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 MARCH 31, 2002
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[ ] 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
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THE AMERICAN ENERGY GROUP, LTD.
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(Exact name of registrant as specified in its charter)
NEVADA 87-0448843
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(state or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9441 SAM HOUSTON PARKWAY SUITE 110 HOUSTON, TEXAS 77099
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(Address of principal executive offices) (Zip code)
(713)-981-6114
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(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.
73,784,482 COMMON SHARES
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 JUNE 30, 2001
(UNAUDITED) (AUDITED)
---------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 1,473,888 $ 923,831
Receivables 124,137 104,108
Other current assets 28,834 16,075
------------ ------------
Total Current Assets 1,626,859 1,044,014
------------ ------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING
Properties being amortized 16,941,635 16,687,542
Accumulated amortization (1,999,796) (1,515,171)
------------ ------------
Net Oil and Gas Properties 14,941,839 15,172,371
------------ ------------
PROPERTY AND EQUIPMENT
Drilling and related equipment 405,566 387,267
Vehicles 113,590 139,801
Office equipment 52,835 52,835
Less: Accumulated depreciation (432,847) (417,456)
------------ ------------
Net Property and Equipment 139,144 162,447
------------ ------------
OTHER ASSETS
Debt issue costs 0 48,620
Investments 20 1,900
Deposits and other assets 8,491 5,100
------------ ------------
Total Other Assets 8,511 55,620
------------ ------------
TOTAL ASSETS $ 16,716,353 $ 16,434,452
============ ============
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 JUNE 30, 2001
(UNAUDITED) (AUDITED)
----------------- -----------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 916,173 $ 1,729,235
Accrued liabilities 718,347 649,557
Deposit on sale of assets 0 483,080
Lease obligations - current 1,333 1,280
Notes payable - current 3,105,204 1,448,117
------------ ------------
Total Current Liabilities 4,741,057 4,311,269
------------ ------------
LONG-TERM LIABILITIES
Notes payable and long-term debt 0 1,094,290
Capital lease obligations 407 1,629
------------ ------------
Total Long-Term Liabilities 407 1,095,919
------------ ------------
Total Liabilities 4,741,464 5,407,188
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock par value
$.001 per share authorized 20,000,000
shares issued and outstanding
At June 30, 2001: 41,500 shares
At March 31, 2002: 41,500 shares 42 42
Common stock, par value $.001
per share, authorized: 80,000,000
shares, issued and outstanding:
At June 30, 2001: 59,991,665 shares
At March 31, 2002: 73,784,482 shares 73,784 59,992
Capital in excess of par value 39,037,010 36,724,103
Accumulated deficit (27,135,947) (25,756,873)
------------ ------------
Net Shareholders' Equity 11,974,889 11,027,264
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,716,353 $ 16,434,452
============ ============
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
REVENUES
Oil and gas sales $ 262,484 $ 452,872 $ 810,821 $ 1,526,167
Lease operating and production costs 113,044 177,741 570,318 552,007
----------- ----------- ----------- -----------
Gross Profit 149,440 275,131 240,503 974,160
----------- ----------- ----------- -----------
OTHER EXPENSES
Legal and professional fees 15,428 179,501 150,807 543,492
Administrative salaries 50,232 39,969 179,515 106,323
Office overhead expense 11,724 5,838 42,320 19,547
Depreciation and amortization expense 226,653 5,612,303 612,739 5,665,786
General and administrative expense 53,717 61,406 395,206 110,040
----------- ----------- ----------- -----------
Total Other Expenses 357,754 5,899,017 1,380,587 6,445,188
----------- ----------- ----------- -----------
NET OPERATING PROFIT (LOSS) (208,314) (5,623,886) (1,140,084) (5,471,028)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 5,625 23,744 6,493
Interest expense (135,239) (339) (417,364) (49,863)
Forgiveness of debt income 0 0 198,080 0
Debt issuance costs (16,207) (11,896) (48,621) (34,586)
Restricted shares issued to directors 0 0 0 (2,484,000)
Shares issued to retire warrants 0 (276,000) 0 (1,766,125)
Unrealized gain (loss) on investment 0 0 (1,880) 0
Gain on asset sales 0 0 7,051 0
----------- ----------- ----------- -----------
Net Other Income (Expenses) (151,446) (282,610) (238,990) (4,328,081)
----------- ----------- ----------- -----------
NET INCOME BEFORE TAX (359,760) (5,906,496) (1,379,074) (9,799,109)
Federal Income Tax 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) FOR PERIOD ($ 359,760) ($5,906,496) ($1,379,074) ($9,799,109)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE (0.01) (0.10) (0.01) (0.16)
=========== =========== =========== ===========
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Nine months
ended ended
March 31 March 31
2002 2001
(Unaudited) (Unaudited)
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,379,074) ($9,799,109)
Adjustments to Reconcile Net Loss to Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization 561,022 5,612,303
Less amount capitalized to oil & gas properties (19,662) (42,379)
Common stock issued for services rendered 271,410 179,768
Gain on asset sale (7,051) 0
Restricted common stock issued to directors 0 2,484,000
Common stock issued for warrant retirement 0 1,766,125
Common stock issued for penalty fee 270,000 315,000
Amortization of note payable discount 120,000 0
Loss on investment 1,880 0
Forgiveness of debt income (198,080) 0
Changes in operating assets and liabilities:
(Increase) decrease in receivables (20,029) 3,884
(Increase) decrease in deposits and other assets (3,391) 32,337
(Increase) decrease in other current assets (12,759) 0
Increase (decrease) in accounts payable - operations (813,062) 413,875
Increase (decrease) in accrued expenses and
other current liabilities 248,790 (31,230)
----------- -----------
Cash Provided by (Used in) Operating Activities (980,006) 934,574
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties (330,469) (4,073,342)
Expenditures for other property & equipment (18,299) (29,386)
Proceeds from the sale of assets 10,000 --
----------- -----------
Cash Provided By (Used in) Investing Activities (338,768) (4,102,728)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock -- 4,850,429
(Expenditures) refund for offering costs 50,000 (516,105)
Proceeds from notes payable 1,820,000 --
Payments on notes payable and long-term liabilities (1,169) (843,955)
----------- -----------
Cash Provided By (Used in) Financing Activities 1,868,831 3,490,369
----------- -----------
NET INCREASE (DECREASE) IN CASH 550,057 322,215
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 923,831 1,344,513
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,473,888 $ 1,666,728
=========== ===========
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONVERTIBLE VOTING CAPITAL IN
COMMON STOCK PREFERRED STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2001 59,991,665 $ 59,992 41,499 $ 42 $ 36,724,103 ($25,756,873)
Common stock issued for services
@ $0.25 average per share (unaudited) 1,090,750 1,091 -- -- 270,319 --
Common stock issued to retire debt
@ $0.14 average per share (unaudited) 150,000 150 -- -- 20,850 --
Refund of prior offering costs (unaudited) -- -- -- -- 50,000 --
Common stock issued to retire debt
@ $0.16 average per share (unaudited) 10,986,850 10,986 -- -- 1,703,303 --
Common stock issued as penalty fees
@ $0.17 average per share (unaudited) 1,565,217 1,565 -- -- 268,435 --
Net income for the nine months
ended March 31, 2002 (unaudited) -- -- -- -- -- (1,379,074)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 2002 (unaudited) 73,784,482 $ 73,784 41,499 $ 42 $ 39,037,010 ($27,135,947)
============ ============ ============ ============ ============ ============
THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2002 and June 30, 2001
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments that include only normal recurring adjustments necessary to
present fairly the financial position, results of operations and cash
flows at March 31, 2002 and 2001 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's June 30, 2001 audited consolidated financial
statements. The results of operations for the periods ended March 31,
2002 and 2001 are not necessary indicative of the operating results for
the full years.
NOTE 2 - GOING CONCERNS
The accompanying consolidated financial statements have been prepared
assuming the Companies will continue as going concerns. The Companies
have experienced recurring losses and negative cash flows from
operations, which raise substantial doubt about the Companies' ability
to continue as going concerns.
The recovery of assets and continuation of future operations are
dependent upon the Companies' ability to obtain additional debt or
equity financing, and their ability to generate revenues sufficient to
continue pursuing their business purpose. Management is actively
pursuing additional equity and debt financing sources to finance future
operations and anticipates a significant increase in production and
revenues from oil and gas production during the coming year.
NOTE 3 - MATERIAL EVENTS
During the nine months ended March 31, 2002, the Company received
approximately $1,800,000 from various officers, directors, and
shareholders of the Company. The terms of the promissory notes are
still being negotiated.
The Company issued 2,544,768 shares of outstanding common stock in lieu
of debt totaling $1,094,294 at an average price of $0.43 per share,
6,400,000 shares of outstanding common stock in lieu of debt totaling
$640,000 at an average price of $0.10 per share, 1,000,000 shares of
outstanding common stock as a consulting fee for renegotiating a loan
valued at $100,000 or $0.10 per share, 1,042,082 shares of outstanding
common stock in lieu of accrued penalty fees totaling $180,000 at an
average price of $0.17 per share, and 1,565,217 shares of outstanding
common stock as additional penalty fees totaling $270,000 at an average
price of $0.17 per share.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company is subject to certain claims and lawsuits arising in the
normal course of business. In the opinion of management, uninsured
losses, if any, resulting from the ultimate resolution of these matters
will not have a material effect on the Company's financial position,
results of operations, or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
All statements in this document concerning the Company other than purely
historical information (collectively "Forward-Looking Statements") reflect
our current expectations, which are based on our historical operating
trends, estimates, proved reserves and other information currently
available to us. This statement assume, among other things, (i) that no
significant changes will occur in the operating environment of our oil and
gas properties, and (ii) that there will be no material acquisition or
divestitures beyond those specifically mentioned. We caution that the
Forward-Looking Statements are subject to all of the risks and
uncertainties incident to the acquisition, development, and marketing of,
and exploration for oil and gas reserves. Use of the words "anticipate",
"estimate", "project", "may", "should" and "expect" denote forward-looking
statements. Forward looking statements include the following topics, but
are not limited to the topics indicated:
o projected operating or financial results;
o budgeted or projected financial expenditures;
o projected commencement or completion dates for field
activities;
o expectations regarding consummation of pending transactions;
o assumptions as to commodity prices; and
o statements regarding financing which may be available in the
future.
Actual results may vary materially from those expressed or implied in the
Forward-Looking Statements and there is no assurance that the assumptions
used are necessarily the most likely. The following factors are some of
the conditions which could cause actual results to vary from those
expected:
o the timing and level of changes in oil and gas prices;
o the timing and availability of financing upon acceptable
terms;
o the uncertainties in estimating proved reserves or forecasting
results;
o operational hindrances such as weather, availability of rigs
and personnel, or environmental damage or compliance costs;
o assumptions as to commodity prices; and
o statements regarding financing which may be available in the
future.
SUMMARY OF ACTIVITIES AND OVERVIEW
As of March 31, 2002, we were engaged in our principal activity of
developmental drilling of new wells and reworking operations on existing
wells situated on our Texas oil and gas properties. Our wholly owned
subsidiary, Hycarbex-American Energy, Inc., likewise holds an oil and gas
exploration license near Jacobabad, Pakistan, but no activities were
conducted on the license acreage during the quarter.
Historically, we have financed all of our operations with loan proceeds
and with proceeds from the sale of privately placed securities our outside
funds derived from future loans, sales of securities or other outside
sources will continue for both our domestic and international properties
until such development reaches a stage where revenues from existing
operations are sufficient to finance the development of these properties.
TEXAS GULF COAST OPERATIONS
We currently own and operate a total of 111 existing well bores in two
producing oil fields, the Blue Ridge Field and the Boling Dome Field, each
of which are within fifty (50) miles of the Houston, Texas metropolitan
area. Most of these existing wells were drilled by other oil companies
prior to our acquisition of the properties and most of these wells were
inactive at the time of such acquisition. During the three (3) months
ending March 31, 2002, no new wells were drilled and completed in these
fields.
We recently completed the C-55 well as an oil well on our Blakely Lease in
the Blue Ridge Field. We also reworked and put into production fifteen
(15) wells in our Boling and Blue Ridge Fields during the quarter. A 3-D
Seismic Shooting Agreement which we previously executed covering the Blue
Ridge Field progressed during the quarter but has not been completed to
date by the seismic company. During the quarter, we entered into a 3-D
Seismic Shooting Agreement covering our Boling Field leases which should
be completed before fiscal year end.
During the quarter ended March 31, 2002, an average of 39 of our 111 wells
were producing daily with varying production ranging from 2 barrels per
day to 50 barrels per day. A small number of these producing wells flow
without mechanical pumping but the majority require mechanical pumping
assistance. Both the number of producing wells and the daily production
from those wells remained stable throughout the quarter. Quoted oil prices
during the quarter for our sales of oil during the quarter averaged $19.79
per barrel.
We previously estimated that our domestic fields would continue to
experience a gradual increase in average daily production as additional
existing wells are reactivated and new developmental wells are drilled. We
projected that steadily increasing domestic production would generate the
operating capital necessary to maintain our ongoing reactivation and
development programs. Despite these projections, the events of September
11, 2001 caused the price of oil to fall and these oil prices have
remained below pre-September 11 levels. The decline in oil prices had a
two-fold negative effect upon operations. First, the lower prices resulted
in lower gross revenues from the producing wells. Second, the reduction in
overall revenues impaired our ability to schedule and perform maintenance,
reworking and new drilling activities resulting in a decline in the gross
monthly production volumes. We believe that we will only be able to
correct this working capital shortage by raising additional development
capital through outside sources. We can make no assurances that we will be
successful in raising the additional capital. If unsuccessful in our
efforts, our reactivation and development programs will be materially
delayed.
PAKISTAN OPERATIONS
In the initial five years in which Hycarbex-American Energy, Inc. has held
the Jacobabad concession in the Middle Indus Basin of central Pakistan, we
have expended in excess of $14.0 Million in acquisition, geological,
seismic, drilling and associated costs. We have commenced four exploratory
wells and drilled three of such wells to the target depth on the Jacobabad
concession without achieving a commercial discovery. We have encountered
natural gas shows in all four wells.
In August 2001, we were officially awarded the Yasin Concession (1211.68
sq. km) in the Sindh Province of Pakistan. In connection with this
license, our subsidiary Hycarbex-American Energy, Inc. has an accrued cash
deposit obligation to the Government of Pakistan of USD $800,000 which has
not been accrued on the financial statement. Hycarbex has committed USD
$2,400,000.00 over the course of the next three years to explore and test
this concession. The $800,000 is the first year payment of the $2,400,000
commitment. At least 190 kilometers of new 2-D seismic will be shot, 600
kilometers of older vintage 2-D data will be evaluated, and one
exploration well will be drilled to test the Sui Main Limestone formation
for potential gas. Hycarbex-American Energy Inc. has also bid and applied
for two additional Pakistan concessions in the area. The Bahadurpur
Concession (211.62 sq. km) is east of the Yasin Concession and north of
Pakistan Petroleum Ltd. Block 22 Concession. The Miro Khan Concession
(4764.87 sq. km.) is immediately to the west of the Yasin Concession on
the west flank of Hycarbex's prior Jacobabad Concession. We are currently
awaiting
official awards by the Pakistan Government and its circulation of formal
concession agreements for these two (2) blocks.
No activities were conducted during the quarter on our Pakistan acreage. A
new exploration well is expected to be commenced during the next fiscal
year in order to fulfil Hycarbex's exploration commitment with the
Government of Pakistan. The well location will be determined after
performance and evaluation of additional seismic expected to be completed
in the second and third quarters of the coming fiscal year.
RESULTS OF OPERATIONS
The following discussion compares the financial results for the three
months ended March 31, 2002 to the three months ended March 31, 2001.
REVENUES FROM OIL SALES
In the quarter ended March 31, 2002, we incurred a net operating loss of
$208,314, with oil and gas sales of $262,484 as compared to a net
operating loss of $5,623,886 on oil and gas sales of $452,872 in the prior
fiscal year's quarter ended March 31, 2001. During the quarter ending
March 31, 2002, we sold 13,260 barrels of oil net to our interest,
compared to 16,577 barrels of oil in March of 2001. Our net barrels of
sales generated $262,484 and reflect average daily sales of 147 barrels of
oil per day ("BOPD"), net after deducting landowner royalties.
COMPARISON TO PREVIOUS QUARTER ENDED MARCH 31, 2001
As compared with the quarter ending March 31, 2001 in the previous fiscal
year, we realized 42% decrease in revenues from oil sales on average net
oil prices which decreased by 28%. The decrease was due to the decline in
oil prices ($19.76 March 2002 and $27.32 March 2001) which we attribute
primarily to the events of September 11, 2001. The decline resulted in a
reduction in monthly gross revenues from production. The resulting decline
in overall revenues also materially impaired our ability to schedule and
complete maintenance, reworking and new drilling operations, causing a
decline in monthly gross production volumes.
NET INCOME
Including other income, foreign and domestic administrative expenses, and
interest, we reported a net loss of $359,760 in the quarter ended March
31, 2002, versus a net loss of $5,623,886 in the prior fiscal year's
quarter ended March 31, 2001, resulting in a reduction in net loss of
$5,264,126 from the prior year's comparative quarter. The substantially
higher loss figure for 2001 was based upon an increase for that period in
the Depreciation and Amortization Expense resulting from the writing off
of dry hole costs in Pakistan of approximately 5.4 million USD.
CAPITAL RESOURCES, ASSETS AND LIQUIDITY
TOTAL ASSETS
The book value of our Total Assets (Total Assets minus Total Liabilities)
is currently at $11,974,889, based upon the full cost method of accounting
for our oil and gas properties whereby all costs associated with the
acquisition, exploration and development of the properties are capitalized
in a "full cost pool". (See "SUMMARY OF ACTIVITIES AND OVERVIEW" above).
As of March 31, 2002 all cost related to the Pakistan concession has been
expensed as dry hole costs. The book value of an oil and gas property,
which is calculated using the full cost method of accounting, does not
necessarily approximate the fair market value of the particular property.
The fair market value approach is generally determined by the price a
willing purchaser will pay for the property. Many factors can affect the
market value, including the recoupment
period for the investment based upon the particular property's income
generating potential over a very limited if not short-term period. Book
value, on the other hand, will generally incorporate as a part of the
calculation the long-term income based upon development of the proven
reserves. Based upon these principals, the fair market value of our assets
is expected to be less than the indicated book value.
TOTAL ASSETS/SHAREHOLDERS' EQUITY
In the quarter ended March 31, 2002, our Total Assets equaled $16,716,353,
an increase of $281,901 over the year ended June 30, 2001, or a net
increase of about 1%. Net Shareholders Equity increased to $11,974,889 as
of March 31, 2002, from $11,027,264 as of June 30, 2001, a net increase of
$947,625 or a net increase of less than 1%.
LIQUIDITY AND WORKING CAPITAL POSITION
We have historically financed our acquisitions and operations with loans
from and sales of equity securities to private investors. During the
quarter, we borrowed $775,000 from a shareholder, $600,000 of which was
allocated for working capital and obligations in Pakistan, and $175,000 of
which was allocated for working capital and obligations in our domestic
operations. The loan agreement provides for a 12-month term at seven
percent interest.
Recognizing the critical need for additional working capital for both
short term and long term anticipated expenditures in the foreseeable
future, we entered into a Note and Stock Purchase Agreement on March 31,
2002, with an Investor in Hamburg, Germany which provided for a loan to
the Company and the purchase of Common and Preferred Stock from the
Company totalling $10,000,000.00. The transaction was made subject to
acceptable due diligence performed by the German Investor and subject to
an increase in our authorized Common Stock from the current 80,000,000
shares to 130,000,000 shares. The transaction was scheduled to be
consummated during the fourth quarter, if not cancelled by either party,
and would have resulted in sufficient new working capital to meet our
projected short term liquidity requirements and our foreseeable capital
expenditures. The transaction has not closed and has not been scheduled
for a closing. We are currently in negotiations with the German Investor
to resolve the conditions precedent to consummation. If not consummated,
we believe that we do not have the necessary liquidity to meet our short
term or foreseeable liquidity requirements. We intend to continue to
explore and pursue all available alternative sources of working capital
through potential loans, sales of securities, joint venture affiliations,
and other transactions in order to meet our anticipated near term needs.
We cannot be assured that these efforts will prove successful. If
unsuccessful, our domestic programs will face material delays.
Additionally, a lack of success could result in our inability to discharge
or refinance the matured first lien debt on our Texas oil and gas leases,
which could result in the loss of those leases and our ability to fund
future seismic and drilling requirements in Pakistan, which deficiencies
could result in a default under the Pakistan license obligations and
potential loss of the license.
We incurred certain long-term convertible debt in the amount of $1,500,000
in the quarter ended September 30, 1999. The debt was secured by a first
lien on our Texas oil and gas leases and the note evidencing the debt
matured on March 17, 2002. In anticipation of a closing of the German
Investor transaction subsequent to the end of the quarter, the lender
granted an extension until June 4, 2002, to pay the $1,5000,000 note
liability. Absent payment on that date or negotiation of another
arrangement suitable to both parties, the Texas oil and gas leases
securing the note are scheduled for sale by the lender. Discussions with
the lender are ongoing in case the transaction with the German Investor is
not consummated within the extension period.
A contractual provision within the lending documents evidencing the above
1999 $1,500,000 loan further required the Company to initiate a
registration with the Securities & Exchange Commission of the underlying
Common shares by December 16, 1999. We filed a registration statement on
Form S-3 during the quarter ended December 31, 2000, and until it is
declared effective, we will incur a financial penalty of $45,000 per
month beginning January 20, 2000, and continuing until such time that the
registration is effective. For the quarter ended March 31, 2002, $135,000
of this penalty is reflected as interest expense on the consolidated
statement of operations. We have elected to pay the penalty sum in common
stock as permitted in the lending documents. To date the SEC has not
approved or declared effective the Form S-3.
At the current time, the political climate in Pakistan is experiencing
some volatility because of military operations in nearby Afghanistan.
However, we are in contact daily with our staff in Islamabad who have
confirmed that the political climate is continuing to improve and
stabilize. Currently the oil industry in Pakistan is in full operations
including all foreign entities holding exploration licenses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As indicated above, the $1,500,000 loan to the Company made in September,
1999, which is secured by a first lien on the Texas oil and gas leases,
matured during the quarter. We negotiated an extension of all collection
and sale activities with the lender based upon an anticipated consummation
of the transaction with the German Investor. Based upon this extension,
the lender scheduled a future sale of our Texas oil and gas leases for
June 4, 2002. If the transaction with the German Investor is not
consummated, we will only be able to avoid the scheduled sale by obtaining
alternative financing, making suitable extension or refinancing
arrangements with the lender. We cannot be assured of success in our
current efforts to obtain alternative financing or to negotiate a
restructure of the matured debt.
During the quarter, in response to the action by written consent of
certain shareholders pursuant to an existing Bylaw provision, the Company
notified Georg von Canal of his removal from the Board of Directors. Mr.
von Canal opposed the action by promptly initiating a lawsuit against the
Company and William Aber, the remaining director, seeking injunctive
relief and declaratory relief that the attempted removal of Mr. von Canal
from the Board of Directors was invalid, based, in part, upon a Nevada
statutory provision which requires a two-thirds majority vote for removal
of any director. A tentative settlement agreement was reached between the
parties which was made contingent upon the consummation of the transaction
with the German Investor described above. If the transaction with the
German Investor is not consummated, the litigation to determine the
composition of the Board of Directors based upon the indicated action by
the shareholders may resume. During the period of negotiations and due
diligence with the German Investor, Mr. von Canal and Mr. Aber have been
working closely together on Company matters.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter, we renegotiated a $1,200,000 loan obtained by the
Company in the first quarter by paying $640,000 of the principal with
6,400,000 shares of restricted Common Stock.
These proceeds were utilized in the first quarter in our Pakistan
operations. We retained the right to repurchase the shares for one year at
a price of twelve and one-half cents per share. The $560,000 balance of
the loan was left for further negotiation with the stipulation that the
lender would take no action to collect the balance until after January 31,
2003. A consulting fee of $100,000 was paid to renegotiate the loan. The
fee was paid with 1,000,000 shares of Common Stock. The 6,400,000 shares
issued have been recently returned and cancelled in order for the German
transaction to be consummated. If the German transaction is not
consummated the $6,400,000 shares of restricted common stock will be
reissued to the Loaner.
During the quarter, 450,000 restricted Common shares were issued to the
holder of the September 1999 convertible debt. These shares were issued as
payment of the December 2001, accrued $45,000 per month penalty for
failure to obtain SEC registration of the Common Stock covered in the 1999
transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter, we did not default upon our senior securities, but the
first lien covering our Texas oil and gas leases did mature. As indicated
above, pursuant to an agreement with the lender, we are required to pay
the matured debt during the fourth quarter in order to avoid default and a
resulting sale of these assets, by the lender currently scheduled for June
4, 2002.
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
None
(b) Reports on Form 8-K
None
SIGNATURES
THE AMERICAN ENERGY GROUP, LTD.
5/20/2002 W/M/A
------------------------- --------------------------------
William M. Aber, Jr., CEO