SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 13-3130236
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 688-3333
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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 such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock, $.08 par
value, as of November 5, 1997 is 48,286,137 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,209,388 $ 11,058
Cash - restricted -- 161,022
Marketable Securities 2,565,246 --
Accounts and notes receivable, net 1,594,667 1,073,140
Inventory -- 459,961
Prepaid expenses 399,073 838,104
------------ ------------
Total current assets 7,768,374 2,543,285
------------ ------------
Property, plant and equipment:
Unevaluated oil and gas property 6,305,691 5,648,630
Oil and gas properties -- 32,506,656
Refinery property and equipment 19,993,977 17,235,183
Other 212,970 499,971
------------ ------------
26,512,638 55,890,440
Less - accumulated depreciation, depletion,
amortization and impairments (4,150,005) (23,959,191)
------------ ------------
Total property, plant and equipment 22,362,633 31,931,249
------------ ------------
Other long-term assets, net 2,657,101 17,897
------------ ------------
Total assets $ 32,788,108 $ 34,492,431
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 237,162
Current portion of long-term debt 2,399,993 5,968,393
Accounts payable 1,164,343 3,636,765
Accrued liabilities 2,122,384 2,524,194
------------ ------------
Total current liabilities 5,686,720 12,366,514
Long-term debt 6,208,333 798,199
------------ ------------
Total liabilities 11,895,053 13,164,713
------------ ------------
Stockholders' equity:
Preferred stock, par value $0.01, 7,000,000 shares
authorized, none issued -- --
Common stock, par value $.08, 100,000,000 shares
authorized, 43,877,092 shares issued and outstanding
at September 30, 1997 and 34,458,921 shares at December 31, 1996 3,510,167 2,756,714
Additional paid-in capital 90,195,834 78,677,265
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (74,110,700) (61,404,015)
------------ ------------
Total stockholders' equity 20,893,055 21,327,718
------------ ------------
Commitments and contingent liabilities -- --
------------ ------------
Total liabilities and stockholders' equity $ 32,788,108 $ 34,492,431
============ ============
</TABLE>
2
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1997 1996
------------ ------------
Restated
Revenues:
Oil and gas production and
pipeline fees $ -- $ 300,514
Refinery lease fees -- 662,962
Other 103,738 36,498
------------ ------------
Total revenues 103,738 999,974
------------ ------------
Expenses:
Operating -- 176,220
General and administrative 553,073 923,270
Depreciation, depletion and
amortization 183,410 284,251
Interest 3,583,757 439,420
Unrealized loss on marketable securities 405,038 --
------------ ------------
Total expenses 4,725,278 1,823,161
------------ ------------
Net loss $ (4,621,540) $ (823,187)
============ ============
Net loss per share of common stock $ (0.11) $ (0.03)
============ ============
Weighted-average number of shares
of common stock outstanding 42,252,140 32,884,064
============ ============
3
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1997 1996
------------ ------------
Restated
Revenues:
Oil and gas production and
pipeline fees $ 260,579 $ 941,760
Refinery lease fees -- 1,780,280
Other 192,080 167,873
------------ ------------
Total revenues 452,659 2,889,913
------------ ------------
Expenses:
Operating 98,765 392,885
General and administrative 3,128,085 2,210,298
Depreciation, depletion and
amortization 565,776 931,704
Interest 4,999,168 1,934,958
Unrealized loss on marketable securities 3,798,765 --
Provision for bad debts 5,118 --
Loss on sale of subsidiaries 563,667 --
------------ ------------
Total expenses 13,159,344 5,469,845
------------ ------------
Net loss $(12,706,685) $ (2,579,932)
============ ============
Net loss per share of common stock $ (0.32) $ (0.08)
============ ============
Weighted-average number of shares
of common stock outstanding 39,140,084 30,406,476
============ ============
4
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,706,685) $(2,579,932)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 3,918,639 2,038,894
Unrealized loss on marketable securities 3,798,765 --
Provision for bad debts 5,118 --
Loss on sale of subsidiaries 563,667 --
Non-cash provision for services 174,219 421,875
Changes in assets and liabilities:
Accounts and notes receivable 289,058 (273,932)
Inventory 56,974 258,521
Prepaid and other (63,431) 48,430
Accounts payable and accrued liabilities (157,577) 486,557
------------ -----------
Net cash provided by (used in) operating activities (4,121,253) 400,413
------------ -----------
Cash flows from investing activities:
Additions to oil and gas properties (939,805) (1,122,400)
Additions to refinery property and equipment (2,758,794) (1,056,909)
Proceeds from sale of marketable securities 2,404,739 --
Proceeds from sale of subsidiaries 1,729,287 --
-----------
Other (605,791) (200,023)
------------ -----------
Net cash used in investing activities (170,364) (2,379,332)
------------ -----------
Cash flows from financing activities:
Cash - restricted, loan collateral 35,261 97,253
Net increase (decrease) in notes payable (237,162) 34,593
Proceeds from long-term debt 10,536,600 1,810,000
Repayments of long-term debt (3,675,657) (714,675)
Proceeds from issuance of common stock and
warrants, net 442,270 762,802
Proceeds from exercise of stock warrants
and options 388,635 --
------------ -----------
Net cash provided by financing activities 7,489,947 1,989,973
------------ -----------
Net increase (decrease) in cash and
cash equivalents 3,198,330 11,054
Cash and cash equivalents at beginning of year 11,058 162,218
------------ -----------
Cash and cash equivalents at end of year $ 3,209,388 $ 173,272
============ ===========
</TABLE>
5
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common stock paid-in purchase Accumulated
Shares Amount capital warrants deficit Total
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 34,458,921 $2,756,714 $78,677,265 $1,297,754 $(61,404,015) $ 21,327,718
Conversions of Debentures 4,674,311 373,943 2,379,279 -- -- 2,753,222
Issuance of stock for interest in oil &
gas properties -- Regulation S 1,750,000 140,000 4,955,313 -- -- 5,095,313
Issuance of stock for services 250,000 20,000 116,719 -- -- 136,719
Issuance of stock for compensation 100,000 8,000 32,000 -- -- 40,000
Issuance of stock in lieu of accounts payable 224,046 17,924 97,909 -- -- 115,833
Issuance of stock purchase warrants with debentures -- -- 1,539,071 -- -- 1,539,071
Exercise of warrants 784,221 62,739 325,896 -- -- 388,635
Issuance of common stock -- Regulation S 1,635,593 130,847 308,923 -- -- 439,770
Imputed interest on debentures
convertible at a discount to market -- -- 1,763,459 -- -- 1,763,459
Net loss for the period -- -- -- -- (12,706,685) (12,706,685)
---------- ---------- ----------- ---------- ------------ ------------
Balance, September 30, 1997 43,877,092 $3,510,167 $90,195,834 $1,297,754 $(74,110,700) $ 20,893,055
========== ========== =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1997, the results of operations for the three and nine month periods ended
September 30, 1997 and 1996 and cash flows for the nine months ended September
30, 1997 and 1996. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with those
used in the preparation of the Company's 1996 Annual Report on Form 10-K/A.
The unaudited results of operations for the three and nine months ended
September 30, 1996 have been restated to reflect accounting for various
convertible debentures issued during those periods, which were convertible at a
discount to market, as reflected in Note 7 of the Company's Form 10-K/A for the
fiscal year ended December 31,1996.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K/A.
2. Marketable Securities
Marketable securities held by the Company are available-for-sale securities
carried at lower of cost or market value.
Marketable securities acquired by the Company at a basis of $2.00 per share had
a market value of $1.60, $1.10, and $.95 per share at March 31, 1997, June 30,
1997, and September 30, 1997 respectively, resulting in an aggregate unrealized
loss during 1997 of $3,799,000. Because the decline in market value was deemed
to be other than temporary, the unrealized loss was charged to earnings as
incurred.
3. Other Long Term Assets
The Company received a two-year, 5%, $3,000,000 exchangeable (convertible)
debenture from Mercantile International Petroleum Inc. ("MIP") as partial
proceeds from the sale of its South American operations. One-half of the
principal, or $1.5 million, was callable or convertible in one year and was
therefore recorded as a current asset. The Company recorded the net present
value of this debenture assuming that one-half the principal was repaid after
one year. It utilized an interest rate of 12%, reduced to 7% by the 5% coupon
attached to the debenture.
In addition to the above debenture, the Company also received, as partial
proceeds from the sale of its South American operations, the right to receive a
portion of the revenues derived from future drilling in the purchased oilfields
by MIP (the "Performance Earn-out"). The Company assumed that 1/3 of the
Performance Earn-Out would be paid at the end of each of the years three, four
and five following the sale. The Company recorded the net present value of these
payments utilizing an interest rate of 12%, reduced to 4% by the 8% coupon
attached to the Performance Earn-Out payment, pursuant to the terms of the
agreement.
The discounted value of these long-term assets were recorded at an aggregate of
$3,600,000, less the current portion of the debenture of $1.5 million.
4. Long-Term Debt
The effective interest rate as stated for each of the debt instruments below
does not necessarily reflect the actual cash cost to the Company for that
specific debt instrument. The effective interest rate reflects the presumed
7
<PAGE>
incremental yield the holder of the debt instrument may derive from the
discounted conversion rate of such instrument issued by the Company.
September 30, 1997
------------------
8% - $291,600 Subordinated Debentures - due
from September 24 to December 6, 1997,
effective interest rate - 28.7% $ 291,600
8% - $75,000 Convertible Debenture - due
May 19, 1999, effective interest rate - 63.6% $ 75,000
8% - $6,400,000 Convertible Debenture - due
August 6, 1999, effective interest rate - 25.7% $ 6,133,333
Note payable to MG Trade Finance Corporation $ 2,108,393
------------
$ 8,608,326
Less Current portion $ 2,399,993
------------
Long-Term Debt $ 6,208,333
============
As of November 5, 1997 all of the above current and long-term debt had been
retired.
In October 1997, the Company issued an aggregate $10 million in 14% Convertible
Notes. (See Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.)
5. Contingencies
In May 1992, AIRI was notified by the Internal Revenue Service ("IRS") that the
IRS was considering an assessment of excise taxes, penalties and interest of
approximately $3,500,000 related to the sale of fuel products during 1989. The
IRS claims that AIRI failed to comply with an administrative procedure that
required sellers, and buyers in tax-free transactions, to obtain certification
from the IRS. The Company believes that AIRI complied with the substance of the
existing requirements and such sales were either tax-free or such excise taxes
were paid by the end-users of such products.
AIRI has offered to negotiate a settlement of this matter with IRS Appeals since
early 1993. Such negotiations included face-to-face meetings, numerous phone
calls and written transmittals and several offers of settlement by both the
Company and the IRS. During these negotiations, the IRS Appeals officers offered
to waive all of the penalties and 75% of the amount of the proposed tax
liability. However, AIRI rejected this offer and requested the IRS' National
Office provide technical advice to its Appeal officers. After numerous
conferences and discussions with the National Office in 1995, the National
Office issued an adverse Technical Advice Memorandum ("TAM") to the effect that
AIRI should be liable for the tax on the sale of diesel fuel for the first three
quarters of 1989. However, subsequent to the issuance of the TAM, the IRS
Appeals officer indicated to AIRI that the IRS still wants to negotiate a
settlement.
8
<PAGE>
The Company accrues an estimated loss from a loss contingency when a liability
has been incurred and the amount of such loss can be reasonably estimated. Such
accruals are based on developments to date and the Company's estimate of the
liability. During the third quarter of 1997, discussions with the IRS indicated
that the allowance for this contingency should be increased by $200,000 to $1.5
million. Such increase was recorded by the Company in August 1997. In November
1997, the Company reached an agreement (the "Agreement") with the IRS to settle
this matter by paying an aggregate of $646,633 in tax plus interest accrued for
the applicable periods involved. The method and timing of such payment is now
being discussed with IRS Collections in Houston, Texas. The Company has
submitted a proposal to the IRS that calls for payment of the tax and interest
over a period of approximately one-year. In the Agreement, the IRS waived all
penalties and 75% of the amount of the originally proposed tax liability. The
Company continues to maintain that is not liable for the excise taxes at issue,
but agreed to settle the dispute at a significantly lower amount of liability in
order to bring this long-running issue to a conclusion. The Agreement has
confirmed the adequacy of the Company's previously recorded aggregate allowance
for this contingency.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the last three years, the Company has had difficulty generating
sufficient cash flow to fund its operations, capital expenditures and required
principal payments. As a result, the Company has from time to time operated with
limited liquidity or negative working capital. In order to continue operations
under such circumstances, the Company has historically relied on outside sources
of capital.
On February 25, 1997, the Company sold all of the issued and outstanding shares
of Common Stock of two of its wholly-owned subsidiaries, American International
Petroleum Corporation of Colombia ("AIPCC") and Pan American International
Petroleum Corporation ("PAIPC") (the "Purchased Shares") in an arms length
transaction (the "MIP Transaction") to Mercantile International Petroleum, Inc.
("MIP") in exchange for cash, approximately 4.4 million shares of MIP Common
Stock, valued in the MIP Transaction at $2.00 per share (the "MIP Shares"), debt
in the form of a $3 million exchangeable debenture (the "Exchangeable
Debenture), and deferred compensation.
However, the market value of the MIP Shares has declined since the closing of
the MIP Transaction to $.95 on September 30, 1997. The Company recorded the MIP
Shares at lower of cost or market, which resulted in a cumulative unrealized
loss during 1997 of $3,799,000.
In October 1997, the Company issued an aggregate $10 million of one-year 14%
convertible notes (the "Notes") to two foreign entities pursuant to Regulation
S, for net proceeds of approximately $9,579,000. The Company may prepay all, but
not less than all of, the Notes six months after closing (the "Call Date") at
the greater of (x) 100% of the principal amount of the Notes and (y) the number
of shares into which the Notes are convertible on the Call Date plus accrued
interest, minus one-third of the difference between (x) and (y). Although the
Holders of the Notes may convert the outstanding principal of the Notes at any
time after November 27, 1997 into the Company's Common Stock at $6.25 per share
(approximately 112% of the average closing bid price for the five trading days
preceding the closing), no conversions may take place before February 12, 1998
(120 days after close) unless the market price of the Company's Common Stock
exceeds approximately $8.33 per share (145% of the Closing Price). After six
months, the Notes may be converted at the lesser of (i) $6.25 per share, (ii)
85% of the Market price at conversion and (iii) the daily weighted-average sales
price reported for the lowest five consecutive trading days during any 40-day
period following the Call Date. The proceeds will be used for start-up capital
for the refinery and for other Company projects and general corporate purposes.
9
<PAGE>
Also in October 1997, in lieu of cash, the Company issued 11,754 restricted
shares of its common stock, pursuant to Regulation S, to a foreign individual as
full payment of an aggregate of $67,659 in principal and interest owed by the
Company to this individual.
During the nine months ended September 30, 1997, the Company incurred a net loss
of $12,707,000, which reflects approximately $8,903,000 in non-cash provisions,
including depreciation, depletion and amortization of $3,919,000, unrealized
loss on write-down of marketable securities acquired in the MIP Transaction of
$3,799,000, provision for bad debts of $448,000, stock issuances for services
and compensation of $174,000, and loss on sale of subsidiaries of $564,000.
Approximately $160,000 was used during the period to increase current assets
other than cash, and $158,000 was used to decrease accounts payable and accrued
liabilities. Cash for operations was provided, in part, by the sale and
distribution of marketable securities of $2,405,000, the issuance of Common
Stock and a net increase in long-term debt in an aggregate amount of $7,689,000,
and from the sale of subsidiaries of $1,729,000.
In the past, the Company has borrowed funds from MG Trade Finance Corp.
("MGTF"). As part of the MIP Transaction, the Company agreed to change the
maturity date for payment of the unpaid balance due to MGTF (currently
$2,108,000) to September 30, 1997 from March 31, 1998. The Company pledged
1,000,000 shares of the MIP Shares to further secure the Loan Agreement with
MGTF. On October 1, 1997 the Company paid the remaining principal and interest
due on the Loan Agreement with some of the proceeds it received from the sale of
debentures during the third quarter of 1997. The MIP shares, as well as all of
the outstanding shares of its wholly-owned subsidiary, American International
Refinery, Inc. ("AIRI"), also pledged to MGTF as collateral, have been returned
to the Company by MGTF and the liens and mortgages related thereto are in the
process of being released.
Because of non-payment of lease fees and other items of default under the terms
of its lease agreement with the Company (the "Lease Agreement"), Gold Line was
evicted from the Refinery premises on March 20, 1997. The Company filed suit
against Gold Line to recover unpaid lease fees and other items totaling
approximately $1.8 million and received a judgment related thereto of
approximately $1.5 million. All past amounts due from Gold Line have been
previously reserved, including a charge to the reserve for bad debts during the
first quarter of 1997 for $443,000 representing the unpaid processing fees for
that period. On August 8, 1997, Gold Line filed for protection under Chapter 11
of the U.S. Bankruptcy Code; therefore no assurance can be given that the
Company will be able to collect on this judgment.
In April 1997, the Company signed an agreement with a German-based company, MED
Shipping & Trading S.A. ("MED") for the purchase of a 70% working interest in a
4.7 million acre oil and gas concession (the "License") in the Usturt Basin of
Western Kazakstan. The License has been transferred by the Kazakstan government
to MED Shipping Usturt Petroleum Company Limited ("MSUP"), a joint venture
limited liability company, which has been formed to manage the License
operations. The Company owns 70% of MSUP through its newly-formed and
wholly-owned subsidiary American International Petroleum Kazakstan ("AIPK"),
which will handle all of the Company's operations in Kazakstan.
As previously reported, the Company paid $100,000 in cash and 300,000 shares of
its Common Stock, issued pursuant to Regulation S, to MED in return for the
option to acquire a 40% working interest in the License. Further negotiations
10
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resulted in an increase in the working interest to 70%. As consideration for its
70% interest in MSUP, the Company issued an additional 2,950,000 shares of its
Common Stock and warrants to purchase an aggregate of 500,000 shares of its
Common Stock, at an exercise price of $2.00 per share, pursuant to Regulation S.
MED receives a monthly consulting fee of $23,000 to be used to establish
contacts for the development and marketing of production, administrative and
other activities related to the enhancement of the License, and for AIPK
operations in Kazakstan.
The License area is located in western Kazakstan approximately 125 kilometers
southeast of Chevron's multi-billion barrel Tengiz Oil Field and the Caspian
Sea. The area is bordered to the south by Elf Acquitain's license and to the
west by both Oryx/Exxon and Amoco licenses. Evaluation by the Company's
independent petroleum engineers indicates the presence of potential recoverable
reserves on seven structures, located in the western half of the License near
major pipeline systems. Additional structures have been identified in the
License area, but have not been evaluated. Regional seismic data on the eastern
half of the License area indicates additional structures, the largest of which,
the "Chikuduk", measures approximately 50 kilometers in length. This structure,
whose reserves are not yet estimated, could provide the largest potential
deposits in the License area. The Company plans to continue its evaluation of
the area and expects to expand its evaluation program as additional data is
released to the Company by the government.
The License area provides various commercial options for oil or gas production,
since there are several oil and gas pipelines which cross the area. The existing
infrastructure permits rapid development and marketing of production and
flexibility in securing acceptable markets for same. Production can be sold
north to Russia, Finland and the Atyrau Refinery, and/or south through the
Caspian Sea at Aktau for export abroad.
Development of the License database has begun and the initial seismic lines are
being reprocessed for orientation of the seismic program and selection of
possible drilling sites. The Company has requested bids for survey crews to
begin work to lay out the initial 1,250 kilometer seismic program, which is
expected to begin by year end. Preliminary discussions have been held with
potential drilling contractors and work on the first well is planned for the
second quarter of 1998, depending on rig availability.
The Company will be responsible for managing the License operations and funding
all obligations therefor. Such obligations could amount to $14.5 million during
the next five years, approximately one-half of which must be expended during the
next three years for seismic and drilling. The Company is currently having
discussions with various oil companies who have expressed a preliminary interest
in participating in the exploitation of the License area.
The Company has sufficient capital, or access thereto, to complete the expansion
of the Refinery to enable the implementation of its asphalt operations and to
make any preliminary oil and gas related expenditures in Kazakstan. The first
phase of construction of the Refinery expansion, necessary to implement
operations, has been completed and the Company plans to commence asphalt
terminalling in November 1997. The final phase is expected to be completed by
year-end 1997, at which point the Company can implement the manufacturing of its
asphalt, vacuum gas oil, and other products. Although the Refinery will be
capable of processing up to 30,000 barrels per day of feedstock, the Company
currently expects to process an average of
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approximately 10,000 barrels per day during 1998, however it may process at
higher rates if the market dictates. The asphalt and other operations at the
Refinery are expected to provide the Company with the future capital necessary
to fund its oil and gas operations, or place the Company in a position where it
is able to access conventional financing for such projects.
The Company is also having discussions with various financing entities regarding
non-equity financing arrangements to provide funding for upcoming operations,
and other capital it may require. However, there is no assurance of success of
any financing efforts the Company may pursue or the timing or success of its
Refinery projects and/or its other potential projects. In the event that the
Company is not able to fund its projects on its own in a timely manner,
management believes it will be able to obtain partners for certain projects,
however, such projects could be delayed or curtailed. At November 4, 1997, the
Company had approximately $11 million of cash and marketable securities.
However, as a result of the MIP Transaction and the cancellation of the Lease
Agreement, the Company has no current operating cash flows. Therefore, until the
implementation of new operations at its Refinery, or elsewhere, and absent any
new financing it may obtain, the Company will rely on its existing working
capital and principal and interest payments from the Exchangeable Debenture to
sustain its business operations.
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Results of Operations
For the Three Months Ended September 30, 1997 as compared
to the Three Months Ended September 30, 1996
The following table highlights the Company's results of operations for the three
months ended September 30, 1997 and 1996.
For The Three Months
Ended September 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) (1) $301
Lease Operating Expenses (000's) (1) $180
Production Volume - Bbls (1) 25,971
Average Price per Bbl (1) $11.57
Production Cost per Bbl (1) $6.92
DD&A per Bbl (1) $3.77
Peru Properties: (1) (2)
Refinery Operations:
Refinery Lease Fees (000') (3) $663
Average Daily Throughput (3) 14,112
Average Throughput Fee (3) $0.50
- ----------
(1) Colombia and Peru properties were sold as of February 25, 1997
(2) Information for 1996 is not available due to a dispute with the Company's
partner.
(3) The refinery's tenant was evicted as of March 20, 1997.
Oil and Gas Operations:
The date of the sale of the Colombia and Peru subsidiaries was February 25,
1997, therefore there were no operations for the three months ended September
30, 1997 compared to three full months of operations reflected in 1996.
Refinery Operations:
The Company evicted it's lessee on March 20, 1997, therefore there were no
operations for the three months ended September 30, 1997 compared to three full
months of operations reflected in 1996.
Other Revenue:
Other revenues increased approximately $67,000 during the current quarter
compared to the same quarter of 1996. The increase is primarily due to an
increase in interest income on long term interest bearing notes receivable and
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an increase in cash during the current period compared to the same period in
1996.
General and Administrative:
General and Administrative ("G&A") expenses decreased approximately $370,000
compared to the same period during 1996 due to the following reasons: a net
decrease of $248,000 as a result of a $174,000 charge during current quarter for
non-cash charges related to the issuance of stock for services and compensation
compared to a non-cash charge of $422,000 during the third quarter of 1996,
related to an issuance of stock to a Company officer in exchange for certain
Company obligations under the officer's employment contract; a gain of
approximately $122,000 on the sale and disposition of certain marketable
securities held by the Company; office rents, supplies, and telephone expenses
decreased by an aggregate of $40,000 during the current period, primarily as a
result of the MIP Transaction, as previously discussed above.
Depreciation, Depletion, and Amortization decreased approximately $101,000
during the current period compared to the same period last year due to the lack
of any oil production from Colombia during the current quarter as a result of
the sale of this subsidiary as previously discussed.
Interest expense increased by approximately $3,114,000 to $3,584,000 for the
current quarter compared to the third quarter of 1996. Approximately $1,598,000
of this increase is due primarily to an imputed interest calculated on the
Company's issued convertible debt instruments (see related discussions above).
Approximately $197,000 in additional interest expense was incurred during the
current period to redeem approximately $765,000 of the Company's outstanding
convertible debentures that were otherwise convertible into the Company's stock.
Approximately $1,610,000 of amortized bond and discount costs were charged as
interest expense during the current period compared to $38,000 charged in the
same period last year, which is attributable to Company's outstanding and
retired debentures during the current quarter.
Unrealized Loss on Marketable Securities
Marketable securities held by the Company at September 30, 1997, and carried at
a lower of cost or market value of $1.10 since June 30, 1997, had a market price
at September 30, 1997 of $0.95 per share, resulting in a net unrealized loss of
$405,000 during the current quarter.
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Results of Operations
For the Nine Months Ended September 30, 1997 as compared
to the Nine Months Ended September 30, 1996
The following table highlights the Company's results of operations for the nine
months ended September 30, 1997 and 1996.
For The Nine Months
Ended September 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties: (1)
Revenues - Oil Sales (000's) $261 $942
Lease Operating Expenses (000's) $ 99 $391
Production Volume - Bbls 18,625 99,069
Average Price per Bbl $14.01 $9.51
Production Cost per Bbl $5.31 $3.95
DD&A per Bbl $3.77 $3.77
Peru Properties: (2) (2)
Refinery Operations: (3)
Refinery Lease Fees (000') $ 0 $1,780
Average Daily Throughput 9,838 12,531
Average Throughput Fee $0.50 $0.50
- ----------
(1) Reflects activity through February 25, 1997
(2) Information for 1997 and 1996 is not available due to a dispute with the
Company's partner.
(3) Reflects refinery activities through March 20, 1997.
Oil and Gas Operations:
The results of operations for Colombia and Peru for 1997 reflect results for the
period through February 25, 1997, the date of the sale of the Colombia and Peru
subsidiaries to Mercantile International Petroleum Inc. ("MIP") (the "MIP
Transaction"), compared to nine full months of operations reflected in 1996.
Refinery Operations:
Lease fees of approximately $443,000 earned through March 20, 1997 were not
recorded (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.")
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Other Revenue:
Other revenues increased approximately $24,000, or 14%, during the current
period compared to the same period in 1996. The increase is primarily due to
increased interest income on other long term interest bearing notes receivable
and an increase in cash balances during the current period compared to the same
period last year.
General and Administrative:
General and Administrative ("G&A") expenses increased approximately $918,000
compared to the same period during 1996 primarily due to approximately $230,000
in non-recurring expenses related to the legal proceedings against Gold Line, a
loss of approximately $112,000 on the sale and disposition of a portion of the
MIP Shares, a non-cash charge of $134,000 related to the issuance of the
Company's common stock for services, and a one-time $695,000 compensation
adjustment. The Company realized a decrease in other G&A costs during the
current period compared to the same period last year in the following areas:
professional consulting fees decreased approximately $132,000, payroll expenses
decreased $122,000, and office rents, supplies and telephone expenses have
decreased approximately $61,000.
Depreciation, Depletion, and Amortization decreased approximately $366,000
during the current period compared to the same period last year due primarily to
the decrease in oil production from Colombia during the current period.
Interest expense increased to approximately $4,999,000 during the first nine
months of 1997 from approximately $1,935,000 in the same period last year, of
which approximately $878,000 is due primarily to an increase in imputed interest
calculated on the Company's convertible debt instruments. Approximately $235,000
in additional interest expense was incurred during the current period to redeem
approximately $915,000 of the Company's outstanding convertible debentures that
were otherwise convertible into the Company's stock. Approximately $2,585,000 of
amortized bond costs and discounts were charged during the current period as
interest expense, which is attributable to Company's outstanding and retired
debentures during the current period.
Unrealized Loss on Marketable Securities
As partial proceeds from the MIP Transaction, the Company received approximately
$4.4 million shares of MIP common stock valued at $2.00 per share. However,
since the closing, the market value of MIP's shares have declined to $0.95/share
at September 30, 1997, resulting in an aggregate net unrealized loss of
$3,799,000 during this period.
Loss on Sale of Assets
The Company recorded an aggregate $564,000 to reflect the current discounted
fair value of the Exchangeable Debenture and the $1.4 million performance
earn-out received in the MIP Transaction.
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PART II. OTHER INFORMATION
Item 5. Other Information
See Part I, Item 2, above, with the respect to the sale of an
aggregate $10 million of 14% convertible notes, the issuance of
restricted shares of common stock as consideration for the
acquisition of a 70% ownership interest in an oil and gas concession
in Kazakstan, and the issuance of restricted shares of common stock
in exchange for debt, all pursuant to Regulation S.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of 14% Convertible Notes due October 15, 1999.
4.2 Form of Subscription Agreement used in connection with the
offering of the Registrants' debentures, the form of which is
attached hereto as Exhibit 4.1.
4.3 Form of Warrant to purchase shares of the Registrants' Common
Stock issued in connection with the offering of the
Registrants' debentures, the form of which is attached hereto
as Exhibit 4.1.
4.4 Form of Registration Rights Agreement used in connection with
the offering of the Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
4.5 Form of Subscription Agreement used in connection with the
repayment of debt to a foreign individual.
4.6 Form of Subscription Agreement used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
4.7 Form of Warrant to purchase shares of the Registrant's Common
Stock issued in connection with the purchase referenced in
Exhibit 4.6.
10.1 Agreement dated April 22, 1997 between the Registrant and MED
Shipping and Trading S.A. used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
10.2 Amendment dated May 9, 1997 to the Agreement attached hereto
as Exhibit 10.1.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 5, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
------------------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
(principal financial and accounting officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of 14% Convertible Notes due October 15, 1998.
4.2 Form of Subscription Agreement used in connection with the offering
of the Registrants' debentures, the form of which is attached hereto
as Exhibit 4.1.
4.3 Form of Warrant to purchase shares of the Registrants' Common Stock
issued in connection with the offering of the Registrants'
debentures, the form of which is attached hereto as Exhibit 4.1.
4.4 Form of Registration Rights Agreement used in connection with the
offering of the Registrants' debentures, the form of which is
attached hereto as Exhibit 4.1.
4.5 Form of Subscription Agreement used in connection with the repayment
of debt to a foreign individual.
4.6 Form of Subscription Agreement used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
4.7 Form of Warrant to purchase shares of the Registrant's Common Stock
issued in connection with the purchase referenced in Exhibit 4.6.
10.1 Agreement dated April 22, 1997 between the Registrant and MED
Shipping and Trading S.A. used in connection with the Registrant's
purchase of a 70% interest of MED Shipping Usturt Petroleum Company
Ltd.
10.2 Amendment dated May 9, 1997 to the Agreement attached hereto as
Exhibit 10.1.
27.1 Financial Data Schedule.
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