretary of The American Energy Group, Ltd., a Nevada corporation, on behalf of said corporation. /s/ KEN DOUCETTE NOTARY PUBLIC, STATE OF TEXAS [NOTARY PUBLIC SEAL] STATE OF NEVADA SEAL Certificate of Issuance of Convertible Voting Preferred Stock - The American Energy Group, Ltd. Page 3 BLOCK E Certificate No. E Shares INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA RESTRICTED PREFERRED STOCK CONVERTIBLE VOTING PREFERRED STOCK, $0.025 NON-CUMULATIVE DIVIDEND THIS CERTIFIES THAT is the owner of Fully-paid and non-assessable shares of Convertible Voting Preferred Stock, $0.025 Non-Cumulative Dividend of THE AMERICAN ENERGY GROUP, LTD. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, the said Corporation has caused this Certificate to be signed by its duly-authorized officers and sealed with the Seal of the Corporation. Dated: President Secretary Countersigned and Registered by Signature Stock Transfer, Inc. Authorized Signature For value received hereby sells, assigns, and transfers unto Shares represented by the within certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said Shares on the books of the within-named Corporation with full power of substitution in the premises. Dated this day of , 19 (Witness) (Signature) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR UNDER THE SECURITY LAWS OF ANY STATE. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, AND THE REGISTRATION UNDER THE SECURITIES LAWS OF ANY APPLICABLE STATE STATUTES, OR A PRIOR OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH STATUTES. The shares of Preferred Stock reflected by this Certificate are subject to, among others, the following qualifications, limitations, or restrictions: Dividend Rights. The holders of the Preferred Stock shall be entitled to receive, as and when declared, out of any surplus, net profits or other assets from which the Corporation may legally declare dividends, noncumulative preferential dividends at the rate of $0.025 a share per annum, payable annually, semiannually, or quarterly as the Board of Directors of the Corporation may determine, and no more, before any dividends may be declared on the shares of the Common Stock of the Corporation. Redemption. At any time, and from time to time, after September 30, 1999, the Board of Directors of the Corporation may elect to redeem the Preferred Stock, at a redemption price of $0.50 per share. Conversion Privilege. The Preferred Stock reflected by this Certificate, being Block E Preferred Stock, are convertible on or after October 1, 1998. On or after such date, the Preferred Stock reflected by this Certificate shall, at the option of the holders thereof, be convertible into fully-paid and non-assessable Common Stock of the Corporation. Upon the exercise of such option, each share of Preferred Stock shall be convertible into five (5) shares of the Common Stock of the Corporation. The right and option to convert shall terminate if not exercised on or before September 30, 1999. Voting Rights. The holders of the Preferred Stock shall have the right to vote or consent at all meetings of the shareholders of the Corporation, or otherwise, in respect to any matter upon which the vote or the consent in lieu of voting of the shareholders is required, including, without limitation, the election of directors. Each share of the Preferred Stock shall be entitled to one vote. A statement setting forth in full or summarizing further the conversion privilege, and any other designations, limitations, restrictions and relative rights of the stock reflected by this Certificate may be obtained from the President of the Corporation at its principal office, being located at P.O. Box 489,, Simonton, Texas 77476. The Corporation shall furnish to its stockholders, upon request and without charge, a copy of such statement or summary. EX-21.1 6 21.1 Subsidiaries All of the Company's subsidiaries are Texas corporations. 1. AMERICAN ENERGY-DECKERS PRAIRIE, INC. 2. THE AMERICAN ENERGY OPERATING CORP. 3. TOMBALL-AMERICAN ENERGY, INC. 4. CYPRESS-AMERICAN ENERGY, INC. 5. DAYTON NORTH FIELD-AMERICAN ENERGY, INC. 6. NASH DOME FIELD-AMERICAN ENERGY, INC. 7. SIMMONS OIL COMPANY, INC. 8. SIMMONS DRILLING CO., INC. 9. SEQUOIA OPERATING COMPANY, INC. 10. HYCARBEX AMERICAN ENERGY, INC. EX-27 7
5 YEAR JUN-30-1998 JUN-30-1998 3,214,205 3,300 8,984 0 0 3,339,607 17,740,805 218,627 20,864,635 2,947,464 0 0 535 28,928 17,446,892 20,864,635 641,203 864,243 528,959 528,959 856,815 0 6,460 (527,991) 0 (651,073) 0 123,082 0 (527,991) (.020) (.014)
-----END PRIVACY-ENHANCED MESSAGE-----