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 June 30, 1997
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Commission File number No. 0-14905
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
- -----------------------------------------------------------------------------
(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
(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 August 11, 1997 is 42,991,892 shares.
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 19,196 $ 11,058
Cash - restricted -- 161,022
Marketable securities 3,617,954 --
Accounts and notes receivable, net 1,660,651 1,073,140
Inventory -- 459,961
Prepaid expenses 321,163 838,104
------------ ------------
Total current assets 5,618,964 2,543,285
------------ ------------
Property, plant and equipment:
Unevaluated property 871,754 5,648,630
Oil and gas properties -- 32,506,656
Refinery property and equipment 18,912,633 17,235,183
Other 212,970 499,971
------------ ------------
19,997,357 55,890,440
Less - accumulated depreciation, depletion,
amortization and impairments (3,966,595) (23,959,191)
------------ ------------
Total property, plant and equipment 16,030,762 31,931,249
------------ ------------
Other long-term assets, net 2,154,612 17,897
------------ ------------
Total assets $ 23,804,338 $ 34,492,431
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 237,162
Current portion of long-term debt 2,390,793 5,968,393
Accounts payable 1,422,703 3,636,765
Accrued liabilities 2,077,782 2,524,194
------------ ------------
Total current liabilities 5,891,278 12,366,514
Long-term debt 2,961,109 798,199
------------ ------------
Total liabilities 8,852,387 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, 39,559,188 shares issued and outstanding
at June 30, 1997 and 34,458,921 shares at December 31,
1996 3,164,735 2,756,714
Additional paid-in capital 80,112,841 78,677,265
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (69,623,379) (61,404,015)
------------ ------------
Total stockholders' equity 14,951,951 21,327,718
------------ ------------
Commitments and contingent liabilities (Note 10) -- --
------------ ------------
Total liabilities and stockholders' equity $ 23,804,338 $ 34,492,431
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------------
(RESTATED)
<S>
<C> <C>
Revenues:
Oil and gas production and
pipeline fees $ -- $ 337,054
Refinery lease fees -- 548,722
Other 53,092 80,557
------------ ------------
Total revenues 53,092 966,333
------------ ------------
Expenses:
Operating -- 104,567
General and administrative 1,060,693 688,523
Depreciation, depletion and
amortization 131,623 322,908
Interest 842,370 1,073,607
Unrealized loss on marketable securities 1,639,977 --
Provision for bad debts -- --
Loss on sale of subsidiaries -- --
------------ ------------
Total expenses 3,674,663 2,189,605
------------ ------------
Net loss $ (3,621,571) $ (1,223,272)
============ ============
Net loss per share of common stock $ (0.09) $ (0.05)
============ ============
Weighted-average number of shares
of common stock outstanding 39,034,729 26,767,464
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------------
(RESTATED)
<S> <C> <C>
Revenues:
Oil and gas production and
pipeline fees $ 260,579 $ 641,246
Refinery lease fees -- 1,117,318
Other 88,342 131,375
------------ ------------
Total revenues 348,921 1,889,939
------------ ------------
Expenses:
Operating 98,765 216,665
General and administrative 2,709,231 1,287,028
Depreciation, depletion and
amortization 382,366 647,453
Interest 1,415,411 1,495,538
Unrealized loss on marketable securities 3,393,727 --
Provision for bad debts 5,118 --
Loss on sale of subsidiaries 563,667 --
------------ ------------
Total expenses 8,568,285 3,646,684
------------ ------------
Net loss $ (8,219,364) $ (1,756,745)
============ ============
Net loss per share of common stock $ (0.22) $ (0.07)
============ ============
Weighted-average number of shares
of common stock outstanding 37,558,266 25,961,481
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,219,364) $(1,756,745)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 831,599 1,657,024
Unrealized loss on marketable securities 3,393,727 --
Provision for bad debts 5,118 --
Loss on sale of subsidiaries 563,667 --
ISSUANCE OF STOCK FOR SERVICES 134,219
Changes in assets and liabilities:
Accounts and notes receivable 223,074 (27,537)
Marketable securities -- --
Inventory 56,974 52,525
Prepaid and other 47,070 22,699
Accounts payable and accrued liabilities 98,681 (718,652)
----------- -----------
Net cash provided by (used in) operating activities (2,865,235) (770,686)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (451,181) (779,664)
Additions to refinery property and equipment (1,677,450) (20,431)
Other (212,547) (169,661)
----------- -----------
Net cash used in investing activities (2,341,178) (969,756)
----------- -----------
Cash flows from financing activities:
Cash - restricted, loan collateral 35,261 201,223
Net increase (decrease) in notes payable (237,162) (45,533)
Proceeds from long-term debt 3,405,000 1,810,000
Repayments of long-term debt (1,915,234) (1,035,178)
Proceeds from sale of marketable securities 1,757,069 --
Proceeds from issuance of common stock and
warrants, net 439,770 762,803
Proceeds from exercise of stock warrants
and options 560 --
Proceeds from sale of subsidiaries 1,729,287 --
----------- -----------
Net cash provided by financing activities 5,214,551 1,693,315
----------- -----------
Net increase (decrease) in cash and
cash equivalents 8,138 (47,127)
Cash and cash equivalents at beginning of year 11,058 162,218
----------- -----------
Cash and cash equivalents at end of year $ 19,196 $ 115,091
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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-REGULATION S 2,590,488 207,239 667,761 -- -- 875,000
Issuance of stock for interest in oil &
gas properties-REGULATION S 300,000 24,000 126,000 -- -- 150,000
Issuance of stock for services 250,000 20,000 114,219 -- -- 134,219
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
Exercise of warrants 140 11 549 -- -- 560
Issuance of common stock-REGULATION S 1,635,593 130,847 311,423 -- -- 442,270
Imputed interest on debentures
convertible at a discount to market -- -- 85,715 -- -- 85,715
Net loss for the period -- -- -- -- (8,219,364) (8,219,364)
----------- ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 39,559,188 $ 3,164,735 $ 80,112,841 $ 1,297,754 $(69,623,379) $ 14,951,951
=========== ============ ============ ============ ============ ============
</TABLE>
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30,
1997, the results of operations for the three month periods ended June 30, 1997
and 1996 and cash flows for the six months ended June 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.
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"
and were valued by the Company in the MIP Transaction (see discussion below) at
a basis of $2.00 per share. They had a market value of $1.60 and $1.10 per share
at March 31, 1997 and June 30, 1997, respectively, resulting in an unrealized
loss of $1,754,000 and $1,640,000, for the two periods, respectively. 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
7
<PAGE>
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 presumed
incremental yield the holder of the debt instrument my derive from the
discounted conversion rate of such instrument issued by the Company. The
convertible debentures are convertible into the Company's stock based on
calculations ranging from the average closing bid price of the Company's Common
Stock for the five (5) business days immediately preceding the conversion dates,
to discounts of 35%. The presumed incremental yield (imputed interest) for the
six months ended June 30, 1997 amounted to approximately $221,000.
<TABLE>
<CAPTION>
JUNE 30,
-----------------
<S> <C>
10% - $391,629 CONVERTIBLE DEBENTURES - DUE APRIL 1, 1998,
EFFECTIVE INTEREST RATE - 34.7% $210,468
12.5% - 426,000 CONVERTIBLE DEBENTURES - DUE JANUARY 2, 1998,
EFFECTIVE INTEREST RATE - 49.2% TO 51.7% $126,000
8% - $1,645,000 REDEEMABLE CONVERTIBLE DEBENTURES - DUE APRIL 1, 1999
TO JUNE 6, 1999, EFFECTIVE INTEREST RATE 14.4% TO 63.6% $1,485,910
7% - $2,000,000 CONVERTIBLE DEBENTURE - DUE FEBRUARY 1, 1999,
EFFECTIVE INTEREST RATE - 29.74% $962,498
10% - $291,600 SUBORDINATED DEBENTURE - DUE SEPTEMBER 24, 1997,
EFFECTIVE INTEREST RATE - 17.4% $258,633
SENIOR CONVERTIBLE SUBORDINATED DEBENTURES - DUE FEBRUARY 1, 1997, INTEREST
RANGES FROM 8.5%-10.5% PER ANNUM, PAYABLE QUARTERLY,
CONVERTIBLE INTO COMMON SHARES AT $50.00 PER SHARE. $200,000
NOTE PAYABLE TO MG TRADE FINANCE CORPORATION $2,108,393
-----------------
$5,351,902
LESS - CURRENT PORTION $2,390,793
-----------------
LONG-TERM DEBT $2,961,109
=================
</TABLE>
During the first six months of 1997, the Company received aggregate net proceeds
of $3,405,000 from the sale of Convertible Redeemable Subordinated Debentures, ,
of which approximately $235,000 in principal remains outstanding as of August
12, 1997. In addition, on August 8, 1997, the Company issued an aggregate $6.4
million in 8% Convertible Subordinated Debentures pursuant to Regulation S. (See
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.)
5. Contingencies
In May 1992, the Company's wholly-owned subsidiary, American
International Refinery, Inc. ("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 wanted to
negotiate a settlement.
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 second quarter
of 1997, the Company increased the allowance for this contingency by
approximately $189,000 in response to the status of its ongoing
settlement discussions with the IRS. The increase resulted in a total
aggregate allowance for this contingency of $1.3 million as of June 30,
1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
8
<PAGE>
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, shares of MIP Common Stock (the "MIP Shares"),
debt in the form of a $3 million exchangeable debenture (the "Exchangeable
Debenture), and deferred compensation, improving its working capital position
from a net working capital deficit of $9.8 million at December 31, 1996, to a
positive working capital of $2.9 million at March 31, 1997.
However, the market value of the MIP Shares has declined since the closing of
the MIP Transaction to a low of $1.10 on June 30, 1997. Since the Company must
record the MIP Shares at lower of cost or market, the resultant cumulative
unrealized loss of $3,394,000 recorded by the Company was the primary cause of
the decline in the Company's working capital position to a negative $272,000 as
of June 30, 1997. (Since June 30, 1997 MIP Common Stock has traded as high as
$1.49 per share.)
In order to repay the MGTF Note (discussed below) in full, redeem certain
outstanding convertible debentures prior to their conversion by the holders
thereof into the Company's Common Stock, and to continue the expansion of the
Company's refinery to enable the implementation of asphalt blending operations,
on August 6, 1997, the Company issued an aggregate $6.4 million of two-year 8%
Convertible Subordinated Debentures pursuant to Regulation S (the "Debentures")
for net proceeds of $6,016,000. As a result, the Company's working capital
improved to approximately $6 million as of August 11, 1997.
One half of the principal amount of the Debentures is convertible into shares of
the Company's Common Stock on or after October 6, 1997, the remainder 30 days
thereafter, all at a conversion price based on 85% of the average closing bid
price of the Company's Common Stock for the five trading days prior to the date
of conversion. The Company may redeem all or a portion of the Debentures at any
time prior to conversion by paying 110% of the redemption amount to the holder
on or before November 5, 1997, or 115% thereafter. Like the majority of its
recent convertible debenture issuances, the Company intends, to the extent
possible, to redeem the Debentures prior to their conversion into Common Stock.
During the past four months, the Company has redeemed certain convertible
debentures which would have otherwise
9
<PAGE>
been converted into approximately 7 million shares of the Company's Common
Stock.
During the six months ended June 30, 1997, the Company utilized $8,085,000 for
operations, which reflects approximately $4,794,000 in non-cash provisions,
including depreciation, depletion an amortization of $832,000, loss on
write-down of marketable securities acquired in the MIP Transaction of
$3,394,000, provision for bad debts of $5,000, and loss on sale of
subsidiaries of $564,000. Approximately $116,000 was used during the period to
increase current assets other than cash, and $99,000 was provided by an increase
in accounts payable and accrued liabilities. Cash for operations was provided,
in part, by the sale and distribution of marketable securities of $1,757,000 and
the issuance of Common Stock and net increase in long-term debt in an aggregate
amount of $1,930,000, and from the sale of subsidiaries of $1,729,000.
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. In addition, the Company pledged 1,000,000 shares of the
MIP Shares to further secure the Loan Agreement with MGTF. The Company expects
to pay the balance due on the Loan Agreement by the revised due date with some
of the proceeds it received from the Debentures.
Because of non-payment of lease fees and other items of default under
the terms of its lease agreement with the Company, 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. Because Gold Line has defaulted and has been
evicted from the refinery, processing fees due from Gold Line of
approximately $443,000 for the first quarter of 1997 were not recognized
or recorded during that period. All past due amounts from Gold Line
recorded by the Company have been previously reserved. 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.
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 (See
discussion below). 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.
During the next twelve months, the Company plans to spend up to $2 million for
the Refinery expansion, which it expects to fund in part by proceeds from the
Debentures, internally-generated cash flow from
10
<PAGE>
refinery operations, and/or with the principal ($1.5 million is callable by the
Company in February 1998) and interest payments it receives from the
Exchangeable Debenture. The Company is also having discussions with other
financing entities who have expressed interest in financing further expansion
and future operations at the Refinery.
The phase one construction of the Refinery expansion, necessary to implement
operations, should be completed this month. By the fourth quarter of this year,
the Company plans to commence asphalt processing.
The Company recently 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.
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.
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
11
<PAGE>
negotiations 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.
The Company will be responsible for operating the License operations and funding
all obligations therefor. The License requires aggregate minimum capital
expenditures of $14.75 million during the initial five year exploration period,
of which approximately $6.3 million must be expended during the first three
years for seismic and drilling. The Company is currently having discussions with
various oil companies who have expressed a preliminary interest in the License
area.
The Company is having discussions with various financing entities regarding
non-equity financing arrangements to provide funding for upcoming operations,
the repayment of the Debenture, 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. As a
result of the sale of two of its subsidiaries and the eviction of Gold Line, 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.
12
<PAGE>
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1997 as compared
to the Six Months Ended June 30, 1996
The following table highlights the Company's results of operations for the six
months ended June 30, 1997 and 1996.
For The Six Months
Ended June 30,
1997 1996
-------- ----------
Exploration and Production Activity:
Colombia Properties: (1)
Revenues - Oil Sales (000's) $ 261 $ 641
Lease Operating Expenses (000's) $ 99 $ 212
Production Volume - Bbls 18,625 73,098
Average Price per Bbl $ 14.01 $ 8.77
Production Cost per Bbl $ 5.31 $ 2.90
DD&A per Bbl $ 3.77 $ 3.77
Peru Properties: (2) (2)
-------- ---------
Refinery Operations: (3)
Refinery Lease Fees (000') $ 0 $ 1,047
Average Daily Throughput 9,838 11,574
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, compared to six 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 Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources.")
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Other Revenue:
Other revenues decreased approximately $42,000, or 33%, during the current
period compared to the same period in 1996. The decrease is primarily due to a
decrease in other revenues previously attributable to the Colombia operations
prior to the sale as previously discussed.
General and Administrative:
General and Administrative ("G&A") expenses increased approximately $1,422,000
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
non-cash charge for stock issued for services of approximately $134,000, a loss
of approximately $234,000 on the sale and disposition of portion of the MIP
Shares, and a non-recurring $695,000 adjustment to partially compensate key
employees whose salaries have remained unchanged for the past five years and
additionally as an incentive to ensure that the Company maintains a competitive
position in the industry regarding the continuity of the employment of its
employees.
Depreciation, Depletion and Amortization
Depreciation, Depletion, and Amortization decreased approximately $265,000
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 as
compared to the same period last year.
Interest Expense
Interest expense increased approximately $80,000 during the first six months of
1997, primarily due to a $189,000 increase in accrued interest expense related
to certain excise taxes payable, which charge was partially offset by a $100,000
decrease resulting from a reduction in long-term debt of approximately $2.3
million during the period.
Unrealized Loss on Marketable Securities
Marketable securities of MIP, 4,384,375 shares, held by the Company were valued
at $2.00 per share when acquired. At March 31, 1997 the current market price was
$1.60 per share, resulting in a net unrealized loss of $1,754,000. At June 30,
1997 the market price was $1.10 per share, resulting in a net unrealized loss of
$1,640,000 on shares held at June 30, 1997. Total unrealized loss for the period
ended June 30, 1997 was $3,393,727.
Loss on Sale of Assets
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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.
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 1997 as compared
to the Three Months Ended June 30, 1996
The following table highlights the Company's results of operations for the three
months ended June 30, 1997 and 1996.
For The Three Months
Ended June 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) (1) $337
Lease Operating Expenses (000's) (1) $101
Production Volume - Bbls (1) 36,332
Average Price per Bbl (1) $9.28
Production Cost per Bbl (1) $2.78
DD&A per Bbl (1) $3.77
Peru Properties: (1) (2)
----------------
Refinery Operations:
Refinery Lease Fees (000') (3) $479
Average Daily Throughput (3) 10,641
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:
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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 June 30,
1997.
Refinery Operations:
The Company evicted it's lessee on March 20, 1997, therefore there were no
operations for the three months ended June 30, 1997.
Other Revenue:
Other revenues decreased approximately $27,000, or 34%, during the current
quarter compared to the same quarter of 1996. The decrease is primarily due to a
decrease in other revenue as a result of the sale of the Colombia operations.
General and Administrative:
G&A expenses increased approximately $372,000 compared to the same period
during 1996, primarily due to the following reasons: a non-cash charge during
the current period for issuance of stock for $134,000 for services rendered;
non-recurring legal fees of approximately $31,000 incurred during the current
period, which were attributable to the Company's legal proceedings against Gold
Line, as discussed above; during the current period the Company recognized a
loss of approximately $234,000 on the sale and disposition of certain marketable
securities it held; and property taxes and insurance cost have increased
approximately $85,000 during the current quarter compared to the same period in
1996, due to the Company having to absorb additional costs as a result of the
eviction of the refinery lessee, as previously discussed.
Depreciation, Depletion, and Amortization
Depreciation, Depletion, and Amortization decreased approximately $191,000
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
Interest expense decreased approximately $231,000 during the first quarter of
1997, compared to the first quarter of 1996. A decrease of approximately
$737,000 was attributed to the decrease in imputed interest during the current
period, compared to the same period last year. Approximately $37,500 additional
interest expense was incurred during the current period to redeem approximately
$150,000 of the Company's outstanding convertible debentures , which would have
otherwise been converted into the Company's stock.
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Approximately $138,000 of amortized bond costs was charged as interest expense
during the current period, compared to $38,000 charged in the same period last
year, attributable to the Company's outstanding and retired debentures during
the current period.
Unrealized Loss on Marketable Securities
Marketable securities held by the Company at June 30, 1997, and carried at a
lower of cost or market value of $1.60 since March 31, 1997, had a market price
at June 30, 1997 of $1.10 per share, resulting in a net unrealized loss of
$1,640,000 during the current quarter.
Loss on Sale of Assets
The Company recorded an aggregate of $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.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
See Part I, Item 2, above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
4.1 Form of 8% Convertible Subordinated Debentures due August 1, 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 Agreement used in connection
with the offering of the Registrants' debentures, the
form of which is attached hereto as Exhibit 4.1.*
27.1 Financial Data Schedule.
</TABLE>
* Submitted with original Form 10Q filed on August 15,1997.
(b) Reports on Form 8-K.
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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 19, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By/s/ Denis J. Fitzpatrick
Denis J. Fitzpatrick
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4.1 Form of 8% Convertible Subordinated
Debentures due August 1, 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 Agreement used in
connection with the offering of the
Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
27.1 Financial Data Schedule.
19
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