UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the quarterly period ended SEPTEMBER 30, 1997
-----------------------------------------------

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the transition period from _______________ to _____________________

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 identification Number)
of incorporation or organization)

P O BOX 489 SIMONTON, TEXAS 77476
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

(281)-346-2652
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last
report) 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
filing requirements for the past 90 days. |X| Yes | | No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check-mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. |_| Yes |_| No

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.

23,872,355 COMMON SHARES

SEC Form 10-Q
The American Energy Group, LTD. Page 1 of 6

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Company files herewith the Unaudited Consolidated Financial Statements for
the three months ended September 30, 1997 and 1996, presented with the Audited
Consolidated Financial Statements for the twelve months (Fiscal Year) ended June
30, 1997. In the opinion of Management, the Financial Statements with the
related notes reflect a fair presentation of the financial condition of the
Registrant for the period stated.

ITEM 2. 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, attached to this report.

The Company has emerged from the development stage. It has commenced the
drilling of development wells and the recompletion of existing wells on its
inventory of properties acquired in previous quarters. It has not yet had
significant revenue from the production of oil and gas. The Company has financed
its operations to date through private placement of equity securities and
borrowing from lenders, including banks and existing shareholders. 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 utilizes the full cost method of accounting for its oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized in a "full
cost pool". Cost included in the full cost pool are charged to operations as
depreciation, depletion and amortization using the units of production method
based on the ratio of current production to estimated proven reserves as defined
by regulations promulgated by the U.S. Securities and Exchange Commission. Gain
or loss on disposition of oil and gas properties are not recognized unless they
would materially alter the relationship between the capitalized costs and the
estimated proved reserves. Disposition of properties are reflected in the full
cost pool. The full cost method of accounting limits the costs the Company may
capitalize by requiring the Company to recognize a valuation allowance to the
extent that capitalized cost of its oil and gas properties in its full cost
pool, net of accumulated depreciation, depletion and amortization and any
related deferred income taxes, exceed the future net revenues of proved oil and
gas reserves plus the lower of cost or estimated fair market value of
non-evaluated properties, net of federal income tax.

SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/97 PAGE 2 OF 6

In the initial two years in which the Company has held the Jacobabad Concession
in the Middle Indus Basin of central Pakistan, it has expended in excess of $2.0
Million in acquisition, geological, seismic, and associated costs. At the time
of this filing, the Company is in the planning stages for drilling of the
initial exploration well on this Concession. The Company has deposited $1.65
Million in its bank account in Islamabad, Pakistan, as a reserve for estimated
site preparation and drilling costs on this initial well which is expected to be
commenced by April, 1998. The Company is currently evaluating 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.

With the exception of historical information, the matters discussed in this
Report contain forward looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward looking statements contained in this report include the time and extent
of changes in commodity prices for oil and gas, increases in the cost of
conducting operations, including remedial operations, the extent of the
Company's success in discovering, developing and producing reserves, political
conditions, including those in Pakistan and other areas in which the Company
possesses properties, condition of capital and equity markets, 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.

RESULTS OF OPERATIONS

In the Quarter ended September 30, 1997, the field operations of the Company
consisted of performing tasks necessary to maintain the existing leases and the
drilling and completion of wells drilled in pilot developmental drilling
projects. Company management was also completing the sale of an equity placement
. Significant Information pertaining to the results of the quarter include:

REVENUES AND EARNINGS

In the Quarter ended September 30, 1997, the Company incurred a net operating
loss of $10,224 as compared to a net operating loss of $90,346 in the prior
fiscal year's Quarter ended September 30, 1996. The Company, with the inclusion
of other (interest) income, reported net income of $11,747 in the quarter vs. a
loss of $103,816 in the prior fiscal year's Quarter ended September 30, 1996.

Oil Sales of the Company in the Quarter ended September 30, 1997, were $173,367.
compared to $2,670 for the Quarter ended September 30, 1996. This quarter's
revenues, as another comparison, is sixty one (61%) percent of the total oil
sales reported for the prior Year Ended June 30, 1997, which were $283,485. The
Company's continued drilling and recompletion activities are attributed to the
reason for the relative increase from the prior year's quarter and total year's
oil sales.

As of September 30, 1997, the Company was significantly engaged in its principal
business activity of drilling and producing wells. The Company had previously
financed field maintenance operations through loans and private investment
capital infusions, and has begun to produce income through the sale of oil since
the beginning of the quarter. During the quarter, it incurred general and
administrative

SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/97 PAGE 3 OF 6

costs associated with the acquisition of assets 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.

The Company does not anticipate having significant oil and gas revenues until it
is able to substantially complete the development programs, if successful, in
the fields that it has acquired. Revenues from current drilling and completion
operations and the infusion of private investment capital have increased these
revenues, but the projects have yet to be fully developed and are still far from
completion.

LEGAL EXPENDITURES

During the Quarter ended September 30, 1997, the Company paid retainers of in
excess of $75,000 related to litigation which it filed on July 30, 1997 against
certain parties. These retainers are currently reflected on the balance sheet of
the Company. In the opinion of management, these retainers are expected to be
recovered upon final settlement of this litigation. With the partial settlement
which has been reached with the majority of the defendants subsequent to
September 30, 1997, the prospective recovery of this outlay is anticipated
during the quarter ending December 31, 1997.

TOTAL ASSETS / SHAREHOLDER'S EQUITY

With the completion of the Company's placement of equity, as of September 30,
1997, Total Assets of the Company increased to $16,274,946, reflecting an
increase of $3,182,576, or 24% from the previous quarter ended June 30, 1997, at
which time totaled $13,092,370. This also reflects an increase of $11,824,072,
or 265% from the results reported in the Quarter Ended September 30, 1996, which
totaled $4,450,874.

Net Shareholders Equity increased to $13,668,842, from $10,457,095 as of June
30, 1997. This reflects an increase of $3,211,747, or 30%, in the quarter. This
is attributed to the completion of the equity financing.

Net Shareholder equity per share, on a fully diluted basis increased from $0.414
per share at June 30, 1997, to $0.474 per share as of September 30, 1997,
representing an increase of $0.06, or 14.5% increase in the current quarter.
This is also attributed to the completion of the equity financing.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 is believed to have been fraudulently
obtained prior to the formation of The American Energy Group, Ltd. in 1994. As
of the filing of this report, the Company has obtained an injunction to bar
trading of the subject shares until the Court rules on their authenticity. It is
estimated that between 1,000,000 and 2,500,000 shares of existing Common Stock
could be affected by the outcome of this litigation. At this time, it is not
anticipated that litigation costs incurred by the Company will adversely affect
ongoing Company operations.

SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/97 PAGE 4 OF 6

A derivative claim was filed in response to the Company's July 30, 1997 lawsuit
by one of the defendants, George I. Norman Jr., against the Company and the
Company's three (3) directors, Bradley J. Simmons, David L. Cox, and Gerald N.
Agranoff, alleging that the individuals breached their fiduciary duties to the
Company in the performance of their director activities. The claim by Norman
requests unspecified damages from the individual directors for and on behalf of
the Company and requests that the Court appoint a receiver to manage the affairs
of the Company. Management views the responsive claims of Mr. Norman to be
without merit and intends to vigorously oppose the claims.

On November 7, 1997, the Company announced the partial settlement of the lawsuit
filed by the Company on July 30, 1997, and the withdrawal of the countersuit
filed against the Company's directors. The aggregate financial benefit of the
partial settlement to the Company will be detailed in the Company's subsequent
filings with the Securities and Exchange Commission. The Company, its directors,
and the settling defendants will mutually dismiss all pending actions and
cross-actions against one another. The partial settlement does not affect the
Company's claims against certain remaining defendants, and the Company intends
to continue the pursuit of those claims.

ITEM 2. CHANGES IN SECURITIES

A summary of the significant adjustments to the outstanding securities of the
Company in the Quarter ending September 30, 1997, is provided below:

COMMON STOCK
A total of 4,013,062 shares of Common Stock were issued during the quarter,
thereby increasing the total number of outstanding Common Stock to 23,872,355
shares in the following manner:

a. 3,605,562 shares of Common Stock of the Company were issued through
completion of an Equity Sale. A total of 2,650,000 of these shares were
reflected in the June 30, 1997, as subscriptions receivable, and have now
been issued and are reflected in the total issued and outstanding Common
Stock of the Company.

b. Convertible Preferred Stock in the amount of 81,500 shares was converted
to Common Stock, at the election of the Preferred shareholders, in the
amount of 407,500 shares.

CONVERTIBLE PREFERRED STOCK
The number of outstanding Convertible Preferred shares was reduced from
1,075,588.to 994,058 shares by conversion of 81,500 shares of Convertible
Preferred into 407,500 shares Common Stock on a "five Common for each one
Convertible Preferred" basis. The remaining Convertible Preferred shares, if
converted, would require issuance of an additional 4,970,290 shares of Common
Stock.

FULLY DILUTED COMMON STOCK

Fully diluted Common Stock, in the eventuality of 100% conversion of the
outstanding Convertible Preferred shares, when combined with outstanding Common
Stock, would total 28,842,645 shares.

SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/97 PAGE 5 OF 6

WARRANTS

Subsequent to the Quarter ended September 30, 1997, and concurrent with the
settlement and dismissal of litigation as described herein (see Item I. Legal
Proceedings), the Company issued to each of the three Directors of the Company
an additional 150,000 Warrants at an exercise price of $2.31. This represents a
total of 450,000 additional Warrants issued. These Warrants are valid for a
period of seven years, and, unless subsequently registered, are exercisable at
the option of the holder into Common Stock of the Company. As of the filing of
this report, none of the outstanding Warrants have been exercised.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITIES HOLDERS
Not Applicable

ITEM 5. OTHER INFORMATION
Not Applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER)

(A) EXHIBITS
The Consolidated Financial Statements dated September 30, 1997 and
1996, (unaudited) and June 30, 1997 (Audited) are appended hereto
and expressly made a part hereof as Exhibit A.

(B) REPORTS ON FORM 8-K
None
SIGNATURES

THE AMERICAN ENERGY GROUP, LTD.

11/12/97 B/J/S
Bradley J. Simmons, President

11/12/97 D/L/C
David L. Cox, Secretary

SEC FORM 10-Q
THE AMERICAN ENERGY GROUP, LTD. 9/30/97 PAGE 6 OF 6

EXHIBIT A
TO FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30,1997

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

FINANCIAL STATEMENTS
SEPTEMBER 30,1997 AND 1996 (UNAUDITED)

AND JUNE 30, 1997 (AUDITED)

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS

CURRENT ASSETS
CASH .................................. $ 3,510,621 $ 3,132,294
RECEIVABLES ........................... 88,892 70,989
RECEIVABLES - RELATED PARTY ........... 571 9,702
OTHER CURRENT ASSETS .................. 85,391 63,984
------------ ------------
TOTAL CURRENT ASSETS .................. 3,685,475 3,276,969
------------ ------------
OIL & GAS PROPERTIES USING
FULL COST ACCOUNTING
PROPERTIES BEING AMORTIZED ............ 7,388,315 5,618,847
PROPERTIES NOT SUBJECT
TO AMORTIZATION ..................... 4,884,481 3,990,489
ACCUMULATED AMORTIZATION .............. (53,181) (33,000)
------------ ------------
NET OIL AND GAS PROPERTIES .......... 12,219,615 9,576,336
------------ ------------
PROPERTY AND EQUIPMENT
DRILLING AND RELATED EQUIPMENT ........ 246,494 246,494
VEHICLES .............................. 126,146 126,146
OFFICE EQUIPMENT ...................... 23,021 23,021
LESS: ACCUMULATED DEPRECIATION ........ (166,834) (159,446)
------------ ------------
NET PROPERTY AND EQUIPMENT ............ 228,827 236,215
------------ ------------
OTHER ASSETS
DEPOSITS AND OTHER ASSETS ............. 141,029 2,850
------------ ------------
TOTAL OTHER ASSETS .................... 141,029 2,850
------------ ------------
TOTAL ASSETS ............................... $ 16,274,946 $ 13,092,370
============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
2

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE ........................ 821,801 545,987
ACCRUED LIABILITIES ..................... 136,698 296,970
LEASE OBLIGATIONS-CURRENT ............... 4,627 4,565
NOTES PAYABLE-CURRENT ................... 994,482 1,123,899
------------ ------------
TOTAL CURRENT LIABILITIES ............... 1,957,608 1,971,421
------------ ------------
LONG TERM LIABILITIES
NOTES PAYABLE AND LONG TERM DEBT ........ 635,991 649,737
CAPITAL LEASE OBLIGATIONS ............... 12,505 14,117
------------ ------------
TOTAL LONG TERM LIABILITIES ............. 648,496 663,854
------------ ------------
TOTAL LIABILITIES ....................... 2,606,104 2,635,275
------------ ------------
SHAREHOLDERS EQUITY
CONVERTIBLE PREFERRED STOCK
PAR VALUE $.001 PER SHARE
AUTHORIZED 20,000,000 SHARES
ISSUED AND OUTSTANDING:
AT JUNE 30, 1997: 1,075,558 SHARES
AT SEPT 30, 1997: 994,058 SHARES ........ 994 1,076

COMMON STOCK, PAR VALUE $.001
PER SHARE, AUTHORIZED 80,000,000
SHARES, ISSUED AND OUTSTANDING
AT JUNE 30, 1997: 22,509,293 SHARES
AT SEPT 30, 1997: 23,872,355 SHARES ..... 23,872 22,509

PAID IN EXCESS OF PAR VALUE ............. 14,707,447 13,893,728

STOCK SUBSCRIPTIONS RECEIVABLE .......... 0 (2,385,000)

ACCUMULATED DEFICIT ..................... (1,063,471) (1,075,218)
------------ ------------
NET SHAREHOLDERS EQUITY ...................... 13,668,842 10,457,095
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS EQUITY ...... $ 16,274,946 $ 13,092,370
============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
3

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
(UNAUDITED) (UNAUDITED)
--------- ---------
REVENUES

OIL & GAS SALES .......................... $ 173,367 $ 2,670
--------- ---------
EXPENSES
LEASE OPERATING AND PRODUCTION COSTS ..... 42,483 5,553
LEGAL AND PROFESSIONAL FEES .............. 49,629 22,988
ADMINISTRATIVE SALARIES .................. 43,566 34,759
OFFICE OVERHEAD EXPENSE .................. 11,580 6,192
TRAVEL COSTS ............................. 0 361
DEPRECIATION ............................. 1,104 541
GENERAL ADMINISTRATIVE EXPENSE ........... 35,229 22,622
--------- ---------
TOTAL EXPENSE ............................ 183,591 93,016
--------- ---------
NET OPERATING PROFIT (LOSS) .................. (10,224) (90,346)
--------- ---------
OTHER INCOME (EXPENSE)
INTEREST INCOME .......................... 22,593 877
INTEREST EXPENSE ......................... (622) (14,347)
--------- ---------
NET OTHER INCOME (EXPENSE) ............... 21,971 (13,470)
--------- ---------
NET INCOME (LOSS) BEFORE TAX ................. 11,747 (103,816)
FEDERAL INCOME TAX ....................... 0 0
--------- ---------
NET INCOME (LOSS) FOR PERIOD ................. $ 11,747 ($103,816)
========= =========
EARNINGS (LOSS) PER SHARE .................... $ 0.001 ($ 0.015)
========= =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
4

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months Three months
ended ended
September 30 September 30
1997 1996
----------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ 11,747 ($103,816)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ................................... 27,569 13,387
Less amount capitalized to oil & gas properties ................. (6,284) (12,846)
(Increase) decrease in receivables .............................. (8,772) 760
(Increase) decrease in deposits and other assets ................ (138,179) (665)
(Increase) decrease in other current assets ..................... (21,407) --
Increase (decrease) in accounts payable ......................... 275,814 (30,822)
Increase (decrease) in accrued liabilities and
other current liabilities ..................................... 9,679 2,073
----------- ---------
Cash Provided by (Used in) Operating Activities .............. 150,167 (131,929)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:

Expenditures for oil and gas properties ......................... (2,382,969) (291,006)
Expenditures for other property and equipment ................... -- (8,904)
----------- ---------
Cash Provided By (Used in) Investing Activities .............. (2,382,969) (299,910)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from notes payable and
long-term liabilities ......................................... -- --
Proceeds from the issuance of common stock ...................... 2,652,650 475,000
Proceeds from the issuance of convertible
voting preferred stock ........................................ -- --
Payments on notes payable and long-term liabilities ............. (41,521) (311,185)
----------- ---------
Cash Provided By (Used in) Financing Activities .............. 2,611,129 163,815
----------- ---------
NET INCREASE (DECREASE) IN CASH ................................... 378,327 (268,024)

CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ..................... 3,132,294 424,698
----------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD ........................... $ 3,510,621 $ 156,674
=========== =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
5

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 1996 THROUGH SEPTEMBER 30, 1997

Convertible Voting
Common Stock Preferred Stock Capital in
--------------------- ---------------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
---------- ------- ---------- ------- ------------ -----------

Balance, June 30, 1996 ........................ 12,584,627 $12,584 1,075,558 $ 1,076 $ 4,734,829 ($ 918,555)
---------- ------- ---------- ------- ------------ -----------
Common stock issued for cash
contributions at $.95 per share ............. 7,274,666 7275 -- -- 6,922,635 --

Common stock subscriptions
at $.90 per share .......................... 2,650,000 2650 -- -- 2,382,350 --

Offering costs related to sales of
common stock ................................ -- -- -- -- (146,086)

Net (loss ) for the year
ended June 30, 1997 ......................... -- -- -- -- -- (156,663)
---------- ------- ---------- ------- ------------ -----------
Balance, June 30, 1997 ....................... 22,509,293 22,509 1,075,558 1,076 13,893,728 (1,075,218)
---------- ------- ---------- ------- ------------ -----------

Common stock issued for cash
contributions at $1.00 per share ............ 550,000 550 -- -- 549,450 --

Common stock issued upon
completion of private placement ............. 405,562

Conversion of preferred shares ................ 407,500 813 (81,500) (82) 264,269

Net income for the quarter
ended September 30, 1997 .................... -- -- -- -- -- 11,747
---------- ------- ---------- ------- ------------ -----------
Balance, June 30, 1997 ....................... 23,872,355 $23,872 994,058 $ 994 $ 14,707,447 ($1,063,471)
========== ======= ========== ======= ============ ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
6

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. ORGANIZATION

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

Effective September 30, 1994, the Company entered into an agreement to acquire
all of the issued and outstanding common stock of Simmons Oil Company, Inc.
(Simmons), a Texas Corporation, in exchange for the issuance of certain
convertible voting preferred stock (see Note 6). The acquisition included wholly
owned subsidiaries of Simmons, Sequoia Operating Company, Inc. and Simmons
Drilling Company, Inc. The acquisition was recorded at the net book value of
Simmons of $1,044,149 which approximates fair value.

During the year ended June 30, 1995, the Company incorporated additional
subsidiaries including American Energy-Deckers Prairie, Inc., The American
Energy Operating Corp., Tomball American Energy, Inc., Cypress-American Energy,
Inc., Dayton North Field-American Energy, Inc. and Nash Dome Field-American
Energy, Inc. In addition, in May 1995, the Company acquired all of the issued
and outstanding common stock of Hycarbex, Inc. (Hycarbex), a Texas corporation,
in exchange for common stock of the Company (see Note 7), a 1% overriding
royalty on the Pakistan Project and a future $200,000 production payment if
certain conditions are met. In April 1995, the name of that Company was changed
to Hycarbex-American Energy, Inc. All of these companies are collectively
referred to as "the Companies".

The Company and its subsidiaries are principally in the business of acquisition,
exploration and development of oil and gas properties with the ultimate goal of
production and operation of those properties and the contracting of those
services to other unrelated businesses.

b. DEVELOPMENT STAGE AND CONTINUED EXISTENCE

During the year ended June 30, 1997, the Companies began production from its oil
and gas leases located in the State of Texas and has recognized the
corresponding revenues. Accordingly, the Companies are no longer considered to
be in the development stage with the accompanying consolidated financial
statements no longer reflecting the results of operations, changes in
stockholders' equity and cash flows for the period from inception on July 21,
1987 through September 30, 1997

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

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

b. DEVELOPMENT STAGE AND CONTINUED EXISTENCE (CONTINUED)

The recovery of assets and continuation of future operations were previously
dependent upon the Companies ability to obtain additional debt or equity
financing and their ability to generate revenues sufficient to continue pursuing
their business purpose. Management is actively pursuing additional equity and
debt financing sources to finance future operations and anticipates the
realization of more significant revenues from oil and gas production in the near
future.

c. ACCOUNTING METHODS

The full cost method is used in accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of oil and gas reserves, including directly related overhead costs, are
capitalized. In addition, depreciation on property and equipment used in oil and
gas exploration and interest costs incurred with respect to financing oil and
gas acquisition, exploration and development activities are capitalized in
accordance with full cost accounting. Capitalized interest for the year ended
June 30, 1997 was $31,028 . No interest was capitalized in the quarter ended
September 30, 1997. In addition, depreciation capitalized during the year ended
June 30, 1997 totaled $51,303. Depreciation capitalized during the quarter ended
September 30, 1997 totaled $6,284. All capitalized costs of proved oil and gas
properties subject to amortization are being amortized on the unit-of-production
method using estimates of proved reserves. Investments in unproved properties
and major development projects not subject to amortization are not amortized
until proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that the properties
are impaired, the amount of the impairment is added to the capitalized costs to
be amortized. As of June 30, 1997, proved oil and gas reserves had been
identified on some of the Companies oil and gas properties with revenues
generated and barrels of oil produced from those properties. Accordingly,
amortization totaling $33,000 has been recognized in the accompanying
consolidated financial statements for the year ended June 30, 1997 and $20,181
for the quarter ended September 30, 1997 on proved and impaired or abandoned oil
and gas properties.

The acquisition of Simmons Oil Company, Inc. and it's subsidiaries has been
accounted for using the purchase method. Accordingly, the accompanying
consolidated financial statements for the period up until the date of
acquisition, September 30, 1994, do not include the financial position, the
results of operations or cash flows of the Simmons companies for those periods.

The acquisition of Hycarbex, Inc. has been accounted for using the
pooling-of-interests method. Hycarbex had no assets or liabilities or results of
operations through the date of the acquisition and, therefore, had no effect on
the consolidated financial statements through April 6, 1995.

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

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

d. PRINCIPLES OF CONSOLIDATION

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

e. CASH EQUIVALENTS

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

f. PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost. Depreciation on drilling and related
equipment, vehicles and office equipment is provided using the straight-line
method over expected useful lives of five to seven years. For the quarter ended
September 30; 1997, the Companies incurred total depreciation expense of $7,388
of which $6,284 was capitalized as costs of oil and gas properties.

g. EARNINGS AND LOSS PER SHARE OF COMMON STOCK

The loss per share of common stock is based on the weighted average number of
shares issued and outstanding at the date of the consolidated financial
statements. The earnings per share of common stock is based on the weighted
average number of shares issued and outstanding on a fully diluted basis at the
date of the consolidated financial statements.

h. CERTIFICATES OF DEPOSIT
As of September 30, 1997, the Companies held three certificates of deposit
totaling $300,000 at the same financial institution, all in the name of the
Company and two of the subsidiaries. All three certificates of deposit bear
interest at a rate of 4.25% and mature every 30 days. These certificates of
deposit are unencumbered at September 30, 1997. In prior periods, certificates
of deposit of corresponding amounts had been pledged as collateral on notes
payable. .

NOTE 2 - OIL AND GAS PROPERTIES

At the time the Company acquired Simmons Oil Company, Inc. and its subsidiaries,
those companies had ownership interests in oil and gas prospects located in
Texas. These properties contained oil and gas

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

leases on which existing wells had been shut-in and abandoned and had additional
sites available for further exploration and development.

NOTE 3 - NOTE PAYABLE - RELATED PARTY

As of June 30, 1996, the Companies had a note payable in the amount of $100,000
due to an individual who is a major shareholder and director of the Companies.
This note payable bears interest at a rate of 11% and matured January 19, 1996.
In addition, the Companies have assigned to this individual a 1% overriding
royalty in all oil and gas properties of the Companies. This obligation was paid
off during the year ended June 30, 1997.

NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT

The following is a summary of notes payable and long-term debt as of June 30,
1997 and September 30, 1997:

September 30 June 30
1997 1997
----------- -----------
Note payable bearing no interest; payable $175,000
the first year and $250,000 annually thereafter
until paid in full; secured by certain oil and gas
property and equipment ........................... $ 885,000 $ 915,000

Notes payable bearing no interest; due in monthly
installments of $64,834; secured by joint venture
interests in certain oil and gas properties ...... 267,437 389,000

8.5% note payable to a financial institution due
in monthly installments of $950 for 36 months;
secured by two vehicles .......................... 26,300 28,520

10% notes payable, due on demand, unsecured ...... 190,000 190,000

7% notes payable, due September 15, 1995, secured
by working interest in oil and gas properties .... 443,250 443,250

Total notes payable and long-term debt ........... $ 1,811,987 $ 1,965,770
----------- -----------
Less: Unamortized discount ....................... (169,009) (192,134)
----------- -----------
Net notes payable and long-term debt ............. 1,642,978 1,773,636

Less: Current portion of notes payable
and long-term debt ............................... (994,482) (1,123,899)
----------- -----------
Long-Term Liabilities ............................ $ 648,496 $ 649,737
=========== ===========

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

NOTE 5 - CAPITAL LEASE OBLIGATIONS

The Company entered into certain lease agreements during the year ended June 30,
1997 relating to office equipment and portable buildings used in the field which
have been accounted for as capital leases. These leases have terms of from 36 to
60 months with total monthly lease payments of $643.The following are the
scheduled annual payments on these capital leases:

Quarter ending September 30, 1997

1998 $ 6,161
1999 $ 7,711
2000 $ 6,815
2001 $ 2,741
2002 $ 1,387
-------
$24,815

Total minimum lease commitments .................... $ 24,815
Less: Executory costs (such as taxes and insurance)
included in capital lease payments ........ (2,225)
--------
Net minimum lease payments ......................... 22,590
Less: Amount representing interest ................. (5,458)
--------
Total Capital Lease Obligations .................... 17,132
Current Portion .................................... (4,627)
--------
Long Term Portion .................................. $ 12,505
========

NOTE 6 - CONVERTIBLE VOTING PREFERRED STOCK

During the quarter ended September 30, 1997, a total of 81,500 shares of the
Company's Convertible Preferred shares were converted into 407,500 shares of
Common Stock.

NOTE 7- COMMON STOCK

During the quarter ended September 30, 1997, a total of 3,605,562 shares of
Common Stock of the Company were issued through completion of an Equity Sale. A
total of 2,650,000 of these shares were reflected in the June 30, 1997, as
subscriptions receivable, and have now been issued and are reflected in the
total issued and outstanding Common Stock of the Company.

THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND JUNE 30, 1997

NOTE 8- COMMON STOCK WARRANTS

Subsequent to the Quarter ended September 30, 1997, and concurrent with the
settlement and dismissal of litigation as described herein, the Company issued
to each of the three Directors of the Company an additional 150,000 Warrants at
an exercise price of $2.31. This represents a total of 450,000 additional
Warrants issued. These Warrants are valid for a period of seven years, and,
unless subsequently registered, are exercisable into Rule 144 Common Stock of
the Company. As of the filing of this report, none of the outstanding Warrants
have been exercised.

NOTE 9 - INCOME TAXES

Through June 30, 1997, the Companies have sustained net operating loss
carryforward totaling approximately $1,075,000 that may be offset against future
taxable income through 2012. No tax benefit has been reported in the
accompanying consolidated financial statements, because the potential tax
benefits of the net operating loss carryforward are offset by a valuation
allowance of the same amount.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

As discussed in Note 5, the Companies defaulted on the payment of the Drilling
Investor Notes due and payable September 15, 1995 related to the acquisition of
oil and gas leases in Harris County, Texas. Although these notes are secured by
a financial guarantee bond, there is no assurance that the bond can be enforced.
The Companies intend to settle these obligations, along with the related accrued
interest. The ultimate effect on the Companies and outcome of the satisfaction
of this obligation cannot be determined.

The Company leases office space in Simonton, Texas from the President and
director of the Company at a monthly cost of $500 plus utilities. This is a
month to month lease and can be terminated by either party with 30 days notice.