Back to GetFilings.com
UNITED STATES SECURITIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended June 30, 1998
Commission file number 0-26402
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
Nevada 87-0448843
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification Number
P.O. Box 489, Simonton, Texas 77476
(Address of principal executive offices) (Zip Code)
(281) 346-2652
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.001
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date: 31,007,059 Common Shares
outstanding as of November 1, 1998.
The aggregate market value of voting and non-voting common equity held by
non-affiliates as of October 31, 1998 was $121,445,095.
Table of Contents
PART I
Item 1. Business...........................................................1
Item 2. Properties.........................................................4
Item 3. Legal Proceedings.................................................15
Item 4. Submission of Matters to a Vote of Security Holders...............16
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...................................16
Item 6. Selected Financial Data...........................................22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........28
Item 8. Financial Statements..............................................28
Item 9. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure............................28
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................28
Item 11. Executive Compensation............................................30
Item 12. Security Ownership of Certain Beneficial Owners and Management....32
Item 13. Certain Relationships and Related Transactions....................33
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K............34
SIGNATURES
PART I
ITEM 1. BUSINESS
The American Energy Group, Ltd. (formerly Belize-American Corp.
Internationale) (formerly Dim, Inc.) (hereinafter "Company") was organized in
the State of Nevada on July 21, 1987, as a wholly owned subsidiary of Dimension
Industries, Inc. a Utah Corporation (hereinafter "Dimension"). As used herein,
the term "Company" means the Company and its subsidiaries.
At the time of organization, the Company issued 1,366,250 shares of
voting Common Stock to Dimension, which was the sole stockholder. On April 28,
1989, a filing submitted by the Company on form S-18 with the United States
Securities and Exchange Commission was declared effective. Dimension distributed
the 1,366,250 shares it held to the stockholders of Dimension as a dividend.
Also distributed were 1,566,250 warrants to purchase 1 share of voting Common
Stock of the Company for each warrant held. The warrant offering expired on
August 11, 1989. Exercise of the warrants by shareholders resulted in the
Company issuing 1,547,872 shares of Common voting stock for $40,282 received in
cash. At this point, the Company had 3,144,122 shares of voting Common Stock
issued and outstanding.
In 1987, the Company engaged in marketing an automobile carburetor
modification kit. The efforts were not successful and were abandoned.
From 1987 to 1990, the Company was inactive. In October, 1990, the
shareholders of the Company approved a one for ten (1:10) reverse split of the
voting Common Stock. In June, 1991, the Company obtained an Oil Prospecting
License from the government of Belize. At a special meeting of shareholders,
resolutions to change the name of the Company to "Belize-American Corp.
Internationale", forward split the voting Common Stock ten for one (10:1) and a
vote to ratify the Oil Prospecting License received a vote of approval.
During 1991, the Company attempted various means to attract sufficient
capital investment to develop the oil prospect in Belize, but were not
successful. The license expired due the lack of performance by the Company.
From 1992 until 1994, Company activities consisted of attempting to
raise capital for a business venture and solicitation of other business
enterprises for a possible merger. On September 22, 1994, the Company entered
into an agreement with Simmons Oil Company, Inc., a Texas Corporation
(hereinafter "Simmons") whereby the Company issued 2,074,521 shares of
Convertible Voting Preferred Stock to the shareholders of Simmons in order to
acquire Simmons and two subsidiaries of Simmons, Simmons Drilling Company and
Sequoia Operating Company. For accounting purposes, the acquisition was treated
as a purchase of Simmons by the Company. The agreement was effective September
30, 1994. Prior to the acquisition of Simmons, Simmons had acquired certain oil
and gas properties located in Texas. Subsequent to the acquisition, the Company
has acquired additional oil and gas properties in the same general area through
its subsidiaries. These
1
properties consist of oil and gas leases on which existing wells have been
abandoned due to economics or loss of production. The Company intends to
evaluate and rework certain of these wells, explore various depths for
reservoirs and drill offset wells, if warranted.
In April, 1995, the Company acquired all of the outstanding shares of
Hycarbex, Inc., a Texas Corporation (hereinafter "Hycarbex) for 120,000 shares
of voting Common Stock of the Company, a 1% Overriding Royalty Interest in the
revenues generated through the development of Hycarbex's Pakistan Concession,
and an agreement to pay the sole shareholder $200,000 conditioned upon the
success of that development. For accounting purposes, this acquisition was
treated as a pooling of interests. The Company changed the name of Hycarbex,
Inc. to Hycarbex-American Energy, Inc. and it is operating as a wholly owned
subsidiary of the Company. Hycarbex holds an oil and gas Concession and
Exploration License granted by the government of Pakistan. The Concession is
located in the Middle Indus Basin near Jacobabad, Pakistan. In addition to the
above acquisition consideration, the Company provided a $551,000 Financial
Guarantee Bond to the Government of Pakistan to assure performance of Concession
requirements. The subsequent seismic surveys performed and drilling of the
initial exploratory well by the Company have satisfied the performance
requirements to date for Concession requirements.
The Company began producing commercial quantities of oil on its
domestic properties and emerged from the development stage during the year ended
June 30, 1997. The Company has begun a program of drilling developmental wells
on its properties, as well as continuing to accumulate an inventory of oil and
gas properties on which it intends to explore and develop commercial wells. The
Company is further pursuing capital investment to finance a comprehensive
drilling and production program, both in Texas and Pakistan, in the next fiscal
year.
In June, 1997, the Company purchased oil and gas properties totaling
approximately 1,400 acres in Texas. During the past year, the Company drilled
six developmental wells on these properties of which five wells are currently
producing. Two additional developmental wells were drilled subsequent to June
30, 1998.
During the past year, the Company drilled an exploratory well in
central Pakistan, the Kharnbak #1 well. Based on the preliminary testing of the
Kharnbak #1 well, and the reserve study by an independent petroleum engineering
firm, the Company believes that further drilling and testing is desirable.
FORWARD LOOKING INFORMATION
With the exception of historical information, the matters discussed in
this Report contain forward looking statements that involve risks and
uncertainties. Although the Company believes that its expectations are based
upon reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward looking statements contained in this report include
the time and extent of changes in commodity prices for oil and gas, increases in
the cost of conducting operations, including remedial operations, the extent
2
of the Company's success in discovering, developing and producing reserves,
political conditions, including those in Pakistan and other areas in which the
Company possesses properties, condition of capital and equity markets, the
ability of the Company to obtain financing on reasonable terms, changes in
environmental laws and other laws affecting the ability of the Company to
explore for and produce oil and gas and the cost of so doing and other factors
which are described in this report.
COMPETITION
The oil and gas business is highly competitive in every phase. The
Company competes with numerous companies and individuals in its activities. Many
on these competitors have far greater financial and technical resources with
established multi-national operations. As a result, unless the Company obtains
additional capital investment and /or joins in partnerships and joint ventures,
it may be prevented from participating in large drilling and acquisition
programs. Since the Company is smaller and has limited resources in comparison
to many of its competitors, its ability to compete for oil and gas properties is
also limited.
REGULATIONS
The following discussion of various government regulations is presented
only as an overview and is necessarily brief. It is not intended to constitute a
comprehensive dissertation of the various statutes, rules, regulations and other
governmental rulings, policies and orders which may affect the Company.
STATE AND LOCAL REGULATIONS
The various states have established statutes and regulations requiring
permits for drilling, drilling bonds to cover plugging contingencies, and
reporting requirements on drilling and production activities. Activities such as
well location, method of drilling and casing wells, surface use and restoration,
plugging and abandonment, well density and other matters are all regulated by a
governing body. Texas, the state in which the Company operates, has rules and
regulations covering all of these matters. It also has regulations addressing a
number of environmental and conservation matters, including the unitization and
pooling of oil and gas properties.
ENVIRONMENTAL REGULATIONS
The activities of the Company are subject to numerous state and federal
statutes and regulations concerning the storage, use and discharge of materials
into the environment, and many other matters relating to environmental
protection. These regulations may adversely affect the Company's operations and
cost of doing business. It is likely that these laws will become more stringent
in the future.
SAFETY AND HEALTH REGULATIONS
The Company must also conduct its operations in accordance with laws
governing occupational safety and health. Currently, the Company does not
foresee expending substantial amounts in order to
3
comply with these regulations.
FOREIGN LAWS AND REGULATIONS
The Company intends to commit a significant amount of its resources to
develop its oil and gas Concession in Pakistan. There are inherent risks in
operating a business in a foreign country where unfamiliar laws and business
practices may exist. The Company intends to minimize this risk by engaging
appropriate professional and support personnel as the operations develop.
MARKETING
The availability of a ready market for the Company's oil and gas
production depends on numerous factors over which the Company has no control,
including the cost and availability of alternative fuels, the extent of other
production, costs and proximity of pipelines, regulations of governmental
authorities and cost of compliance with environmental concerns. Consumer demand
and governmental action can force the price of the Company's products both
upwards and downwards, depending on the circumstances. Future prices are
virtually impossible to predict. The Company does not have a significant share
of any market segment and cannot set or influence the price of its products.
EMPLOYEES
At June 30, 1998, the Company and its subsidiaries had 17 employees,
including 11 administrative and clerical personnel and 6 drilling and field
personnel.
YEAR 2000
The Company believes that its computers are Y2K compliant, and that
there will be no impact on the Company as a result of the Company's computers
interacting with the computers of its vendors and customers.
ITEM 2. PROPERTIES
GLOSSARY
The following are used in this report and the definitions contained
herein are provided for the convenience of the reader:
BBL OR BARREL - means 42 United States gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE OR BARREL OF OIL EQUIVALENT - generally converts gas to oil at a ratio of
6,000 cubic feet of gas to one Bbl of oil. Then oil and gas are added together
for total BOE.
4
BOPD - means barrels of oil per day.
DEVELOPED ACREAGE - means the number of acres of oil and gas leases held or
owned, which are allocated or assignable to producing wells or wells capable of
production.
DEVELOPMENTAL WELL - means a well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
EXPLORATION - means the search for economic deposits of minerals, petroleum and
other natural earth resources by any geological, geophysical, or geochemical
technique.
EXPLORATORY WELL - means a well drilled either in search of a new, as-yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir, as indicated by reasonable interpretation of
available data, with the objective of completing in that reservoir.
FIELD - means a geographic area in which a number of oil or gas wells produce
from a continuous reservoir.
GROSS ACRES - means the gross surface acreage in which a leasehold working
interest is owned.
MCF - means one thousand cubic feet of natural gas.
NET ACRES OR NET WELLS - mean the sum of fractional working interests owned in
gross acres or gross wells. By way of example, a 50% working interest in 100
gross acres is equivalent to 50 net acres.
OPERATOR - means the person or company actually operating an oil or gas well.
PV-10 VALUE - means the present value, employing a 10% discount factor, of the
future net revenues computed using current prices from the production of proven
reserves.
HISTORY OF PROPERTIES
The Company has emerged from the development stage and in addition to
accumulating an inventory of oil and gas properties for future recovery, has
begun to drill selected developmental wells on the properties which it holds.
During the fiscal year ended June 30, 1995, the Company acquired Simmons Oil
Company, Inc. ("Simmons") through a business combination accounted for as a
purchase. Simmons owns certain oil and gas properties that had been acquired
prior to the acquisition of Simmons by the Company. The Company intends to
further evaluate these properties and develop those which merit such efforts,
based upon this continuing evaluation. Many of these properties contain existing
wells that are not currently productive and which cannot be expected to become
productive, if at all, without additional evaluation, work and repair. The
Company has begun an extensive workover program with
5
the purpose of revitalizing these fields. At June 30, 1998, the workover and
development program, while commenced, has not progressed to the point of
substantial completion. Therefore, oil and gas production and related revenue
from these workover properties are relatively minimal and proven reserves have
not been allocated to these properties. In some instances, these wells are being
plugged and abandoned in favor of more potentially productive properties in the
Company's core areas of development.
The Company acquired Hycarbex, Inc. in a business combination accounted
for as a purchase in April, 1995 and changed the name to Hycarbex-American
Energy, Inc. ("Hycarbex") Hycarbex is a wholly owned subsidiary of the Company.
Hycarbex holds an Exploration License granted by the government of Pakistan to
explore for oil and gas reserves in a particular Concession now comprised of
approximately 4,000 square kilometers. The Company shot 256 kilometers of 2D
seismic surveys across this Concession, drilled its initial exploratory well on
the Concession in early 1998, and is currently preparing to drill the second
exploratory well in late 1998. While the prospects of economic productivity have
been evaluated by independent consultants to the Company whose report to
management indicates certain Probable Recoverable Reserves and additional
potential test drillsites, there can be no definitive evaluation of the
potential value of this project until additional drilling and testing is
completed.
In June, 1997, the Company acquired oil and gas properties totaling
approximately 1,400 acres located in the Blue Ridge, Boling, and Manvel Fields,
Fort Bend County, Texas. The acquisition included 82 producing and non-producing
wells and all associated production equipment on the properties. The purchase
price was $1,000,000 payable in a combination of cash and production payments
over a maximum of four years. The Company paid $75,000 as down payment and
executed a Note for $925,000. Under the terms of the purchase, the Company is
committed to pay a minimum of $250,000 per year for the next four years, or
until a total of $1,000,000 has been paid, whichever occurs first, through a
combination of payments of $10,000 for each new drillsite that is drilled and
payments to the seller in the form of an overriding royalty interest from gross
production. During the fiscal year, the Company commenced its program to drill
new wells on the properties acquired and to rework some of the previously
existing wells.
A summary of the oil and gas properties areas in which the Company owns
an interest are as follows:
FORT BEND COUNTY, TEXAS.
The Company owns interests in the Blue Ridge and Boling oil fields with
11 leases comprising approximately 1846 gross acres and 1729 net acres.
During the fiscal year ended June 30, 1998, the Company drilled six
developmental wells in the Boling Field, with five of the six currently in
various stages of completion or production. The Company has a significant number
of proved undeveloped locations which it plans to drill in the Boling and Blue
Ridge Fields.
Subsequent to June 30, 1998, the Company drilled two additional
developmental wells in the
6
Boling field, with both currently in various stages of completion and
production. The Company intends to drill a significant number of additional
developmental wells in this field, pending the ultimate outcome of the initial
eight tests.
LIBERTY COUNTY, TEXAS.
The Company previously held interests in the North Dayton oil field
with nine wells previously drilled by other operators located on approximately
211 acres. Subsequent to June 30, 1997, the Company relinquished 161 acres of
these properties, and has drilled 5 new wells in this field on the remaining 50
acres all of which are currently shut in, . The Company is in the process of
evaluating the economic potential of these wells as they are completed and
tested, and reviewing the viability of prospective recompletions of the old
wells on this property.
GALVESTON COUNTY, TEXAS.
The Company previously held interests in the Dickinson and Gillock
fields with leases comprising approximately 220 acres. The Company relinquished
its interest in the Dickinson field and added the acquisition of an additional
lease in the Gillock field comprised of 673 acres. The Company also sold one
lease in the Gillock field. The remaining holdings of the Company are currently
comprised of 673 net acres in the Gillock field.
JACOBABAD, PAKISTAN.
The Company, through its wholly owned subsidiary Hycarbex-American
Energy, Inc., obtained an Exploration License from the government of Pakistan to
explore for oil and gas reserves . The Concession is located in the Middle Indus
Basin, near the city of Jacobabad, Pakistan. The prospect covers 4,000 square
kilometers (approximately 1 million acres ). The Company is currently studying
all phases of this project in order to adopt a plan that will maximize the
financial return from the Concession. Preparations for the drilling of the
second exploratory well by the Company in late 1998 are currently underway.
7
A. DRILLING HISTORY
Set forth below is a tabulation of wells completed in the period
indicated in which the Company has participated and the results thereof for each
of the three years ended June 30, 1998.
YEAR ENDED JUNE 30
----------------------------------------
1998 1997 1996
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
DEVELOPMENTAL WELLS:
DRY ........ 0 0 0 0 0 0
OIL ........ 6 5 8 7 0 0
GAS ........ 0 0 0 0 0 0
----- ----- ----- ----- ----- -----
TOTALS ..... 6 5 8 7 0 0
EXPLORATORY WELLS: The Company drilled one exploratory well in
Pakistan, the Kharnhak #1. As of the year ended June
30, 1998, operations on this well had been suspended
without a completion attempt in any of the geologic
horizons encountered during drilling.
B. PRODUCING WELLS
Shown below is a tabulation of the productive oil wells owned by the
Company as of June 30, 1998. This summary includes wells which may currently be
shut in and awaiting recompletion in order to restore commercial productivity.
There have been no productive gas wells since 1996. All of the wells are located
in the Company's oil and gas properties in Texas.
As of June 30, 1998
PRODUCTIVE WELLS
-------------------
GROSS NET
----- -----
OIL .......................................... 94 91.5
GAS .......................................... 0 0
----- -----
TOTAL .................... 94 91.5
8
C. ACREAGE HOLDINGS
The developed and undeveloped acreage owned by the Company as of June
30, 1998 are as follows.
DEVELOPED UNDEVELOPED
-------------- ------------------------
ACREAGE ACREAGE
GROSS NET GROSS NET
----- --- --------- -------
TEXAS .................... 172 147 2,402 2,402
PAKISTAN ................. 0 0 1,000,000 950,000
----- --- --------- -------
TOTAL .................... 172 147 1,002,402 952,402
===== === ========= =======
D. PRODUCTION AND SALE OF OIL AND GAS
As of June 30, 1997 and 1998, the Company received oil revenues from 10
and 14 wells, respectively. All of these wells are oil producers, with no sales
of gas. The additional productive wells identified herein are in various stages
of recompletion. Many have begun or are expected to begin to generate production
subsequent to June 30, 1998, which production is not reflected in the following
production numbers:
1996 (FN 1) 1997 1998
----------- ------- ----------
Net Oil Sales (Bbls) in the
Fiscal Year ended June 30: ............. N/A 14,241 42,663
=========== ======= ==========
Avg. Price per Barrel: ................. N/A $ 19.90 $ 15.03
=========== ======= ==========
- ----------------------
FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis
sales of oil and gas which consisted only of production from
preliminary testing of wells.
9
All wells in the U.S. fields were shut in for repairs and maintenance
as of June 30, 1998, and had been shut in for varying periods of time prior to
June 30, 1998, thereby reducing the amount of net sales by the Company during
the fiscal year ended June 30, 1998.
AVERAGE LIFTING COST
1996 (FN 1) 1997 1998
----------- ----- -----
Per BBL ................................. N/A $5.89 $6.05
Per MCF (FN 2) .......................... N/A N/A N/A
- ---------------------
FN 1 During the fiscal year ended June 30, 1996, the Company had de minimis
sales of oil and gas which consisted only of oil production from
preliminary testing of wells.
FN 2 The Company does not presently produce natural gas.
E. OIL AND GAS RESERVES
The Company did not report reserves to any other agency of the U. S.
government.
The Company's proved reserves and PV-10 Value from its U.S. proved
developed and undeveloped oil and gas properties have been estimated by Sigma
Energy Corporation in Houston, Texas. The Company's Pakistan Probable
Recoverable Reserves and PV-10 Value from its Pakistan undeveloped gas
properties have been estimated by Martin Petroleum and Associates in Calgary,
Alberta, Canada. The estimates of these independent petroleum engineering firms
were based upon review of production histories and other geologic economic,
ownership and engineering data provided by the Company. In accordance with SEC
guidelines, the Company's estimates of future net revenue from the Company's
proved and probable reserves and the present value thereof are made on the basis
of oil and gas sales prices in effect as of the dates of such estimates and are
held constant throughout the life of the properties, except where such
guidelines permit alternate treatment. Future net revenues at June 30, 1998 on
the Company's U.S. properties reflect a weighted average price of $12.50 per BOE
vs. $19.50 in its June 30, 1997 estimates.
The proved developed and undeveloped oil and gas reserve figures
presented in this report are estimates based on reserve reports prepared by
independent petroleum engineers. The estimation of reserves requires substantial
judgment on the part of the petroleum engineers, resulting in imprecise
determinations particularly with respect to new discoveries. Estimates of
reserves and of future net revenues prepared by different petroleum engineers
may vary substantially, depending, in part, on the assumptions made and may be
subject to material adjustment. Estimates of proved undeveloped reserves, which
comprise a substantial portion of the Company's reserves, are, by their nature,
much less certain than proved developed reserves. The accuracy of any reserve
estimate depends on the quality of available
10
data as well as engineering and geological interpretation and judgment. Results
of drilling, testing and production or price changes for produced hydrocarbons
subsequent to the date of the estimate may result in changes to such estimates.
The estimates of future net revenues in this report reflect oil and gas prices
and production costs as of the date of estimation, without escalation, except
where changes in prices were escalated under the terms of existing contracts.
There can be no assurance that such prices will be real or that the estimated
production volumes will be produced during the period specified in such reports.
Since June 30, 1998, (the date of the estimate and the date of this report) oil
and gas prices have generally remained stable. The estimated reserves and future
net revenues may be subject to material downward or upward revision based upon
production history, results of future development, prevailing oil and gas prices
and other factors. A material change in estimated proved reserves or future net
revenues could have a material effect on the Company.
UNITED STATES RESERVE ESTIMATES
The following tables present total proved developed and proved
undeveloped reserve volumes as of June 30, 1998, and June 30, 1997, and
estimates of the future net revenues and PV-10 Value therefrom. There can be no
assurance that the estimates are accurate predictions of future net revenues
from oil reserves or their present value.
ESTIMATED NET PROVED OIL RESERVES - UNITED STATES PROPERTIES
PROVED OIL RESERVE CATEGORY
(BBLS)
----------------------------------------------------------
AS OF JUNE 30:
PROVED DEVELOPED PROVED SHUT IN PROVED UNDEVELOPED
- ----------------- ----------------- ---------------------
1998 1997 1998 1997 1998 1997
- ------- ------- ------- ------- --------- ---------
-0- 176,413 671,050 200,200 1,689,950 2,037,950
======= ======= ======= ======= ========= =========
Total estimated Proved oil reserves as of June 30:
1998 1997
----------------- -----------------
2,361,000 Barrels 2,414,563 Barrels
================= =================
ESTIMATED FUTURE NET REVENUES - UNITED STATES PROPERTIES
The comparative estimated future net revenues (using current prices and
costs at the years end) and the present value of future net revenues (using
discount factor of 10 percent per annum) before
11
income taxes for the Company's proved developed and proved undeveloped oil
reserves as of June 30, 1998 and 1997 are as follows:
PROVED DEVELOPED OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED DEVELOPED PROVED DEVELOPED
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$ - 0 - $ - 0 - $3,440,057 $2,921,183
======== ======== ========== ==========
PROVED SHUT IN OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED SHUT-IN PROVED SHUT-IN
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$7,257,990 $6,077,565 $3,903,900 $3,105,102
========== ========== ========== ==========
PROVED UNDEVELOPED OIL RESERVE CATEGORY
----------------------------------------------------------
AS OF JUNE 30, 1998 AS OF JUNE 30, 1997
PROVED UNDEVELOPED PROVED UNDEVELOPED
- ------------------------------------------- ------------------------------
FUTURE NET PRESENT VALUE OF FUTURE NET PRESENT VALUE OF
REVENUES FUTURE NET REVENUES FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ------------------------------------------- ------------------------------
$13,395,010 $9,572,141 $39,740,027 $21,693,580
=========== ========== =========== ===========
12
TOTAL OF COMBINED PROVED OIL DEVELOPED, SHUT IN, AND UNDEVELOPED CATEGORIES
AS OF JUNE 30, 1998: AS OF JUNE 30, 1997:
- --------------------------------------- -----------------------------------
FUTURE NET PRESENT FUTURE NET PRESENT
REVENUES VALUE OF REVENUES VALUE OF
FUTURE NET FUTURE NET
REVENUE REVENUE
PV 10% PV 10%
- ----------- ----------- ----------- -----------
$20,653,000 $15,649,706 $47,083,977 $27,719,869
=========== =========== =========== ===========
The Company attributes the decline in present valuations to the
relative decline in oil prices at the time of the estimates - wherein the
weighted average price had declined from $19.50 at June 30, 1997, to $12.50 at
June 30, 1998. This reflects a 36% decline in product prices, while present
value has declined 43%. The differential also includes the downward adjustment
of 10,900 barrels, net of actual production, as well as a relatively fixed
operating cost base.
"Proved developed" oil and gas reserves are reserves that can be
expected recovered from existing wells with existing equipment and operating
method. "Proved undeveloped" oil and gas reserves are reserves that are expected
to be recovered from new wells on undrilled acreage, or from existing wells
where relatively major expenditure is required for recompletion. In recent year
the market for oil and gas has experienced substantial fluctuations, which have
resulted in significant swings in the prices for oil and gas. The Company cannot
predict the future of oil and gas prices or whether a future decline in prices
will occur. Any such decline would have an adverse effect on the Company.
PAKISTAN RESERVE ESTIMATES - PROBABLE RECOVERABLE RESERVES
As previously reported and filed in a Form 8-K dated September 22,
1998, the Company retained Martin Petroleum and Associates to perform a
preliminary reserve study on its Jacobabad Concession in the Middle Indus basin
in central Pakistan. These reserves are not categorized as proven. Further,
these reserves remain categorized by the Company as unproven. However,
management has determined that the independent estimates of Probable Recoverable
Reserves in the preliminary reserve study represent material information which
merited disclosure to the shareholders. These independent estimates also served
as justification to management to continue further exploratory drilling on its
Pakistan Concession. The following summary represents total probable recoverable
undeveloped natural gas reserve estimates as of June 30, 1998, and estimates of
the future net revenues and PV-10 Value therefrom. There can be no assurance
that the estimates are accurate predictions of future net revenues from these
gas reserves or their present value.
13
GROSS PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES 5.159 TCF (Trillion Cubic Feet)
NET PROBABLE RECOVERABLE
GAS RESERVE ESTIMATES 3.231 TCF (Trillion Cubic Feet)
NET PRESENT VALUE (Discounted @ 10%) $1,767,600,000
(TO THE COMPANY'S INTEREST)
Probable Recoverable Reserves as defined in the preliminary reserve
study are "reserves which analysis of drilling, geological, geophysical and
engineering data does not demonstrate to be proved under current technology and
existing economic conditions, but where such analysis suggests the likelihood of
their existence and future recovery."
The estimation of reserves requires substantial judgment on the part of
the petroleum engineers, resulting in imprecise determinations particularly with
respect to new discoveries. Estimates of reserves and of future net revenues
prepared by different petroleum engineers may vary substantially, depending, in
part, on the assumptions made, and may be subject to material adjustment.
Estimates of probable undeveloped reserves, which are a substantial portion of
the Company's reserves, are, by their nature, much less certain than proved
developed reserves. The accuracy of any reserve estimate depends on the quality
of available data as well as engineering and geological interpretation and
judgment. Results of drilling, testing and production or price changes
subsequent to the date of the estimate may result in changes to such estimates.
The estimates of future net revenues in this report reflect gas prices and
production costs as of the date of estimation, without escalation, except where
changes in prices were escalated under the terms of existing contracts. There
can be no assurance that such prices will be real or that the estimated
production volumes will be produced during the period specified in such reports.
Since June 30, 1998, (the date of the estimate and the date of this report) gas
prices have generally remained stable. The estimated reserves and future net
revenues may be subject to material downward or upward revision based upon
production history, results of future development, prevailing gas prices and
other factors. A material change in categorization of reserves or future net
revenues could have a material effect on the Company.
TITLE TO PROPERTIES
Many of the Company's oil and gas properties are held in the form of
mineral leases. As is customary in the oil and gas industry, a preliminary
investigation of title is made at the time of acquisition of developed and
undeveloped properties. Title investigations covering the drillsites are
generally completed, however, before commencement of drilling operations or the
acquisition of producing properties. Generally, the Company's working interests
are subject to customary royalty and overriding royalty interests, liens,
current taxes, operating agreements and other customary imperfections of title
which do not immediately affect operations. Properties acquired by purchases are
also often subject to environmental covenants designed to protect the seller
from liability for environmental damage. The Company believes that its methods
of investigating title to, and acquisition of, its oil and
14
gas properties are consistent with practices customary in the industry and that
it has generally satisfactory title to the leases covering its proved reserves.
ITEM 3. LEGAL PROCEEDINGS
The Company and its officers and directors are involved in various
litigation as described below:
The Company and its President, Bradley J. Simmons, have been joined in
a civil lawsuit filed by the Securities and Exchange Commission which alleges
securities fraud regarding actions of the Company in 1995. The case is styled
Securities and Exchange Commission v. Bradley J. Simmons and American Energy
Group, Ltd., No. H-97-1384, in the United States District Court, Southern
District of Texas, Houston, Division. While the Company has retained securities
counsel to vigorously refute these allegations, management intends to move
forward in such a matter as to resolve this issue as rapidly as possible. In
conjunction with this initiative, the Company has reserved $85,000 in its
current Financial Statement toward possible settlement and legals costs
associated with this litigation.
In 1997, the Company and one its subsidiaries, American Energy -
Deckers Prairie, Inc. were named as defendants in four lawsuits involving the
collection of several promissory notes delivered by the Company in 1994 to
purchase the working interests in the fields in Harris County, Texas. The cases
are styled: Horace H. Norman, et. al. v. American Energy Group, Ltd. and
American Energy - Deckers Prairie, Inc., No. 103320, in the 268th Judicial
District Court, Fort Bend County, Texas; Andrew M. J. Steinhubl and Horace H.
Norman v. American Energy Group, Ltd. and American Energy - Deckers Prairie,
Inc., No. 103320, in the 268th Judicial District Court, Fort Bend County,
Texas;., No. 99044, in the 328th Judicial District Court, Fort Bend County,
Texas; Larry M. Graham, et. al. v. American Energy Group, Ltd. and American
Energy - Deckers Prairie, Inc., No. 101424, in the 268th Judicial District
Court, Fort Bend County, Texas; and J.L.M. Investors et. al. v. American Energy
Group, Ltd. and American Energy - Deckers Prairie, Inc., No. 98905, in the 240th
Judicial District Court, Fort Bend County, Texas. All of these lawsuits have
been settled in their entirety and the lawsuits have been dismissed.
On July 30,1997, the Company filed a lawsuit in U.S. District Court in
Houston, Texas, charging that specific individuals and companies had conspired
to manipulate stock of the Company which was believed to have been fraudulently
obtained prior to the acquisition by The American Energy Group, Ltd. in 1994.
The case is styled The American Energy Group. Ltd. v. Douglas E, Brown, et. al.,
C.A. No. H- 97-2450, in the United States District Court, Southern District of
Texas, Houston, Division. A countersuit and derivative claim was filed in
response to the Company's July 30, 1997 lawsuit by one of the defendants. The
Company subsequently reached a settlement with all except three of the
defendants, whereby 565,833 shares were canceled and returned to the Company,
certain debts owed by the Company were forgiven, and, in addition, the Company
received a cash settlement. Furthermore, the countersuit was withdrawn. The
litigation continues against three defendants, representing in excess of 400,000
shares of common stock which the Company believes to have been fraudulently
obtained. At
15
this time, it is not anticipated that litigation costs incurred by the Company
will adversely affect ongoing Company operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The price of the Common Stock of the Company is quoted in the "pink
sheets" published by the National Quotation Bureau and the Bulletin Board, an
inter-dealer quotation system operated by the National Association of Securities
Dealers under the symbol "AMEL". These over- the-counter market quotations may
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual transaction prices.
FISCAL YEARS ENDED
JUNE 30,
HIGH BID LOW BID
-------- -------
1997
First Quarter $4.19 $2.00
Second Quarter $3.12 $1.41
Third Quarter $2.12 $1.25
Fourth Quarter $2.09 $1.00
1998
First Quarter $2.50 $1.53
Second Quarter $3.00 $1.94
Third Quarter $2.56 $1.75
Fourth Quarter $7.00 $1.28
On November 2, 1998, the closing bid for the Common Stock $4.06 per
share. On November 2, 1998 there were approximately 1,500 stockholders of record
of the Common Stock.
16
DIVIDENDS
The Company has not declared, distributed or paid any cash dividends in
the past. There is no current expectation that the Company will have sufficient
net profit and cash flow in amounts that would allow a cash dividend to be paid
to it's shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
1. From time to time during 1998, a total of 27 holders of the Company's
convertible preferred stock exercised their conversion rights whereby 540,096
shares of convertible preferred stock were converted into common stock of the
Company at a conversion ratio of five shares of common stock in exchange for
each one share of convertible preferred stock. A total of 2,700,485 shares of
common stock were issued. The Company did not received any proceeds. The Company
believes that each of the persons had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risk of the
purchase of these securities of the Company, and that each person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
2. From time to time during 1997, a total of four foreign investors purchased a
total of 2,385,000 shares of common stock of the Company at a price of $0.90 per
share. The Company received proceeds of $2,385,000. See, No. 6, below. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the purchase of these securities of the Company, and that each person
was knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
3. In December, 1997, the Company acquired one oil and gas property from one
foreign person in exchange for 150,000 shares. The parties valued each share at
1.50 per share for the purposes of this transaction. The Company believes that
the person had knowledge and experience in financial and business matters which
allowed the person to evaluate the merits and risk of the purchase of these
securities of the Company, and that the person was knowledgeable about the
Company's operations and financial condition. This transaction was effected by
the Company in reliance upon exemptions from registration under the Securities
Act of 1933 as amended (the "Act") as provided in Regulation S and
17
Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
4. In November, 1998, the Company retired a total of approximately $324,277 in
debt to eight persons in exchange for a total of a total of 140,383 shares of
common stock of the Company. The Company believes that each of the persons had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risk of the receipt of these securities of the Company
and that each person was knowledgeable about the Company's operations and
financial condition. These transactions were effected by the Company in reliance
upon exemptions from registration under the Securities Act of 1933 as amended
(the "Act") as provided in Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
5. In December, 1998, the Company compensated two foreign persons for consulting
services in connection with the Kharnbak #1 well in Pakistan. The Company issued
a total of 15,000 shares of common stock of the Company as payment in kind for
these services. The parties valued each share at $1.50 per shares for the
purpose of this transaction. The Company believes that each of the persons had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risk of the receipt of these securities of the Company,
and that each person was knowledgeable about the Company's operations and
financial condition. These transactions were effected by the Company in reliance
upon exemptions from registration under the Securities Act of 1933 as amended
(the "Act") as provided in Regulation S and Section 4(2) thereof. Each
certificate issued for unregistered securities contained a legend stating that
the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with any of these transactions.
None of the transactions involved a public offering.
6. In August, 1997, the Company made an adjustment to a prior private
transaction in involving one person regarding a prior share issuance. The
adjustment required a resetting to $0.90 share, of the transactional value of
shares issued in the prior transaction. Pursuant to this adjustment, the Company
issued a further 405,562 shares to the person. The Company received proceeds of
$265,00. See, No. 2, above. The Company believes that the person had knowledge
and experience in financial and business matters which allowed the person to
evaluate the merits and risk of the receipt of these securities of the Company,
and that person was knowledgeable about the Company's operations and financial
condition.
This transactions was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
18
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
7. In August, 1997, the Company sold 550,000 shares of common stock to one
foreign person for proceeds of $550,000. Each share was valued at $1.00 per
share. The Company believes that the person had knowledge and experience in
financial and business matters which allowed the person to evaluate the merits
and risk of the purchase of these securities of the Company, and that the person
was knowledgeable about the Company's operations and financial condition. This
transactions was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
8. From time to time during 1998, certain foreign persons exercised a total of
2,610,000 warrants to purchase common stock of the Company at an exercise price
of $1.50 per share. The Company received total proceeds of $3,915,000 in these
transactions. The Company believes that each of the persons had knowledge and
experience in financial and business matters which allowed them to evaluate the
merits and risk of the purchase of these securities of the Company, and that
each person was knowledgeable about the Company's operations and financial
condition. These transactions were effected by the Company in reliance upon
exemptions from registration under the Securities Act of 1933 as amended (the
"Act") as provided in Regulation S and Section 4(2) thereof. Each certificate
issued for unregistered securities contained a legend stating that the
securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with any of these transactions. None of the
transactions involved a public offering.
9. During June, 1998, certain persons exercised a total of 100,000 warrants to
acquire common stock of the Company whereby 67,982 shares of common stock of the
Company were issued. The prior issuance of the warrants and this issuance of
common stock was in connection with legal services which the parties valued at
$101,973 for the purpose of this transaction. The Company treated this
transaction as a payment in kind transaction for legal services rendered. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company, and that each person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
19
transactions. None of the transactions involved a public offering.
10. In April, 1998, the Company and a foreign person settled a dispute.
Previously, the person had invested $500,000 in the Company. As a result of the
settlement, the Company issued 350,000 shares of common stock of the Company to
the person. The Company believes that the person had knowledge and experience in
financial and business matters which allowed the person to evaluate the merits
and risk of the purchase of these securities of the Company, and that the person
was knowledgeable about the Company's operations and financial condition. This
transaction was effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Regulation S and Section 4(2) thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering.
11. In the fiscal year ended June 30, 1998, 1,710,000 warrants were issued to
directors, officers, and management of the Company. These Warrants are
exercisable on the basis of one share of Common Stock for each Warrant, at
prices ranging from $1.25 to $5.31 per share for a seven year period. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
12. During the fiscal year, the Company established a three member "Disclosure
Committee" comprised of certain of the Company's attorneys and market relations
consultants. Each of these parties have received 25,000 warrants, making a total
of 75,000 warrants issued, exercisable at $1.25 per share which expire in May,
2005. The Company believes that each of the persons had knowledge and experience
in financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
20
13. During the fiscal year, the Company has engaged certain technical and market
relations professional consultants in various contracts. In conjunction with
retaining their services, the Company has issued 200,000 warrants ranging in
exercise price from $2.31 to $3.97 per share and in expiration date up to May,
2005. The Company believes that each of the persons had knowledge and experience
in financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company. In such capacity they
were knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.
21
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data presented under the captions
"Statements of Earnings Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five year period ended June 30, 1998, are derived
from the consolidated financial statements of The American Energy Group, Ltd,
and Subsidiaries. The financial data for the three years ended June 30,1998 have
been audited by Jones, Jensen & Company, Independent Public Accountants. The
financial data for the two years ended June 30, 1995 have been audited by
Charles D. Roe, CPA - Independent Public Accountant. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements as of June 30, 1997 & 1998, and for each of the three years ended
June 30, 1994, 1995 and 1996, the accompany notes and the report thereon, which
are included elsewhere in the respective Forms 10-K.
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
STATEMENT OF EARNINGS DATA
Oil & Gas sales ....................... $ 641,203 $ 283,485 $ 50,390 $ 43,711 $ 0
Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0
Legal & Professional ................... 541,031 143,622 129,866 123,640 0
Administrative Labor ................... 122,089 77,194 118,827 99,112 0
Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0
Other General & Administrative ......... 144,172 113,625 136,521 88,106 0
============ ============ ============ ============ ===========
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Extraordinary Item .................. 123,082 17,343 0 0 0
============ ============ ============ ============ ===========
Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0
============ ============ ============ ============ ===========
Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000
============ ============ ============ ============ ===========
Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752
============ ============ ============ ============ ===========
Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000
============ ============ ============ ============ ===========
Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357
============ ============ ============ ============ ===========
22
Lease Operating & Production Costs ..... 258,032 83,826 81,087 49,372 0
Legal & Professional ................... 541,031 143,622 129,866 123,640 0
Administrative Labor ................... 122,089 77,194 118,827 99,112 0
Depreciation and Amortization Expense .. 275,803 37,416 2,163 1,232 0
Other General & Administrative ......... 144,172 113,625 136,521 88,106 0
============ ============ ============ ============ ===========
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Total Expenses ....................... 1,341,127 455,683 468,464 361,462 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Other Income & Expenses .............. 48,851 (1,808) (85,512) 8,643 0
Extraordinary Item .................. 123,082 17,343 0 0 0
============ ============ ============ ============ ===========
Net Loss ............................ $ (527,991) $ (156,663) $ (503,586) $ (309,108) $ 0
============ ============ ============ ============ ===========
Basic Loss per Common Share ......... $ (0.020) $ (0.014) $ (0.076) $ (0.052) $ 0.000
============ ============ ============ ============ ===========
Weighted Ave. Shares Outstanding .... 26,252,631 11,548,539 6,650,850 6,620,203 4,700,752
============ ============ ============ ============ ===========
Fully Diluted Loss per Common Share . $ (0.014) $ (0.006) $ (0.028) $ (0.018) $ 0.000
============ ============ ============ ============ ===========
Fully Diluted Ave. Shares Outstanding 38,374,941 27,174,937 17,997,688 17,417,374 15,629,357
============ ============ ============ ============ ===========
JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
=========== =========== =========== ========== ======
BALANCE SHEET DATA
Cash & Cash Equivalents ...... $ 3,214,205 $ 3,132,294 $ 424,698 $ 472,493 $ 0
Working Capital (Deficit) .... 650,004 2,434,012 (84,160) 348,852 0
Total Assets ................. $20,864,635 $13,092,370 $ 4,362,126 $3,243,758 $ 0
=========== =========== =========== ========== ======
Long Term Debt
(Including Current Portion) $ 698,677 $ 1,792,318 $ 1,397,700 $ 486,736 $ 0
Stockholders Equity .............. $17,476,355 $10,457,095 $ 2,450,380 $2,568,884 $ 0
=========== =========== =========== ========== ======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL INFORMATION
The following information should be read in conjunction with the consolidated
financial statements of the Company as set forth beginning on page f-1.
As of June 30, 1998, the Company had commenced its principal drilling
and reworking operations but had not yet generated significant revenues to date.
The Company has financed operations through loans and equity capital infusions.
During the past year, the Company has incurred general and administrative costs
associated with the Company's acquisitions and management of the Company's
affairs. Costs incurred in connection with the acquisition and development of
oil and gas properties have been capitalized in accordance with the full cost
method of accounting for oil and gas properties. Management anticipates the
future generation of a regular revenue stream now that the Company has received
substantial equity funding with which to develop certain of its properties.
The Company previously acquired oil drilling rigs and associated
equipment in anticipation of drilling wells for their own account. Some of the
older rigs and associated equipment are being sold due to the opportunity to now
focus on production operations.
The Company utilizes the full cost method of accounting for its oil and
gas properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a "full
cost pool". Cost included in the full cost pool are charged to operations as
depreciation, depletion and amortization using the units of production method
based
23
on the ratio of current production to estimated proven reserves as defined by
regulations promulgated by the U.S. Securities and Exchange Commission. Gain or
loss on disposition of oil and gas properties are not recognized unless they
would materially alter the relationship between the capitalized costs and the
estimated proved reserves. Disposition of properties are reflected in the full
cost pool. The full cost method of accounting limits the costs the Company may
capitalize by requiring the Company to recognize a valuation allowance to the
extent that capitalized cost of its oil and gas properties in its full cost
pool, net of accumulated depreciation, depletion and amortization and any
related deferred income taxes, exceed the future net revenues of proved oil and
gas reserves plus the lower of cost or estimated fair market value of
non-evaluated properties, net of federal income tax. This limitation is normally
referred to as the "ceiling test limitation."
The Company changed significantly on October 1, 1994 with the
acquisition of Simmons Oil Company, Inc. and its subsidiaries, Simmons Drilling
Company and Sequoia Operating Company. Through this transaction, the Company
acquired interests in several oil and/or gas properties located near Houston,
Texas. The Company subsequently increased the number of properties in this area
by acquiring additional leases. All of the properties are in areas where
production had been achieved in the past by other exploration companies.
In the initial three years in which the Company held the Jacobabad
Concession in the Middle Indus Basin of central Pakistan, it expended in excess
of $5.3 Million in acquisition, geological, seismic, drilling, and associated
costs. At the time of this filing, the Company is in the planning stages for
drilling of the second exploration well in this Concession. The Company has
deposited $1.1 Million in its bank account in Islamabad, Pakistan, in
preparation for drilling the second exploratory well by the end of 1998, and is
currently studying geological data on the area, logistics, mobilization, and
other associated matters to devise a sound plan for success. This is a
significant undertaking by the Company.
SUBSIDIARIES
The Company has established several subsidiaries in order to designate
certain oil and gas fields to specific companies. In addition, certain companies
have been acquired throughout the Company's history. These subsidiaries are
further described as follows:
HYCARBEX AMERICAN ENERGY, INC.
In April 1995, the Company acquired Hycarbex, Inc.(now known as
Hycarbex American Energy, Inc.) which it is operating as a wholly owned
subsidiary. This subsidiary holds a concession granted by the Government of
Pakistan to explore for oil and gas deposits in the Middle Indus Basin near
Jacobabad, Pakistan. Pakistan has become progressively more amenable aggressive
to exploration activities by foreign corporations and there have been
significant discoveries by other exploration companies prospecting in the
country and in the vicinity of the Hycarbex concession.
24
AMERICAN ENERGY-DECKERS PRAIRIE, INC.
This subsidiary was incorporated by the parent in January, 1995, as a
wholly owned subsidiary to develop the Deckers Prairie Field, Harris County,
Texas. This subsidiary previously owned controlling working interests in five
previously producing gas wells and three wells drilled and ready for completion.
The Company has elected to abandon development of this area relative to its core
areas of activity and is planning to dissolve this corporation.
THE AMERICAN ENERGY OPERATING CORP.
This subsidiary was incorporated by the parent in February, 1995, as a
wholly owned subsidiary to operate the wells and fields owned by the parent
and/or certain of the other subsidiaries.
TOMBALL-AMERICAN ENERGY, INC.
This subsidiary was incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the Tomball Field, Harris County, Texas. This
subsidiary previously owned controlling working interests in two wells drilled
and ready for completion. The Company has elected to abandon development of this
area relative to its core areas of activity and is planning to dissolve this
corporation.
CYPRESS-AMERICAN ENERGY, INC.
This subsidiary was incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the Cypress Field, Harris County, Texas. This
subsidiary previously owned 100% working interest in one 3,000 ft. well drilled
and ready for completion. The Company has elected to abandon development of this
area relative to its core areas of activity and is planning to dissolve this
corporation.
DAYTON NORTH FIELD-AMERICAN ENERGY, INC.
This subsidiary was incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the North Dayton Field, Liberty County,
Texas. This subsidiary previously owned an interest in two 4,200 ft. wells
drilled and ready for completion and one 2,500 ft. producing well, along with
300 acres. This property has been consolidated into the parent company and the
Company is planning to dissolve this corporation.
NASH DOME FIELD-AMERICAN ENERGY, INC.
This subsidiary was incorporated by the parent in March, 1995, as a
wholly owned subsidiary to develop the Nash Dome Field, Ft. Bend County, Texas.
This subsidiary previously owned an interest in three 4,200 ft. producing wells
in addition to 900 acres to be developed. The Company has elected to abandon
development of this area relative to its core areas of activity. This property
25
has been consolidated into the parent company and management is planning to
dissolve this corporation.
SIMMONS OIL COMPANY, INC.
This subsidiary was acquired in October 1994. The properties of this
company have been redistributed to other field specific subsidiaries, and at
present, this subsidiary is planned for dissolution in the coming fiscal year.
SIMMONS DRILLING CO., INC.
This entity is a subsidiary of Simmons Oil Company, Inc., which
originally held 4 drilling rigs, 2 service rigs, and associated drilling and
completion equipment, including bulldozers, trucks, etc. This equipment is being
consolidated into The American Energy Operating Corp., and this company is
scheduled to be dissolved in the coming fiscal year.
SEQUOIA OPERATING COMPANY, INC.
This entity is a subsidiary of Simmons Oil Company, Inc., which
originally operated Simmons Oil Company, Inc.'s properties. The wells that this
company operated are systematically being consolidated into the operations of
The American Energy Operating Corp., and this company is scheduled to be
dissolved in the coming fiscal year.
POLICY OF CONSOLIDATION
As a policy, the Company is currently evaluating the consolidation of
its properties in the various subsidiaries into a more centralized structure
which would entail dissolving most of the above described companies and creating
a more streamlined approach to its activities.
RESULTS OF OPERATIONS
The Company produced $641,203 in oil revenues in the year ended June
30, 1998, as compared to $283,485 in oil revenues in the year ended June 30,
1997. This represents an increase of 226% from the prior years oil revenues. The
Company sold a total of 42,663 net barrels attributable to its interest from
properties which it developed, as compared with 14,241 net barrels attributable
to the Company's net interest in the prior year. This reflects a 299% increase
in net production to the company's interest. However, product prices declined
from the prior year's average price per barrel of $19.90 to an average in the
current fiscal year of $15.03.
The Company produced oil revenues of $641,203 and incurred production
costs of $258,032 and an amortization charge of $270,927, thereby generating net
results from production operations of a net profit of $112,244 vs. a net profit
of $166,659 in the prior fiscal year ending June 30, 1997. Net results for the
period were adversely affected by the 24% decline in average price per barrels
of
26
oil sold.
With respect to operating costs, because of the sustained period in
which the wells were shut in during the year, the Company's financial statement
reflects an increase in its lifting costs per barrel from $5.89 per barrel in
the prior fiscal year to $6.05 per barrel in the current fiscal year. Management
anticipates that these "per barrel" lifting costs will be reduced considerably
as the wells are placed on line with sustained and uninterrupted production.
The Company sustained an overall operating loss of $527,991. Charges to
revenues included a relatively large amount of legal and professional expenses
in the amount of $541,031 which the Company considers to be a non-recurring
item. Management believes that the litigation that the Company has experienced
will not cause a detrimental effect to the shareholders of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased total assets to $20,864,635 at June 30, 1998
compared to $13,092,370 as of June 30, 1997. This has been primarily due to the
sale of equity by the Company.
These equity sales were sales of stock and the exercise of warrants.
Shareholders equity increased to $17,476,355 at June 30, 1998 compared
to $10,457,095 at June 30, 1997. This reflects an increase of $7,019,260 or 67%.
The Company has increased its "book value" per share, on a fully
diluted basis (excluding warrant exercise), by approximately 34% from $0.41 per
share at June 30, 1997 to $0.55 per share at the end of the current fiscal year.
This has been primarily through the sale of equity and warrant exercise in the
Company at prices higher than its book value per share.
In the current year, the Company expended an additional $3,375,233 in
connection with exploration related activities on its Pakistan Concession,
bringing the costs attributable to this project to a total of $5,433,328 as of
June 30, 1998. The Company anticipates additional expenditures in the coming
year associated with this project to be approximately $2.5 Million. The second
exploratory well is expected to begin drilling in late 1998.
While the Company continues to initiate drilling, completion, workover,
and evaluation operations on its fields, most of the wells remain in shut in
status due to the need for additional work. Reservoir studies on many of its
properties cannot begin until this evaluation stage has been completed. The
capital for completing this process is now being provided through combined
equity placements completed prior to and subsequent to June 30, 1998.
27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into market risk sensitive transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements for the fiscal years ended June 30, 1998, 1997,
and 1996 including supplementary data, if required, are included as set forth
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (FN 1)
NAME AGE POSITION
Bradley J. Simmons 43 Director, President and Chief Accounting Officer
Gerald Agranoff 51 Director, Vice President, Treasurer
Don D. Henrich 52 Director
Linda F. Gann 42 Secretary
- -----------------------------
FN 1 David L. Cox died in June, 1998. He had been a Director and the
Secretary of the Company.
BRADLEY J. SIMMONS
PRESIDENT, DIRECTOR & C.E.O.
PRESIDENT, HYCARBEX-AMERICAN ENERGY, INC.
Bradley Jay Simmons graduated from Yale University with a Bachelor of Science
Degree in Administrative Science in 1979. From 1979 to 1980 he was employed by
E.F. Hutton & Co., Tyler, Texas, as an Account Manager. In 1980 he joined Wells
Battelstein Oil & Gas, Houston, TX., as Vice President, Marketing. He was
instrumental in obtaining over $50 million in joint venture capital, and was
promoted to overseeing a diversified subsidiary base including drilling,
pipeline, well servicing (workover), and operating companies which drilled over
350 wells. In 1982, he started a private independent operating company, Simcor
Energy Corp., Houston, TX., and began drilling and operating Texas oil & gas
properties. In 1983 Simcor was merged into Cottonwood Energy Development Corp.,
Houston, TX., at which time he became President and Chairman of Cottonwood. In
the following five year period, Cottonwood drilled over 300 wells and was
eventually operating
28
approximately 600 wells throughout Texas. In 1988, Cottonwood was acquired in a
"friendly takeover". He subsequently established a private investment banking
practice, representing oil companies in negotiations, restructuring,
acquisitions, and liquidations. Special emphasis of his practice was in
developing and implementing strategies of acquisition and reorganization. Spent
time acquiring knowledge of offshore drilling and operations, and began
aggressive acquisitions of minerals, acreage, and interests in proven trends, as
well as acquisitions of drilling and well servicing equipment. Co-founded
Simmons Oil Company, Inc. and Simmons Drilling Co., Inc. When Simmons Oil
Company, Inc. was acquired by The American Energy Group, Ltd. in September,
1994, he became President, CEO, and a Director of the Company. Mr. Simmons is a
full time employee of the Company.
GERALD N. AGRANOFF
VICE PRESIDENT, TREASURER, DIRECTOR
Gerald N. Agranoff is a general partner of and general counsel to Plaza
Securities Company and Edelman Securities Company, Investment Partnerships, all
in New York. He has been affiliated with both Plaza and Edelman since January,
1982. Since 1994, he has been Vice President and General Counsel to Datapoint
Corp. In addition, Mr. Agranoff is currently of Counsel to Pryor, Cashman,
Sherman & Flynn, in New York. From 1975 through 1981, Mr. Agranoff was engaged
exclusively in the private practice of law in New York. In addition, he was an
adjunct-instructor at New York University's Institute of Federal Taxation. Prior
to entering private practice, Mr. Agranoff served as attorney-advisor to a Judge
of the United States Tax Court. Mr. Agranoff is a Director of Datapoint
Corporation, Canal Capital Corporation, Atlantic Gulf Communities, and Bull Run
Corporation. Also, he was a co-founder of Simmons Oil Company, Inc., and became
Vice President of The American Energy Group, Ltd. after Simmons Oil was
acquired. He holds an L.L.M. degree in Taxation from New York University and
J.D. and B.S. Degrees from Wayne State University. Mr. Agranoff serves the
Company on a part time, as needed, basis.
DON D. HENRICH
DIRECTOR
Don D. Henrich is President and CEO of Maverick Drilling Co., Inc., a position
which he has held since 1977. Maverick Drilling Co. Inc. is an Austin, Texas
based drilling contractor with five land based drilling rigs in Texas. Maverick
has drilled twenty wells for the Company over the past two years. Mr. Henrich
had joined Maverick in 1975 as vice president. He graduated from Tarleton
University in 1968 with a BS in Business Administration, and was a sales
representative for Xerox Corporation in Austin from 1970 to 1975. Mr. Henrich
joined the Board of Directors of the Company on June 29, 1998.
LINDA F. GANN
SECRETARY
Linda F. Gann was appointed Secretary of the Company on June 18, 1998. She has
been employed by the Company since January, 1995, where she has held various
positions including Office Manager,
29
Accounting Supervisor, and Assistant to the President. Prior to her employment
with the company, she was employed by Igloo Corporation, where she was
Production Manager. She had previously worked for Guaranty National Bank in
Accounting and Commercial Customer Service. Ms. Gann has pursued various course
work in attempting to obtain a college degree, subject to the constraints of her
workload and responsibilities at the Company.
DIRECTOR COMPENSATION
Upon becoming a Director, each Director received a warrant to acquire
up to 125, 000 shares of common stock of the Company. Each year thereafter, each
Director is to receive an additional warrant to acquire up to 75,000 shares of
common stock of the Company. These warrants were immediately exercisable and
expire seven years from the date that the warrant is issued.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Bradley J. Simmons, Gerald N. Agranoff, Don D. Henrich and Linda F.
Gann each failed to timely file one Form 5, all of which were subsequently
filed.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- -----------------------
AWARDS PAYOUTS
OTHER ---------- ------- ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION YEAR SALARY (1) BONUS SATION AWARDS OPTIONS/SARS PAYOUTS SATION
- ---------- ----- ---------- ------ ------ --------- ------------ ------- ------
Bradley J 1998 $ 110,000 12,000 -0- -0- 525,000 -0- -0-
Simmons 1997 $ 100,000 25,000 -0- -0- 200,000 -0- -0-
CEO 1996 $ 62,000 -0- -0- -0- 33,391 -0- -0-
EMPLOYMENT AGREEMENTS
The Company does not have any employment agreements.
MANAGEMENT INCENTIVE POOL
The Board of Directors approved granting the key employees of the
Company involved with the development of the Jacobabad Concession and the
Domestic Properties a 1% Overriding Royalty Interest. This Royalty Interest Pool
will be re-apportioned as key employees are added and according to certain
performance criteria with respect to the Pakistan and United States operations.
30
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS/SARS EMPLOYEES OR BASE -----------------------------
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------- ------------- ------------ ------- ---------- -------- ----------
Bradley J. 150,000 8.8% $2.31 11/4/04 $720,000 $1,065,000
Simmons 125,000 7.3% $1.25 5/1/05 $776,250 $1,137,500
250,000 14.6% $3.97 6/18/05 $872,500 $1,595,000
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
SHARES VALUE (#) ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---------- ------------- -------- ---------------- ----------------
Bradley J. -0- -0- 725,000 / -0- $2,078,500 / -0-
Simmons
31
STOCK PRICE PERFORMANCE GRAPH
The below graph compares the cumulative total stockholder return of The
American Energy Group, Inc. Common Stock from June 30, 1994 through June 30,
1998, with Standard & Poors 500 Index (the Company's Broad Market Index) and
with Standard & Poors Oil Composite Index (the Company's Peer Group Index). The
graph assumes that the value of the investment in The American Energy Group,
Inc. Common Stock and each index was $100 on June 30, 1994, and that all
dividends, if any, were reinvested. The comparisons in this table are not
intended to forecast or be indicative of possible future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF
THE AMERICAN ENERGY GROUP, INC., THE S&P 500 INDEX (BROAD
MARKET INDEX), AND THE S&P OIL COMPOSITE INDEX (PEER GROUP INDEX)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
The American Energy Group, Inc........... 100 100 85 107 139
Broad Market Index....................... 100 116 142 189 235
Peer Group Index......................... 100 102 129 156 191
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has two classes of voting equity securities, Common and
Convertible Preferred, which are combined to accumulate the total voting shares
of the Company.
The following table sets forth certain information as of November 1,
1998, with respect to the beneficial ownership of shares of common stock by (i)
each person who is known to the Company to beneficially own more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group. Unless otherwise indicated, each
stockholder has sole voting and investment power with respect to the shares
shown.
NUMBER PERCENT
NAME TYPE OF SHARES OF CLASS
- ------------------------- ---------- ----------- ---------------
Bradley J. Simmons (FN 1) Common. 1,337,449 4.6%
Conv. Pref. 8,225 1.6%
Gerald N. Agranoff (FN 2) Common 1,131,375 3.9%
Conv. Pref. 32,500 6.1%
Don D. Henrich (FN 3) Common 200,000 0.7%
Linda F. Gann (FN 4) Common 60,600 0.3%
The Farrington Family Trust Common 3,394,880 11.8%
Conv Pref 161,245 30.2%
All officers and directors Common 2,729,474 9.3%
as a group (four persons) Conv. Pref. 40,725 7.7%
- --------------
(FN 1) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 200,000 shares at an exercise price of
$1.38 per share.
An option to purchase up to 150,000 shares at an exercise price of
$2.31 per share.
An option to purchase up to 125,000 shares at an exercise price of
$1.25 per share.
32
An option to purchase up to 250,000 shares at an exercise price of
$3.97 per share.
(FN 2) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 125,000 shares at an exercise price of
$1.38 per share.
An option to purchase up to 150,000 shares at an exercise price of
$2.31 per share.
An option to purchase up to 125,000 shares at an exercise price of
$1.25 per share.
An option to purchase up to 250,000 shares at an exercise price of
$3.97 per share.
(FN 3) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 50,000 shares at an exercise price of $2.00
per share.
An option to purchase up to 25,000 shares at an exercise price of $4.00
per share. An option to purchase up to 125,000 shares at an exercise
price of $5.31 per share.
(FN 4) Includes options to purchase shares of common stock which are presently
exercisable at prices as follows:
An option to purchase up to 5,000 shares at an exercise price of $1.25
per share.
An option to purchase up to 55,000 shares at an exercise price of $3.97
per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS FILED ON FORM 8-K.
FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules required herein are included as set
forth beginning on page F-1.
EXHIBITS
3.1 * Articles of Incorporation as amended
3.2 * Bylaws as amended
4.1 * Form of Common Stock Certificate
4.2 * Designation Certificate of Preferred Stock
21.1 * Subsidiaries
27.1 * Financial Data Schedule
--------
* Filed herewith
REPORTS FILED ON FORM 8-K
On August 13, 1997, the Company filed a Current Report on Form 8-K for
events which occurred on June 1, 1997, July 30, 1997, August 1, 1997
and August 12, 1997, which reported the acquisition of assets and other
events.
On December 16, 1997, the Company filed a Current Report on Form 8-K
for events which occurred on December 3, 1997, which reported other
events.
On May 26, 1998, the Company filed a Current Report on Form 8-K for
events which occurred on May 15, 1998, which reported other events.
34
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 16, 1998.
THE AMERICAN ENERGY GROUP, LTD.
by: /s/ Bradley J. Simmons
Director, President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bradley J. Simmons Director, President November 16, 1998.
and Chief Accounting Officer
/s/ Gerald Agranoff Director, Vice President November 16, 1998.
Treasurer
/s/ Don D. Henrich Director November 16, 1998.
35
THE AMERICAN ENERGY GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
F-1
C O N T E N T S
Independent Auditors' Report ...................................... F-3
Consolidated Balance Sheets ....................................... F-4
Consolidated Statements of Operations ............................. F-6
Consolidated Statements of Stockholders' Equity ................... F-7
Consolidated Statements of Cash Flows ............................. F-11
Notes to the Consolidated Financial Statements .................... F-13
F-2
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
The American Energy Group, Ltd. and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of The American
Energy Group, Ltd. and Subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1998, 1997 and 1996. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
American Energy Group, Ltd. and Subsidiaries as of June 30, 1998 and 1997 and
the results of their operations and their cash flows for the years ended June
30, 1998, 1997 and 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1, the accompanying consolidated financial statements have
been prepared assuming that the Companies will continue as going concerns. The
Companies have experienced recurring losses from operations which raises
substantial doubt about the entities' ability to continue as going concerns.
Management's plans with regard to these matters are described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
October 31, 1998
F-3
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
JUNE 30,
----------------------------
1998 1997
------------ ------------
CURRENT ASSETS
Cash (Notes 1 and 2) ......................................... $ 3,214,205 $ 3,132,294
Receivables .................................................. 8,984 70,989
Receivable-related party (Note 3) ............................ -- 9,702
Investments .................................................. 3,300 --
Other current assets ......................................... 113,118 63,984
------------ ------------
Total Current Assets ....................................... 3,339,607 3,276,969
------------ ------------
OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING (Notes 1 and 4)
Properties being amortized ................................... 12,203,925 5,618,847
Properties not subject to amortization ....................... 5,433,328 3,990,489
Accumulated amortization ..................................... (303,927) (33,000)
------------ ------------
Net Oil and Gas Properties ................................. 17,333,326 9,576,336
------------ ------------
OTHER PROPERTY AND EQUIPMENT (Note 1)
Drilling and related equipment ............................... 246,494 246,494
Vehicles ..................................................... 126,146 126,146
Office equipment ............................................. 34,839 23,021
Accumulated depreciation ..................................... (218,627) (159,446)
------------ ------------
Net Other Property and Equipment ........................... 188,852 236,215
------------ ------------
OTHER ASSETS
Deposits ..................................................... 2,850 2,850
------------ ------------
Total Other Assets ......................................... 2,850 2,850
------------ ------------
TOTAL ASSETS ............................................... $ 20,864,635 $ 13,092,370
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
----------------------------
1998 1997
------------ ------------
CURRENT LIABILITIES
Accounts payable .................................... $ 2,366,880 $ 545,987
Accrued liabilities ................................. 322,723 296,970
Current portion of capital lease obligations (Note 6) 6,985 4,565
Current portion of notes payable and long-term
debt (Note 5) ..................................... 250,876 1,123,899
------------ ------------
Total Current Liabilities ......................... 2,947,464 1,971,421
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt (Note 5) ........... 428,280 649,737
Capital lease obligations (Note 6) .................. 12,536 14,117
------------ ------------
Total Long-Term Liabilities ....................... 440,816 663,854
------------ ------------
Total Liabilities ................................. 3,388,280 2,635,275
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 7, 8 and 9)
Convertible voting preferred stock; par value $0.001
per share; authorized 15,000,000 shares;
outstanding 535,462 and 1,075,558, respectively .... 535 1,076
Common stock; par value $0.001 per share;
authorized 80,000,000 shares; 28,927,872 and
22,509,293 shares issued and 28,927,872 and
19,859,293 shares outstanding, respectively ........ 28,928 22,509
Capital in excess of par value ...................... 19,050,101 13,893,728
Common stock subscriptions receivable ............... -- (2,385,000)
Accumulated deficit ................................. (1,603,209) (1,075,218)
------------ ------------
Total Stockholders' Equity ........................ 17,476,355 10,457,095
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 20,864,635 $ 13,092,370
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
REVENUE
Oil and gas sales ................... $ 641,203 $ 283,485 $ 50,390
------------ ------------ ------------
Total Revenue ..................... 641,203 283,485 50,390
------------ ------------ ------------
EXPENSES
Lease operating and production costs 258,032 83,826 81,087
Legal and professional .............. 541,031 143,622 129,866
Administrative labor ................ 122,089 77,194 118,827
Depreciation and amortization expense 275,803 37,416 2,163
Other general and administrative .... 144,172 113,625 136,521
------------ ------------ ------------
Total Expenses .................... 1,341,127 455,683 468,464
------------ ------------ ------------
NET OPERATING LOSS ..................... (699,924) (172,198) (418,074)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income ..................... 99,958 22,416 8,768
Interest expense .................... (6,460) (43,224) (91,890)
Loss on investments ................. (44,647) -- --
Gain (loss) on sale of assets ....... -- 19,000 (2,390)
------------ ------------ ------------
Total Other Income (Expenses) ..... 48,851 (1,808) (85,512)
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .................................. (651,073) (174,006) (503,586)
EXTRAORDINARY ITEM (Note 11) ........... 123,082 17,343 --
------------ ------------ ------------
NET LOSS ............................... $ (527,991) $ (156,663) $ (503,586)
============ ============ ============
BASIC LOSS PER COMMON SHARE ............ $ (0.020) $ (0.014) $ (0.076)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING .................... 26,252,631 11,548,539 6,650,850
============ ============ ============
FULLY DILUTED LOSS PER
COMMON SHARE .......................... $ (0.014) $ (0.006) $ (0.028)
============ ============ ============
FULLY DILUTED WEIGHTED
AVERAGE NUMBER OF
SHARES OUTSTANDING .................... 38,374,941 27,174,937 17,997,688
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1998, 1997 and 1996
CONVERTIBLE VOTING COMMON
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
------------------------ ------------------------ EXCESS OF SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE DEFICIT
----------- ----------- ----------- ----------- ----------- ------------- -----------
Balance, June 30, 1995 ............ 5,906,828 $ 5,907 2,185,721 $ 2,186 $ 2,975,760 $ -- $ (414,969)
Common stock issued upon
conversion of preferred shares ... 285,375 285 (57,075) (57) (228) -- --
Charge stock issuance costs
to the proceeds of the offering .. -- -- -- -- (114,918) -- --
Common stock issued for cash
at $1.00 per share ............... 500,000 500 -- -- 499,500 -- --
Cancellation of common stock ...... (72,000) (72) -- -- 72 -- --
Net (loss) for the year ended
June 30, 1996 .................... -- -- -- -- -- -- (503,586)
----------- ----------- ----------- ----------- ----------- ------------- -----------
Balance, June 30, 1996 ............ 6,620,203