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UNITED STATES
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, 1999
Commission file number: 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
Nevada 87-0448843
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
P.O. Box 489, Simonton, Texas 77476
(Address of principal executive offices) (Zip Code)
(281) 346-2652
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, par value $0.001
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form I O-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: 33,180,888 Common Shares
outstanding as of October 1, 1999.
The aggregate market value of voting and non-voting common equity held by
non-affiliates as of October 1, 1999 was $68,352,629.
Table of Contents
PART I.
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 6
Item 3. Legal Proceedings.............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............ 15
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 16
Item 6. Selected Financial Data........................................ 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 25
Item 8. Financial Statements........................................... 25
Item 9. Changes in and Disagreements with Accountant on Accounting
and Financial Disclosure..................................... 25
PART III.
Item 10. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act... 26
Item 11. Executive Compensation......................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 31
Item 13. Certain Relationships and Related Transactions.................. 33
PART IV.
Item 14. Exhibits, Financial Statements and Reports on Form 8-K.......... 33
SIGNATURE
2
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 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.
3
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, upon closing, provided a $551,000 Financial
Guarantee Bond to the Government of Pakistan to assure performance of Concession
requirements. Subsequent seismic surveys performed and drilling of the
exploratory wells in 1997 and 1998 by the Company have satisfied the 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. At that time, the Company began a program of drilling and reworking
developmental wells on its properties. The Company has continued to evaluate its
inventory of oil and gas properties, and to pursue capital investment to finance
a comprehensive drilling and production program, both in Texas and Pakistan.
In June, 1997, the Company purchased oil and gas properties totaling
approximately 1,400 acres in Texas. During the year ended June 30, 1999, the
Company drilled eight developmental wells on these properties, of which seven
wells are currently producing.
During the year ended June 30, 1999, the Company drilled its second and third
exploratory wells in central Pakistan, the David #1 and #1A wells. Although both
wells encountered gas shows, both were plugged and abandoned as non-commercial.
Geological and geophysical evaluations are currently being conducted on an
intensive basis. Based on the preliminary testing of the initial well drilled in
1997, the Kharnhak #1, and the geological information obtained while drilling
the second and third exploratory wells, the Company believes that further
drilling and testing is warranted.
FORWARD LOOKING INFORMATION
With the exception of historical information, the matters discussed in this
Report contain forward looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward looking statements contained in this report include the time and extent
of changes in commodity prices for oil and gas, increases in the cost of
conducting operations, including remedial operations, the extent of the
Company's success in discovering, developing and producing reserves, political
conditions, including those in Pakistan and other areas in which the Company
possesses properties, condition of capital and equity markets, the ability of
the Company to obtain financing on reasonable terms, changes in environmental
laws and other laws affecting the ability of the Company to explore for and
produce oil and gas and the cost of so doing and other factors which are
described in this report.
4
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 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, business practices, and
political climates may exist. The Company intends to continue to minimize this
risk by engaging appropriate local professional and support personnel as the
operations develop. (See Item 2. History of Properties)
5
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, 1999, the Company and its subsidiaries had 25 employees, including
12 administrative and clerical personnel and 13 drilling and field personnel.
YEAR 2000 FACTORS
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. The oil and gas constituents are
added together for total BOE.
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.
6
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
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 the purpose of revitalizing
these fields. At June 30, 1999, 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") Hycabex 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 in early 1997, drilled its initial exploratory well on the
Concession in early 1998, drilled its second and third exploratory wells in mid
1999, and is currently preparing to drill the next exploratory wells in early
2000. 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,
7
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 obligated to pay a
minimum of $250,000 per year for 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 other payments to the seller in the
form of an overriding royalty interest from gross production. During the fiscal
year, the Company continued its program to drill new wells on the properties
acquired and to rework certain existing wells.
A summary of the oil and gas properties and 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 1846 net acres. The Company
owns 100% of the working interest in these properties.
During the fiscal year ended June 30, 1999, the Company drilled eight
developmental wells, of which two were drilled in the Boling Field and six were
drilled in the Blue Ridge Field. Seven of the eight wells are currently in
various stages of completion or production, and the eighth well is yet to be
completed while production facilities are being prepared. The Company has a
significant number of shut in wells and proved undeveloped locations which it
plans to develop or drill in the Boling and Blue Ridge Fields.
GALVESTON COUNTY, TEXAS.
The Company `s holdings in Galveston County, Texas are currently comprised of
673 net acres in the Gillock Field. The acreage is comprised of contiguous
tracts where the "deep rights" below a certain formation belong to the Company,
and the leasehold rights as a whole are maintained if force by shallow
production of third parties.
JACOBABAD, PAKISTAN.
The Company, through its wholly owned subsidiary Hycarbex-American Energy, Inc.,
holds 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 has drilled three exploratory wells
to date and is engaged in preparations for the drilling of additional
exploratory wells in early calendar year 2000.
On October 12, 1999. Pakistani military troops seized control of state-run
television and radio stations and major airports throughout the country
following what certain media reports have described as a surprise dismissal of
the Army Chief of Staff, General Pervaiz Musharraf. No formal announcements have
been made by Prime Minister Nawaz Sharif's civilian government. Company's
management intends to closely monitor internal developments in order to
determine the overall effects of these events upon its Jacobabad-based
Concession.
8
A. DRILLING HISTORY
Set forth below is a tabulation of wells (gross and net wells reflecting the
ratio of working interest ownership owned by the company vs. 100% working
interest in each well) completed in the period indicated in which the Company
has participated and the results thereof for each of the three years ended June
30th.
YEAR ENDED JUNE 30
--------------------------------------------------------------
1999 1998 1997
----------------- ------------------ -------------------
GROSS NET GROSS NET GROSS NET
------- ------- ------- -------- -------- --------
DRY 0 0 0 0 0 0
OIL 8 8 6 5 8 7
GAS 0 0 0 0 0 0
------- ------- ------- -------- -------- --------
TOTALS 8 8 6 5 8 7
EXPLORATORY WELLS: The Company drilled two exploratory wells in Pakistan, the
David #1 and David #1A. These two wells were plugged and abandoned as
non-commercial.
B. PRODUCING WELLS
Set forth below is a tabulation of the productive oil wells owned by the Company
as of June 30, 1999. 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.
PRODUCTIVE WELLS
GROSS NET
--------- ---------
OIL 105 105
GAS 0 0
--------- ---------
TOTAL 105 105
9
C. ACREAGE HOLDINGS
The developed and undeveloped acreage owned by the Company as of June 30, 1999
are as follows.
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
GROSS NET GROSS NET
--------- --------- ----------- ---------
TEXAS 152 152 2,372 2,372
PAKISTAN0 0 1,000,000 950,000
--------- --------- --------- ---------
TOTAL 152 152 1,002,372 952,372
D. PRODUCTION AND SALE OF OIL AND GAS
As of June 30, 1998 and 1999, the Company received oil revenues from 14 and 22
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, 1999, which production is not reflected in the following
production numbers:
1999 1998 1997
-------- -------- --------
Net Oil Sales (Bbls) in the
Fiscal Year ended June 30: 32,272 42,663 14,241
Avg. Price per Barrel: $12.93 $15.03 $19.90
All wells in the U.S. fields were shut in for repairs and maintenance as of June
30, 1998 and subsequent to that time certain wells were reactivated throughout
the current fiscal year ending June 30, 1999.
AVERAGE LIFTING COST
1999 1998 1997
-------- -------- --------
Per BBL. $5.08 $6.05 $5.89
Per MCF (FN 1) N/A N/A N/A
FN 1 The Company does not presently produce any 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
10
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, 1999 on
the Company's U.S. properties reflect a weighted average price of $18.50 per BOE
vs. $12.50 in its June 30, 1998 estimates. The proved developed and undeveloped
oil and gas reserve figures presented in this report are estimates based on
reserve reports prepared by independent petroleum engineers. The estimation of
reserves requires substantial judgment on the part of the petroleum engineers,
resulting in imprecise determinations particularly with respect to new
discoveries. Estimates of reserves and of future net revenues prepared by
different petroleum engineers may vary substantially, depending, in part, on the
assumptions made and may be subject to material adjustment. Estimates of proved
undeveloped reserves, which comprise a substantial portion of the Company's
reserves, are, by their nature, much less certain than proved developed
reserves. The accuracy of any reserve estimate depends on the quality of
- -available data as well as engineering and geological interpretation and
judgment. Results of drilling, testing and production or price changes for
produced hydrocarbons subsequent to the date of the estimate may result in
changes to such estimates. The estimates of future net revenues in this report
reflect oil and gas prices and production costs as of the date of estimation,
without escalation, except where changes in prices were escalated under the
terms of existing contracts. There can be no assurance that such prices will be
real or that the estimated production volumes will be produced during the period
specified in such reports. Since June 30, 1998, (the date of the Pakistan
estimate) oil and gas prices have fluctuated significantly. The estimated
reserves and future net revenues may be subject to material downward or upward
revision based upon production history, results of future development,
prevailing oil and gas prices and other factors. A material change in estimated
proved reserves or future net revenues could have a material effect on the
Company.
UNITED STATES RESERVE ESTIMATES
The following tables present total proved developed and proved undeveloped
reserve volumes as of June 30, 1999, and 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 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
1999 1998 1999 1998 1999 1998
- -------------------------- ------------------ ----------------------
471,430 0 634,040 671,050 2,341,420 1,689,950
======= ======= ======= ======= ========= =========
11
Total estimated Proved oil reserves as of June 30:
1999 1998
3,446,890 Barrels 2,361,000 Barrels
================= =================
This reflects an increase of 46% in total proved reserves in the current fiscal
year.
ESTIMATED FUTURE NET REVENUES - UNITED STATES PROPERTIES
The comparative estimated future net revenues (using current prices and costs at
the fiscal year end) and the present value of future net revenues (using
discount factor of 10 percent per annum) before income taxes for the Company's
proved developed and proved undeveloped oil reserves as of
June 30, 1999 and 1998 are as follows:
PROVED DEVELOPED OIL RESERVE CATEGORY
- --------------------------------------
AS OF JUNE 30, 1999 AS OF JUNE 30, 1998
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%
$7,917,855 $6,840,405 $ 0 $ 0
========== ========== ========= ========
PROVED SHUT IN OIL RESERVE CATEGORY
- -----------------------------------
AS OF JUNE 30, 1999 AS OF JUNE 30, 1998
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%
$10,417,878 $9,159,680 $ 7,257,990 $ 6,077,565
=========== ========== =========== ===========
PROVED UNDEVELOPED OIL RESERVE CATEGORY
- ---------------------------------------
AS OF JUNE 30, 1999 AS OF JUNE 30, 1998
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%
$32,353,361 $23,872,375 $13,395,010 $9,572,141
=========== =========== =========== ==========
12
COMBINED PROVED OIL DEVELOPED, SHUT-IN, AND UNDEVELOPED CATEGORIES
As of June 30, 1999: As of June 30, 1998:
Future net Present Future net Present
Revenues value of Revenues value of
future net future net
Revenue Revenue
PV 10% PV 10%
$50,689,094 $39,872,461 $20,653,000 $15,649,706
=========== =========== =========== ===========
The Company attributes the 46% increase in Total Proved Oil Reserves and 154%
increase in Present Value (discounted at 10%) to three key elements: (1) Certain
acquisitions made by the Company in the fiscal year, (2) The relative increase
in oil prices at the comparative times of the estimates - wherein the weighted
average price had increased from $12.50 at June 30, 1998, to $18.50 at June 30,
1999. This reflects a 48% increase in product prices. (3) The upward adjustment
of proved reserves due to the drilling of certain key field extension wells and
various recompletions which verified potential for expanded development on
certain of the Company's leases.
"Proved developed" oil and gas reserves are reserves that can be expected to be
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 years the
market for oil and gas has experienced substantial fluctuations, which have
resulted in significant swings in the prices for oil and gas. The Company cannot
predict the future of oil and gas prices or whether a future decline in prices
will occur. Any such decline would have an adverse effect on the Company.
PAKISTAN RESERVE ESTIMATES - PROBABLE RECOVERABLE RESERVES
As previously reported 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 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 AS OF JUNE 30, 1998)
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 Pakistan estimate) gas prices have
generally remained stable. The estimated reserves and future net revenues may be
subject to material downward or upward revision based upon production history,
results of future development, prevailing gas 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
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 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 were involved in the following legal
proceedings during the fiscal year ended June 30, 1999:
14
On July 30,1997, the Company filed a lawsuit in U.S. District Court in Houston,
Texas, charging that specific individuals and companies had conspired to
manipulate stock of the Company which was believed to have been fraudulently
obtained prior to the acquisition by The American Energy Group, Ltd. in 1994.
The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al.,
C.A. No. H97-2450, in the United States District Court, Southern District of
Texas, Houston, Division. The Company subsequently reached a settlement with all
except three of the defendants. The litigation proceeded against three
defendants after the settlement, representing in excess of 400,000 shares of
common stock which the Company believes to have been fraudulently obtained. At
this time, it is not anticipated that litigation costs incurred by the Company
will adversely affect ongoing Company operations.
In January, 1999, the Company reached a settlement with the Securities and
Exchange Commission (SEC) in a civil lawsuit filed by the SEC on April 24, 1997,
against the company and its President, Bradley J. Simmons. In the lawsuit, the
SEC sought civil penalties, injunctive relief and a bar against Mr. Simmons from
serving as an officer and director of any publicly traded company based on
allegations that specific press releases issued and filings made by the Company
in 1995 contained misleading statements or omitted material information and
thereby violated certain provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The Company and Mr. Simmons agreed to the
settlement without admitting or denying the allegations in the SEC's lawsuit in
order to avoid further costs of protracted litigation and disruption to the
Company. The terms of the settlement were incorporated in a final judgement
entered by the Court on January 15, 1999. Under the terms of the final
judgement, the Company and Mr. Simmons agreed to a permanent injunction
prohibiting them from engaging in violations of certain specified anti-fraud and
reporting provisions in the federal securities laws. Although Mr. Simmons agreed
to pay a civil penalty in the amount of $60,000.00, the final judgement imposes
no bar upon Mr. Simmons and he remains an officer and director of the Company.
The final judgement imposes no civil penalty on the Company. Moreover, it adopts
a remedy previously implemented by the Company on its own initiative to insure
the accuracy and adequacy of its public disclosures, namely, the establishment
of an independent Disclosure Committee to oversee all such public disclosures in
the future. The function of the Disclosure Committee is to monitor and review
the content of each proposed public disclosure in light of the nature and
materiality of the information being published. The composition of the
Disclosure Committee is subject to strict criteria and the Company is required
to continue its existence for a minimum of four years. The parties agreed that
this was an appropriate remedial effort to enhance the quality of the Company's
public disclosures.
In the quarter ending June 30, 1999, the Company and its wholly owned
subsidiary, Hycarbex-American Energy, Inc. were named in a lawsuit filed by
Alpha Tech International, Inc. in Cause No. 1999-10941 in the 11th Judicial
District Court of Harris County, Texas. In the lawsuit Alpha Tech International,
Inc. is seeking recovery of cash, common stock, and an overriding royalty in the
Company's Pakistan Concession as a finder's fee under a 1996 agreement in which
Alpha Tech International, Inc. was to be compensated if successful in raising
working capital for the Company from certain named third parties. The Company
and its subsidiary have denied any liability under the Agreement.
15
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.
High Bid Low Bid
Fiscal years ended
June 30,
1999
First Quarter $6.69 $3.50
Second Quarter $5.81 $3.38
Third Quarter $4.13 $2.19
Fourth Quarter $3.75 $1.03
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 October 11, 1999, the closing bid for the Common Stock $1.69 per share. On
October 11, 1998 there were approximately 1,500 stockholders of record of the
Common Stock.
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.
16
SALES OR ISSUANCE OF UNREGISTERED SECURITIES (FN 1)
From time to time during the fiscal year ended June 30, 1999, a total of 28
holders of the Company's convertible preferred stock exercised their conversion
rights whereby 433,466 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
2,167,330 shares of common stock were issued. The Company did not receive any
proceeds from the conversion of the Preferred shares. 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.
During the fiscal year ended June 30, 1999, a total of three foreign investors
purchased a total of 1,528,572 shares of common stock of the Company at an
average price of approximately $2.26 per share. The Company received proceeds of
$3,450,000. The Company believes that each of the investors 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. None of the
transactions involved a public offering.
In the fiscal year ended June 30, 1999, the Company acquired working interests
in certain oil and gas properties which the Company operates from two joint
venture industry partners in exchange for 194,000 shares. The parties valued
each share at $3.50 per share for the purposes of these transactions. The
Company believes that the entities 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 they were 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 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.
In the fiscal year ended June 30, 1999, the Company retired approximately
$138,464 in debt to one oil-field service company in exchange for 39,441 shares
of Common Stock of the Company. The Company believes that the service company
had knowledge and experience in financial and business matters which allowed it
to evaluate the merits and risk of the receipt of these securities of the
Company and that it 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.
17
During the fiscal year ended June 30, 1999, one foreign person exercised a total
of 135,000 warrants to purchase Common Stock of the Company at an exercise price
of $3.00 per share. The Company received total proceeds of $405,000 in these
transactions. In addition, one person exercised warrants with "cashless exercise
provisions" resulting in the cancellation of 25,000 warrants and the issuance of
18,200 shares of common stock. The Company believes that person had knowledge
and experience in financial and business matters which allowed him to evaluate
the merits and risk of the purchase of these securities of the Company, and that
the person was knowledgeable about the Company's operations and financial
condition. These transactions were effected by the Company in reliance upon
exemptions from registration under the Securities Act of 193' 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.
In April, 1998, the Company and one 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. In the fiscal year ended June 30, 1999, the Company and the
individual mutually agreed to cancel 252,050 shares of the original 350,000
shares. 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.
In the fiscal year ended June 30, 1999, a total of 6,535,000 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 $1.50 to $5.00 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.
18
During the fiscal year, the Company engaged certain legal and technical
professional consultants in various contracts. In conjunction with retaining
their services in the current fiscal year, the Company has issued 210,000
warrants ranging in exercise price from $1.56 to $4.03 per share and with
expiration dates out to May, 2006. In addition, the Company issued 76,429 shares
at a value of $2.26 per share and 35,000 shares at a value of $3.00 per share.
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.
At June 30, 1998, the company had 9,445,000 warrants issued and outstanding.
During the fiscal year ended June 30, 1999, the new outstanding total warrants
had increased to 16,030,000. This increase of 6,585,000 is comprised of the
above described warrant transactions, and summarized as follows: (a) 160,000
warrants were exercised and cancelled, (b) 6,535,000 new warrants were issued to
directors, officers, and management of the company, and (c) 210,000 new warrants
were issued to legal, financial, and technical consultants of the company.
Subsequent to the fiscal year ended June 30, 1999, a total of 6,580,000 warrants
have expired unexercised, leaving a remaining balance, as of October 1, 1999, of
9,450,000 warrants issued and outstanding.
(FN 1) For purposes of reference to options and warrants in this document, the
two terms are synonymous
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19
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, 1999, are derived
from the consolidated financial statements of The American Energy Group, Ltd,
and Subsidiaries. The financial data for the four years ended June 30,1999 have
been audited by Jones, Jensen & Company, Independent Public Accountants. The
financial data for the year ended June 30, 1995 has 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, 1998 & 1999, and for each of the three years ended June 30, 1995,
1996 and 1997, the accompany notes and the report thereon, which are included
elsewhere in the respective Forms 10-K.
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- -------------
STATEMENT OF
EARNINGS DATA ($)
Oil & Gas sales ..................... $ 417,136 641,203 283,485 50,390 43,711
Lease Operating
& Production Costs .................. 163,838 258,032 83,826 81,087 49,372
Legal & Professional ................ 393,877 541,031 143,622 129,866 123,640
Administrative Labor ................ 88,475 122,089 77,194 118,827 99,112
Depreciation and
Amortization Expense .............. 151,239 275,803 37,416 2,163 1,232
Other General &
Administrative .................... 438,268 144,172 113,625 136,521 88,106
============ ============ ============ ============ ============
Total Expenses ...................... 1,235,697 1,341,127 455,683 468,464 361,462
Other Income & Expenses ............. 64,212 48,851 (11,808) (85,512) 8,643
Extraordinary Item .................. -0- 123,082 17,343 0 0
============ ============ ============ ============ ============
Net Loss ............................ (754,349) (527,991) (156,663) (503,586) (309,108)
============ ============ ============ ============ ============
Basic Loss per Common Share ......... (0.024) (0.020) (0.014) (0.076) (0.052)
============ ============ ============ ============ ============
Weighted Ave. Shares
Outstanding ......................... 31,133,813 26,252,631 11,548,539 6,650,850 6,620,203
BALANCE SHEET DATA
Cash & Cash Equivalents ............. $ 1,196,566 3,214,205 3,132,294 424,698 472,493
Working Capital (deficit) ........... 264,005 650,004 2,434,012 (84,160) 348,852
Total Assets ........................ 23,456,438 20,864,635 13,092,370 4,362,126 3,243,758
============ ============ ============ ============ ============
Long Term Debt ...................... 544,551 698,677 1,792,318 1,397,700 486,736
(Including Current Portion)
Stockholders Equity ................. 21,362,502 $ 17,476,355 $ 10,457,095 $ 2,450,380 $ 2,568,884
============ ============ ============ ============ ============
20
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.
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.
As of June 30, 1999, the Company was engaged in its principal activity of
exploration and developmental drilling and reworking operations but had not yet
generated significant revenues to date. The Company has financed such 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 a regular revenue stream from its
domestic properties as the newly developed or reworked wells are placed on line.
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 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."
In the initial four years in which the Company held the Jacobabad Concession in
the Middle Indus Basin of central Pakistan, it has expended in excess of $7.4
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 fourth exploration well in this Concession as well as possible additional
seismic surveys and interpretation. The Company 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.
21
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 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.
AMERICAN ENERGY-DECKERS PRAIRIE, INC.
This subsidiary was incorporated by the Company 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 Company 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 Company 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. 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 Company 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. 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 Company 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 and one 2,500
ft. producing well, along with 300 acres. This property has been transferred
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 Company 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 has been consolidated into
the parent company and management is planning to dissolve this corporation.
22
SIMMONS OIL COMPANY, INC.
This subsidiary was acquired in October 1994. The properties of this company
have been redistributed to the Parent Company, 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 subsidiaries.
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23
RESULTS OF OPERATIONS
REVENUES DECREASED BY THIRTY FIVE (35%) PERCENT
The Company produced $417,136 in oil revenues in the year ended June 30, 1999,
as compared to $641,203 in oil revenues in the year ended June 30, 1998. This
represents a decrease of 35% from the prior years oil revenues. The Company sold
a total of 32,272 net barrels attributable to its interest from properties which
it developed, as compared with 42,663 net barrels attributable to the Company's
net interest in the prior year. This reflects a 24% decrease in net production
to the company's interest. However, product prices declined from the prior
year's average price per barrel of $15.03 to an average in the current fiscal
year of $12.93. As of June 30, 1999, product prices had risen to $18.60 per
barrel, and have subsequently risen to in excess of $20 per barrel, which could
materially affect the company's revenues in future financial filings.
NET RESULTS FROM PRODUCTION INCREASED BY SEVEN (7%) PERCENT
The Company produced oil revenues of $417,136 and incurred production costs of
$163,838 and an amortization charge of $133,523, thereby generating net results
from production operations of a net profit of $119,775 vs. a net profit of
$112,244 in the prior fiscal year ending June 30, 1998. Net results for the
period were adversely affected by the 14% decline in average price per barrel of
oil sold and the operations required for maintenance of shut in non-producing
wells.
OPERATING COSTS PER BARREL DECREASED BY SIXTEEN (16%) PERCENT
With respect to operating costs, a detailed explanation is justifiable. Because
of the sustained period in which the wells were shut in during the prior fiscal
year (ending June 30, 1998) and a major portion of the current fiscal year, the
Company's financial statement reflects a 16% decrease in its lifting costs per
barrel from $6.05 per barrel in the prior fiscal year to $5.08 per barrel in the
current fiscal year ended June 30, 1999. Management anticipates that these "per
barrel" lifting costs may be reduced considerably as additional wells are placed
on line with sustained and uninterrupted production.
NET LOSS INCREASED BY FORTY THREE (43%) PERCENT, $754,349 VS. $527,991.
The Company sustained a net loss of $754,349 as compared to a net loss in the
prior fiscal year ended June 30, 1998 in the amount of $527,991. This represents
an increase in losses by 43%. Charges to revenues included a relatively large
amount of legal and professional expenses in the amount of $393,877, which the
Company considers a major portion 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. In addition, certain
expenditures in Pakistan were expensed as Other General and Administrative
costs, impacting the company's income statement by approximately $438,268.
24
LIQUIDITY AND CAPITAL RESOURCES
TOTAL ASSETS INCREASED BY THIRTEEN (13%) PERCENT
The Company increased total assets to $23,456,438 at June 30, 1999 compared to
$20,864,635 as of June 30, 1998. 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. This reflects an increase in total assets of 13% in the fiscal year
ended June 30, 1999.
SHAREHOLDERS EQUITY INCREASED BY TWENTY THREE (23%) PERCENT
Shareholders equity increased to $21,362,502 at June 30, 1999 compared to
$17,476,355 at June 30, 1998. This reflects an increase of $3,886,147 or 23%.
BOOK VALUE INCREASED BY SEVENTEEN (17%) PERCENT, $0.09 PER SHARE
The Company has increased its "book value" per share, on a fully diluted basis
(excluding warrant exercise), by approximately 17% from $0.55 per share at June
30, 1998 to $0.64 per share at the end of the current fiscal year. This has
occurred primarily through the issuance and sale of equity and warrant exercise
in the Company at prices higher than its book value per share.
PAKISTAN EXPENDITURES AND DEVELOPMENTS
In the current year, the Company expended an additional $2 Million in connection
with exploration related activities on its Pakistan Concession, bringing the
costs attributable to this project to in excess of $7.4 Million as of June 30,
1999. The Company anticipates additional expenditures in the coming year
associated with this project to be in excess of $2.5 Million. The next
exploratory drilling is expected to begin drilling in early 2000.
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, 1999.
On October 12, 1999. Pakistani military troops seized control of state-run
television and radio stations and major airports throughout the country
following what certain media reports have described as a surprise dismissal of
the Army Chief of Staff, General Pervaiz Musharraf. No formal announcements have
been made by Prime Minister Nawaz Sharif's civilian government. Company's
management intends to closely monitor internal developments in order to
determine the overall effects of these events upon its Jacobabad-based
Concession.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into market risk sensitive transactions.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements for the fiscal years ended June 30, 1999, 1998, and 1997
including supplementary data, if required, are included as set forth beginning
on page F-1 and attached hereto as Exhibit A.
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
Name Age Position
Manfred Welser 42 Chairman, Board of Directors
Bradley J. Simmons 44 Director, President, Chief Accounting Officer
Gerald Agranoff 52 Director, Vice President, Treasurer
Don D. Henrich 53 Director
Hooman Zadeh 28 Director
Gilbert Torner 44 Director
Eli Bebout 52 Director
Linda F. Gam 42 Secretary
MANFRED WELSER
CHAIRMAN, BOARD OF DIRECTORS
Mr. Welser is Managing Director and President of The Combus Group, an
international trust company and an American Energy shareholder which is based in
Zurich, Switzerland. Mr. Welser is a graduate of the Business School of
Economics in Zurich and has established a successful career in international
private banking. Mr. Welser has extensive experience in matters pertaining to
natural resource companies and international finance. Mr. Welser joined the
American Energy Board of Directors in March, 1999, and became Chairman in May,
1999.
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
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. In 1992, he
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.
26
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.
HOOMAN E. ZADEH
DIRECTOR
Hooman Zadeh is Founder, President and Chief Executive Officer of Allfinanz
Zentrum AG, a Swiss Corporation, and Chief Executive Officer of Allfinanz
Zentrum Investmentberatung (Germany) AG, a German Corporation. The two companies
are engaged in investment management. Mr. Zadeh joined the American Energy Board
of Directors in September, 1998.
27
GILBERT TORNER
DIRECTOR
Gilbert Torner is based in London, and is Director, Private Banking London for a
multinational financial institution. He was formerly an investment advisor to
high net worth individuals based in Europe and elsewhere. Mr. Torner joined the
American Energy Board of Directors in September, 1998.
ELI D. BEBOUT
DIRECTOR
Eli Bebout joined the American Energy Board of Directors in May, 1999. He is
founder of several privately held drilling, natural resource and energy
companies in the Rocky Mountain region of the United States. He holds a B.S.
Degree from the University of Wyoming in Electrical Engineering. He is a member
of the Wyoming State Legislature, where he serves as Speaker of the House of
Representatives. His is also a current member and past Chairman of the Energy
Council, where his involvement with energy policy extends to interaction with
energy producing states and countries throughout the Western Hemisphere. In
addition, Mr. Bebout is Chairman of the Wyoming Business Alliance and the
Wyoming Heritage Foundation. Mr. Bebout resides in Riverton, Wyoming.
LINDA F. GANN
SECRETARY
Linda F. Gann was appointed Secretary of the Company on June 18, 1998. She has
been employed by the Company since January, 1995, where she has held various
positions including Office Manager, Accounting Supervisor, and Assistant to the
President. Prior to her employment with the company, she was employed by Igloo
Corporation, where she was Production Manager. She had previously worked for
Guaranty National Bank in Accounting and Commercial Customer Service. Ms. Gann
has pursued various course work in attempting to obtain a college degree,
subject to the constraints of her workload and responsibilities at the Company.
DIRECTOR COMPENSATION (FN 1)
Upon becoming a Director, each Director received options/warrants to acquire up
to 125, 000 shares of common stock of the Company. Each year thereafter, each
Director is to receive additional options to acquire up to 75,000 shares of
common stock of the Company. Other issuance of options is at the discretion of
the Board. These options are immediately exercisable and will expire seven years
from the date of issue. In addition, during the fiscal year ended June 30, 1999,
Mr. Agranoff received $48,000 for consulting services provided to the Company
and Mr. Zadeh through Allfinanz Zentrum, received 76,429 shares of Common Stock
for consulting services to the Company.
28
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company believes that its officers and directors complied with all filing
requirements under Section 16(a) of the Securities Exchange Act of 1934 except
that directors Welser, Torner, Bebout, and Zadeh failed to file Form 3 required
by such section and Mr. Simmons failed to timely file a Form 4. Form 5's were
filed by such individuals to correct the deficiency.
(FN 1) For purposes of reference to options and warrants in this document, the
two terms are synonymous
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
============================
ANNUAL COMPENSATION LONG TERM COMPENSATION
- ------------------- ----------------------
AWARDS PAYOUTS
====== =======
OTHER
NAMEE AND ANNUAL RESTRICTED SECURITIES
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP
POSITION YEAR SALARY(L) BONUS SATION AWARDS OPTIONS/SARS PAYOUTS
========= ======= =========== ========= ======== =========== ============ ==========
Bradley J 1999 $ 120,000 44,566 60,000 -0- 1,550,000 -0-
Simmons
CEO 1998 $ 110,000 12,000 -0- -0- 525,000 -0-
1997 $ 100,000 25,000 -0- -0- 200,000 -0-
1996 $ 62,000 -0- -0- -0- 33,391 -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.
29
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. 350,000 23.5% $5.00 9/21/05 $-0- $-0-
Simmons
CEO 250,000 16.8% $5.00 12/9/05 $-0- $-0-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs At Options/SARs At
Fiscal Year-End Fiscal Year-End
Shares Value ($) ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise ($) Unexercisable Unexercisable
Bradley J. -0- -0- 2,275,000 / -0- $-0- / -0-
Simmons
CEO (FN 1)
(FN 1) Closing price at fiscal year ended June 30, 1999, was $1.06, while the
lowest option exercise price is $1.25
30
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 October 1, 1999, 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 (See FN 10).
Number Percent
Name Type of Shares of Class
Manfred Welser (FN 1) Common 275,000 0.8 %
Bradley J. Simmons (FN 2) Common. 2,455,010 6.9 %
Gerald N. Agranoff (FN 3) Common 1,885,375 5.4 %
Conv. Pfd. 32,500 31.25 %
Don D. Henrich (FN 4) Common 1,480,000 4.3 %
Hooman Zadeh (FN 5) Common 945,000 2.8 %
Gilbert Torner (FN 6) Common 875,000 2.6 %
Eli Bebout (FN 7) Common 75,000 0.2 %
Linda F. Gann (FN 8) Common 75,600 0.2%
The Farrington Family Trust Common 3,792,105 11.4%
All officers and directors
as a group (eight persons) Common 8,065,985 19.8 %
(FN 9)
(FN 1) Mr. Welser's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 125,000 shares at an exercise price of $2.50 per share. An option to purchase
up to 150,000 shares at an exercise price of $1.56 per share.
31
(FN 2) Mr. Simmon's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 200,000 shares at an exercise price of $1.38 per share. An option to purchase
up to 150,000 shares at an exercise price of $2.31 per share. An option to
purchase up to 125,000 shares at an exercise price of $1.25 per share. An option
to purchase up to 250,000 shares at an exercise price of $3.97 per share. An
option to purchase up to 100,000 shares at an exercise price of $5.00 per share.
An option to purchase up to 350,000 shares at an exercise price of $5.00 per
share. An option to purchase up to 250,000 shares at an exercise price of $3.50
per share. An option to purchase up to 250,000 shares at an exercise price of
$4.03 per share. An option to purchase up to 400,000 shares at an exercise price
of $3.00 per share. An option to purchase up to 200,000 shares at an exercise
price of $1.56 per share.
(FN 3) Mr. Agranoff's holdings include options to purchase shares of common
stock which are presently exercisable at prices as follows: An option to
purchase up to 125,000 shares at an exercise price of $1.38 per share. An option
to purchase up to 150,000 shares at an exercise price of $2.31 per share. An
option to purchase up to 125,000 shares at an exercise price of $1.25 per share.
An option to purchase up to 250,000 shares at an exercise price of $3.97 per
share. An option to purchase up to 100,000 shares at an exercise price of $5.00
per share. An option to purchase up to 250,000 shares at an exercise price of
$5.00 per share. An option to purchase up to 250,000 shares at an exercise price
of $3.50 per share. An option to purchase up to 250,000 shares at an exercise
price of $4.03 per share.
(FN 4) Mr. Henrich's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 30,000 shares at an exercise price of $2.00 per share. An option to purchase
up to 25,000 shares at an exercise price of $4.00 per share. An option to
purchase up to 125,000 shares at an exercise price of $5.31 per share. An option
to purchase up to 100,000 shares at an exercise price of $5.00 per share. An
option to purchase up to 100,000 shares at an exercise price of $5.00 per share.
An option to purchase up to 250,000 shares at an exercise price of $3.50 per
share. An option to purchase up to 250,000 shares at an exercise price of $4.03
per share. An option to purchase up to 400,000 shares at an exercise price of
$3.00 per share. An option to purchase up to 200,000 shares at an exercise price
of $1.56 per share.
(FN 5) Mr. Zadeh's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 125,000 shares at an exercise price of $5.00 per share. An option to purchase
up to 250,000 shares at an exercise price of $3.50 per share. An option to
purchase up to 400,000 shares at an exercise price of $3.00 per share. An option
to purchase up to 150,000 shares at an exercise price of $1.56 per share.
32
(FN 6) Mr. Torner's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 125,000 shares at an exercise price of $5.00 per share. An option to purchase
up to 250,000 shares at an exercise price of $3.50 per share. An option to
purchase up to 400,000 shares at an exercise price of $3.00 per share. An option
to purchase up to 100,000 shares at an exercise price of $1.56 per share.
(FN 7) Mr. Bebout's holdings include options to purchase shares of common stock
which are presently exercisable at prices as follows: An option to purchase up
to 75,000 shares at an exercise price of $1.50 per share. (FN 8) Ms. Gann's
holdings include options to purchase shares of common stock which are presently
exercisable at prices as follows: An option to purchase up to 5,000 shares at an
exercise price of $1.25 per share. An option to purchase up to 5,000 shares at
an exercise price of $3.97 per share An option to purchase up to 50,000 shares
at an exercise price of $3.97 per share An option to purchase up to 10,000
shares at an exercise price of $4.03 per share An option to purchase up to 5,000
shares at an exercise price of $1.56 per share.
(FN 9) All officers and directors as a group (eight persons) holdings, totaling
8,065,985 shares of common, include options to purchase 7,480,000 shares of
common stock which are presently unexercised. In order to calculate the
percentage of class for this purpose, the outstanding common stock as of the
latest practical date, 33,180,888 shares, was increased by 7,480,000 shares to a
total of 40,660,888 shares as if such shares were exercised. This resulted in
the calculation of 19.8% of the new total of shares outstanding.
(FN 10) Information relating to beneficial ownership is based upon ownership
information furnished by each person using "beneficial ownership" definitions
set forth in Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power" which includes
the power to vote or to direct the voting of such security, or "investment
power", which includes the power to dispose or to direct the disposition of such
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership (such as by
exercise of options) within 60 days. Under such rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may disclaim
any beneficial interest. Except as otherwise indicated in other table footnotes,
the indicated directors and executive officers possessed sole voting and
investment power with respect to all shares of Common Stock and Preferred Stock
attributed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
33
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS FILED ON FORM S-K.
FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules required herein are included as set forth as
Exhibit A and beginning on page F-1.
EXHIBITS
3.1 Articles of Incorporation as amended (1)
3.2 Bylaws as amended (1)
4.1 Form of Common Stock Certificate (1)
4.2 Designation Certificate of Preferred Stock (1)
21.1 Subsidiaries (1)
27.1 Financial Data Schedule
(1) Incorporated by reference to the Registrants Form 10-K for the year ended
June 30, 1998
REPORTS FILED ON FORM 8-K
On July 10, 1998, the Company filed a Current Report on Form 8-K for events
which occurred on June 15, 1998, which reported the death of a member of
management and the Board or Directors.
On September 22, 1998, the Company filed a Current Report on Form 8-K for events
which occurred in August,1998, which reported Probable Reserve Estimates in
Pakistan and other events.
On September 29, 1998, the Company filed a Current Report on Form 8-KA for
events which occurred September 23-28,1998, which reported Pakistan Government
comments and 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 October 13, 1999.
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 October 13, 1999
and Chief Accounting Officer
/s/ Gerald Agranoff Director, Vice President October 13, 1999
Treasurer
/s/ Don D. Henrich Director October 13, 1999
/s/ Manfred Welser Director October 13, 1999
/s/ Gilbert Torner Director October 13, 1999
/s/ Hooman Zadeh Director October 13, 1999
/s/ Eli D. Bebout Director October 13, 1999
/s/ Linda F. Gann Secretary October 13, 1999
35
THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
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, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1999, 1998 and 1997. 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, 1999 and 1998 and
the results of their operations and their cash flows for the years ended June
30, 1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
Jones, Jensen & Company
Salt Lake City, Utah
October 7, 1999
F-3
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
JUNE 30,
----------------------------
1999 1998
------------ ------------
CURRENT ASSETS
Cash (Notes 1 and 2) .......................................... $ 1,196,566 $ 3,214,205
Receivables ................................................... 73,166 8,984
Receivable-related party (Note 3) ............................. 1,626 --
Investments ................................................... 420 3,300
Other current assets .......................................... 13,602 113,118
------------ ------------
Total Current Assets ......................................... 1,285,380 3,339,607
------------ ------------
OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING (Notes 1 and 4)
Properties being amortized .................................... 14,388,253 12,203,925
Properties not subject to amortization ........................ 7,913,414 5,433,328
Accumulated amortization ...................................... (437,450) (303,927)
------------ ------------
Net Oil and Gas Properties ................................... 21,864,217 17,333,326
------------ ------------
OTHER PROPERTY AND EQUIPMENT (Note 1)
Drilling and related equipment ................................ 384,679 246,494
Vehicles ...................................................... 155,811 126,146
Office equipment .............................................. 48,933 34,839
Accumulated depreciation ...................................... (287,682) (218,627)
------------ ------------
Net Other Property and Equipment ............................. 301,741 188,852
------------ ------------
OTHER ASSETS
Deposits ...................................................... 5,100 2,850
------------ ------------
Total Other Assets ........................................... 5,100 2,850
------------ ------------
TOTAL ASSETS ................................................. $ 23,456,438 $ 20,864,635
============ ============
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,
----------------------------
1999 1998
------------ ------------
CURRENT LIABILITIES
Accounts payable ............................................... $ 1,299,152 $ 2,366,880
Accrued liabilities ............................................ 250,233 322,723
Current portion of capital lease obligations (Note 6) .......... 4,078 6,985
Current portion of notes payable and long-term
debt (Note 5) ................................................ 324,347 250,876
------------ ------------
Total Current Liabilities ..................................... 1,877,810 2,947,464
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt (Note 5) ...................... 207,401 428,280
Capital lease obligations (Note 6) ............................. 8,725 12,536
------------ ------------
Total Long-Term Liabilities ................................... 216,126 440,816
------------ ------------
Total Liabilities ............................................. 2,093,936 3,388,280
------------ ------------
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;
101,996 and 535,462 shares issued and outstanding,
respectively .................................................. 102 535
Common stock; par value $0.001 per share;
authorized 80,000,000 shares; 32,878,388 and
28,927,872 shares issued and outstanding,
respectively .................................................. 32,878 28,928
Capital in excess of par value ................................. 23,687,080 19,050,101
Accumulated deficit ............................................ (2,357,558) (1,603,209)
------------ ------------
Total Stockholders' Equity .................................... 21,362,502 17,476,355
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 23,456,438 $ 20,864,635
============ ============
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,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
REVENUE
Oil and gas sales ........................... $ 417,136 $ 641,203 $ 283,485
------------ ------------ ------------
Total Revenue .............................. 417,136 641,203 283,485
------------ ------------ ------------
EXPENSES
Lease operating and production costs ........ 163,838 258,032 83,826
Legal and professional ...................... 393,877 541,031 143,622
Administrative labor ........................ 88,475 122,089 77,194
Depreciation and amortization expense........ 151,239 275,803 37,416
Other general and administrative ............ 438,268 144,172 113,625
------------ ------------ ------------
Total Expenses ............................. 1,235,697 1,341,127 455,683
------------ ------------ ------------
NET OPERATING LOSS ............................ (818,561) (699,924) (172,198)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income ............................. 73,969 99,958 22,416
Interest expense ............................ (6,877) (6,460) (43,224)
Loss on investments ......................... -- (44,647) --
Gain (loss) on sale of assets ............... (2,880) -- 19,000
------------ ------------ ------------
Total Other Income (Expenses) .............. 64,212 48,851 (1,808)
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY
ITEM ......................................... (754,349) (651,073) (174,006)
EXTRAORDINARY ITEM (Note 11) .................. -- 123,082 17,343
------------ ------------ ------------
NET LOSS ...................................... $ (754,349) $ (527,991) $ (156,663)
============ ============ ============
BASIC LOSS PER COMMON SHARE ................... $ (0.024) $ (0.020) $ (0.014)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ........................... 31,133,813 26,252,631 11,548,539
============ ============ ============
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, 1999, 1998 and 1997
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
------------------------- ----------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
----------- ------------ --------- ----------- -----------
Balance, June 30, 1996 .................... 6,620,203 $ 6,620 2,128,646 $ 2,129 $ 3,360,186
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
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
----------- ----------- ----------- ----------- -----------
Balance Forward ........................... 12,584,627 $ 12,584 1,075,558 $ 1,076 $ 4,734,829
----------- ----------- ----------- ----------- -----------
COMMON
STOCK
SUBSCRIPTIONS ACCUMULATED
RECEIVABLE DEFICIT
-------------- ------------
Balance, June 30, 1996 .................... $ -- $ (918,555)
Common stock issued for
oil and gas properties ................... -- --
Common stock issued upon
conversion of preferred shares ........... -- --
Cancellation of common stock .............. -- --
Common stock issued as part of
joint venture buy out at $1.00 per
share .................................... -- --
Common stock issued for
retirement of notes payable at
$1.00 per share .......................... -- --
Common stock issued for services
rendered at $1.00 per share .............. -- --
Common stock issued to an officer
as a bonus at $1.00 per share ............ -- --
Common stock issued in satisfaction of
accounts payable at $.78 per share ....... -- --
Common stock issued for cash
at $1.00 per share ...................... -- --
-------- -----------
Balance Forward ........................... $ -- $ (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, 1999, 1998 and 1997
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
-------------------------- -------------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------------ ------------ ----------- ------------ ------------
Balance Forward .................. 12,584,627 $ 12,584 1,075,558 $ 1,076 $ 4,734,829
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
Offering costs related to sales of
common stock ................... -- -- -- -- (146,086)
Net (loss) for the year ended
June 30, 1997 ................... -- -- -- -- --
------------ ------------ ----------- ------------ ------------
Balance, June 30, 1997 ........... 22,509,293 22,509 1,075,558 1,076 13,893,728
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
------------ ------------ ----------- ------------ ------------
Balance Forward .................. 28,915,723 $ 28,915 535,462 $ 535 $ 18,943,141
------------ ------------ ----------- ------------ ------------
COMMON
STOCK
SUBSCRIPTIONS ACCUMULATED
RECEIVABLE DEFICIT
------------- ------------
Balance Forward .................. $ -- $ (918,555)
Common stock issued for cash
at $.95 per share .............. -- --
Common stock subscriptions at
$.90 per share .................. (2,385,000) --
Offering costs related to sales of
common stock ................... -- --
Net (loss) for the year ended
June 30, 1997 ................... -- (156,663)
------------ ------------
Balance, June 30, 1997 ........... (2,385,000) (1,075,218)
Common stock issued for cash
at $0.65 per share as a result
of a prior year placement ....... -- --
Common stock issued for cash
at $1.00 per share .............. -- --
Common stock issued for cash
at $1.50 per share .............. -- --
Common stock issued upon
conversion of preferred shares .. -- --
Common stock issued for
retirement of notes payable at
$2.31 per share ................. -- --
------------ ------------
Balance Forward .................. $ (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, 1999, 1998 and 1997
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
--------------------------- -------------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------------ ------------ ------------ ------------ ------------
Balance Forward .................. 28,915,723 $ 28,915 535,462 $ 535 $ 18,943,141
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)
Cash received on subscriptions
receivable ...................... -- -- -- -- --
Offering costs related to sales of
common stock .................... -- -- -- -- (235,000)
Net (loss) for the year ended
June 30, 1998 ................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 ........... 28,927,872 $ 28,928 535,462 $ 535 $ 19,050,101
------------ ------------ ------------ ------------ ------------
COMMON
STOCK
SUBSCRIPTIONS ACCUMULATED
RECEIVABLE DEFICIT
------------- ------------
Balance Forward .................. $ (2,385,000) $ (1,075,218)
Common stock issued for oil
and gas properties at $1.50 per
share ........................... -- --
Common stock issued for services
rendered at $1.50 per share ..... -- --
Cancellation of common stock ..... -- --
Common stock issued in connection
with a settlement with prior
shareholders (Note 8) ........... -- --
Cash received on subscriptions
receivable ...................... 2,385,000 --
Offering costs related to sales of
common stock .................... -- --
Net (loss) for the year ended
June 30, 1998 ................... -- (527,991)
------------ ------------
Balance, June 30, 1998 ........... $ -- $ (1,603,209)
------------ ------------
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, 1999, 1998 and 1997
CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK CAPITAL IN
--------------------------- --------------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 ............. 28,927,872 $ 28,928 535,462 $ 535 $ 19,050,101
Common stock issued for cash at
approximately $2.32 per share ..... 1,663,572 1,664 -- -- 3,853,336
Common stock issued upon
conversion of preferred shares .... 2,167,330 2,167 (433,466) (433) (1,734)
Common stock issued for oil and
gas properties at $3.50 per share . 194,000 194 -- -- 678,805
Common stock issued in lieu of
accounts payable at $3.51 per share 39,441 39 -- -- 138,425
Common stock issued for services
at approximately $2.18 per share .. 138,223 138 -- -- 301,030
Cancellation of common stock ....... (252,050) (252) -- -- 252
Offering costs related to sales of
common stock ...................... -- -- -- -- (333,135)
Net (loss) for the year ended
June 30 1999 ...................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 ............. 32,878,388 $ 32,878 101,996 $ 102 $ 23,687,080
============ ============ ============ ============ ============
COMMON
STOCK
SUBSCRIPTIONS ACCUMULATED
RECEIVABLE DEFICIT
------------- ------------
Balance, June 30, 1998 ............. $-- $ (1,603,209)
Common stock issued for cash at
approximately $2.32 per share ..... -- --
Common stock issued upon
conversion of preferred shares .... -- --
Common stock issued for oil and
gas properties at $3.50 per share . -- --
Common stock issued in lieu of
accounts payable at $3.51 per share -- --
Common stock issued for services
at approximately $2.18 per share .. -- --
Cancellation of common stock ....... -- --
Offering costs related to sales of
common stock ...................... -- --
Net (loss) for the year ended
June 30 1999 ...................... -- (754,349)
------------- ------------
Balance, June 30, 1999 ............. $-- $ (2,357,558)
============= ============
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,
-------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................................... $ (754,349) $ (527,991) $ (156,663)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ................................. 202,578 331,037 88,719
Less amount capitalized to oil and gas properties ............. (51,339) (55,234) (51,303)
Common stock issued for services rendered ..................... 301,168 116,973 130,500
Loss on investment ............................................ -- 44,647 --
Changes in operating assets and liabilities:
(Increase) decrease in receivables ............................ (64,182) 62,005 (65,801)
(Increase) decrease in receivables-related party .............. (1,626) 9,702 (9,702)
(Increase) decrease in other current assets ................... 99,516 (49,134) (63,984)
Decrease in joint venture receivables ......................... -- -- 4,000
(Increase) decrease in deposits ............................... (2,250) -- 275
Increase (decrease) in accounts payable ....................... (929,264) 1,820,893 294,070
Increase (decrease) in accrued liabilities and
other current liabilities .................................... (72,490) 25,753 (6,438)
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities ....................................... (1,272,238) 1,778,651 163,673
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment ............... -- -- 51,001
Purchase of investments ........................................ -- (47,947) --
Sale of investments ............................................ 2,880 -- --
Expenditures for oil and gas properties ........................ (3,934,076) (7,708,841) (4,024,056)
Expenditures for other property and equipment .................. (181,944) (7,959) (53,885)
----------- ----------- -----------
Net Cash (Used) by Investing Activities ..................... (4,113,140) (7,764,747) (4,026,940)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term
liabilities ................................................... -- -- 120,000
Proceeds from issuance of common stock ......................... 3,855,000 4,730,001 7,279,910
Expenditures for offering costs ................................ (333,135) (235,000) (146,086)
Cash received on stock subscription ............................ -- 2,385,000 --
Payments on notes payable and long-term
liabilities ................................................... (154,126) (811,994) (682,961)
----------- ----------- -----------
Net Cash Provided by Financing Activities ................... $ 3,367,739 $ 6,068,007 $ 6,570,863
----------- ----------- -----------
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,
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ..... $(2,017,639) $ 81,911 $ 2,707,596
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR .................. 3,214,205 3,132,294 424,698
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR ............................ $ 1,196,566 $ 3,214,205 $ 3,132,294
=========== =========== ===========
CASH PAID FOR:
Interest .......................... $ 41,805 $ 40,020 $ 39,105
Income taxes ...................... $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisition
of oil and gas properties ....... $ 678,999 $ 225,000 $ 725,000
Common stock issued to retire notes
payable and accounts payable .... $ 138,464 $ 325,277 $ 174,055
Notes payable for acquisition of
oil and gas properties .......... $ - $ - $ 1,121,866
Notes payable and capital lease
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, 1999, 1998 and 1997
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, 1999, 1998 and 1997
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. The Company has elected a June 30
year-end.
Oil and Gas Properties-
The full cost method is used in accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related
overhead costs, are capitalized. In addition, depreciation on property
and equipment used in oil and gas exploration and interest costs
incurred with respect to financing oil and gas acquisition, exploration
and development activities are capitalized in accordance with full cost
accounting. Capitalized interest for the years ended June 30, 1999 and
1998 was $52,842 and $84,448, respectively. In addition, depreciation
capitalized during the years ended June 30, 1999 and 1998 totaled
$51,339 and $55,234, respectively. All capitalized costs of proved oil
and gas properties subject to amortization are being amortized on the
unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects not
subject to amortization are not amortized until proved reserves
associated with the projects can be determined or until impairment
occurs. If the results of an assessment indicate that the properties
are impaired, the amount of the impairment is added to the capitalized
costs to be amortized. As of June 30, 1999, proved oil and gas reserves
had been identified on some of the Companies oil and gas properties
with revenues generated and barrels of oil produced from those
properties. Accordingly, amortization totaling $133,523 and $270,927
has been recognized in the accompanying consolidated financial
statements for the years ended June 30, 1999 and 1998, 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, 1999, 1998 and 1997
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, 1999 and 1998, the Companies incurred
total depreciation of $69,055 and $60,110, respectively.
In accordance with full cost accounting, $51,339 and $55,234 of
depreciation was capitalized as costs of oil and gas properties for the
years ended June 30, 1999 and 1998, 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.
h. Concentrations of Risk
From time to time the cash balances in the Companies bank accounts
exceed Federally insured limits. At June 30, 1999 and 1998, the
balances in excess of the limits were approximately $1,096,566 and
$3,014,200, respectively. Of these balances, approximately $594,256 and
$964,000, respectively, was in the country of Pakistan.
F-15
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Foreign Operations
A significant portion of the assets of the Companies relate to an oil
and gas concession located in the country of Pakistan (see Note 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.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - CERTIFICATES OF DEPOSIT
As of June 30, 1999 and 1998, the Companies held three certificates of
deposit totaling $-0- and $318,538, 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.
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, 1999, the Company
had a net receivable from related parties of the Company totaling
$1,626.
F-16
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
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 available for further exploration and development.
During the years ended June 30, 1999 and 1998, 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, 1999, 1998 and 1997
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 was
originally issued for a period of three years which was subsequently
extended for an additional year. During the first year Hycarbex
expended the minimum required $26,000 for processing and interpreting
data already available. In the second year which was included in the
year ended June 30, 1997, Hycarbex performed the minimum seismic work,
evaluating and interpreting the data from the work performed. As part
of the agreement, Hycarbex was to drill one exploratory well prior to
April 1998 to an agreed upon depth. During May 1998, the Company
obtained preliminary results of its first Middle Indus Basin
exploratory well in Pakistan. The well was spudded during March 1998
and was drilled to total depth during May 1998. A second exploratory
well was drilled during the year ended June 30, 1999. This well was
subsequently plugged because of encountered downhole and mechanical
conditions short of the target depth. As a result, the well bore was
plugged and the drill site moved. A replacement well was spudded on
April 5, 1999 which also was plugged due to encountering a combination
of dangerous levels of hydrogen sulfide gas and loss of circulation
while drilling and testing the well. The well was plugged to prevent
possible further release of dangerous gas. The Company does not
believe, however, that these results will affect the ultimate success
of the exploration efforts. The Company intends to pursue further plans
for the drilling of another exploratory well upon completion of
geological and geophysical analysis of the test results. Having
completed its three years of work requirements and initial license
term, the Company, per the provisions of the original exploration
license, relinquished 20% of the acreage originally held under the
concession, thereby retaining approximately one million acres for
further exploration and development. The relinquished acreage is not
part of the potentially productive structure to be evaluated by the
Company on the Jacobabad concession.
Effective May 29, 1999, the Government of Pakistan granted an
additional six-month extension in the existing terms of the Jacobabad
Exploration License so as to enable the Company to drill a substitute
well for the previously abandoned wells with a commitment and
obligation to expend an additional $1,100,000.
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, 1999.
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.
F-18
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
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 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, 1999 and 1998:
1999 1998
--------- ---------
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 ........................... $ 539,404 $ 723,463
8.5% note payable to a financial
institution due in monthly
installments of $950 for 36
months; secured by two vehicles ..... 9,069 19,261
7% notes payable, due September
15, 1995, secured by working
interest in oil and gas properties .. 38,117 44,117
Total notes payable and long-term
debt ................................ 586,590 786,841
Less: unamortized discount ........... (54,842) (107,685)
--------- ---------
Net notes payable and long-term
debt ................................. 531,748 679,156
Less: Current portion of notes payable
and long-term debt .......... (324,347) (250,876)
--------- ---------
Long-Term Liabilities ................ $ 207,401 $ 428,280
========= =========
F-19
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
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,
--------------------
2000 $324,347
2001 207,401
2002 --
2003 --
2004 --
2005 and thereafter --
--------
$531,748
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 32 to 60 months with total monthly
lease payments of $662.
The following are the scheduled annual payments on these capital
leases:
YEAR ENDING JUNE 30,
2000 $6,416
2001 3,355
2002 3,355
2003 2,278
2004 --
----------
Total minimum lease commitments 15,404
Less: Executory costs (such as taxes and
insurance) included in capital
lease payments (600)
----------
Net minimum lease payments 14,804
Less: amount representing interest (2,001)
----------
Total capital lease obligations 12,803
Less: current portion (4,078)
----------
Total Long-Term Capital Lease Obligations $8,725
==========
F-20
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
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, 1999, 1998 and 1997, 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, 433,466 shares of convertible
voting preferred stock were converted into 2,167,330 shares of the
Company's common stock in 1999. 540,096 shares of convertible voting
preferred stock were converted into 2,700,485 shares of the Company's
common stock in 1998, and 1,053,088 shares of convertible voting
preferred stock were converted into 5,265,424 shares of the Company's
common stock in 1997 (Note 8).
NOTE 8 - COMMON STOCK
A total of 5,265,424 shares of common stock were issued during the year
ended June 30, 1997 as a result of the conversion of 1,053,088 shares
of convertible voting preferred stock. During the year ended June 30,
1998, 540,096 shares of convertible voting preferred stock were
converted into 2,700,485 shares of common stock. During the year ended
June 30, 1999, 433,466 shares of convertible voting preferred stock
were converted into 2,167,330 shares of common stock (see Note 7).
F-21
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
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. 252,050
of these shares were subsequently canceled during the year ended June
30, 1999.
In conjunction with a settlement and property exchange agreement
executed by the Company in August 1996 as discussed in 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, 1999, 1998 and 1997
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.
During the year ended June 30, 1999, the Company sold 1,663,572 shares
of common stock for which the Company received $3,855,000 at an average
of $2.32 per share. The Company incurred costs associated with the sale
of common stock of $333,135 which has been reflected as a reduction on
capital in excess of par value in the accompanying consolidated
financial statements.
F-23
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 8 - COMMON STOCK (Continued)
194,000 shares of common stock were issued in conjunction with the
buyout of certain joint venture interests in oil and gas properties
during the year ended June 30, 1999. These shares have been valued at
$3.50 per share or $678,999.
39,441 shares of common stock were issued in lieu of outstanding
accounts payable during the year ended June 30, 1999. These shares have
been valued at $3.51 per share or $138,464. In addition, 138,223 shares
of common stock were issued for services rendered. These shares have
been valued at $2.18 per share or $301,168.
In conjunction with a settlement arrangement, the Company canceled
252,050 shares of common stock originally issued.
NOTE 9 - COMMON STOCK WARRANTS
Prior to the year ended June 30, 1999, the Company had 9,445,000
outstanding warrants. In the current fiscal year ended June 30, 1999,
the Company issued a total of 6,745,000 warrants at varying exercise
prices and expiration dates. 135,000 warrants were exercised and a
total of 25,000 warrants have expired unexercised, leaving a remaining
balance of 16,030,000 warrants outstanding as of June 30, 1999.
A recap of the various warrants are described below.
The Board of Directors of the Company have granted to officers and
directors 8,300,000 warrants to acquire common shares of the Company
under the following conditions:
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
------------------ ---7------------- --------------- --------------
Bradley J. Simmons 200,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
450,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
400,000 1/6/2006 $3.00
200,000 1/6/2006 $1.56
---------
Total 2,275,000
Gerald N. Agranoff 125,000 4/17/2004 $1.38
150,000 11/4/2004 $2.31
125,000 5/1/2005 $1.25
250,000 6/18/2005 $3.97
350,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
---------
Total 1,500,000
F-24
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 9 - COMMON STOCK WARRANTS (Continued)
NAME NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
------------------ ---------------- --------------- --------------
Linda F. Gann 5,000 5/1/2005 $1.25
55,000 6/18/2005 $3.97
10,000 12/9/2005 $4.03
5,000 5/4/2006 $1.56
-------
Total 70,000
Don D. Henrich 30,000 3/15/2001 $2.00
25,000 3/15/2001 $4.00
125,000 6/29/2005 $5.31
200,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
250,000 12/9/2005 $4.03
400,000 1/6/2006 $3.00
200,000 1/6/2006 $1.56
-------
Total 1,480,000
Hooman Zadeh 125,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
400,000 1/6/2006 $3.00
150,000 1/6/2006 $1.56
-------
Total 925,000
Gilbert Torner 125,000 9/21/2005 $5.00
250,000 11/5/2005 $3.50
400,000 1/6/2006 $3.00
100,000 1/6/2006 $1.56
-------
Total 875,000
Malfred Welser 125,000 3/4/2006 $2.50
150,000 1/6/2006 $1.56
Total 275,000
-------
Eli Bebort 75,000 5/17/2006 $1.50
-------
Grand Total 7,480,000 Warrants
F-25
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 9 - COMMON STOCK WARRANTS (Continued)
Management had previously received 78,608 warrants which expired
unexercised in April, 1998.
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, exercisable
at $3.00 per share, unexercised at June 30, 1998. An additional
135,000 of these warrants were exercised at $3.00 per share during the
year ended June 30, 1999, leaving a remaining balance of 6,580,000
warrants exercisable at $3.00 per share, unexercised at June 30, 1999.
During the year ended June 30, 1998, the Company established a three
member "Disclosure Committee" comprised of certain of the Company's
attorneys and market relations consultants. Each of these parties have
received 25,000 warrants, making a total of 75,000 warrants issued,
exercisable 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 prices from $2.31 to $3.97
per share which expire in May, 2005.
During the year ended June 30, 1999, the Company issued 845,000
warrants ranging in exercise prices from $1.50 to $4.03 per share.
These warrants were issued to various consultants for services
rendered and to certain employees as a bonus.
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.
F-26
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 10 - INCOME TAXES
Through June 30, 1999, the Companies have sustained net operating loss
carryforwards totaling approximately $2,350,000 that may be offset
against future taxable income through 2014. 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, 1999, 1998 and 1997
totaling $-0-, $123,082 and $17,343, respectively, relate to
forgiveness of debt in the settlement of various notes payable and an
account payable.
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.
F-27
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
NOTE 13 - YEAR 2000
Year 2000 issues may arise if computer programs have been written
using two digits (rather than four) to define the applicable year. In
such case, programs that have time- sensitive logic may recognize a
date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures.
The Company has completed its assessment of the Year 2000 issue and
believes that any costs of addressing the issue will not have a
material adverse impact on the Company's financial position. The
Company believes that its existing computer systems and software will
not need to be upgraded to mitigate the Year 2000 issues. The Company
has not incurred any costs associated with its assessment of the Year
2000 problem. In the event that Year 2000 issues impact the Company's
accounting operations and other operations aided by its computer
system, the Company believes, as part of a contingency plan, that it
has adequate personnel to perform those functions manually until such
time that any Year 2000 issues are resolved.
The Company believes that third parties with whom it has material
relationships will not materially be affected by the Year 2000 issues
as those third parties are relatively small entities which do not rely
heavily on information technology ("IT") systems and non-IT systems
for their operations. However, if the Company and third parties upon
which it relies are unable to address any Year 2000 issues in a timely
manner, it could result in a material financial risk to the Company,
including loss of revenue and substantial unanticipated costs.
Accordingly, the Company plans to devote all resources required to
resolve any significant Year 2000 issues in a timely manner.
NOTE 14 - SUBSEQUENT EVENTS
On October 12, 1999, Pakistani military troops seized control of
state-run, television and radio stations and major airports throughout
the Country following what certain media reports have described as a
surprise dismissal of the army cheif of staff, General Pervaiz
Mursharraf. No formal announcements have been made by Prime Minister
Nawaz Sharif's civilian government. Company's management intends to
closely monitor internal developments in order to determine the
overall effect of these events upon its Jacobabad-based Concession.
F-28
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1999 and 1998
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
JUNE 30,
-----------------------------
1999 1998
----------- -----------
Proved oil and gas producing
properties and related
lease and well equipment $ 1,453,990 $ 4,169,260
Accumulated depreciation and
depletion (133,523) (270,927)
----------- -----------
Net Capitalized Costs $ 1,320,467 $ 3,898,333
=========== ===========
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
FOR THE YEARS ENDED
JUNE 30,
-----------------------------
1999 1998
----------- -----------
Acquisition of Properties
Proved $ 678,999 $ 389,348
Unproved --
Exploration Costs 2,480,086 3,375,233
Development Costs 1,453,990 4,169,260
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,
---------------------------
1999 1998
--------- ---------
Sales $ 417,136 $ 641,203
Production costs (163,838) (258,032)
Depreciation and depletion (133,523) (270,927)
--------- ---------
Results of operations for producing
activities (excluding corporate
overhead and interest costs) $(119,775) $ 112,244
========= =========
F-29
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1999 and 1998
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
OIL GAS
BBL MCF
---------- ----------
Proved developed and undeveloped reserves:
Balance, June 30, 1998 2,361,000 --
Change in estimates 1,118,162 --
Production (32,272) --
---------- ----------
Balance, June 30, 1999 3,446,890 --
========== ==========
Proved developed reserves:
OIL GAS
BBL MCF
---------- ----------
Beginning of the year ended
June 30, 1999 671,050 --
End of the year ended
June 30, 1999 1,105,470 --
During the year ended June 30, 1999, 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, 1999
THE AMERICAN
ENERGY GROUP
LTD. AND
SUBSIDIARIES
------------
Future cash inflows $63,767,469
Future production and development costs (9,507,400)
-----------
Future net inflows before income taxes 54,260,069
Future income tax expense (3,570,977)
-----------
Future net cash flows 50,689,092
10% annual discount for estimated timing of cash flows 10,816,631)
Standardized measure of discounted future net cash flows $39,872,461
===========
F-30
THE AMERICAN ENERGY GROUP, LTD.
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 1999 and 1998
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and changes
in the standardized measure of discounted future net cash flows have
their foundation in engineering estimates of future net revenues that
are derived from proved reserves and with the assumption of current
pricing and current costs of production for oil and gas produces in
future periods. These reserve estimates are made from evaluations
conducted by Reuven Hollo, Ph.D., a registered professional engineer
with Sigma Energy Corporation, of such properties and will be
periodically reviewed based upon updated geological and production
data. Estimates of proved reserves are inherently imprecise. The above
standardized measure does not include any restoration costs due to the
fact the Company does not own the land.
Subsequent development and production of the Company's reserves will
necessitate revising the present estimates. In addition, information
provided in the above schedules does not provide definitive
information as the results of any particular year but, rather, helps
explain and demonstrate the impact of major factors affecting the
Company's oil and gas producing activities. Therefore, the Company
suggests that all of the aforementioned factors concerning assumptions
and concepts should be taken into consideration when reviewing and
analyzing this information.
F-31