AMERICAN ENERGY GROUP LTD - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2001

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 (I.R.S. Employer
incorporation or organization) Identification No.)

9441 Sam Houston Parkway
Suite 110
Houston, Texas 77099
(Address of principal executive offices) (Zip code)

713-981-6114
(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 $.001 Per Share

---------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes _X_ No ___

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will no be contained,
to the best of registrant's knowledge, is definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in any
amendment of this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the Registrant at October 10, 2001, was $8,551,538 (based on a value of
$0.14 per share, the closing price of the Common stock as quoted on the NASD
OTC market on such date). 61,082,415 shares of Common Stock, par value $.001
per share, were outstanding on October 10, 2001.

THE AMERICAN ENERGY GROUP, LTD.
INDEX TO FORM 10-K

PART 1

Items 1 and 2. Business and Properties.........................................

Item 3. Legal Proceedings...............................................

Item 4. Submission of Matters to a Vote of Security Holders.............

PART II

Item 5. Market of Our Common Stock and Related Stockholder Matters......

Item 6. Selected Consolidated Financial Data............................

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................

Item 7A. Quantitative and Qualitative Disclosures About Market Risk......

Item 8. Financial Statements and Supplementary Data.....................

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................

PART III

Item 10. Directors and Executive Officers of the Registrant..............

Item 11. Executive Compensation..........................................

Item 12. Security Ownership of Certain Beneficial Owners and Management..

Item 13. Certain Relationships and Related Transactions..................

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................

SIGNATURES......................................................................

In this report, the "Company", "we", "us" and "our" collectively refers to The
American Energy Group, Ltd. and its wholly-owned subsidiaries.

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

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This report contains statements about the future, sometimes referred to as
"forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. We intend the forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in Section
27A of the Securities Act and Section 21E of the Exchange Act. Statements that
describe our future strategic plans, goals or objectives are also
forward-looking statements.

Readers of this report are cautioned that any forward-looking statements,
including those regarding the Company or its management's current beliefs,
expectations, anticipations, estimations, projections, proposals, plans or
intentions, are not guarantees of future performance or results of events and
involve risks and uncertainties, such as:

- The future results of drilling individual wells and other exploration and
development activities;

- Future variations in well performance as compared to initial test data;

- Future events that may result in the need for additional capital;

- Fluctuations in prices for oil and gas;

- Future drilling and other exploration schedules and sequences for various
wells and other activities;

- Uncertainties regarding future political, economic, regulatory, fiscal,
taxation and other policies in Pakistan; and

- Our future ability to raise working capital through equity placement, loans or
strategic ventures to spread the costs of exploration, development and
acquisition activities; and

The forward-looking information is based on present circumstances and on our
predictions respecting events that have not occurred, which may not occur or
which may occur with different consequences from those now assumed or
anticipated. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including the
risk factors detailed in this report. The forward-looking statements included in
this report are made only as of the date of this report. We are not obligated to
update such forward-looking statements to reflect subsequent event or
circumstances.

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GENERAL AND HISTORICAL INFORMATION

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"). At the time of
organization, we issued 1,366,250 shares of voting Common Stock to Dimension,
which was the sole stockholder. On April 28, 1989, our form S-18 filed with the
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 our
issuing 1,547,872 shares of voting Common Stock.

In 1987, we engaged in marketing an automobile carburetor modification
kit. The efforts were not successful and were abandoned. From 1987 to 1990, we
were inactive. In October, 1990, the shareholders approved a one for ten (1:10)
reverse split of the voting Common Stock. In June, 1991, we obtained an Oil
Prospecting License from the government of Belize. As 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, we attempted various means to attract sufficient capital
investment to develop the oil prospect in Belize, but was not successful. The
license expired due to our lack of performance. From 1992 until 1994, our
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, we entered into an agreement with Simmons Oil Company, Inc., a Texas
corporation (hereinafter "Simmons") whereby we 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. 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, we acquired
additional oil and gas properties in the same general area through its
subsidiaries.

In April 1995, we acquired all of the outstanding shares of Hycarbex,
Inc., a Texas corporation (hereinafter "Hycarbex") which that month had been
awarded an oil and gas Concession comprised of approximately one million acres
located in the Middle Indus Basis near Jacobabad, Pakistan,for 120,000 shares of
our voting Common Stock, 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. We changed the name of Hycarbex, Inc. to Hycarbex-American
Energy,

Inc. and it is operating as our wholly owned subsidiary. In addition to the
above acquisition consideration, we provided a $551,000 Financial Guarantee Bond
to the Government of Pakistan to assure performance of Concession requirements.
Under the terms of the Concession, the Pakistan Government retained a 5%
interest in the Concession which was to be increased to 25% as to each well in
which there was a commercial discovery. We performed subsequent seismic surveys
and commenced the drilling of our first well, the Kharnak # 1 in calendar 1997.
The initial well, while generating valuable geologic data, was unsuccessful. In
early 1999, we commenced our second well, the David # 1, and abandoned the well
prior to reaching target depth because of mechanical difficulties. A new well,
the David # 1A was commenced in the vicinity within weeks of abandonment and
this well was plugged and abandoned when dangerous levels of hydrogen sulfide
gas were encountered. We performed additional seismic on the Concession in
calendar 2000, after a drilling extension from the Pakistan Government, and
commenced the third full well, the Jacobabad #3 in the latter part of calendar
2000. This well was plugged and abandoned as a noncommercial well in January,
2001. We further refined our geologic models using this additional seismic and
the data obtained from the Jacobabad #3. Immediately prior to the end of the
current fiscal year, the Jacobabad Concession was relinquished to the Pakistan
Government in favor of a new concession, the Yasin Concession, which was awarded
to us shortly after the end of the fiscal year. The Yasin Concession contains
approximately 1,200 square kilometers and provides for the same drilling and
financial terms as the Jacobabad Concession. The Yasin Concession contains
acreage originally covered by the Jacobabad Concession which we viewed as
desirable for its exploration potential.

We began producing commercial quantities of oil on its Texas-based
properties and emerged from the development stage during the year ended June 30,
1997. At that time, we were engaged in a program of drilling and reworking
active and inactive developmental wells situated on the properties at the time
of our acquisition. In June, 1997, we purchased oil and gas properties totaling
approximately 1,400 acres in Texas. During the year ended June 30, 1999, we
drilled eight developmental wells on these properties, of which seven wells are
currently producing. One additional commercial well was completed in Texas after
June 30, 1999, while the reactivation and reworking program continued at a very
modest rate due to working capital considerations. Subsequent to the end of the
current fiscal year, an additional producing well has been drilled and is
currently being tested for other potential productive zones.

OIL AND GAS DISCLOSURES

RESERVES REPORTED TO OTHER AGENCIES

No reserve estimates of proven net oil and gas reserves were filed with any
other regulatory agency.

PRODUCTION

As of June 30, 2001, 2000 and 1999, the Company received oil revenues from 32,
22 and 14 wells, respectively. All of these wells produced oil only. There were
no sales of natural gas during these periods.

PRODUCTIVE WELLS AND ACREAGE

Set forth below is a tabulation of productive oil wells owned by the Company
as of June 30, 2001, 2000 and 1999. This summary includes oil wells which may
currently be shut in and awaiting recompletion in order to restore commercial
productivity. The Company has not had a commercially productive gas well
since 1996. All of these wells are located on the Company's Texas properties.

DRILLING ACTIVITY

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 during the years ended June 30, 2001, 2000
and 1999 in which the Company has participated and the results thereof for
each of the three years.

OIL AND GAS RESERVES

The Company did not report reserves to any other agency of the U. S.
government. The Company's proved reserves and PV-10 Value from its U.S.
proved developed and undeveloped oil and gas properties have been estimated
by Sigma Energy Corporation in Houston, Texas. The Company's Pakistan
Probable Recoverable Reserves and PV-10 Value from its Pakistan undeveloped
gas properties have been estimated by Martin Petroleum and Associates in
Calgary, Alberta, Canada. The estimates of these independent petroleum
engineering firms were based upon review of production histories and other
geologic economic, ownership and engineering data provided by the Company. In
accordance with SEC guidelines, the Company's estimates of future net revenue
from the Company's proved and probable reserves and the present value thereof
are made on the basis of oil and gas sales prices in effect as of the dates
of such estimates and are held constant throughout the life of the
properties, except where such guidelines permit alternate treatment. Future
net revenues at June 30, 2001 on the Company's U.S. properties reflect a
weighted average price of $25.58 per BOE vs. $23.00 in its June 30, 2000
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, 2001, and June 30, 2000, and estimates of the
future net revenues and PV-10 Value there from. 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:

ESTIMATED FUTURE NET REVENUES -- UNITED STATES PROPERTIES:

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, 2001 and 2000 are as follows:

"Proved developed" oil and gas reserves are reserves that can be expected to
be recovered from existing wells with existing equipment and operating
methods. "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 expenditures are 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

As previously reported and filed in a Form 8-K dated September 22, 1998, the
Company retained Martin Petroleum and Associates to perform a preliminary
reserve study on its Jacobabad Concession in the Middle Indus basin in
central Pakistan. These reserves are not categorized as proven. Further,
these reserves remain categorized by the company as unproven. However,
management has determined that the independent estimates of Probable
Recoverable Reserves in the preliminary reserve study represent material
information which merited disclosure to the shareholders. These independent
estimates also served as justification to management to continue further
exploratory drilling on its Pakistan Concession and justification to
management to bid for and obtain subsequent to year-end the Yasin Block
Concession which is comprised of portions of the Jacobabad Concession acreage.

CAUTIONARY NOTE REGARDING RESERVE ESTIMATES

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.

MARKET FACTORS AND EFFECTS OF COMPETITION AND REGULATION

COMPETITION

The oil and gas business is highly competitive in every phase. We compete
with numerous companies and individuals in our exploration and production
activities. Many on these competitors have far greater financial and
technical resources with established multi-national operations. As a result,
unless we obtain additional capital investment and /or join in partnerships
and joint ventures, we may be prevented from participating in large drilling
and acquisition programs. Since we are smaller and have limited resources in
comparison to many of our competitors, our ability to compete for oil and gas
properties is also limited.

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 we operate, 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:

Our activities 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 our operations and cost of doing
business. It is likely that these laws will become more stringent in the
future.

SAFETY AND HEALTH REGULATIONS:

We must also conduct our operations in accordance with laws governing
occupational safety and health. Currently, we do not foresee expending
substantial amounts in order to comply with these regulations.

FOREIGN LAWS AND REGULATIONS:

We intend to commit a significant amount of our resources to develop our oil
and gas Concession in Pakistan. There are inherent risks in operating a
business in a foreign country, where unfamiliar laws and business practices
may exist. The Company intends to minimize this risk by engaging appropriate
professional and support personnel as the operations develop.

MARKETING

The availability of a ready market for our oil and gas production depends on
numerous factors over which we have 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. Our business is not seasonal, but
increased consumer demand in certain months of the year can influence the
price of our produced hydrocarbons upward, depending on the circumstances.
Future prices are virtually impossible to predict. We do not have a
significant share of any market segment and cannot set or influence the price
of our products. While virtually 100% of our produced oil is sold to one
purchaser, the availability of several other purchasers in the same market
under comparable terms limits any risk associated with reliance upon a single
purchaser.

TITLE TO DOMESTIC PROPERTIES

Our Texas-based properties are oil and gas leasehold interests
which, according to their general terms, must be maintained by development
operations or continuous hydrocarbon production without cessation or
interruption, except for temporary cessation or interruption. Certain of our
leases also require development of the covered acreage according to a
specified schedule. The consequences of our non-compliance with these
operational and developmental obligations are forfeiture of the particular
lease, in the case of non-temporary cessation of operations and production of
hydrocarbons, and forfeiture of portions of the lease or undeveloped geologic
horizons within the covered acreage covered by a particular lease, in the
case of non-compliance under leases which contain scheduled development
requirements.

TITLE TO PAKISTAN LICENSE

The exploration license in the Republic of Pakistan held by our subsidiary,
Hycarbex- American Energy, Inc., contains time sensitive development and
rental funding obligations which, if not timely fulfilled, would likely
result in a forfeiture of the concession. While the estimated potential
recoverable hydrocarbon reserves under the acreage covered by the concession
are not included within our stated reserves in our financial statements
contained within this report, loss of the Pakistan concession as a result of
our non-compliance would likely have a substantial adverse impact upon the
market for the Company's securities.

AVAILABILITY OF DOMESTIC MARKETS AND VOLATILE PRICING

There is an existing and available market for the oil produced from
our Texas-based properties. However, the prices which we obtain for our
production are subject to market fluctuations which are affected by many
factors, including supply and demand. We rely upon favorable pricing to meet
our operational expenses. Extended periods of depressed oil prices could
result in the inability to meet these operational expenses and could expose
us to the risk of loss of our properties because of the financial inability
to meet ongoing maintenance and development requirements. Numerous factors
beyond our control which could affect pricing include:

o the level of consumer product demand,

o weather conditions,

o domestic and foreign governmental regulations,

o the price and availability of alternative fuels,

o political conditions,

o the foreign supply of oil and natural gas,

o the price of foreign imports, and

o overall economic conditions.

AVAILABILITY OF INTERNATIONAL MARKETS AND VOLATILE PRICING

We have not established production on our concession in the Republic
of Pakistan. Should our further development result in a well or wells capable
of producing hydrocarbons, sales of those hydrocarbons could not be made
without connections to existing pipeline facilities. Our ability to generate
a favorable return on our investment in Pakistan will be dependent upon
market prices and conditions present at the time we achieve commercial
production, if at all.

ADVERSE OPERATING CONDITIONS

The oil and gas business involves a variety of operating risks. We
are faced with the risk that we will not find oil and natural gas at all or
that we will not find oil and natural gas in reservoirs from which we can
economically produce the oil and natural gas. The cost of drilling,
completing and operating wells is substantial and uncertain. Numerous factors
beyond our control may cause the curtailment, delay or cancellation of
drilling operations, including:

o unexpected drilling conditions,

o pressure or irregularities in formations,

o equipment failures or accidents,

o adverse weather conditions,

o compliance with governmental requirements, and

o shortages or delays in the availability of drilling rigs or
delivery crews and the delivery of equipment.

In accordance with customary industry practice, we have maintained insurance
against some, but not all, of the risks described above. We cannot assure you
that any insurance will be adequate to cover the potential losses or
liabilities. We also cannot predict the continued availability of insurance
or the availability of insurance at premium levels that justify its purchase.

NEED FOR ADDITIONAL FUNDS

Since the production derived from our Texas-based properties is
insufficient to meet our future capital requirements for both Texas and
Pakistan operations, we will need additional financing to meet our projected
operating capital requirements. We do not currently have a line of credit or
other credit facility available to us to meet these cash requirements.
Additional financing will be pursued, as needed, by seeking credit
facilities, sales of our securities, sales of our assets and joint ventures.
We cannot be certain that we will be successful in obtaining additional
financing on favorable terms, if at all.

FACILITIES AND PERSONNEL RESOURCES
OFFICES

We currently lease approximately 3,800 square feet of office space for use as
corporate offices at 9441 Sam Houston Parkway, Houston, Texas, at a monthly
rental of $2,391. The lease expires on August 31, 2004. We likewise maintain
two office trailers of approximately 200 square feet each and one storage
facility of approximately 400 square feet for our domestic field operations
on certain of our oil and gas leases. Our right to install and maintain these
trailers and storage buildings is included with the easements granted under
the oil and gas

leases and they do not incur a rental obligation. We likewise maintain an office
in Islamabad Pakistan of approximately 2,400 square feet.

EMPLOYEES

We have 5 employees in our Houston, Texas corporate offices, three of which
are management. We have 7 employees, including 2 management employees,
working in our field operations and 11 employees in our Islamabad Pakistan
office. None of our employees is represented by a union or collective
bargaining organization. We consider our relationship with our employees to
be satisfactory.

ITEM 3. LEGAL PROCEEDINGS

During the second quarter, we initiated litigation in Cause No. 115917 in the
240th Judicial District Court of Fort Bend County, Texas, against Northern
Lights Energy, Ltd., ("Northern Lights") seeking judicial interpretation of
the May 9, 2000 purchase agreement with Northern Lights' in which we sought a
cancellation of Northern Lights' right to purchase the Texas oil and gas
leases under the contract as a result of Northern Lights failure to
consummate the purchase in a timely fashion. A cancellation would have
resulted in the $750,000 advance made by Northern Lights Energy, Ltd. to us
at the inception of the contract being treated as a loan, to be repaid to
Northern Lights out of 25% of production in succeeding months. Under the
terms of the original contract, if such "lender status" was ultimately
elected by Northern Lights Energy, Ltd. in lieu of purchase, Northern Lights
Energy was entitled to occupy the position as operator of the oil and gas
leases until the loan was repaid. In that suit we likewise requested the
Court to appoint a temporary receiver for the sole purpose of prudent
management, operation and development of the Texas oil and gas leases during
the pendency of the lawsuit. On October 27, 2000, an interim agreement was
entered into by the litigants providing for operational safeguards and
procedures and Northern Lights Energy, Ltd. continued to operate the
properties, applying 25% of production to a sinking fund that would be
applied as repayment of the $750,000 loan should the Court ultimately hold in
our favor. In the fourth quarter we announced a settlement which would have
permitted Northern Lights Energy, Ltd. to tender the agreed purchase price in
installments. The settlement terms were made subject to the approval of the
Canadian securities authorities which had jurisdiction over one of the
defendants. The Canadian Venture Exchange declined approval of the settlement
and subsequent to the end of the fiscal year the litigants restructured the
settlement such that Northern Lights Energy, Ltd. relinquished its purchase
rights under the contract and accepted a discounted cash sum in full
repayment of the loan, thereby permitting us to reassume operational control
of the Texas-based oil and gas leases.

As of June 30, 2001, we were not a party to any other material legal
proceedings, and to the best of our knowledge, no material legal proceedings
have been threatened against us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In the first quarter the proposal to sell the Texas-based oil and gas leases
to Northern Lights Energy, Ltd. for four million dollars, or, if not
consummated with Northern Lights, to an

alternative purchaser under comparable terms, was submitted to a vote of
shareholders by written consent. As of July 31, 2000, a date more than thirty
days after the notice to the shareholders, the proposal was approved by the
vote of 18,654,691 shares for the proposal, 140,440 shares against the
proposal and 2,900 shares abstaining.

PART II

ITEM 5. MARKET OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

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, Inc. 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.

DIVIDENDS

We have not declared, distributed or paid any cash dividends in the past. We
do not expect that we will have sufficient net profit and cash flow in
amounts that would allow a cash dividend to be paid to our shareholders in
the foreseeable near term.

RECENT SALES OF UNREGISTERED SECURITIES

During the fiscal year we sold to private investors 9,840,075 shares of
Common Stock, $.001 par value, at $0.30 per share, without registration under
the Securities Act of 1933, as amended ("Securities Act"). We relied upon
Section 4(2) of the Securities Act in claiming exemption from registration.
All of the persons had full information concerning our business affairs and
acquired the securities for investment purposes. The certificates
representing the shares issued contain a restrictive legend prohibiting
transfer without registration or the availability of an exemption from
registration. All of the shares were made the subject of a Registration
Statement on Form

S-3 filed November 22, 2000, and amended March 8, 2001. The Registration
Statement was not declared effective by the Securities and Exchange
Commission as of June 30, 2001.

In connection with the private placement, we also issued to the placement
agent as a commission 796,929 Warrants to Purchase Common Stock at an
exercise price of $0.36.

ITEM 6. SELECTED CONSOLIDATED 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, 2001,
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, 1996 through 1999 have been audited by Jones, Jensen & Company,
Independent Public Accountants. The financial data for the years ended June
30, 2000 and 2001 have been audited by HJ & Associates, Inc. (previously
Jones Jensen & Company). The selected consolidated financial data should be
read in conjunction with the Consolidated Financial statements as of June 30,
2001 & 2000, and for each of the three years ended June 30, 2001, 2000 and
1999, the accompanying notes and the report thereon, which are included
elsewhere in the respective Forms 10-K.

BALANCE SHEET DATA

Cash & Cash Equivalents $ 923,831 1,344,513 1,196,566 3,214,205 3,132,294
Working Capital (deficit) (3,267,255) (1,939,587) (592,850) 650,004 2,434,012
Total Assets 16,434,452 17,649,578 15,814,790 20,864,635 13,092,370
========== =========== ========== ========== ==========

Long Term Debt 1,095,919 1,226,243 544,551 698,677 1,792,318

Stockholders Equity $11,027,264 $12,955,628 $13,720,854 $14,929,139 10,457,095
=========== ----------- =========== =========== ==========

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of the historical financial condition and results of
operations should be read in conjunction with the "Summary Consolidated
Financial Data", the consolidated financial statements and related notes
contained in this report.

GENERAL STATEMENT OF ACTIVITIES AND METHOD OF ACCOUNTING

As of June 30, 2001, we were engaged in our principal activity of
developmental drilling of new wells and reworking operations on existing
wells situated on our Texas-based oil and gas leases situated in Fort Bend
County, Texas. Our wholly owned subsidiary, Hycarbex-American Energy, Inc.,
likewise held an oil and gas exploration license on a concession near
Jacobabad, Pakistan during the year on which we drilled an unsuccessful
exploration well.

The Company utilizes the full cost method of accounting for its oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a
"full cost pool". Costs included in the full cost pool are charged to
operations as depreciation, depletion and amortization using the units of
production method based on the ratio of current production to estimated
proven reserves as defined by regulations promulgated by the U.S. Securities
and Exchange Commission. Gain or loss on disposition of oil and gas
properties is not recognized unless it would materially alter the
relationship between the capitalized costs and estimated proved reserves.
Disposition of properties are reflected in the full cost pool. The full cost
method of accounting limits the costs the Company may capitalize by requiring
the Company to recognize a valuation allowance to the extent that capitalized
costs of its oil and gas properties in its full cost pool, net of accumulated
depreciation, depletion and amortization and any related deferred income
taxes, exceed the future net revenues of proved oil and gas reserves plus the
lower of cost or estimated fair market value of non-evaluation properties,
net of federal income tax.

ADJUSTMENT TO FINANCIAL STATEMENTS FOR PRIOR PERIODS

In our financial statements for the periods ending June 30, 1999 and June 30,
2000, we capitalized the dry hole costs associated with the unsuccessful
drilling activities in Pakistan, rather than deducting them as an expense in
the year incurred, on the belief that the results of our domestic and
international activities could be viewed as a whole. Based upon applicable
accounting principles, the lack of proven reserves in Pakistan requires that
Pakistan be treated as a separate cost center and that the dry hole costs be
expensed in the year incurred. This adjustment affects the previously
reported losses for the period ending June 30, 1999 by

increasing those losses by $5,216,832 from $754,349 to the corrected figure
$5,971,181, and affects the previously reported losses for the period ending
June 30, 2000 by decreasing those losses by $9,922,073 from $12,283,248 to
the corrected figure $2,361,175. (See Note 10 to our Consolidated Financial
Statements).

The large increase in Other General and Administrative Expenses from $555,227
in the previous year to $4,853,820 for the current year is based largely upon
the 6,050,000 shares of Common Stock issued to members of management and
directors in November, 2000. The values attributed to these shares in the
Financial Statements for purposes of calculating this expense line items were
determined based upon the market value of the shares on the date of issue.

TEXAS GULF COAST OPERATIONS

As stated elsewhere in this report, we currently own and operate a total of
107 existing wellbores in two producing oil fields, the Blue Ridge Field and
the Boling Dome Field, each of which are within fifty (50) miles of the
Houston, Texas metropolitan area. Most of these existing wells were drilled
by other oil companies prior to the Company's acquisition of the properties
and were inactive at the time of such acquisition. During the fiscal year
ended June 30, 2001, an average of thirty-three (33) of the Company's 107
wells were producing daily with varying production ranging from 2 barrels per
day to 55 barrels per day. A small number of these producing wells flow
without mechanical pumping but the majority require mechanical pumping
assistance. The Company's intent was to workover, re-complete and drill new
wells in these fields to generate funds for future oil and gas exploration in
the domestic U.S.

In the fourth quarter of the previous year, we redirected our focus and
business plan toward Pakistan exploration due to its substantially greater
potential for large scale hydrocarbon production based upon available
geologic and geophysical data. We commenced, at that time, efforts to market
our Texas-based properties both to generate cash resources and to limit
dilution of the company's existing cash and personnel resources. In May 2000,
after negotiations with several interested parties, we entered into a sales
agreement with Northern Lights Energy, Ltd. to sell the properties for
$4,000,000. A front-end advance of $750,000 was paid to us which we utilized
for certain expenses of the transaction and for deposit requirements in
Pakistan. Under the terms of the contract, if Northern Lights Energy failed
to close for any reason, the $750,000 advance was to be treated as a loan and
repaid out of 25% of production, with Northern Lights Energy controlling
operations during the repayment period. Northern Lights subsequently failed
to consummate the sales agreement and we instituted litigation to obtain
certainty as to its lender, rather than purchaser, status. An interim
agreement was entered into immediately providing for operating procedural
safeguards during the pendency of the suit and further providing for the
deposit of 25% of production to a sinking fund which would be applied to loan
repayment in the event we were ultimately successful in the litigation. We
entered into a settlement agreement in March, 2001, subject to certain
approvals by the Canadian authorities regulating Northern Lights and the
settlement was later disapproved by the agency. We experienced a moderate
increase in overall daily production during this fiscal year as the result of
field work in progress. However, the 25% of production designated for
Northern Lights' loan repayment had an adverse effect on our net profits
figure as reflected in the accompanying financial statements.

During the fiscal year ending June 30, 2001, reworking operations continued
under the direction of Northern Lights Energy, Ltd., and one (1) new well was
drilled which was plugged and abandoned as a dry hole.

On June 27, 2001, (three days prior to the end of the fiscal year) we
underwent a change in management. Subsequent to the end of the fiscal year,
after a complete reevaluation of these properties by the new management team,
we restructured a final settlement with Northern Lights Energy in an effort
to regain immediate control of our Texas-based oil and gas leases. On August
23, 2001, Northern Lights Energy, Ltd. relinquished its contractual purchase
rights and accepted a discounted sum of $285,000 as full payment of the loan
balance, after application of the prior sinking fund deposits. Subsequent to
the end of the fiscal year, we sold 10% working interest in the Texas based
oil and gas leases and equipment for $300,000 to Zaber Investments, L.L.C.
and used the proceeds to make the settlement payment to Northern Lights. The
remaining $15,000 not paid to Northern Lights were applied to field
development expenses.

Once we regained control of the Texas-based oil and gas leases and equipment,
we elected to withdraw them from the sales market and then designed and
implemented a program to increase productivity and make them self sufficient
within the first six (6) months of this current fiscal year. Since July 1,
2001, the Company has drilled one (1) new well (Blakely B-72) which was
completed as a producing well and is currently flowing oil. Continued testing
is ongoing at present and additional potential oil zones revealed in the
tests performed on this well will be explored in the future. In addition, our
saltwater disposal well in the Blue Ridge Field has been repaired and will
soon be put on line after regulatory approval, and our saltwater disposal
well in the Boling Field is currently being repaired and is expected to be
placed on line shortly. When these saltwater disposal wells are activated, we
will no longer incur third party costs associated with hauling and disposing
of saltwater from operations resulting in a savings of $15,000 to $20,000 per
month, which will considerably lower our lifting costs. Field production has
increased by approximately 100 BOPD since July 1, 2001. We anticipate that
our domestic fields will continue to experience this increase in average
daily production as additional existing wells are reactivated and new
developmental wells are drilled.

Our domestic operating budget for the coming fiscal year includes the
drilling of 6 new wells, 30 recompletions, 24 workovers, 2 soak programs and
2 disposal wells. We are also planning to acquire 1 vacuum truck, 14
reconditioned motors, 2 equipment and storage buildings, 20,000 feet of
tubing and 10,000 feet of sucker rods.

We believe that the we must continue to raise additional capital through
outside sources for this fiscal year for the reactivation and development
programs to progress, even if oil prices remain stable at a favorable level.

PAKISTAN OPERATIONS

In the fiscal year ended June 30, 2001 we shot an additional 40km of seismic
line in the vicinity of proposed drilling locations. Our technical team
evaluated this newly acquired seismic data, along with geological and
geophysical data derived from previously drilled wells to optimize the
selection of future drill sites on the approximate one million acres (fifteen
hundred square miles) comprising the Jacobabad concession. Based upon the
preliminary testing of the initial well

drilled Kharnhak #1, in 1998, the geological information obtained while
drilling the David #1 and 1A wells and the newly acquired seismic data we
selected the drillsite for the Jacobabad #3 well.

The Jacobabad #3 well was drilled in Nov/Dec 2000 and plugged and abandoned
as a dry hole. Although Jacobabad 3 did not result in a commercial success,
we have demonstrated improved drilling and testing performance in this
technically challenging environment, and have acquired important additional
data that was used to further develop our geologic model of this portion of
the Middle Indus Basin. Soon after plugging the Jacobabad #3 well the
concession was completely reevaluated to determine areas on our Jacobabad
Concession that had good hydrocarbon potential.

For strategic reasons, we elected to release the Jacobabad Concession back to
the Pakistan government and nominate specific highly potential hydrocarbon
areas for bidding with the expectation of being awarded the desired acreage
areas. Subsequently we applied and bid for three (3) concessions closely
associated with the released Jacobabad Concession. In August 2001 we were
officially awarded the Yasin Concession (1211.68 sq. km) in the Sindh
Province of Pakistan. Dr. Iftikhar Zahid, Hycarbex's Vice President of
Administration and Resident Director signed the Concession Agreement August
11, 2001 in Islamabad with representatives of the President of Pakistan.
Hycarbex has committed USD $2,400,000.00 over the course of the next three
years to explore and test this concession. At least 100 km of new 2-D seismic
will be shot, 150 km of older vintage 2-D data will be evaluated, and one
exploration well will be drilled to test the Sui Main Limestone formation for
potential gas. Hycarbex-American Energy Inc. has also bid and applied for two
additional Pakistan concessions in the area. The Bahadurpur Concession 211.62
sq. Km is east of the Yasin Concession and north of Pakistan Petroleum Ltd.
Block 22 Concession. The Miro Khan Concession (4764.87 sq. km.) is
immediately to the west of the Yasin Concession on the west flank of
Hycarbex's prior Jacobabad Concession. We are currently awaiting for the oil
ministry to finalize the concession agreements for these two (2) blocks and
to make its official awards.

Subsequent to the end of the fiscal year, we announced that a new exploration
well will be commenced within the next year, in order to fulfill Hycarbex's
exploration commitment with the Government of Pakistan. The well location
will be determined after performance and evaluation of additional seismic
expected to be conducted in the second and third quarters of the coming
fiscal year.

NEED FOR ADDITIONAL FUNDS

Since the production derived from our Texas-based properties is
insufficient to meet our future capital requirements for both Texas and
Pakistan operations, we will need additional financing to meet our projected
operating capital requirements. We do not currently have a line of credit or
other credit facility available to us to meet these cash requirements. Our
cash position is critical given the Concession requirements in Pakistan and
given future development requirements under certain of our Texas oil and gas
leases. We intend to continue to explore and pursue all available sources of
working capital through potential loans, sales of securities, sales of
assets, joint venture affiliations, and other transactions in order to meet
its anticipated near term needs. There can be no assurance that these efforts
will continue to prove successful. In the event that additional capital
raising efforts by the Company are unsuccessful, the likely effects

would be an ultimate forfeiture of the Pakistan concession and a slowdown or
postponement of scheduled reactivation and development activities on those
Texas properties.

RESULTS OF OPERATIONS

GLOSSARY

Bbl or Barrel: Forty-two (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, the conversion of gas to oil at a
ratio of 6,000 cubic feet of gas to one Bbl of oil. Oil and gas are added
together for total BOE.

BOPD: Barrels of oil per day.

Developmental Well: 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: The search for economic deposits of minerals, petroleum and
other natural earth resources by any geological, geophysical, or geochemical
technique.

Exploratory Well: 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: A geographic area in which a number of oil or gas wells produce from a
continuous reservoir.

Mcf: One thousand cubic feet of natural gas.

Net Acres or Net Wells: 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: The person or company actually operating an oil or gas well.

PV-10 Value: The present value, employing a 10% discount factor, of the
future net revenues computed using current prices from the production of
proven reserves.

REVENUES AND EXPENSES

In the fiscal year ended June 30, 2001, the Company incurred a net operating
loss of $13,274,092, with oil sales of $1,806,335, as compared to a net
operating loss of $2,361,175 on oil sales of $1,823,276 in the prior fiscal
year ended June 30, 2000, and as compared to a net operating loss of
$5,971,181 on oil sales of $417,136 in the fiscal year ended June 30, 1999.

This reflects a minimal decrease in revenues for the year ended June 30, 2001
over the year ended June 30, 2000, and an increase of four hundred thirty
seven percent (437%) over the year ended June 30, 1999 .

The increases noted above resulted from the increases in barrels of oil sold
and the sale of those barrels at prices which were significantly higher than
those received during fiscal 1998. The average price per barrel of oil sold
by the Company in the fiscal years ending June 30, 2000 and 1999 was $24.91
and 12.93, respectively, as compared to $29.11 per barrel in the fiscal year
ending June 30, 2001.

Lease operating costs incurred during the years ended June 30, 2001, 2000 and
1999 were $811,757, $592,502, and $163,838, respectively. The significant
increase for the year ended June 30, 2001 over the previous two fiscal years
was a direct result of the increased production in barrels of oil as
previously discussed under "Oil and Gas Disclosures".

Depreciation and amortization expense incurred during the years ended June
30, 2001, 2000 and 1999 was $6,389,705, $1,249,879 and $5,245,671,
respectively. The fluctuation in these accounts is a direct result of the
drilling of dry holes incurred in the Pakistan cost center which, upon dry
hole determination, are included in the amortization base of that cost
center. As there are currently no proven reserves in this cost center, the
cost of these dry holes are immediately written off.

OTHER INCOME AND EXPENSES

Interest income earned during the years ended June 30, 2001, 2000 and 1999
was $15,466, $5,850, and $73,969, respectively. The decrease in interest
income earned is a direct result of the decrease in cash held by the company
during the years ended June 30, 2001 and 2000.

Interest expense incurred during the years ended June 30, 2001, 2000 and 1999
was $229,887, $123,800, and $6,877, respectively. The significant increase in
interest expense incurred during the year ended June 30, 2001 and 2000 is a
direct result of $1,500,000 note payable financing agreement entered into by
the Company during the year ended June 30, 2000.

During the year ended June 30, 2000 the Company incurred debt issue costs in
the amount of $846,992 of which $798,372 was related to the cost of warrants
to the Debtor.

NET INCOME

The Company, with the inclusion of other income, foreign and domestic
administrative expenses, asset impairment loss, and including interest,
reported a net loss of $13,274,092 in the fiscal year ended June 30, 2001,
versus a net loss of $2,361,175 in the prior fiscal year ended June 30, 2000
and a net loss of $5,971,181 for the year ended June 30, 1999.

Total Assets/Shareholder's Equity

In the fiscal year ended June 30, 2001, Total Assets of the Company decreased to
$16,434,452,

In the year ended June 30, 2000, Total Assets were $17,649,578. The decrease
of $1,215,126 is mainly attributed to the decrease in cash and receivables of
$480,521 and capitalized oil and gas properties of $608,945 and increases in
other assets, including development of the Pakistan concession, cash and
accounts receivable in the amount of $2,491,097

Net Shareholders Equity decreased to $11,027,264 as of June 30, 2001, from
$12,955,628 as of June 30, 2000.

The Company incurred certain long term convertible debt in the amount of
$1,500,000 in the quarter ended September 30, 1999, which debt is convertible
at the option of the holder at the rate of one Common share for each one
dollar of principal converted. A contractual provision within the lending
documents required the Company to initiate a registration with the Securities
& Exchange Commission of the underlying Common shares by December 16, 1999.
The Company has not complied with this registration requirement, triggering a
financial penalty of $45,000 per month beginning January 20, 2000, and
continuing until such time that the registration is accomplished. The Company
has elected to pay the penalty sum in common stock as permitted in the
lending documents and will continue to incur this monthly penalty until the
registration is completed. Late registration penalties equal to three percent
(3%) per month of the stock purchased, payable in cash or stock at our
election, are also applicable to certain private placement investors from the
current fiscal year commencing 120 days after their respective acquisition
dates.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not have to trade in derivative financial instruments and we do not
have firmly committed sales transactions. We have not entered into hedging
arrangements and do not have any delivery commitments. While hedging
arrangements reduce exposure to losses as a result of unfavorable price
changes, they also limit the ability to benefit from favorable market price
changes.

Our major market risk exposure is in the pricing applicable to our oil and
natural gas production. The prices realized are primarily driven by
prevailing domestic prices for crude oil. Historically, these prices have
been volatile and unpredictable. Pricing volatility is expected to continue.
Oil prices we received during the fiscal year ranged from a monthly low of
$25.52 per barrel to a monthly high of $33.60 per barrel. A significant
decline in the price of oil could have a material adverse effect on our
financial condition and results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements and supplementary financial data, which begins on
page F-1, are included elsewhere in this report.

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 REGISTRANT

GEORG VON CANAL
CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT
Georg von Canal is an independent Corporate Finance Consultant and has
represented interests of major American Energy shareholders since March 1998.
Prior to his present occupation, he was an Investment Manager, Corporate
Finance, with APAX Partners & Co., Germany and Switzerland, (now Atrium AG)
and a Managing Partner of Transconnect Group, Munich, a business consultancy
and investment company. Mr. Von Canal holds a first class PhD in Economics
from the University of St. Gallen, Switzerland. He joined the Board of
Directors in March 2000.

WILLIAM M. ABER, JR.
BOARD MEMBER, VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER
William M. Aber, Jr. was appointed to the Board and as Vice President and
Chief Executive Officer on June 27, 2001. Mr. Aber is co-founder, President
and Chairman of the Board of several oil and gas related companies in
Houston, Texas. He holds a Masters Degree in physics from Sam Houston State
University. He has previously worked for Getty Oil Company and Strata Energy
where he gained valuable domestic exploration experience. Since 1987, Mr.
Aber has been involved in oil and gas exploration worldwide. Mr. Aber has
served as an exploration advisor and consultant to Hycarbex-American Energy,
Inc. since 1997.

DEAN C. SMITH
CHIEF FINANCIAL OFFICER
Dean C. Smith was appointed Chief Financial Officer on June 27, 2001. Mr. Smith
is Treasurer and sits on the Board of an oil and gas consulting firm and an oil
and gas investment group in Houston, Texas. He completed his education at
Centenary College of Louisiana and Northwestern Univesity of Louisiana. He has
been actively involved in the oil and gas industry for 14 years.

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.

SECTION 16(a) COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers to file periodic reports with the SEC reporting their direct and
indirect ownership and changes in ownership of our securities. To the best of
our knowledge, all Section 16(a) requirements have been complied with during
the year ending June 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table:

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 10, 2001,
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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year, Calvert D. Crary, a principal in the organization
serving as our investment banker, purchased 100,000 shares of our Common Stock
at $0.30 as an individual investor in the private placement. Mr. Crary's shares
were purchased for the same price and under the same terms as the other private
placement investors.

PART IV

14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) EXHIBITS
The Financial Statement Schedules required herein are included
as set forth as Exhibit A and beginning on page F-1

(b) REPORTS ON FORM 8-K

None.

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 12, 2001.

/s/Georg von Canal
President and Chairman of the Board

/s/William M. Aber, Jr.
Vice-President, Chief Executive Officer and Director

/s/Dean C. Smith
Chief Financial Officer

THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2001 AND 2000

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-9

Notes to the Consolidated Financial Statements............................. F-11

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, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 2001, 2000 and 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit 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, 2001 and
2000 and the consolidated results of their operations and their cash flows
for the years ended June 30, 2001, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Companies will continue as going concerns. As discussed in
Note 1 to the consolidated financial statements, the Companies have suffered
recurring losses to date, which raises substantial doubt about their ability
to continue as going concerns. Management's plans with regard to these
matters are also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

As discussed in Note 10 to the consolidated financial statements, certain
errors were discovered by management during the current year resulting in the
understatement of previously reported amounts in Oil and Gas Properties and
an overstatement in the Accumulated Deficit account as of June 30, 2000 and
the overstatement of previously reported net loss for the year ended June 30,
2000 and the understatement of previously reported net loss for the year
ended June 30, 1999. Accordingly, adjustments have been made to the above
mentioned accounts.

HJ & Associates, LLC
Salt Lake City, Utah
October 8, 2001

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets

ASSETS
------

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

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

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, 2001, 2000 and 1999
(As Restated - See Note 10)

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
For the Years Ended June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

The accompanying notes are an integral part of these consolidated financial
statements.

F-9

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

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 (Continued)

The accompanying notes are an integral part of these consolidated financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.

F-11

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

The American Energy Group, Ltd. (the Company) was incorporated in the
State of Nevada on July 21, 1987 as Dimension Industries, Inc. Since
incorporation, the Company has had several name changes including DIM,
Inc. and Belize-American Corp. Internationale with the name change to
The American Energy Group, Ltd. effective November 18, 1994.

Effective September 30, 1994, the Company entered into an agreement to
acquire all of the issued and outstanding common stock of Simmons Oil
Company, Inc. (Simmons), a Texas Corporation, in exchange for the
issuance of certain convertible voting preferred stock (see Note 5).
The acquisition included wholly owned subsidiaries of Simmons, Sequoia
Operating Company, Inc. and Simmons Drilling Company, Inc. The
acquisition was recorded at the net book value of Simmons of $1,044,149
which approximates fair value.

During the year ended June 30, 1995, the Company incorporated
additional subsidiaries including American Energy-Deckers Prairie,
Inc., The American Energy Operating Corp., Tomball American Energy,
Inc., Cypress-American Energy, Inc., Dayton North Field-American
Energy, Inc. and Nash Dome Field-American Energy, Inc. In addition, in
May 1995, the Company acquired all of the issued and outstanding common
stock of Hycarbex, Inc. (Hycarbex), a Texas corporation, in exchange
for 120,000 shares of common stock of the Company, a 1% overriding
royalty on the Pakistan Project (see Note 2) and a future $200,000
production payment if certain conditions are met. The acquisition was
accounted for as a pooling-of-interests on the date of the acquisition.
The fair value of the assets and liabilities assumed approximated the
fair value of the 120,000 shares issued of $60,000 as of the date of
the acquisition. Accordingly, book value of the assets and liabilities
assumed was $60,000. In April 1995, the name of that company was
changed to Hycarbex-American Energy, Inc. All of these companies are
collectively referred to as "the Companies".

The Company and its subsidiaries (the Companies) are principally in the
business of acquisition, exploration, development and production of oil
and gas properties.

b. Going Concern

The accompanying consolidated financial statements have been prepared
assuming the Companies will continue as going concerns. The Companies
have experienced recurring losses and negative cash flows from
operations which raise substantial doubt about the Companies' ability
to continue as going concerns.

F-12

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

b. Going Concern (Continued)

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 a significant increase in production and
revenues from oil and gas production during the coming year.

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, 2001 and
2000 was $10,000 and $40,000, respectively. In addition, depreciation
capitalized during the years ended June 30, 2001 and 2000 totaled
$46,447 and $51,118, 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, 2001, 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 $6,372,414 and
$1,223,166 has been recognized in the accompanying consolidated
financial statements for the years ended June 30, 2001 and 2000,
respectively, on proved and impaired or abandoned oil and gas
properties.

F-13

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Principles of Consolidation

The consolidated financial statements include the Company and its
wholly-owned subsidiaries as detailed previously. All significant
intercompany accounts and transactions have been eliminated in
consolidation.

e. Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

f. Property and Equipment and Depreciation

Property and equipment are stated at cost. Depreciation on drilling and
related equipment, vehicles and office equipment is provided using the
straight-line method over expected useful lives of five to seven years.
For the years ended June 30, 2001, 2000 and 1999, the Companies
incurred total depreciation of $63,738, $77,831 and $69,055,
respectively.

In accordance with full cost accounting, $46,447 and $51,118 of
depreciation was capitalized as costs of oil and gas properties for the
years ended June 30, 2001 and 2000, respectively, as previously
discussed.

g. Basic Loss Per Share of Common Stock

The basic 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.

F-14

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

h. Concentrations of Risk

From time to time, the cash balances in the Companies U.S. bank
accounts exceed Federally insured limits. At June 30, 2001 and 2000,
the balances in excess of the limits were approximately $-0- and
$38,285, respectively. In addition, the Company had balances held in
Pakistan banks that are not federally insured. The balances of $833,098
and $1,206,228 as of June 30, 2001 and 2000, respectively, held in
Pakistan are subject to potential risks based on government
intervention.

i. Foreign Operations

A significant portion of the operations of the Companies relate to an
oil and gas concession located in the country of Pakistan (see Note 2).
Pakistan has experienced recently, or are experiencing currently,
economic or political instability. Hyperinflation, volatile exchange
rates and rapid political and legal change, often accompanied by
military insurrection, have been common in these and certain other
merging markets in which the Companies are conducting operations. The
Companies may be materially adversely affected by possible political or
economic instability in Pakistan. The risks include, but are not
limited to terrorism, military repression, expropriation, changing
fiscal regimes, extreme fluctuations in currency exchange rates, high
rates of inflation and the absence of industrial and economic
infrastructure. Changes in drilling or investment policies or shifts in
the prevailing political climate in Pakistan could adversely affect the
Companies business. Operations may be affected in varying degrees by
government regulations with respect to production restrictions, price
controls, export controls, income and other taxes, expropriation of
property, maintenance of claims, environmental legislation, labor,
welfare benefit policies, land use, land claims of local residents,
water use and well safety. The effect of these factors cannot be
accurately predicted.

j. Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.

F-15

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

k. Debt Issuance Costs

In connection with the receipt of the $1,100,000 note payable, the
Company incurred costs of $162,067. The Company capitalized these costs
and amortizes these costs over the term of the note payable (2.5 years)
as follows:

l. Long Lived Assets

All long lived assets are evaluated for impairment per SFAS 121
whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. Any impairment in value is
recognized as an expense in the period when the impairment occurs.

In addition, pursuant to the full cost method used in accounting for
oil and gas properties, the capitalized oil and gas property costs are
subject to the full cost ceiling test to determine if the value of
proved reserves and other mineral assets in the respective cost center
are adequate to recover the unamortized costs in the full cost pool. If
the Company determines that the capitalized costs exceed the full cost
ceiling, the excess is charged to expense and separately disclosed
during the year in which the excess occurs.

m. Changes in Accounting Principle

The Companies have adopted the provisions of FASB Statement No. 138
"Accounting for Certain Derivative Instruments and Hedging Activities,
(an amendment of FASB Statement No. 133.)" Because the Companies had
adopted the provisions of FASB No. 133, prior to June 15, 2000, this
statement is effective for all fiscal quarters beginning after June 30,
2000. The adoption of this principle had no material effect on the
Company's consolidated financial statements.

F-16

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

m. Changes in Accounting Principles (Continued)

The Companies have adopted the provisions of FASB Statement No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement No.
125.)" This statement provides accounting and reporting standard for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that
approach, the transfer of financial assets, the Company recognized the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this principle had no material
effect on the Company's consolidated financial statements.

The Companies have adopted the provisions of FIN 44 "Accounting for
Certain Transactions Involving Stock Compensation (an interpretation of
APB Opinion No. 25.)" This interpretation is effective July 1, 2000.
FIN 44 clarifies the application of Opinion No. 25 for only certain
issues. It does not address any issues related to the application of
the fair value method in Statement No. 123. Among other issues, FIN 44
clarifies the definition of employee for purposes of applying Opinion
25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award,
and accounting for an exchange of stock compensation awards in a
business combination. The adoption of this principle had no material
effect on the Company's consolidated financial statements.

n. Pronouncements Issued Not Yet Adopted

In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, BUSINESS COMBINATIONS, and Statement 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, which will potentially impact the
Company's accounting for its reported goodwill and other intangible
assets.

Statement 141:

o Eliminates the pooling method for accounting for business
combinations.

o Requires that intangible assets that meet certain criteria be
reported separately from goodwill.

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

F-17

June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

n. Pronouncements Issued Not Yet Adopted (Continued)

o Requires negative goodwill arising from a business combination
to be recorded as an extraordinary gain.

Statement 142:

o Eliminates the amortization of goodwill and other intangibles
that are determined to have an indefinite life.

o Requires, at a minimum, annual impairment tests for goodwill
and other intangible assets that are determined to have an
indefinite life.

Upon adoption of these Statements, the Company is required to:

o Re-evaluate goodwill and other intangible assets that arose
from business combinations entered into before July 1, 2001.
If the recorded other intangibles assets do not meet the
criteria for recognition, they should be reclassified to
goodwill. Similarly, if there are other intangible assets that
meet the criteria for recognition but were not separately
recorded from goodwill, they should be reclassified from
goodwill.

o Reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly.

o Write-off any remaining negative goodwill.

The Company has not yet completed its full assessment of the effects of
these new pronouncements on its financial statements and so is
uncertain as to the impact. The standards generally are required to be
implemented by the Company in its 2002 consolidated financial
statements.

o. Equity Securities

Equity securities issued for services rendered have been accounted for
at the fair market value of the securities on the date of issuance.

p. Restricted Cash

The Company was required under the concession agreement discussed in
Note 2 to have on deposit with its bank a total of $2,200,000 to cover
the minimum expenditure obligation with respect to the replacement well
and the exploration well for the second renewal period. As of June 30,
2000, $1,100,000 was on deposit with the bank in Pakistan that was to
be used for these purposes, which was classified as restricted cash in
the accompanying consolidated balance sheet.

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

F-18

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

q. Income Taxes

At June 30, 2001, the Companies had net operating loss carryforwards of
approximately $7,400,000 that may be offset against future taxable
income from the year 2002 through 2021. No tax benefit has been
reported in the June 30, 2001 consolidated financial statements since
the potential tax benefit is offset by a valuation allowance of the
same amount.

The income tax benefit differs from the amount computed at federal
statutory rates of approximately 38% as follows:

Deferred tax assets are comprised of the following:

Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. Should a change in
ownership occur, net operating loss carryforwards may be limited as to
use in future years.

F-19

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 2 - OIL AND GAS PROPERTIES

At the time the Company acquired Simmons Oil Company, Inc. and its
subsidiaries, those companies had ownership interests in oil and gas
prospects located in Texas. These properties contained oil and gas
leases on which existing wells had been shut-in and abandoned and had
additional sites available for further exploration and development.
During the years ended June 30, 2001 and 2000, the Companies expended
funds in exploration and development activities and work over of
existing wells on those properties and other oil and gas properties
acquired during those 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 rights, 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 3).

F-20

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 2 - 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 related to an oil and gas property known as the "Jacobabad
Block" (Block 2768-4) or the Pakistan concession and entitled 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 intended 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 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.

Effective May 29, 1999, the Government of Pakistan granted an
additional six-month extension in the existing terms of the Jacobabad
Exploration License so as to enable the Company to drill a substitute
well for the previously abandoned wells with a commitment and
obligation to expend an additional $1,100,000. The Company was granted
a second renewal of the license to November 28, 2000 to drill an
exploration well. This second renewal period was dependent on the
Company fulfilling its obligations of drilling the replacement well.
The Companies were unable to comply with the requirements of the
extension for the replacement well. Accordingly, the Jacobabad
Concession was relinquished during the year ended June 30, 2001.
Subsequent to June 30, 2001, the Companies were awarded a new
concession in Pakistan (the "Yasin Concession") in the Sindh Province
of Pakistan. The Companies committed $2,400,000 over the course of the
next three years to explore and test the concession (see Note 9). All
costs related to the relinquished Jacobabad Concession were fully
amortized as of June 30, 2001 and written off.

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

F-21

June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 2 - 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 3). 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 6 and 3, respectively). During the
year ended June 30, 1998, the Companies acquired the remaining $300,000
joint venture interest for 150,000 shares of common stock (valued at
$1.50 per share) and a note payable of $121,564 with additional
payments made to that individual prior to the consummation of that
transaction.

On May 9, 2000, the Companies entered into an Asset and Stock Purchase
and Sale Agreement with Northern Lights Energy, Ltd. (Northern Lights)
to sell the U.S. oil, gas and mineral leases, all related equipment to
operate such leases, and 100% of the outstanding stock of the operating
subsidiary, The American Energy Operating Corp., for a total of
$4,000,000. As of June 30, 2000, a total of $750,000 of the $4,000,000
had been received by the Company which was originally recorded in the
accompanying consolidated balance sheet as a deposit on the sale of
assets. Northern Lights was unable to pay the remaining $3,250,000
pursuant to the agreement. Effective July 1, 2001, Northern Lights
relinquished its purchase rights in the U.S. operations. During the
year ended June 30, 2001, the Companies had repaid a portion of the
$750,000 advance through royalty payments to Northern Lights, leaving a
balance outstanding at June 30, 2001 of $483,080. Subsequent to June
30, 2001 when the purchase rights were relinquished, Northern Lights
accepted a negotiated sum of $285,000 as full payment of the remaining
deposit owed (see Note 9).

NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT

The following is a summary of notes payable and long-term debt as of
June 30, 2001 and 2000:

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

F-22

NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)

In connection with the $1,500,000 note payable, the Company has the
right to call the loan at its face value of $1,500,000. When the
Company calls the note, the investor has 20 days to exercise the
conversion of the note into shares of common stock at $1.00 per share
or receive payment of funds. The Company originally agreed to arrange
third party escrow of 2,000,000 free-trading shares of common stock to
secure the Company's covenant to register the stock. If the shares were
not registered within 90 days, the Company further agreed to pay a
penalty of 3% of the face value of the note, in either common stock or
cash for each full month the Registration Statement is not declared
effective. Accordingly, the Company issued 711,740 and 583,659 shares
of common stock valued at $360,000 and $270,002 as a result of this
penalty fee for the years ended June 30, 2001 and 2000, respectively.

F-23

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)

The following are the scheduled annual repayments of notes payable and
long-term debt:

Discounts on non-interest bearing notes payable have been determined
using an imputed interest rate ranging from 10% to 15%. These discounts
have been reflected as reductions in notes payable and long-term debt
in the accompanying consolidated financial statements.

NOTE 4 - CAPITAL LEASE OBLIGATIONS

The Company entered into a lease agreement during the year ended June
30, 2001 relating to office equipment which has been accounted for as a
capital lease. The lease has a term of 36 months with a total monthly
lease payment of $122.

The following are the scheduled annual payments on the capital lease:

F-24

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 5 - CONVERTIBLE VOTING PREFERRED STOCK

On September 22, 1994, the board of directors of the Company approved
the issuance of 2,074,521 shares of the authorized preferred stock of
the Company, to be issued in a series, to be known as the "Convertible
Voting Preferred Stock, $.025 Non-Cumulative Dividend". A corresponding
certificate of issuance was filed with the State of Nevada. Holders of
these shares are entitled to a noncumulative, preferential dividend of
$.025 per share per annum, when declared by the board of directors,
payable from the surplus, net profits or assets of the Company. At any
time after September 30, 1999, the board of directors of the Company
may elect to redeem this Convertible Voting Preferred Stock at a
redemption price of $0.50 per share. Each share of this Convertible
Voting Preferred Stock shall be convertible into five shares of the
common stock of the Company.

Under the conversion privileges of these shares, the holder may elect
to convert 20% of the Convertible Voting Preferred Stock prior to
September 30, 1995 and an additional 20% every year thereafter until
September 30, 1999. The right to convert shall terminate if not
exercised before September 30, 1999. At June 30, 2001, the remaining
41,499 preferred shares are no longer convertible. The Company has the
right to redeem these shares for $0.50 per share. Each share of this
Convertible Voting Preferred Stock shall be entitled to one shareholder
vote. These 2,074,521, shares were issued pursuant to the acquisition
by the Company of Simmons Oil Company, Inc. and its subsidiaries. One
share of Convertible Voting Preferred Stock was issued for every four
shares of common stock of Simmons Oil Company, Inc.

During the years ended June 30, 2000, 1999 and 1998, holders of shares
of the Convertible Voting Preferred Stock elected to convert their
shares into common stock of the Company in accordance with the
conversion provisions. Accordingly, 60,496 shares of convertible voting
preferred stock were converted into 302,500 shares of the Company's
common stock in 2000, 433,467 shares of convertible voting preferred
stock were converted into 2,167,330 shares of the Company's common
stock in 1999 and 540,096 shares of convertible voting preferred stock
were converted into 2,700,485 shares of the Company's common stock in
1998 (Note 6).

During the year ended June 30, 2000, the Company issued 400,000 Series
F Convertible Preferred Shares for total proceeds of $400,000. These
400,000 preferred shares were later converted into 1,400,000 shares of
common stock at a conversion ratio of 3.5 common shares.

NOTE 6 - COMMON STOCK

During the year ended June 30, 1999, 433,466 shares of convertible
voting preferred stock were converted into 2,167,330 shares of common
stock. During the year ended June 30, 2000, 60,496 shares of
convertible voting preferred stock were converted into 302,500 shares
of common stock, and 400,000 shares of Series F convertible preferred
stock were converted into 1,400,000 shares of common stock (see
Note 5).

F-25

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 6 - COMMON STOCK (Continued)

As discussed in Note 2, 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. 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. 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.

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.

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.

During the year ended June 30, 2000, the Company issued 133,334 shares
of common stock at $0.75 per share for a total of $100,000. As
discussed in Note 3, the Company issued 583,659 shares of common stock
valued at $270,002 as a result of a penalty fee related to a late
Registration filing for certain shares of stock.

During the year ended June 30, 2001, the Company issued 13,780,083
shares of common stock and 946,929 warrants for $0.30 per share for a
total of $4,134,025. Offering costs of $478,502 were paid or accrued
related to the 13,780,083 shares issued. As discussed in Note 3, the
Company issued 711,740 shares of common stock valued at $360,000 as a
result of a penalty fee related to a late registration filing for
certain shares of stock.

F-26

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 6 - COMMON STOCK (Continued)

During the year ended June 30, 2001, the Company entered into certain
Warrant Exchange Agreements. Pursuant to the agreements, the Company
issued 2,197,500 shares of common stock valued at $1,758,000 in
exchange for the cancellation of 6,680,000 warrants. The shares issued
were valued at $0.80 per share based upon the trading price of the
shares on the date they were issued. The Company also issued a total of
6,050,000 shares of common stock valued at $2,613,998 to certain
directors of the Company in lieu of services rendered and expenses paid
on behalf of the Company. In addition, the Company issued 1,293,661
shares of common stock in conversion of outstanding debt totaling
$521,686, 457,500 shares of common stock for services rendered totaling
$198,600 and 4,692,746 shares of common stock in conversion of debt and
services rendered totaling $3,097,211.

Pursuant to a court decree and settlement agreement signed during the
year ended June 30, 2001, the Company canceled a total of 321,146
shares of common stock. As part of the settlement agreement,
outstanding debt of $235,000 was also released. Accordingly, the
transaction and cancellation of shares was recorded as contributed
capital of $235,000.

The Company also converted 4,168,300 shares of common stock owned by
certain officers of the Company to a convertible subordinated
promissory note in the amount of $1,094,290 (Note 3), bearing interest
at 6% per annum. The promissory note is convertible into common shares
of the Company at a conversion rate of $0.43 per share, adjusted
accordingly for any stock splits or dividends effected by the Company
subsequent to the original issued date of the note.

NOTE 7 - COMMON STOCK WARRANTS

The Company applies Accounting Principles Board ("APB") 25, "Accounting
for Stock Issued to Employees," and related interpretations in
accounting for all stock option plans. Under APB 25, compensation cost
is recognized for stock options and warrants granted to employees when
the option/warrant price is less than the market price of the
underlying common stock on the date of grant.

FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") requires the Company to provide proforma information
regarding net income and net income per share as if compensation costs
for the Company's stock option plans and other stock awards had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option pricing model.

Under the provisions of SFAS No. 123 for warrants granted to employees,
the Company's net loss for the years ended June 30, 2001, 2000 and 1999
would have been unchanged from the reported net loss.

F-27

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 7 - COMMON STOCK WARRANTS (Continued)

However, under the provisions of SFAS No. 123 for non-employees, the
Company recorded additional expense of $-0-, $884,880, and $122,400 for
the years ended June 30, 2001, 2000 and 1999 as a result of warrants
granted to non-employees based upon the Black-Scholes pricing model.
Under the Black-Scholes method, the U.S. treasury rate was used as the
risk-free interest rate, the expected life of the warrants was 2 months
to seven years, the volatility used was based upon the historical price
per share of shares sold, and there were no expected dividends.

A summary of the status of the Company's stock warrants as of June 30,
2001 and changes during the year ended June 30, 2001 are presented
below:

The following summarizes the exercise price per share and expiration
date of the Company's outstanding warrants to purchase common stock at
June 30, 2001;

F-28

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 7 - COMMON STOCK WARRANTS (Continued)

In conjunction with the sale of common stock discussed in Note 6, the
Company has issued warrants for 9,325,000 shares of common stock. These
warrants have been issued with a grant date of August 12, 1996,
exerciseable at $1.50 per share until June 1, 1998 at which time the
exercise price increased to $3.00 per share until August 12, 1999, at
which time the warrants expired. During the year ended June 30, 1998, a
total of 2,610,000 of these warrants were exercised at $1.50 per share,
leaving a remaining balance of 6,715,000 warrants, exercisable at $3.00
per share, unexercised at June 30, 1998. An additional 135,000 of these
warrants were exercised at $3.00 per share during the year ended June
30, 1999. The remaining balance of 6,580,000 warrants exercisable at
$3.00 per share expired unexercised on August 12, 1999.

During the year ended June 30, 1998, the Company established a three
member "Disclosure Committee" comprised of certain of the Company's
attorneys and market relations consultants. Each of these parties have
received 50,000 warrants, making a total of 150,000 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.

During the year ended June 30, 2000, the Company issued 225,000
warrants ranging in exercise prices from $0.75 to $1.00 per share.
These warrants were issued to various consultants for services
rendered. In addition, the Company issued 1,500,000 warrants
exercisable at $1.00 per share which expired unexercised after 60 days.
The Company also issued an additional 1,600,000 warrants exercisable at
$1.00 per share. 400,000 expire on September 15, 2001, 400,000 expire
on September 15, 2002, 400,000 expire on September 15, 2003 and 400,000
expire on September 15, 2004.

During the year ended June 30, 2001, the Company granted a total of
796,929 warrants to purchase common stock at an exercise price of $0.36
per share to the placement agent pursuant to the issuance of common
shares for cash. As discussed in Note 6, the Company issued 2,197,500
shares of common stock during the year ended June 30, 2001 in exchange
for the cancellation of 6,680,000 warrants. An additional 1,275,000
warrants were canceled during the year, bringing the total outstanding
warrants at June 30, 2001 at 3,876,929.

F-29

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 8 - COMMITMENTS AND CONTINGENCIES

As discussed in Note 2, the Companies defaulted on the payment of the
Drilling Investor Notes due and payable September 15, 1995 related to
the acquisition of oil and gas leases in Harris County, Texas. These
notes were secured by a financial guarantee bond, but there is no
assurance that the bond can be enforced. 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 expired during November 2000 at which
time the Company leased 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 2.

During the year ended June 30, 1997, the Board of Directors authorized
the establishment of a Management Royalty Pool equal to 1% of the
revenues from domestic oil and gas production. The beneficiaries and
their ownership in this pool are subject to variance based upon certain
performance criterion.

NOTE 9 - SUBSEQUENT EVENTS

Subsequent to June 30, 2001, the following significant transactions
occurred:

a. As discussed in Note 2, on August 11, 2001, the Companies were
awarded a new Concession Agreement and Exploratory License in
Pakistan known as the Yasin Concession, in the Sindh Providence of
Pakistan. The Company has committed $2,400,000 over the next three
years to explore and test the concession. The Company has also bid
and applied for two additional Pakistan concessions in the same
area. The Bahadurpur Concession is east of the Yasin Concession and
the Miro Khan Concession is west of the Yasin Concession. The
Jacobabad Concession was released to the Pakistan government in
favor of the newly awarded concession.

b. As discussed in Note 2, effective July 1, 2001, the Company
finalized its settlement with Northern Lights Energy, Ltd. and
Northern Lights relinquished its purchase rights in the U.S.
operations. Northern Lights also accepted a negotiated sum of
$285,000 as full payment of the remaining deposit owed. The Company
has no further plans to sell its U.S. properties.

c. The Company entered into a Purchase and Sale Agreement with Zaber
Investments, LLC, a company controlled by an officer of the Company,
to sell a 10% interest in certain operating wells and assets in the
United States for $300,000. The proceeds of this agreement were used
to make the settlement payment to Northern Lights, as mentioned
above.

d. In August 2001, the Company moved its corporate headquarters and
signed a lease agreement for its new office space. The monthly cost
is $2,391 and the lease expires on August 31, 2004.

e. The Company replaced most of its corporate officers and management
and has begun restructuring the focus and objectives of the Company.
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

F-30

June 30, 2001, 2000 and 1999
(As Restated - See Note 10)

NOTE 10 - CORRECTION OF CERTAIN ERRORS

The Company has restated its consolidated financial statements to
reflect adjustments made to properly record the capitalized costs
related to the dry holes in Pakistan, to eliminate the impairment
reserve on the U.S. properties and to properly record warrants granted
during the years ended June 30, 2000 and 1999 pursuant to the
Black-Scholes pricing model. These adjustments decreased the previously
reported net loss for the year ended June 30, 2000 by $9,922,073 but
increased the net loss for the year ended June 30, 1999 by $5,216,832.
A summary of the changes is as follows:

F-31

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2001 and 2000
(As Restated - See Note 10)

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES

(1) Capitalized Costs Relating to
Oil and Gas Producing Activities

(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities

The Company does not have any investments accounted for by the equity
method.

(3) Results of Operations for
Producing Activities

F-33

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2001 and 2000
(As Restated - See Note 10)

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)

(4) Reserve Quantity Information

During the year ended June 30, 2001, 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

The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual
arrangements) to the estimated future production of proved oil and gas
reserves, less estimated future expenditures (based on year-end costs)
to be incurred in developing and producing the proved reserves, less
estimated future income tax expenses (based on year-end statutory tax
rates, with consideration of future tax rates already legislated) to be
incurred on pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted
using a rate of 10 percent a year to reflect the estimated timing of
the future cash flows.

F-34

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2001 and 2000
(As Restated - See Note 10)

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)

(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
(Continued)

At June 30, 2001

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
Carl F. Pomeroy and Don Jacks, P.E. registered professional engineers,
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-35