AMERICAN ENERGY GROUP LTD - 10-K Annual Report

Back to GetFilings.com

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, 2002

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 Identification No.)
incorporation or organization)

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 14, 2002, was $1,989,541 (based on a value of $0.03 per
share, the closing price of the Common stock as quoted on the NASD OTC
market on such date). 66,318,037 shares of Common Stock, par value $.001 per
share, were outstanding on October 14, 2002.

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.

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

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

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

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 could be increased to 25% W.I. 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 previous fiscal year, the Jacobabad
Concession was relinquished to the Pakistan Government in favor of a new
concession, the Yasin Concession, which was officially awarded in the current
year. The Yasin Concession contains approximately 1,200 Square Kilometers and
provides for the same drilling and financial terms as the Jacobabad
Concession. The Company has also bid on and won two additional blocks this
year. The Bahadurpur Block covers 211.625 Square Kilometers and the Miro Khan
Block is 4764.87 Square Kilometers. Additional evaluations of both new blocks
is currently in progress and signing could occur soon. Both blocks are either
on or in close proximity to the old Jacobabad concession. An additional
979.58 Square Kilometers has been added making the Yasin Concession area
2179.58 Square Kilometers. 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 our 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 in
the year ending June 30, 2000, 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, two additional producing wells
have been drilled. The Blakely B-72 well completed in September 2002 encounter
five oil sands of which the lowest sand is currently being produced. The Blakely
C-55 well completed in April 2002 also encountered five oil sands of which the
lowest sand is producing. These two wells encountered new oil reserves which
increased our proved

reserves as noted in this years reserve report just completed.

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, 2002, 2001 and 2000, the Company received oil revenues from 32,
32 and 22 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, 2002, 2001 and 2000. 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, 2002, 2001 and
2000 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 Carl F. Pomeroy and
Richard Alexander, Registered Professional Engineers. 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, 2002 on
the Company's U.S. properties reflect a weighted average price of $21.83 per BOE
vs. $29.11 in its June 30, 2001 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. 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, proved undeveloped and
probable reserve volumes as of June 30, 2002, and June 30, 2001, 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:

As of June 30 As of June 30
2002 2001

Proved Developed, Bbls 291,599 301,480

Proved Shut In, Bbls 197,168 181,766

Proved Undeveloped, Bbls 1,849,332 2,132,331

Total Estimated Proved Oil Reserves, Bbls 2,338,099 2,615,577

Probable Reserves 228,449 217,365
Total Estimated Oil Reserves, BBLS 2,566,548 2,832,942

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, 2002 and 2001 are as follows:

As of June 30 As of June 30
2002 2001

Proved Developed PV-10, $ 2,802,712 3,271,165

Proved Shut In PV-10, $ 2,468,660 2,913,577

Proved Undeveloped PV-10, $ 15,719,353 18,261,372

Total 20,990,725 24,446,114

The decrease in the average price per barrel of oil significantly reduced the
Companies oil revenues for 2002. The oil price for September 2002 was $26.42 per
BBL. indicating probable higher future revenues.

"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 of Calgary, Alberta Canada, 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. During the current
fiscal year we elected to forego continuous drilling on one of our Texas-based
leases containing 37.5 acres for geologic reasons. The cessation of activity
resulted in the applicability of a lease provision which permits the Company to
retain 2.5 acres around each producing well and provides for forfeiture of the
undeveloped acreage. We have identified five (5) producing wells for purposes of
calculating the retained acreage which are currently being reviewed by the oil
and gas lessor for verification.

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 $3,395. 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 3 employees in our Houston, Texas corporate offices, all three 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 are represented by a union or collective bargaining organization.
We consider our relationship with our employees to be satisfactory.

ITEM 3. LEGAL PROCEEDINGS.

During the first quarter, the Company settled the litigation initiated by the
Company in October 2000, against Northern Lights Energy, Ltd. seeking a
cancellation of Northern Lights right to purchase the Texas Oil and Gas Leases
under a May 9, 2000 contract. Under the terms of the settlement, Northern Lights
relinquished its purchase rights, accepted a discounted cash sum in full
repayment of its $750,000.00 loan, and returned operational control of the
Texas-based oil and gas leases to the Company.

During the third quarter, Georg von Canal filed suit against the Company and
William M. Aber, Jr. in Cause No. 2002-11247, 270th Judicial District Court of
Harris County, Texas, seeking damages and an injunction from preventing his
ouster as President and as a member of the Board of Directors based upon a
shareholder vote in which a majority of shareholders voted for the removal of
Mr. von Canal as a director under an existing bylaw provision. The bylaw
provision, which requires a simple majority vote to remove a director, is in
conflict with a Nevada statute which requires the vote of two-thirds of the
shareholders in order to remove a director. The matter was pending and the
outcome not yet determined by the Court as of the date of this report.

During the third quarter, Charles Valceschini, former President and a former
member of the Board of Directors, filed suit against the Company in Cause No.
CV/02-01352, Second Judicial District Court, Washoe County, Nevada, to recover a
stock certificate issued to him by the Company which was in the Company's
possession and to recover $222,000.00, representing a $30,000.00 loan to the
Company and back salary and unreimbursed expenses. The matter was pending and
the outcome not yet determined by the Court as of the date of this report.

During the fourth quarter William L. Locklear, Inc. filed suit against
American Energy Operating, Corp. in Cause No. 2002-CI-09050, 285th Judicial
District Court, Bexar County, Texas, seeking $59,504.50 for alleged, unpaid
services as an engineering consultant. The matter was pending and the
outcome not yet determined by the Court as of the date of this report.

During the third quarter, the outstanding $1,500,000.00 loan secured by a first
lien on the Texas oil and gas leases matured. Negotiations to restructure the
debt were conducted by management with the note holder, Zubair Kazi, during the
fourth quarter, but the negotiations were unsuccessful in obtaining a long term
extension and renewal of the note. Mr. Kazi initiated legal procedures to obtain
a foreclosure of the Texas-based oil and gas leases but the foreclosure did not
go forward because on June 28, 2002, three other alleged creditors of the
Company filed an Involuntary Petition for Bankruptcy. While the original claims
totaled only $49,981.13, the bankruptcy proceedings had the effect of
automatically preventing a foreclosure unless and until the Bankruptcy Court
issues an order permitting the creditor to pursue its remedies under state law.
The Company entered into an agreement with Mr. Kazi after the end of the fiscal
year which provides for forbearance by Mr. Kazi of pursuit by him of his
available remedies until ninety (90) days after August 12, 2002.

During the fourth quarter, three alleged creditors of the Company, whose claims
totaled $49,981.13, filed an Involuntary Petition for Bankruptcy against the
Company in Cause No. 02/37125-H1-7, United States District Court, Southern
District of Texas, Houston Division. One of the petitioning creditors, Peter
Barben, who claimed a debt of $9,114.00 subsequently withdrew as a petitioning
creditor but was replaced in the litigation by Georg von Canal, who joined the
group of petitioning creditors with a claim that the Company separately owes him
$172,689.14. The matter was pending and the outcome not yet determined as of the
date of this report.

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

During the year, the Company did not submit any matters to a vote of security
holders.

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.

High Bid Low Bid
Fiscal years ended
June 30,

2002
First Quarter $0.29 $.016
Second Quarter $0.19 $0.09
Third Quarter $0.22 $0.07
Fourth Quarter $0.28 $0.07

2001
First Quarter $0.66 $0.25
Second Quarter $1.28 $0.44
Third Quarter $0.72 $0.16
Fourth Quarter $0.29 $0.15

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 first two quarters, the Company issued 1,200,000 shares of Common
Stock, $.001 par value, to officers and third party creditors for services
rendered valued at $281,000. During the same period, we issued 40,750 shares as
replacement shares for shares which were erroneously canceled in a previous year
in connection with broad-based, multiparty litigation initiated by the Company
in order to achieve cancellation of shares. We also issued in December 2001 and
May 2002, 4,085,622 shares as penalty shares pursuant to a Company obligation to
register shares issued in a September 1999 placement. The penalty shares were
issued in satisfaction of monetary penalties aggregating $450,000 and $225,000,
respectively. During the third quarter, the Company issued 1,000,000 shares in
satisfaction of interest and commissions payable in connection with an
outstanding loan to the Company and 2,544,768 shares and 6,400,000 shares of
Common Stock to two different creditors in satisfaction of outstanding notes in
the amount of $1,094,290 and $640,000, respectively. In April 2002, these two
blocks of stock were reacquired from the creditors by reversing the transactions
in order to make available a significant number of authorized shares needed for
an investment transaction with Vivus Beteiligungs Aktiengesellschaft, a German
concern, which was proposed to be consummated in that month. The reversal of the
2,544,768 share block issuance was accomplished by canceling that transaction
and reinstating the $1,094,290 debt. The reversal of the 6,400,000 share block
issuance required that the $640,000 debt be reinstated with an additional
reacquisition fee of $160,000 payable to the holder under the original agreement
with the holder.

In connection with the above transactions, 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.

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, 2002, 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). This
financial data for the year ended June 30, 2002 was audited by Chisholm and
Associates. 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.

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, 2002, 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 Yasin Concession

near Jacobabad, Pakistan during the year on which we made preparations for
upcoming drilling activities, but performed no drilling.

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.

The large decrease in Other General and Administrative Expenses from $4,965,120
in the previous year to $1,217,980 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 108
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, 2002, an average of thirty-three (33) of the Company's 108 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.

Once we regained control of the Texas-based oil and gas leases and equipment, we
elected to withdraw them from the sales market 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. We designed a program to
increase productivity but the targeted goals were not achieved because of a 25%
decline in the average per barrel price of oil from the previous year and
because of our failure to secure the necessary working capital to jump start the
designed program and make them self sufficient within the first six (6) months
of this current fiscal year. Since July 1, 2001, the Company has drilled only
two (2) new wells which were completed as producing wells.

The Company has not solved our working capital shortage as of the date of this
report which will substantially impair our ability to enhance domestic
production. We have implemented several cost saving measures including
decreasing total hours of field labor and activating our two saltwater disposal
wells to save costs associated with hauling and disposing of saltwater from
operations. Our most substantial cost saving measures have been the deferral of
salary by the three current management members, William Aber, Dean Smith and
Michael Zabransky. During the current fiscal year, Mr. Aber and Mr. Smith
received only one of twelve monthly salary checks and Mr. Zabransky received
only two of twelve monthly salary checks. Additionally, Zaber Investments,
L.L.C., which owns ten percent (10%) of the domestic production, did not receive
its share of production for the fiscal year totaling $64,000 and permitted the
Company to utilize these funds as working capital.

Despite these cost saving and cost deferral measures, we are likely to continue
to experience a decrease in production revenues unless and until substantial
working capital is secured for field development. Our domestic operating budget
for the coming fiscal year includes the drilling of 4 new wells, 20
recompletions and 24 workovers but we are not likely to achieve these budgetary
targets without a working capital infusion.

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. As of the date
of this report, we do not have any commitments from third party sources for the
needed funding.

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 drill site 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.
The Company applied for and was granted an additional 979.58 Square Kilometers
which was added to the Yasin Concession making it 2,191.26 Square Kilometers.
Our subsidiary Hycarbex American Energy, Inc., 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 has $1.1 million on deposit in
Pakistan but must obtain additional funding from third party sources in order to
meet these commitments. The concession agreement contains deposit and funding
requirements, geophysical requirements, social program requirements and drilling
requirements which are all considered material requirements by the Government of
Pakistan and must be met in a timely fashion in order to maintain the
concession. In the event that we are unable to secure additional funding for
Hycarbex's proposed activities in Pakistan under the Concession agreement, the
Government of Pakistan may resort to its remedies for non-compliance, including
possible forfeiture of the concession and possible forfeiture of all funds on
deposit.

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 reevaluating the concessions for these two (2)
blocks prior to finalizing contractual obligations.

NEED FOR ADDITIONAL FUNDS

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 substantial near-term financing to meet our projected operating
capital requirements in both Texas and Pakistan. 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. The lack of sufficient capital to meet these requirement and
the recurring negative cash flows from operations have been considered by our
auditors in their opinion that there is doubt as to our ability to continue as
going concerns. 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 foreclosure of our Texas-based
leases by the first lien lender whose $1,500,000 note matured just prior to the
end of the third quarter. Even if this debt is addressed or action on it
delayed, the lack of substantial working capital will result in 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, 2002, the Company incurred a net operating
loss of $2,538,248, with oil sales of $1,051,358 as compared to a net operating
loss of $13,274,092 on oil sales of $1,806,335 in the prior fiscal year ended
June 30, 2001, and as compared to a net operating loss of $2,361,175 on oil
sales of $1,823,276 in the fiscal year ended June 30, 2000.

This reflects a decrease in revenues for the year ended June 30, 2002 over the
year ended June 30, 2001 and 2000 of approximately forty-one percent (41%).

The decreases noted above resulted from the decreases in barrels of oil sold and
the sale of those barrels at prices which were significantly lower than those
received during fiscal 2001. The average price per barrel of oil sold by the
Company in the fiscal years ending June 30, 2001 and 2000 was $29.11 and 24.91,
respectively, as compared to $21.83 per barrel in the fiscal year ending June
30, 2002. The drop in average prices by twenty-five percent (25%) and the
reduction in available working capital resources for drilling of new wells and
reworking of existing wells are, taken together, directly responsible for the
forty one percent (41%) decrease in production revenues for the current year.

Lease operating costs incurred during the years ended June 30, 2002, 2001, and
2000 were $507,382, $811,757, and $592,502 respectively.

Depreciation and amortization expense incurred during the years ended June 30,
2002, 2001, and 2000 was $645,582, $6,389,705, and $1,249,879 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, 2002, 2001, and 2000 was
$15,738, $15,466, and $5,850 respectively.

Interest expense incurred during the years ended June 30, 2002, 2001, and 2000
was $488,432, $229,887, and $123,800, respectively. The significant increase in
interest expense which began during the year ended June 30, 2001 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 $2,538,248 in the fiscal year ended June 30, 2002, versus a net
loss of $13,274,092 in the prior fiscal year ended June 30, 2001 and a net loss
of $2,361,175 for the year ended June 30, 2000.

Total Assets/Shareholder's Equity

In the fiscal year ended June 30, 2002, Total Assets of the Company increased to
$16,493,866, In the year ended June 30, 2001, Total Assets were $16,434,452.

Net Shareholders Equity decreased to $9,535,016 as of June 30, 2002, from
$11,027,264 as of June 30, 2002.

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 $17.22 per barrel
to a monthly high of $25.40 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

Name Age Position

William M. Aber, Jr. 58 President, CEO and Chairman of the
Board of Directors

Dean C. Smith 55 Chief Financial Officer and
Secretary

George Sagredos 46 Director

Iftikar Zahid Director

WILLIAM M. ABER, JR.
PRESIDENT, CEO AND CHAIRMAN OF THE BOARD OF DIRECTORS

William M. Aber, Jr. was appointed to the Board and as Vice President and Chief
Executive Officer on June 27, 2001. In January 2002, Mr. Aber was appointed
President and Chairman of the Board. 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 AND SECRETARY

Dean C. Smith was appointed Chief Financial Officer on June 27, 2001. In May
2002, Mr. Smith was appointed Secretary of the Company. 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 University of Louisiana. He has been
actively involved in the oil and gas industry for 14 years.

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, 2002.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table:

Ms. Gann left the Company on April 30, 2002.

NOTE: The composition of management is currently the subject of litigation
in proceedings titled No. 2002-11247; Georg von Canal vs. The American
Energy Group, Ltd. and William Aber, 270th Judicial District Court, Harris
County, Texas. See Item 3-Legal Proceedings.

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 15, 2002, with
respect to the beneficial ownership of shares of common stock by (i) each person
who is known to the Company to beneficially own more than 5% of the outstanding
shares of common stock, (ii) each director of the Company, (iii) each executive
officer of the Company and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each stockholder has sole voting
and investment power with respect to the shares shown.

NUMBER PERCENT
NAME TYPE OF SHARES OF CLASS

CURRENT OFFICERS AND DIRECTORS

William M. Aber Common 908,910 1.5%

Dean C. Smith Common 401,250 0.7%

George Sagredos Common 600,000 0.9%

Iftikar Zahid Common 255,000 0.3%

All current officers and
Directors as a group
(four persons) Common 2,165,160 3.3%

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year, we entered into a Purchase and Sale Agreement with Zaber
Investments, L.L.C. under which we sold a ten percent (10%) interest in the
Texas-based oil and gas leases and wells for $300,000. The proceeds of this sale
were utilized to pay the discounted loan settlement to Northern Lights Energy,
Ltd., so that we could regain control of operations from Northern Lights Energy,
Ltd. Zaber Investments, L.L.C. is controlled by William Aber and Michael
Zabransky. During the fiscal year, Zaber Investments, L.L.C. did not receive its
ten percent (10%) share of production aggregating $64,000 and permitted the
Company to use these proceeds for operating capital.

In January, 2002, we entered into an agreement with the WVZC Partnership, which
is comprised of Georg von Canal, Manfield Welser, Charles Valceschini and Hooman
Zadeh, to convert the partnership's note in the amount of $1,094,290 to
2,544,768 shares of stock, or a conversion rate of $0.43 per share. This
transaction was reversed and the note balance reinstated in April, 2002, in
order to make the 2,544,768 shares available for a proposed investment by Vivus
Beteilgungs Aktiengesellschaft which was scheduled to

close in April. The Vivus investment transaction was not consummated by Vivus
and was subsequently cancelled.

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) (99) 99.1 WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002.

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 14, 2002.

/s/William M. Aber, Jr.
President, Chairman of the Board

/s/Dean C. Smith
Chief Financial Officer

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

THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002 AND 2001

F-1

C O N T E N T S

Independent Auditors' Reports............................................... F-3

Consolidated Balance Sheets................................................. F-5

Consolidated Statements of Operations....................................... F-7

Consolidated Statements of Stockholders' Equity............................. F-8

Consolidated Statements of Cash Flows...................................... F-11

Notes to the Consolidated Financial Statements............................. F-13

F-2

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Board of Directors and Shareholders of
The American Energy Group, Ltd. and Subsidiaries
Houston, Texas

We have audited the accompanying consolidated balance sheet of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 2002 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 2002. 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 audit. The
consolidated financial statements of The American Energy Group, Ltd. and
Subsidiaries as of June 30, 2001 and for the years ended June 30, 2001 and 2000
were audited by other auditors whose report, dated October 8, 2001, expressed an
unqualified opinion.

We conducted our audit 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 audit provides 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, 2002 and the
consolidated results of their operations and their cash flows for the year ended
June 30, 2002 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 has suffered recurring
losses to date, has negative cash flows from operations and have been placed
into involuntary bankruptcy. These factors raise 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 these
uncertainties.

Chisholm & Associates
North Salt Lake, Utah
September 6, 2002

F-3

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Board of Directors and Shareholders of
The American Energy Group, Ltd. and Subsidiaries
Houston, Texas

We have audited the accompanying consolidated balance sheet of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 2001 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 2001 and 2000. 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 the
consolidated results of their operations and their cash flows for the years
ended June 30, 2001 and 2000, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company have suffered recurring losses to
date, have negative cash flows from operations and have been placed into
involuntary bankruptcy. These factors raise substantial doubt about its ability
to continue as a going concern. 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 these
uncertainties.

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

F-4

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

ASSETS
------

JUNE 30,
-------------------------------------
2002 2001
------------------ -----------------

CURRENT ASSETS
Cash (Note 1) $ 210,481 $ 923,831
Restricted cash (Note 1) 1,108,107 -
Receivables 87,360 104,108
Other current assets 15,022 16,075
------------------ -----------------

Total Current Assets 1,420,970 1,044,014
------------------ -----------------

OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING (Notes 1 and 2)

Properties being amortized 17,088,619 16,687,542
Properties not subject to amortization - -

Accumulated amortization (2,152,881) (1,515,171)
------------------ -----------------

Net Oil and Gas Properties 14,935,738 15,172,371
------------------ -----------------

OTHER PROPERTY AND EQUIPMENT (Note 1)

Drilling and related equipment 405,564 387,267
Vehicles 113,590 139,801
Office equipment 52,835 52,835
Accumulated depreciation (443,330) (417,456)
------------------ -----------------

Net Other Property and Equipment 128,659 162,447
------------------ -----------------

OTHER ASSETS

Debt issuance costs, net (Note 1) - 48,620

Investments 8 1,900
Deposits 8,491 5,100
------------------ -----------------

Total Other Assets 8,499 55,620
------------------ -----------------

TOTAL ASSETS $ 16,493,866 $ 16,434,452
================== =================

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

F-5

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

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

JUNE 30,
-------------------------------------
2002 2001
------------------ -----------------

CURRENT LIABILITIES

Accounts payable $ 1,065,971 $ 1,729,235
Accrued liabilities 957,184 649,557
Deposit payable (Note 2) - 483,080
Current portion of capital lease obligations (Note 4) 1,405 1,280
Current portion of notes payable and long-term
debt (Note 3) 3,840,000 1,448,117
------------------ -----------------

Total Current Liabilities 5,864,560 4,311,269
------------------ -----------------

LONG-TERM LIABILITIES

Notes payable and long-term debt (Note 3) 4,934,290 2,542,407
Capital lease obligations (Note 4) - 1,629
Less: Current portion of notes payable and long-term
debt (Note 3) (3,840,000) (1,448,117)
------------------ -----------------

Total Long-Term Liabilities 1,094,290 1,095,919
------------------ -----------------

Total Liabilities 6,958,850 5,407,188
------------------ -----------------

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Notes 5, 6 and 7)

Convertible voting preferred stock; par value $0.001 per share; authorized
15,000,000 shares; 41,499 and 41,499 shares issued and outstanding,
respectively 42 42
Common stock; par value $0.001 per share;
authorized 80,000,000 shares; 66,318,037 and
59,991,665 shares issued and outstanding,
respectively 66,318 59,992
Capital in excess of par value 37,763,777 36,724,103
Accumulated deficit (28,295,121) (25,756,873)
------------------ -----------------

Total Stockholders' Equity 9,535,016 11,027,264
------------------ -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,493,866 $ 16,434,452
================== =================

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

F-6

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

For the Years Ended

JUNE 30,
------------------------------------------------------------
2002 2001 2000
------------------- ------------------- ----------------

REVENUE

Oil and gas sales $ 1,051,358 $ 1,806,335 $ 1,823,276
------------------ ----------------- ----------------

Total Revenue 1,051,358 1,806,335 1,823,276
------------------ ----------------- ----------------

EXPENSES

Lease operating and production costs 507,382 811,757 592,502
Penalties 636,500 540,000 270,002
Legal and professional 321,909 336,597 414,308
Depreciation and amortization expense 645,582 6,389,705 1,249,879
Warrant settlements (Note 6) - 1,758,000 -
Other general and administrative 1,217,980 4,965,120 690,756
------------------ ----------------- ----------------

Total Expenses 3,329,353 14,801,179 3,217,447
------------------ ----------------- ----------------

NET OPERATING LOSS (2,277,995) (12,994,844) (1,394,171)
------------------ ----------------- ----------------

OTHER INCOME (EXPENSES)

Gain on settlement of debt (Note 2) 255,902 - -
Interest income 15,738 15,466 5,850
Interest expense (488,432) (229,887) (123,800)
Debt issuance costs (48,620) (64,827) (846,992)
Other income - - 1,480
Gain (loss) on sale of assets 5,159 - (3,542)
------------------ ----------------- ----------------

Total Other Income (Expenses) (260,253) (279,248) (967,004)
------------------ ----------------- ----------------

NET LOSS $ (2,538,248) $ (13,274,092) $ (2,361,175)
================== ================= ----------------

BASIC LOSS PER COMMON SHARE $ (0.04) $ (0.25) $ (0.07)
================== ================= ================

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 65,006,780 52,566,109 33,653,953
================== ================= ================

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

F-7

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 2002, 2001 and 2000

CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK
----------------------------- ----------------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
-------------- ------------ -------------- ------------ ----------- -------------

Balance, June 30, 1999 32,878,388 $ 32,878 101,995 $ 102 $23,809,480 $ (10,121,606)

Preferred stock issued for cash
at $1.00 per share - - 400,000 400 399,600 -

Common stock issued for cash
at $0.75 per share 133,334 134 - - 99,866 -

Common stock issued upon
conversion of preferred shares 1,702,500 1,702 (460,496) (460) (1,242) -

Common stock issued in
satisfaction of penalty fee at
an average price of $0.46 per
share (Note 3) 583,659 584 - - 269,418 -

Offering costs related to sale of
preferred stock - - - - (58,933) -

Additional expense recorded upon
granting of warrants - - - - 884,880 -

Net (loss) for the year ended
June 30, 2000 - - - - - (2,361,175)
-------------- ------------ -------------- ------------ ----------- -------------

Balance, June 30, 2000 35,297,881 35,298 41,499 42 25,403,069 (12,482,781)
Common stock issued for cash
and warrants at $0.30 per share 13,780,083 13,780 - - 4,120,245 -

Common stock issued in
satisfaction of penalty fee at
an average price of $0.51 per
share (Notes 3 and 6) 711,740 712 - - 359,288 -

Common stock issued upon
retirement of warrants at $0.80
per share (Note 6) 2,197,500 2,197 - - 1,755,803 -

Common stock issued to
directors for services and
expenses at an average price
of $0.43 per share 6,050,000 6,050 - - 2,607,948 -

Common stock issued in
conversion of debt at an
average price of $0.40 per
share 1,293,661 1,294 - - 520,392 -

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, 2002, 2001 and 2000
(Continued)

CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK
----------------------------- ----------------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
-------------- ------------ -------------- ------------ ----------- -------------

Common stock issued for
services rendered at an average
price of $0.43 per share 457,500 $ 457 - $ - $ 198,143 $ -

Common stock issued in conversion
of debt and services at $0.66
per share 4,692,746 4,693 - - 3,092,518 -

Common stock canceled pursuant
to court decree (Note 6) (321,146) (321) - - 235,321 -

Common stock repurchased and
canceled (Note 6) (4,168,300) (4,168) - - (1,090,122) -

Offering costs related to sale of
common stock - - - - (478,502) -

Net (loss) for the year ended
June 30, 2001 - - - - - (13,274,092)
-------------- ------------ -------------- ------------ ----------- -------------

Balance, June 30, 2001 59,991,665 59,992 41,499 42 36,724,103 (25,756,873)

Common stock issued to officers for
services rendered at an average price
of $0.24 per share 950,000 950 - - 230,050 -

Common stock issued for services
rendered at an average price of
$0.20 per share 250,000 250 - - 49,750 -

Common stock re-issued for shares
previously canceled in error at
$0.00 per share 40,750 41 - - (41) -

Common stock issued in satisfaction
of penalty fee at an average price
of $0.17 per share (Notes 3 and 6) 4,085,622 4,085 - - 670,915 -

Common stock issued as additional
interest on a note payable at
$0.25 per share 1,000,000 1,000 - - 249,000 -

Common stock issued in conversion of
debt at $0.43 per share (Note 6) 2,544,768 2,545 - - 1,091,745 -

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

F-9

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 2002, 2001 and 2000
(Continued)

CONVERTIBLE VOTING
COMMON STOCK PREFERRED STOCK
----------------------------- ----------------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
-------------- ------------ -------------- ------------ ----------- -------------

Common stock issued in conversion of
debt at $0.10 per share (Note 6) 6,400,000 $ 6,400 - $ - $ 633,600 $ -
Repurchase of common stock
previously issued (Note 6) (8,944,768) (8,945) - - (1,885,345) -

Net (loss) for the year ended
June 30, 2002 - - - - - (2,538,248)
-------------- ------------ -------------- ------------ ----------- -------------

Balance, June 30, 2002 66,318,037 $ 66,318 41,499 $ 42 $37,763,777 $(28,295,121)
============== ============ ============== ============ =========== ============

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

F-10

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

FOR THE YEARS ENDED
JUNE 30,
-------------------------------------------------------------
2002 2001 2000
----------------- ----------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (2,538,248) $ (13,274,092) $ (2,361,175)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 686,685 6,436,152 1,300,997
Less amount capitalized to oil and gas properties (41,103) (46,447) (51,118)
Common stock issued for services rendered 281,000 5,909,809 -
Common stock issued for penalty fee 540,000 - -
Common stock issued for retirement of warrants - 1,758,000 -
Common stock issued for interest 250,000 - -
Amortization of note payable discount 120,000 174,843 -
(Gain) loss on sale of asset (7,051) - 3,542
Additional expense for warrants - - 884,880
(Gain) loss on investment 1,892 - (1,480)
Gain on settlement of debt (255,902) -
Changes in operating assets and liabilities:
(Increase) decrease in receivables 16,748 59,839 (90,781)
(Increase) decrease in receivables-related party - - 1,626
(Increase) decrease in other current assets 1,053 3,585 (6,058)
(Increase) decrease in other assets 48,620 64,827 (113,447)
(Increase) decrease in deposits (3,391) - -
Increase (decrease) in accounts payable (643,559) 963,584 (11,815)
Increase (decrease) in accrued liabilities and
other current liabilities 157,627 (264,692) 1,567,725
----------------- ----------------- -----------------

Net Cash Provided (Used) by Operating Activities (1,385,629) 1,785,408 1,122,896
----------------- ----------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES

Sale of assets 295,000 - 10,000
Expenditures for oil and gas property development (644,974) (5,717,022) (2,730,795)
Expenditures for other property and equipment (18,136) (2,589) (9,327)
----------------- ----------------- -----------------

Net Cash (Used) by Investing Activities (368,110) (5,719,611) (2,730,122)
----------------- ----------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes payable and long-term
liabilities 2,150,000 - 1,740,000

Proceeds from issuance of preferred and
common stock - 4,134,025 500,000

Expenditures for offering costs - (478,502) (58,933)

Payments on notes payable and long-term
liabilities (1,504) (142,002) (425,894)
----------------- ----------------- -----------------

Net Cash Provided by Financing Activities 2,148,496 3,513,521 1,755,173
----------------- ----------------- -----------------

NET INCREASE (DECREASE) IN CASH 394,757 (420,682) 147,947

CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 923,831 1,344,513 1,196,566
----------------- ----------------- -----------------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,318,588 $ 923,831 $ 1,344,513
================= ================= =================

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

F-11

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

FOR THE YEARS ENDED
JUNE 30,
-------------------------------------------------------------
2002 2001 2000
----------------- ----------------- -----------------

CASH PAID FOR:

Interest $ 14,095 $ 9,601 $ 3,800
Income taxes $ - $ - -

NON-CASH FINANCING ACTIVITIES:

Common stock issued to retire notes payable,
accounts payable and accrued liabilities $ - $ 756,686 $ -
Notes payable and capital lease obligations
for acquisition of other property and equipment $ - $ 3,901 $ -
Common stock issued in satisfaction of accrued
penalty fees $ 135,000 $ 360,000 $ 270,002
Common stock issued for services rendered $ 260,000 $ 5,909,809 $ -
Common stock repurchased for note payable $ 160,000 $ 1,094,290 $ -

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

F-12

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

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

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

During the year ended June 30, 1995, the Company incorporated
additional subsidiaries including American Energy-Deckers Prairie,
Inc., The American Energy Operating Corp., Tomball American
Energy, Inc., Cypress-American Energy, Inc., Dayton North
Field-American Energy, Inc. and Nash Dome Field-American Energy,
Inc. In addition, in May 1995, the Company acquired all of the
issued and outstanding common stock of Hycarbex, Inc. (Hycarbex),
a Texas corporation, in exchange for 120,000 shares of common
stock of the Company, a 1% overriding royalty on the Pakistan
Project (see Note 2) and a future $200,000 production payment if
certain conditions are met. 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 American Energy Group, Ltd., The American Energy Operating
Corp. and Hycarbex-American Energy, Inc. are the only operating
entities at June 30, 2002. Management is likely going to pursue
dissolution of the remaining subsidiary companies in the near
future since most of the existing charters on these subsidiaries
have now been revoked.

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. As discussed in Note 8, the Companies have
been placed into involuntary bankruptcy by three creditors.
Management of the Companies is vigorously trying to reverse the
order but the trial has been postponed until February 2003. These
factors raise substantial doubt about the Companies' ability to
continue as going concerns.

F-13

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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 only if significant additional financing
can be procured in the near term. It is also uncertain as to the
outcome of the involuntary bankruptcy. Until the involuntary
bankruptcy is resolved, no adjustment to the consolidated
financial statements has been recorded.

c. Accounting Methods

The Companies' consolidated financial statements are prepared
using the accrual method of accounting. The Companies' have
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, 2002 and 2001
was $0 and $10,000, respectively. In addition, depreciation
capitalized during the years ended June 30, 2002 and 2001 totaled
$41,103 and $46,447, 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,
2002, 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 $637,710 and $6,372,414 has been recognized
in the accompanying consolidated financial statements for the
years ended June 30, 2002 and 2001, respectively, on proved and
impaired or abandoned oil and gas properties.

F-14

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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, 2002, 2001
and 2000, the Companies incurred total depreciation of $48,975,
$63,738 and $77,831, respectively.

In accordance with full cost accounting, $41,103, $46,447 and
$51,118 of depreciation was capitalized as costs of oil and gas
properties for the years ended June 30, 2002, 2001 and 2000,
respectively, as previously discussed.

g. Basic Loss Per Share of Common Stock

FOR THE YEARS ENDED
JUNE 30,
-----------------------------------
2002 2001
---------------- ----------------

Loss (numerator) $ (2,538,248) $ (13,274,092)

Shares (denominator) 65,006,780 52,566,109
---------------- ----------------

Per share amount $ (0.04) $ (0.25)
================ ================

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-15

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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. In addition, the Company
had balances held in Pakistan banks that are not federally
insured. The balances of $1,240,282 and $833,098 as of June 30,
2002 and 2001, 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-16

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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

k. Debt Issuance Costs

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

JUNE 30,
-----------------------------------
2002 2001
---------------- ----------------

Total costs incurred $ 162,067 $ 162,067

Accumulated amortization (162,067) (113,447)
---------------- ----------------

Net Debt Issuance Costs $ - $ 48,620
================ ================

l. Long Lived Assets

All long lived assets are evaluated for impairment per SFAS 144
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. Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued
Statement No. 141 ("SFAS 141"), entitled "Business Combinations"
and Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." SFAS 141 is effective as follows: (a) use of the
pooling-of-interest method is prohibited for business combinations
initiated after June 30, 2001; and (b) the provisions of SFAS 141
also apply to all business combinations accounted for by the
purchase method that are completed after June 30, 2001. There are
also transition provisions that apply to business combinations
completed before July 1, 2001 that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning
after December 31, 2001 and provides new guidance regarding the
recognition and measurement of intangible assets, eliminates the
amortization of certain intangibles and requires annual
assessments for impairment of intangible assets that are not
subject to amortization. An initial impairment analysis is
required as of the date of adoption and any resulting impairment
loss is recognized as the effect of a change in accounting
principle.

F-17

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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

m. Recent Accounting Pronouncements (Continued)

In August 2001, the Financial Accounting Standards Board issued
Statement No. 143 ("SFAS 143"), "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." The
objectives of SFAS 143 are to establish accounting standards for
the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective
for fiscal years beginning after June 15, 2002. In October 2001,
the Financial Accounting Standards Board issued Statement No. 144
("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.
SFAS 144 is effective for fiscal years beginning after December
31, 2001 and generally, is to be applied prospectively.

In April 2002, the Financial Accounting Standards Board issued
Statement No. 145 ("SFAS 145"), "Rescission of FASB Statements
Nos. 4, 44 and 64 and Amendment of FASB Statement No. 13." SFAS
145 addresses the presentation for losses on early retirements of
debt in the statement of operations. Adoption of SFAS 145 had no
impact on the Company's financial condition or cash flow.

In June 2002, the Financial Accounting Standards Board issued
Statement No. 146 (SFAS 146"), "Accounting for Cost Associated
with Exit or Disposal Activities for Certain Employee Termination
Benefits." The provisions of SFAS 146 became effective for exit or
disposal activities commenced subsequent to December 31, 2002.

n. 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.

o. Restricted Cash

The Company is required under the concession agreement discussed
in Note 2 to commit $2,400,000 over the next three years to
explore and test the concession. As of June 30, 2002, $1,108,107
was on deposit with the bank in Pakistan that is to be used for
these purposes, which was classified as restricted cash in the
accompanying consolidated balance sheet as of June 30, 2002.

F-18

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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

p. Income Taxes

At June 30, 2002, the Companies had net operating loss
carryforwards of approximately $36,000,000 that may be offset
against future taxable income from the year 2003 through 2022. No
tax benefit has been reported in the June 30, 2002 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:

FOR THE YEARS ENDED
JUNE 30,
--------------------------------------
2002 2001
------------------ ------------------

Income tax benefit at statutory rate $ 608,000 $ 1,925,000
Change in valuation allowance (608,000) (1,925,000)
------------------ ------------------

$ - $ -
================== ==================

Deferred tax assets are comprised of the following:

FOR THE YEARS ENDED
JUNE 30,
--------------------------------------
2002 2001
------------------ ------------------

Income tax benefit at statutory rate $ 13,680,000 $ 13,072,000
Valuation allowance (13,680,000) (13,072,000)
------------------ ------------------

$ - $ -
================== ==================

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, 2002, 2001 and 2000

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, 2002 and 2001, 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. The remaining liability of $38,117 was written off
during the year ended June 30, 2002 and recorded as a gain on
settlement of debt.

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

F-20

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 2 - OIL AND GAS PROPERTIES (Continued)

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. All costs related to the relinquished
Jacobabad Concession were fully amortized as of June 30, 2001 and
written off.

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 Jacobabad Concession was released to the
Pakistan government in favor of the newly awarded concession.

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.

F-21

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 2 - OIL AND GAS PROPERTIES (Continued)

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. On 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 resulting in a gain on settlement of debt
of $198,080 for the year ended June 30, 2002.

During the year ended June 30, 2002, 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.

F-22

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT

The following is a summary of notes payable and long-term debt as
of June 30, 2002 and 2001:

2002 2001
------------- -------------

10% note payable, due on demand, unsecured $ 50,000 $ -

Note payable to Company's former President,
non-interest bearing, due on demand, unsecured. 30,000 30,000

Original issue discount note payable with a face value of
$1,500,000 bearing no interest, originally due March 17, 2002,
past due, secured by certain
oil and gas properties (see note below) 1,500,000 1,500,000

Note payable to a partner in a related company, non-
interest bearing, due January 2003, unsecured 1,360,000 -

7% note payable to a Director of the Company, due
January 2003, unsecured 775,000 -

10% note payable to an officer of the Company, due
on demand, unsecured 75,000 -

10% note payable to an officer of the Company, due
on demand, unsecured 50,000 -

Convertible subordinated promissory note due to a related company,
interest at 6% per annum due annually on January 1, principal due
April 30, 2011, convertible into shares of common stock at $0.43
per share, prepayment premiums of 1) 8% of principal balance if
paid between 2nd and 5th anniversary date, 2) 5% of principal
balance if paid between 6th and 8th anniversary date and 3) 2% of
principal balance if paid after the 8th
anniversary date. 1,094,290 1,094,290

7% notes payable, due September 15, 1995,
secured by working interest in oil and gas properties - 38,117
------------- -------------

Total notes payable and long-term debt 4,934,290 2,662,407

Less: unamortized discount - (120,000)
------------- -------------

Net notes payable and long-term debt 4,934,290 2,542,407
Less: current portion (3,840,000) (1,448,117)
------------- -------------
Long-Term Debt $ 1,094,290 $ 1,094,290
============= =============

F-23

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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

In connection with the $1,500,000 note payable, 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 4,085,622 and 711,740
shares of common stock valued at $675,000 and $360,000 as a result
of this penalty fee for the years ended June 30, 2002 and 2001,
respectively.

On March 17, 2002, the outstanding $1,500,000 loan secured by a
first lien on the Texas oil and gas leases matured. Negotiations
to restructure the debt were conducted by management with the note
holder, but the negotiations were unsuccessful in obtaining a
long-term extension and renewal of the note. The note holder
initiated legal proceedings to obtain foreclosure of the
Texas-based oil and gas leases but the foreclosure did not go
forward because on June 28, 2002, three other alleged creditors of
the Company filed an Involuntary Petition for Bankruptcy. The
bankruptcy proceedings had the effect of automatically preventing
a foreclosure unless and until the Bankruptcy Court issues an
order permitting the creditor to pursue its remedies under State
law.

On August 12, 2002, the Companies and the note holder entered into
an agreement to forego foreclosure proceeding on the properties,
conditional upon the note holder receiving certain prescribed
payments thru October 2002. If the $1,500,000 is not paid by
November 10, 2002, the note holder has the right to pursue all of
his legal remedies with respect to the property in order to
receive the full $1,500,000. The outcome of this proceeding is
currently unknown.

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

YEAR ENDING JUNE 30,
--------------------

2003 $ 3,840,000
2004 -
2005 -
2006 -
2007 -
2008 and thereafter 1,094,290
---------------
$ 4,934,290
===============
=======================================================================================

F-24

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

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:

YEAR ENDING JUNE 30,
-------------------

2003 $ 1,464
2004 -
2005 and thereafter -
---------------
Total minimum lease commitments 1,464
Less: amount representing interest (59)
---------------
Total capital lease obligations 1,405
Less: current portion (1,405)
---------------
Total Long-Term Capital Lease Obligations $ -
===============

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,
2002, 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 year ended June 30, 2000, 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. (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.

F-25

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 6 - COMMON STOCK

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

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 4,085,622 and 711,740 shares of common
stock valued at $675,000 and $360,000 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 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.

During the year ended June 30, 2001, 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.

During July 2001, the Company issued 200,000 and 250,000 shares of
previously authorized but unissued common stock for services
rendered to officers valued at $46,000 and $60,000, respectively.

F-26

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 6 - COMMON STOCK (Continued)

During August 2001, the Company issued 100,000 shares of
previously authorized but unissued common stock for services
rendered, valued at $29,000.

During August 2001, the Company reissued 40,750 shares of common
stock for shares previously canceled in error in a previous year.
The original cancellation was recorded at a zero value, thus the
reissuance is being recorded at the same value.

During August 2001, the Company issued 500,000 shares of
previously authorized but unissued common stock for services
rendered to officers, valued at $125,000.

During October 2001, the Company issued 150,000 shares of
previously authorized but unissued common stock for services
rendered, valued at $21,000.

During December 2001 and May 2002, the Company issued 2,607,299
and 1,478,323 shares of previously authorized but unissued common
stock for conversion of penalties payable, valued at $450,000 and
$225,000, respectively.

During January 2002, the Company issued 1,000,000 shares of
previously authorized but unissued common stock for interest
payable, valued at $250,000.

During January 2002, pursuant to two separate agreements, the
Company issued 2,544,768 and 6,400,000 shares of previously
authorized but unissued common stock to two separate creditors for
notes payable, valued at $1,094,290 and $640,000 (or $0.43 and
$0.10 per share), respectively. During April 2002, the Company
canceled 2,544,768 of those previously issued shares in exchange
for the original debt in order to make available a significant
number of additional authorized shares of common stock for an
investment transaction contracted with a German company which was
originally scheduled to close in that month. Simultaneously with
this cancellation, the Company also repurchased 6,400,000 shares
of common stock for $800,000, which were previously issued for
$640,000.

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,
2002, 2001 and 2000 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, 2002, 2001 and 2000

NOTE 7 - COMMON STOCK WARRANTS (Continued)

However, under the provisions of SFAS No. 123 for non-employees,
the Company recorded additional expense of $-0-, $-0- and $884,880
the years ended June 30, 2002, 2001 and 2000 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, 2002 and changes during the year ended June 30, 2002 are
presented below:

WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK EXERCISE GRANT DATE
WARRANTS PRICE FAIR VALUE
------------------ ------------------ ------------------

Outstanding, June 30, 2001 3,876,929 $ 1.31 $ 0.16
Granted - 0.00 0.00
Expired/Canceled (525,000) 0.92 0.00
Exercised - - -
------------------ ------------------ ------------------

Outstanding, June 30, 2002 3,351,929 1.37 0.17
------------------ ------------------ ------------------

Exercisable, June 30, 2002 3,351,929 $ 1.37 $ 0.17
================== ================== ==================

The following summarizes the exercise price per share and
expiration date of the Company's outstanding warrants to purchase
common stock at June 30, 2002;

NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
---------------- --------------- --------------

150,000 9/17/04 $ 0.360
50,000 11/4/04 2.310
80,000 5/1/05 1.250
80,000 6/18/05 3.970
168,530 7/24/05 0.360
28,166 7/29/05 0.360
25,000 8/4/05 4.000
187,333 9/29/05 0.360
22,500 10/1/05 0.360
135,000 12/9/05 4.030
390,400 1/5/06 0.360
450,000 1/6/06 3.000
185,000 5/4/06 1.560
125,000 5/17/06 1.500
1,200,000 12/27/06 1.000
75,000 2/14/07 0.750
----------------
Balance outstanding,
June 30, 2002 3,351,929
=================

F-28

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 7 - COMMON STOCK WARRANTS (Continued)

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.

During the year ended June 30, 2002, 525,000 warrants expired.
The total outstanding warrants at June 30, 2002 is 3,351,929.

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.
During the year ended June 30, 2002, the balance payable of
$38,117 was written off.

The Company leases office space at a monthly cost of $3,391. The
lease expires in August 2004. The future minimum lease payments
are $40,692 and $6,782 for the years 2003 and 2004, respectively.

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.

On June 8, 2002, three alleged creditors placed the Company into
involuntary bankruptcy under Chapter 7 of title II of the
bankruptcy code. If an order for relief were to be entered into
(ie, the Company failed to demonstrate that it had been placed
into bankruptcy improperly), a Chapter 7 trustee would be
appointed to liquidate the assets of the Company. The trial of
the proprietary of the involuntary bankruptcy is scheduled for
February 12, 2003. Additionally, the Company is seeking both
actual and punitive damages as a counterclaim against the
petitioning creditors for placing the Company into an involuntary
bankruptcy. As of the audit report, the outcome of the
involuntary bankruptcy is uncertain. No adjustments have been
made to the financial statements for this uncertainty.

F-29

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002, 2001 and 2000

NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

The Companies are party to certain litigation and claims. The most
significant are as follows:

A Company former President filed suit against the Company and its
current President seeking damages and an injunction from
preventing his ouster as President and as a member of the Board of
Directors based upon a shareholder vote in which a majority of
shareholders voted for the removal of the former President as a
director under an existing bylaw provision. The bylaw provision,
which requires a simple majority vote to remove a director, is in
conflict with the Nevada statute which requires the vote of
two-thirds of the shareholders in order to remove a director. The
matter was pending and the outcome not yet determined by the Court
as of the date of this report.

A separate former President and a former member of the Board of
Directors filed suit against the Company to recover a stock
certificate issued to him by the Company which was in the
Company's possession and to recover a $30,000 loan to the Company
and back salary and unreimbursed expenses. The matter is still
pending and the outcome not yet determined by the Court as of the
date of this report.

A former employee filed suit against American Energy Operating
Corp. seeking approximately $60,000 for alleged, unpaid services
as an engineering consultant. Management of the Company is
disputing the claim and intends on vigorously contesting the
claim. The matter is pending and the outcome not yet determined
by the Court as of the date of this report.

F-30

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2002 and 2001

S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES

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

JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------

Proved oil and gas producing properties and related
lease and well equipment $ 704,333 $ 439,785
Accumulated depreciation and depletion (637,710) (690,864)
---------------- -----------------

Net Capitalized Costs $ 66,623 $ (251,079)
================ =================

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

FOR THE YEARS ENDED
JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------

Acquisition of Properties
Proved $ - $ -
Unproved - -
Exploration Costs - 3,549,675
Development Costs 704,333 439,785

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

(3) Results of Operations for
Producing Activities

FOR THE YEARS ENDED
JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------

Sales $ 1,051,358 $ 1,806,335
Production costs (507,382) (811,757)
Depreciation and depletion (637,710) (690,864)
---------------- -----------------

Results of operations for producing activities
(excluding corporate overhead and interest costs) $ (93,734) $ 303,714
================ =================

F-31

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2002 and 2001

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

(4) Reserve Quantity Information

OIL GAS
BBL MCF
-------------- --------------

Proved developed and undeveloped reserves:

Balance, June 30, 2001 2,615,577 -

10% of reserves sold during year (261,558) -

Change in estimates 32,240 -

Production (48,160) -
-------------- --------------

Balance, June 30, 2002 2,338,099 -
============== ==============

OIL GAS
BBL MCF
-------------- --------------

Proved developed reserves:

Beginning of the year ended June 30, 2002 483,247 -
End of the year ended June 30, 2002 439,845 -

During the year ended June 30, 2002, 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-32

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
S.F.A.S. 69 Supplemental Disclosures
(Unaudited)
June 30, 2002 and 2001

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, 2002

THE AMERICAN
ENERGY GROUP
LTD. AND
SUBSIDIARIES
------------------

Future cash inflows $ 60,998,411
Future production and development costs (21,532,151)
------------------
Future net inflows before income taxes 39,466,260
Future income tax expense (3,966,477)
------------------
Future net cash flows 35,499,783
10% interest held by related company (2,099,072)
10% annual discount for estimated timing of cash flows (14,509,059)
------------------

Standardized measure of discounted future net cash flows $ 18,891,652
==================

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 Richard
Alexander, 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-33