-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMW34duoOBEN+O3+LtieXJSZ0FOnCXpPzmOTC8590Z1XSDKWk91utgYH4/JzHhS6 Zxcb9ILKS3A1DHpSHybfYw== 0000912057-02-006902.txt : 20020414 0000912057-02-006902.hdr.sgml : 20020414 ACCESSION NUMBER: 0000912057-02-006902 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ENERGY GROUP LTD CENTRAL INDEX KEY: 0000843212 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 870448843 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26402 FILM NUMBER: 02553778 BUSINESS ADDRESS: STREET 1: P O BOX 489 STREET 2: 1861 BROWN BLVD,STE 655 CITY: SIMONTON STATE: TX ZIP: 77476 BUSINESS PHONE: 2813462652 MAIL ADDRESS: STREET 1: PO BOX 489 CITY: SIMONTON STATE: TX ZIP: 77476 FORMER COMPANY: FORMER CONFORMED NAME: DIM INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BELIZE AMERICAN CORP INTERNATIONALE DATE OF NAME CHANGE: 19941004 10-Q 1 a2071426z10-q.txt 10-Q 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 DECEMBER 31, 2001 -------------------------- / / 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 of (IRS Employer Identification Number) incorporation or organization) 9441 Sam Houston Parkway, Suite 110 Houston, Texas 77099 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (713)-981-6114 - -------------- (Registrant's telephone number, including area code) (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
DECEMBER 31, 2001 JUNE 30, 2001 (UNAUDITED) (AUDITED) ----------------- ------------- ASSETS CURRENT ASSETS Cash $ 1,324,574 $ 923,831 Receivables 79,653 104,108 Other current assets 33,970 16,075 ----------- ----------- Total Current Assets 1,438,197 1,044,014 ----------- ----------- OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING Properties being amortized 16,856,414 16,687,542 Accumulated amortization (1,835,848) (1,515,171) ----------- ----------- Net Oil and Gas Properties 15,020,566 15,172,371 ----------- ----------- PROPERTY AND EQUIPMENT Drilling and related equipment 394,065 387,267 Vehicles 113,590 139,801 Office equipment 52,835 52,835 Less: Accumulated depreciation (419,882) (417,456) ----------- ----------- Net Property and Equipment 140,608 162,447 ----------- ----------- OTHER ASSETS Debt issue costs 16,207 48,620 Investments 20 1,900 Deposits and other assets 8,491 5,100 ----------- ----------- Total Other Assets 24,718 55,620 ----------- ----------- TOTAL ASSETS $16,624,089 $16,434,452 =========== ===========
1 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 JUNE 30, 2001 (UNAUDITED) (AUDITED) ----------------- ------------- LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Accounts payable $ 1,486,696 $ 1,729,235 Accrued liabilities 989,792 649,557 Deposit on sale of assets 0 483,080 Lease obligations - current 1,333 1,280 Notes payable - current 2,700,669 1,448,117 ------------ ------------ Total Current Liabilities 5,178,490 4,311,269 ------------ ------------ LONG-TERM LIABILITIES Notes payable and long-term debt 1,094,290 1,094,290 Capital lease obligations 949 1,629 ------------ ------------ Total Long-Term Liabilities 1,095,239 1,095,919 ------------ ------------ Total Liabilities 6,273,729 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 December 31, 2001: 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 December 31, 2001: 61,232,415 shares 61,233 59,992 Capital in excess of par value 37,065,272 36,724,103 Accumulated deficit (26,776,187) (25,756,873) ------------ ------------ Net Shareholders' Equity 10,350,360 11,027,264 ============ ============ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,624,089 $ 16,434,452 ============ ============
2 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 2001 2000 2001 2000 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------- ----------- ----------- ----------- REVENUES Oil and gas sales $ 214,254 $ 485,272 $ 548,337 $ 1,073,295 Lease operating and production costs 163,444 194,995 457,274 374,266 --------- ----------- ----------- ----------- Gross Profit 50,810 290,277 91,063 699,029 --------- ----------- ----------- ----------- OTHER EXPENSES Legal and professional fees 45,968 172,288 135,379 387,991 Administrative salaries 52,818 33,604 129,283 66,354 Office overhead expense 14,714 5,489 30,596 13,709 Depreciation and amortization expense 207,558 25,646 386,086 53,483 General and administrative expense 65,706 28,554 341,489 48,634 --------- ----------- ----------- ----------- Total Other Expenses 386,764 265,581 1,022,833 570,171 --------- ----------- ----------- ----------- NET OPERATING PROFIT (LOSS) (335,954) 24,696 (931,770) 128,858 --------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest income 3 0 23,744 868 Interest expense (135,068) (292) (282,125) (49,524) Forgiveness of debt income 0 0 198,080 0 Debt issuance costs (16,207) (11,345) (32,414) (22,690) Restricted shares issued to directors 0 (2,484,000) 0 (2,484,000) Shares issued to retire warrants 0 (1,490,125) 0 (1,490,125) Unrealized gain (loss) on investment 18 0 (1,880) 0 Gain on asset sales 0 0 7,051 0 --------- ----------- ----------- ----------- Net Other Income (Expenses) (151,254) (3,985,762) (87,544) (4,045,471) --------- ----------- ----------- ----------- NET INCOME BEFORE TAX (487,208) (3,961,066) (1,019,314) (3,916,613) Federal Income Tax 0 0 0 0 --------- ----------- ----------- ----------- NET INCOME (LOSS) FOR PERIOD $(487,208) $(3,961,066) $(1,019,314) $(3,916,613) ========= =========== =========== =========== EARNINGS (LOSS) PER SHARE (0.01) (0.08) (0.01) (0.08) ========= =========== =========== ===========
3 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months Six months ended ended December 31 December 31 2000 2000 (Unaudited) (Unaudited) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(1,019,314) $(3,916,613) Adjustments to Reconcile Net Loss to Cash Provided by (Used in) Operating Activities: Depreciation and amortization 371,599 106,592 Less amount capitalized to oil & gas properties (13,099) (30,419) Gain on asset sale (7,051) 0 Common stock issued for services rendered 271,410 179,768 Restricted common stock issued to directors 2,484,000 Common stock issued for warrant retirement 1,490,125 Common stock issued for penalty fee 0 225,000 Amortization of note payable discount 60,000 0 Loss on investment 1,880 0 Forgiveness of debt income (198,080) Changes in operating assets and liabilities: (Increase) decrease in receivables 24,455 60,484 (Increase) decrease in deposits and other assets (3,391) (61,200) (Increase) decrease in other current assets (17,895) 0 Increase (decrease) in accounts payable 121,176 (320,176) Increase (decrease) in accrued expenses and other current liabilities (142,845) 92,553 ----------- ----------- Cash Provided by (Used in) Operating Activities (551,155) 310,114 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for oil and gas properties (320,677) (1,882,578) Expenditures for other property & equipment (6,798) (29,386) Proceeds from the sale of assets 10,00 0 ----------- ----------- Cash Provided By (Used in) Investing Activities (317,475) (1,911,964) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock - 3,602,355 Expenditures (refund) for offering costs 50,000 (354,773) Proceeds from notes payable 1,220,000 - Payments on notes payable and long-term liabilities (627) (843,955) ----------- ----------- Cash Provided By (Used in) Financing Activities 1,269,373 2,403,627 ----------- ----------- NET INCREASE (DECREASE) IN CASH 400,743 801,777 CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 923,831 1,344,513 ----------- ----------- CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,324,574 $ 2,146,290 =========== ===========
4 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD JUNE 30, 2001 THROUGH DECEMBER 31, 2001
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 - Net income for the six months ended December 31, 2001 (unaudited) - - - - - (1,019,314) ---------- ------- ------ ------ ----------- ------------ Balance, December 31, 2001(unaudited) 61,232,415 $61,233 41,499 $42 $37,065,272 $(26,776,187) ========== ======= ====== ====== =========== ============
5 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2001 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 December 31, 2001 and 2000 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 December 31, 2001 and 2000 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 six months ended December 31, 2001, the Company received approximately $1,400,000 from various officers, directors, and shareholders of the Company. The terms of the promissory notes are still being negotiated. NOTE 4 - SUBSEQUENT EVENTS Subsequent to December 31, 2001, the following significant events occurred. 1. 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 THE AMERICAN ENERGY GROUP, LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements December 31, 2001 and June 30, 2001 NOTE 4 - SUBSEQUENT EVENTS (Continued) 2. The Company issued 7,400,000 shares of outstanding common stock in lieu of debt totaling $1,000,000 at an average price of $0.14 per share. 3. The Company issued 2,607,299 shares of outstanding common stock in lieu of debt totaling $450,000 at an average price of approximately $0.17 per share. 7 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. These risks include, but are not limited to: - Commodity price risk - Environmental risk - Drilling risk - Uncertainties in the estimation of reserves - Production risks - Regulatory risks - Counter party risk and lack of capital resources. Many of these risks are described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2001 filed with the Securities and Exchange Commission in October 2001. We may make material acquisitions or dispositions, enter into new or terminate existing oil and gas sales or hedging contracts, or enter into financing transactions. None of these can predicted with any certainty and, accordingly, are not taken into consideration in the Forward-Looking Statements made herein. For all of the foregoing reasons, actual results may vary materially from the Forward-Looking Statements and there is no assurance that the assumptions used are necessarily the most likely. SUMMARY OF BUSINESS AND RECENT ACTIVITIES As of December 31, 2001, 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. 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. Our saltwater disposal wells in the Blue Ridge and Boling Fields have been repaired and are on line. We are no longer incurring third party costs associated with hauling and disposing of 8 saltwater from operations. We have reworked and put on line four (4) additional well in the Boling Field this quarter. A 3-D Seismic Shooting Agreement was signed. Shooting will start soon. We signed an Agreement with Mike Robinson to delay drilling our commitment well for six (6) months until the 3-D is evaluated at a cost of $15,500. Our number two rig was repaired and put into operations while our number one rig is being repaired. A new Blakely Lease well (C-55) will be drilled in the next quarter. 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 December 31, 2001, no new wells were drilled and completed in the Blue Ridge or Boling Fields. In addition to new developmental wells already drilled, we continued our efforts to rework and reactivate certain of the existing inactive wells present on the Texas leases at the time of acquisition. During the quarter ended December 31, 2001, an average of thirty nine (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 sales of oil by the Company during the quarter averaged $18.32 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 anticipated that steadily increasing domestic production would generate the operating capital necessary to maintain our ongoing reactivation and development programs. Unfortunately the events of September 11, 2001 have caused the price of oil to fall to $17.22/BBL as of, December 31, 2001. We have developed a more aggressive plan to speed up development and production to offset the decrease in the oil price. However, we believe that we must continue to raise additional capital through outside sources in order for the reactivation and development programs to succeed. 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 would 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. 9 Recently for strategic reasons, we elected to release the Jacobabad Concession back to the Pakistan government and nominate specific highly potential hydrocarbon areas for bidding with the expectation of being awarded the desired acreage areas. We applied and bid for three (3) concessions closely associated with the released Jacobabad Concession. In August 2001 we were officially awarded the Yasin Concession (1211.68 sq. km) in the Sindh Province of Pakistan. Dr. Iftikhar Zahid, Hycarbex's Vice President of Administration and Resident Director signed the Concession Agreement August 11, 2001 in Islamabad with representatives of the President of Pakistan. Hycarbex has committed USD $2,400,000.00 over the course of the next three years to explore and test this concession. At least 190 km of new 2-D seismic will be shot, 150 km of older vintage 2-D data will be evaluated, and one exploration well will be drilled to test the Sui Main Limestone formation for potential gas. Hycarbex-American Energy Inc. has also bid and applied for two additional Pakistan concessions in the area. The Bahadurpur Concession 211.62 sq. Km is east of the Yasin Concession and north of Pakistan Petroleum Ltd. Block 22 Concession. The Miro Khan Concession (4764.87 sq. km.) is immediately to the west of the Yasin Concession on the west flank of Hycarbex's prior Jacobabad Concession. We are currently waiting for the oil ministry to finalize the concession agreements for these two (2) blocks and to make its official awards. During the quarter we announced that a new exploration well would be commenced within the next year, in order to fulfill Hycarbex's exploration commitment with the Government of Pakistan. The well location will be determined after performance and evaluation of additional seismic expected to be conducted in the second and third quarters of the coming fiscal year. RESULTS OF OPERATIONS The following discussion compares the financial results for the three months ended December 31, 2001 to the three months ended December 31, 2000. REVENUES FROM OIL SALES In the quarter ended December 31, 2001, we incurred a net operating loss of $335,954, with oil and gas sales of $214,254 as compared to a net operating profit of $24,696 on oil and gas sales of $485,272 in the prior fiscal year's quarter ended December 31, 2000. During the quarter ending December 31, 2001, we sold 13,042 barrels of oil net to our interest. Our net barrels of sales generated $214,254 and reflect average daily sales of 145 barrels of oil per day ("BOPD"), net after deducting landowner royalties. COMPARISON TO PREVIOUS QUARTER ENDED DECEMBER 31, 2000 As compared with the prior quarter ending December 31, 2000 in the previous fiscal year, we realized a fifty five percent (55%) decrease in revenues from oil sales on average net oil prices of forty five percent (45%) decrease. NET INCOME Including other income, foreign and domestic administrative expenses, and interest, we reported a net loss of $487,208 in the quarter ended December 31, 2001, versus a net loss of $3,961,066 in the prior fiscal year's quarter ended December 31, 2000. Net operating income (loss) decreased by $3,473,858.00 from the prior year's comparative quarter. 10 TOTAL ASSETS/SHAREHOLDER'S EQUITY In the quarter ended December 31, 2001, our Total Assets equaled $16,624,089, an increase of $189,637 over the year ended June 30, 2001, or a net increase of about 1%. Net Shareholders Equity decreased to $10,350,360 as of December 31, 2001, from $11,027,264 as of June 30, 2001, or a net decrease of 1%. EVENTS AFFECTING CAPITAL RESOURCES AND MATERIAL ASSETS General requirements of the Pakistan exploration license include the requirement that a minimum of $1,200,000 be maintained on deposit in our Pakistan operating account toward the anticipated costs associated with the drilling of the next required well. Currently, we have the required $1,200,000 on deposit in Pakistan. We intend to continue to explore and pursue all available 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 give assurance that these efforts will continue to prove successful. If unsuccessful, our domestic programs will face material delays as we accrue net production income to fund future operations. Additionally, a lack of success could result in our inability to fund in a timely fashion the seismic and drilling requirements in Pakistan. Such funding deficiencies could result in a default under the Concession Agreement. The book value of our Total Assets (Total Assets minus Total Liabilities) is currently at $10,350,360, 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 BUSINESS AND RECENT ACTIVITIES" above). As of December 31, 2001 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 in 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. We incurred certain long-term convertible debt in the amount of $1,500,000 in the quarter ended September 30, 1999, which debt is convertible at the option of the holder at the rate of one Common share for each one dollar of principal converted. A contractual provision within the lending documents required the Company to initiate a registration with the Securities & Exchange Commission of the underlying Common shares by December 16, 1999. 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 December 31, 2001, $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. 11 Results of operations for the quarter were adversely affected because of the decline in oil prices for the quarter compared to the December 31, 2000 quarter. Results in comparison to the December 31, 2000 quarter also declined because the quarter's financial results included significant cash resources generated from the private placement in securities. No such placement occurred during the current quarter. We believe that if we are successful in obtaining near term funding as a result of on-going negotiations, our domestic reactivation and development program can proceed as planned. 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 has confirmed that the political climate has greatly improved and appears to be stabilizing. 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 of December 31, 2001, there are no material legal proceedings associated with the company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS No were no significant adjustments to the outstanding securities of the Company in the quarter ending December 31, 2001: 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 This financial results reported in this Form 10-Q were adversely affected because the oil prices are decreased in quarter compared to December 31, 2000 quarter. We felt that if AEOC could be funded properly by mid December 2001 we could increase production, lower lifting costs and achieve the profit by the end of the fiscal year that we hoped for prior to September 11, 2001. However additional funds were not negotiating as anticiapated so our goals are on hold until funds are raised. We are currently in negotiating with potential lenders and investors. No assurance will be given that these negotiating will provide needed capital for operation and development. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (249.308 OF THIS CHAPTER) (a) Exhibits The Consolidated Financial Statements dated December 31, 2001 and December 31, 2000 (unaudited), and June 30, 2001 (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. 2/19/2002 W/M/A ---------------------------------------- William M. Aber, Jr., President 2/19/2002 L/F/G ---------------------------------------- Linda F. Gann, Secretary 13 -----END PRIVACY-ENHANCED MESSAGE-----