<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
Commission File number No. 0-14905
-----------
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
- --------------------------------------------------------------------------------
(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 November 10, 1998 is 57,653,766 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 1,579,790 $ 3,721,350
Marketable securities, at market - 735,958
Accounts and notes receivable, net 3,815,695 1,831,008
Inventory 2,191,981 755,720
Deferred financing costs 223,072 353,490
Prepaid expenses 335,363 1,244,277
----------- -----------
Total current assets 8,145,901 8,641,803
----------- -----------
Property, plant and equipment:
Unevaluated oil and gas property 21,375,175 11,724,477
Oil and gas properties - -
Refinery property and equipment 34,308,416 22,816,897
Other 416,189 216,803
----------- -----------
56,099,780 34,758,177
Less - accumulated depreciation, depletion,
amortization and impairments (4,654,407) (3,894,015)
----------- -----------
Total property, plant and equipment 51,445,373 30,864,162
Notes receivable, less current portion 1,084,576 2,333,895
Other 96,738 -
----------- -----------
Total assets $60,772,588 $41,839,860
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt 1,082,166 6,075,931
Accounts and notes payable 5,469,367 1,452,642
Accrued liabilities 2,431,095 1,806,906
----------- -----------
Total current liabilities 8,982,628 9,335,479
Long-term debt 11,313,495 -
----------- -----------
Total liabilities 20,296,123 9,335,479
----------- -----------
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, 55,672,942 shares issued
and outstanding at September 30, 1998 and
48,436,576 shares at December 31, 1997 4,453,835 3,874,926
Additional paid-in capital 118,898,160 107,987,091
Accumulated deficit (82,875,530) (79,357,636)
----------- -----------
Total stockholders' equity 40,476,465 32,504,381
----------- -----------
Commitments and contingent liabilities - -
----------- -----------
Total liabilities and stockholders' equity $60,772,588 $41,839,860
=========== ===========
The accompanying notes are an integral part of these statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1998 1997
----------- -----------
Revenues:
Oil & gas production revenues - -
Refinery revenues 5,841,274 -
Other 119,867 103,738
----------- -----------
Total revenues 5,961,141 103,738
----------- -----------
Expenses:
Operating 5,390,081 -
General and administrative 1,527,379 553,073
Depreciation, depletion and
amortization 325,965 183,410
Interest 1,392 3,583,757
Unrealized and realized loss on marketable
securities 180,485 405,038
Provision for bad debts - -
Loss on sale of subsidiaries - -
----------- -----------
Total expenses 7,425,302 4,725,278
----------- -----------
Net gain (loss) $(1,464,161) $(4,621,540)
=========== ===========
Net gain (loss) per share of common stock $ (0.03) $ (0.11)
=========== ===========
Weighted-average number of shares
of common stock outstanding 54,591,690 42,252,140
=========== ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1998 1997
----------- -----------
Revenues:
Oil & gas production revenues $ - $ 260,579
Refinery revenues 8,881,895 -
Other 345,770 192,080
----------- -----------
Total revenues 9,227,665 452,659
----------- -----------
Expenses:
Operating 8,234,902 98,765
General and administrative 3,222,337 3,128,085
Depreciation, depletion and
amortization 760,895 565,776
Interest 154,193 4,999,168
Unrealized and realized loss on marketable
securities 373,232 3,798,765
Provision for bad debts - 5,118
Loss on sale of subsidiaries - 563,667
----------- -----------
Total expenses 12,745,559 13,159,344
----------- -----------
Net loss $(3,517,894) $(12,706,685)
=========== ============
Net loss per share of common stock $ (0.07) $ (0.32)
=========== ============
Weighted-average number of shares
of common stock outstanding 51,663,456 39,140,084
=========== ============
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 NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,517,894) $ (12,263,971)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization and
accretion of discount on debt 760,392 3,918,639
Accretion of premium on notes receivable (146,235) -
Realized and unrealized loss on marketable
securities 373,232 3,798,765
Provision for bad debts - 5,118
Loss on sale of subsidiaries - 563,667
Non-cash provision for services 196,900 174,219
Changes in assets and liabilities:
Accounts and notes receivable (826,344) (153,656)
Inventory (1,436,261) 56,974
Prepaid and other 780,977 (63,431)
Accounts payable and accrued liabilities 4,182,239 (157,577)
----------- ----------
Net cash provided by (used in) operating activities 367,006 (4,121,253)
----------- ----------
Cash flows from investing activities:
Additions to oil and gas properties (7,109,397) (939,805)
Additions to refinery property and equipment (8,276,335) (2,758,794)
Proceeds from sale of marketable securities 362,726 2,404,739
Proceeds from sale of subsidiaries - 1,729,287
Other (58,913) (605,791)
----------- ----------
Net cash used in investing activities (15,081,919) (170,364)
----------- ----------
Cash flows from financing activities:
Cash - restricted, loan collateral - 35,261
Net increase (decrease) in notes payable - (237,162)
Proceeds from long-term debt 11,880,000 10,536,600
Repayments of long-term debt - (3,675,657)
Proceeds from issuance of common stock and
warrants, net - 442,270
Proceeds from exercise of stock warrants
and options 693,353 388,635
----------- ----------
Net cash provided by financing activities 12,573,353 7,489,947
----------- ----------
Net increase (decrease) in cash and
cash equivalents (2,141,560) 3,198,330
Cash and cash equivalents at beginning of year 3,721,350 11,058
----------- ----------
Cash and cash equivalents at end of year $ 1,579,790 $3,209,388
=========== ==========
</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
Common stock paid-in Accumulated
Shares Amount capital deficit Total
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 48,436,576 $ 3,874,926 $ 107,987,091 $ (79,357,636) $ 32,504,381
Issuance of stock for compensation 50,000 4,000 192,900 - 196,900
Options and warrants exercised 605,373 48,430 644,923 - 693,353
Conversion of debentures 6,021,612 481,729 8,413,271 - 8,895,000
Issuance of stock in lieu of current liabilities 559,381 44,750 796,595 - 841,345
Issuance of stock warrants - - 863,380 - 863,380
Net loss for the period - - - (3,517,894) (3,517,894)
---------- ----------- ------------- ------------- ------------
Balance, September 30, 1998 55,672,942 $ 4,453,835 $ 118,898,160 $ (82,875,530) $ 40,476,465
=========== =========== ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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,
1998, the results of operations for the nine month period ended September 30,
1998 and 1997 and cash flows for the nine months ended September 30, 1998 and
1997. 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 1997 Annual Report on Form 10-K.
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
1997 Annual Report on Form 10-K.
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
During the nine months ended September 30, 1998, the Company provided a net
amount of $378,000 for operations, which reflects approximately $1,246,000 in
non-cash provisions, including issuance of stock as compensation for services of
$197,000, and depreciation, depletion and amortization of $760,000.
Approximately $1,436,000 was used during the period to increase product and
feedstock inventory and $4,086,000 was provided by an increase in accounts
payable and accrued liabilities and in current assets other than cash.
Additional uses of funds during the first nine months of 1998 included additions
to oil and gas properties and Refinery property and equipment of $8,276,000 and
$7,109,000, respectively. Cash for operations was provided, in part, by proceeds
from the exercise of certain warrants and options and the sale of marketable
securities of $693,000 and $363,000, respectively, and from proceeds from
long-term debt of $11,880,000. In October 1998, the Company converted the
current portion of its long-term debt, plus accrued interest, totaling an
aggregate of approximately $1.2 million, into shares of its common stock. (See
Item 2 - "Changes in Securities"). All of the Company's remaining long-term
debt, totaling $12 million, is not due and payable until April 2000.
Since the sale of its South American oil and gas assets (the "Transaction") and
the termination of its Lease Agreement with Gold Line in the first quarter of
1997, the Company has had no revenues from operations until late in the first
quarter of 1998 when it implemented product sales at the Refinery. Although it
utilized some of the proceeds from the Transaction and the exercise of certain
Company warrants and options to repay convertible and conventional debt, fund
the expansion and start-up processes at its Lake Charles, Louisiana refinery
(the "Refinery") and to fund its activities in Kazakstan and other operations,
such proceeds were inadequate to satisfy all of the Company's debt obligations
and anticipated capital requirements. Therefore, in April 1998, the Company
reached an agreement with certain institutional investors (the "Investors")
which provided it with up to $52 million in private debt and equity financing
(the "Facility") to be used by the Company on an as needed basis over a two year
period. Initial funding of $5 million and $7 million took place in April and May
1998, respectively, in the form of two-year convertible notes (the "April 1998
Notes). The remaining portion of the Facility consists of a $40 million Equity
Line of Credit (the Equity Line") from which the Company could, under certain
conditions, draw funds in exchange for shares of the Company's Common Stock at
an approximate 15% discount from the market price of same on the date of the
draw down. However, the Company does not believe that these conditions will be
met or that the terms of the Equity Line are as favorable as the terms of
alternative financings presently under
8
<PAGE>
discussion and negotiation. There can be no assurance, however, that the Company
will secure alternative financing on acceptable terms.
The Company has arranged for a credit line of approximately $1.2 million, which
it has utilized for crude oil feedstock and barge purchases. It also expects to
obtain additional financing by the end of November 1998, utilizing its accounts
receivable as collateral, although there is no assurance at this time that the
Company will be successful in obtaining such financing. The amount of such
financing is dependent upon the aggregate value of the Company's receivables,
but is expected to approach approximately 85% of such amount.
In general, since the implementation of operations at the Refinery in the last
week of the first quarter of 1998, the Refinery has been running at less than
10% capacity. In July and August 1998, when that capacity reached approximately
12%, the Refinery averaged positive cash flows of approximately $130,000 in each
of these periods, even though testing was still in progress.
The Company expects to operate the Refinery at a minimum of 25% capacity during
1999. At these levels of capacity and with existing feedstock and other costs in
place, the Company expects positive operating margins. These margins would be
sufficient in nature to adequately fund all of the Company's cash requirements
for its Refinery operations, including General and Administrative expenses for
the Refinery and the Parent corporation.
However, should the Company be unable to run the Refinery at higher capacity
levels than in 1998, even though margins should still improve, they most likely
would be insufficient to provide the Company with all of its required funding.
In such an event, the Company would require additional financing to satisfy
these requirements.
In March 1998, the Company signed an agreement for the Exploration of the
Mamourinskoye and Saratovskoye oil fields, with Zao Nafta ("Nafta") a Russian
closed stock company. This agreement gave the Company 90 days in which to
perform technical and legal due diligence evaluations of the Nafta properties.
These oil fields are included in 17 oil and gas licenses (the "Licenses") held
by Nafta, covering about 877,000 acres in the Samara and Saratov regions of
Southwestern Russia, approximately 600 to 800 kilometers north of the Caspian
Sea and southeast of Moscow. Upon favorable completion of the due diligence
evaluation, a joint venture was to be formed to operate these 17 Licenses with
the Company, as Operator, holding a 75% working interest.
The Company agreed to pay $11 million for the 75% working interest in the joint
venture, $5.0 million in cash and $6.0 million in crude oil from 25% of the
Company's future net production. The Company made a refundable advance (the
"Advance") on the purchase price of $300,000 to Nafta for their use in assisting
the Company in completing all legal and contractual conditions required by the
Company.
9
<PAGE>
In June 1998, the Company withdrew from negotiations after it could not
reach agreement on operational control of the proposed joint venture. Zao Nafta
breached its obligation to return the Advance to the Company and consequently,
is now required to deliver 25% of its issued and outstanding shares to the
Company. The Company's legal counsel in Moscow is now in the process of ensuring
the legal transfer of these shares to the Company. Upon completion of such
transfer, the Company will meet with the other owners of Zao Nafta and determine
how to proceed with the proposed joint venture.
Also in March 1998, the Company signed an agreement (the "Agreement") to lease
or, subject to certain conditions, to purchase the 55 acre 30,000 barrels per
day St. Marks Refinery and product storage terminal, located on the St. Marks
River near Tallahassee, Florida ("St. Marks"). Under the Agreement, the Company
agreed to lease St. Marks on an annual renewable basis, beginning April 1, 1998,
and to perform a due diligence process to determine if it would purchase St.
Marks for up to $4.5 million in cash and/or shares of the Company's Common
Stock.
The primary advantage to the Company of the St. Marks acquisition or lease is
the immediate increase of its retail presence from two to five states along the
U.S. Gulf Coast, plus a 50% increase in storage tank capacity by adding 33 more
tanks totaling more than 460,000 barrels to the Company assets. This transaction
provides an opportunity for the Company to double the retail sales capacity of
petroleum products manufactured at the Refinery through access to new asphalt
product markets, and jet fuel, diesel and industrial fuel oil sales in Florida,
Georgia and Alabama.
During its due diligence process, the Company identified certain factors which
have significantly reduced the purchase price the Company is willing to pay. The
seller has tentatively agreed to accept the lower purchase price and the parties
are in the final stages of documentation for a closing anticipated to occur
within the next two weeks.
The Company has reached an agreement to settle an ongoing dispute with the IRS,
which calls for the Company to pay $646,633 in excise taxes, plus interest
incurred for the applicable periods dating back to 1989. The tax will be paid in
four equal quarterly installments of approximately $162,000 and the interest
will be paid in a lump sum at the end of October 1999. The Company made its
initial quarterly payment in September 1998. Should the Company utilize the
entire proposed pay-off period to pay the tax and interest, the total amount
paid would be approximately $1.5 million. The Company has recorded related
aggregate allowances of $1.35 million in previous years and an additional
$150,000 during 1998.
Depending on the availability of funds, during the next 12 months the Company
expects to expend approximately $20 million for its operations
10
<PAGE>
and projects, of which approximately $9 million is planned to fund the
acquisition of one or more distribution and storage terminals, capital equipment
expansion, and oil feedstock purchases for the refinery; approximately $11
million is expected to be spent on seismic acquisition and reprocessing,
drilling, and working capital in Kazakstan. However, in the event the Company
obtains a joint venture partner in Kazakstan, its capital requirements there
should be significantly less than $11 million during the next 12 months. As of
November 1998, the Company's existing working capital was insufficient to
provide the Company with all of the capital it requires to complete these
projects. If the Company is unable to obtain replacement for the Equity Line,
certain projects, expansions, or acquisitions could be delayed or cancelled.
With the existing and projected cash flows from the Refinery, management
believes the Company is nearing the point in time where more conventional,
non-equity financing will become available. The Company's Refinery, which has an
independently appraised replacement value of $86 million (excluding $11.5 in
capital added during 1998), is completely unencumbered and available as
collateral for asset-backed lending. In addition, in November 1998 the Refinery
had approximately $3 million in accounts receivable and inventory, and
approximately $4 million in sales backlog available for working capital lines
and letters of credit for future feedstock purchases. The Company is currently
discussing such financings with a number of merchant banks and other financing
entities. Depending upon the size and extent of these financings, the Company
intends to repay all or a significant portion of its outstanding convertible
debt as soon as possible, and to use the remaining proceeds from same, if any,
to fund various projects for the Refinery and for seismic, drilling, and
development operations in Kazakstan.
To the extent possible, management will seek to utilize these non-equity
financing methods, as an alternative to the Equity Line, to finance the needs
of the Company in the future.
Results of Operations
For the Three Months Ended September 30, 1998 as compared
to the Three Months Ended September 30, 1997
- ---------------------------------------------------------
Oil and Gas Operations:
- -----------------------
The Company's South American operations in Colombia and Peru were sold in
February 1997 and, therefore no revenues or expenses related to oil and gas
operations were recorded during the third quarter of 1997 or 1998.
11
<PAGE>
Refinery Operations:
- --------------------
During 1997, the Company expanded the Refinery and converted it to process heavy
crude oil feedstocks to enable the manufacture of asphalt and other products.
During the three months ended September 30, 1998, the Company continued its
extensive testing of the Refinery's crude unit, which resulted in $2,231,000 in
revenues from the sale of certain light-end and other products. The Company also
continued testing its asphalt operating units and various types and blends of
crude oil feedstocks during this period and, as a result, had approximately
$2,608,000 in revenues from the sales of asphalt. The Company's primary
objective during 1998 was to exhibit to potential customers that it could
produce high-quality asphalt and other refined products which meet and/or exceed
Federal and State specifications. This required extensive testing of various
crude oil feedstocks and asphaltic blends. Because of this extensive testing
and, coupled with start-up costs incurred since the implementation of operations
at the Refinery, the relatively-high operating and inventory costs attributed to
these sales should not be considered to be indicative of the upcoming unit
operating cost expected in the future from normal operations. As mentioned
above, the Company expects to operate the Refinery at a minimum of 25% capacity
during 1999. At these levels of capacity and with existing levels of feedstock
and other costs in place, the Company expects positive operating margins in
1999. These margins are anticipated to be sufficient in nature to adequately
fund all of the Company's cash requirements for its Refinery operations,
including General and Administrative expenses for the Refinery and the Parent
corporation. However, costs, and likewise, revenues and margins, will vary
depending upon a number of factors, including but not limited to feedstock type
and prices, and from the Company's product mix, which will be determined over
time as the Company's markets are developed in the different areas it services.
The Refinery's terminal operations in St. Mark's Florida, which commenced in
June 1998, had revenues of approximately $1,000,000, with associated cost of
sales of approximately $922,000.
Other Revenue:
- --------------
Other revenues increased approximately $16,000 during the third quarter of 1998
compared to the same period in 1997. An approximate increase of $61,000 of
interest income due to non-cash accretion of interest on notes receivable was
offset by a decrease of approximately $45,000 in interest income from
substantially fewer funds being on deposit during the current period compared to
the same period last year.
12
<PAGE>
General and Administrative:
- ---------------------------
General and Administrative ("G&A") expenses increased by approximately $974,000
during the third quarter of 1998 compared to the same period in 1997, primarily
due to the implementation of operations at the Refinery in 1998. The Company
incurred increases at the Refinery in payroll and employee related expenses of
approximately $372,000 and approximately $105,000 and $41,000 in general
insurance and property taxes and professional fees, respectively. The increase
was also due in part to a $143,000 decrease in capitalized expenses during the
current period compared to the same period last year and to a non-recurring
charge to payroll of $233,000 recorded in the current period.
Depreciation, Depletion, and Amortization:
- ------------------------------------------
Depreciation, Depletion, and Amortization increased approximately $143,000
during the third quarter of 1998 compared to the same quarter last year, which
is attributable to new capital additions to the Company's refinery.
Interest Expense:
- -----------------
Interest expense decreased by approximately $766,000 during the third quarter of
1998 compared to the same period last year. However, the Company capitalized
approximately $1.1 million during the third quarter of 1998 of non-cash interest
charges relating to costs associated with its October 1997 and April 1998
borrowing of $10 million and $12 million, respectively, the proceeds from which
were utilized by the Company for its oil and gas and refinery projects.
For the Nine Months Ended September 30, 1998 compared
to the Nine Months Ended September 30, 1997
- -----------------------------------------------------
Oil and Gas Operations:
- -----------------------
The Company had approximately $261,000 in oil revenues in 1997 prior to the sale
of its South American operations in Colombia and Peru in February 1997. During
the first nine months of 1998, the Company had no operating or producing oil
fields and consequently had no revenues or related cost attributable to oil and
gas operations in this period.
Refinery Operations:
- --------------------
As previously discussed, the Company has expanded the Refinery and converted it
to process heavy crude oil feedstocks to enable the manufacture of asphalt and
other products. During 1998, the Company performed extensive testing of the
Refinery's crude unit, which resulted in $3,159,000 in revenues from the sale of
certain light-end and other products. The Company also began testing its asphalt
operating units and various types and blends of crude oil feedstocks
13
<PAGE>
during this period and, as a result, had approximately $4,234,000 in revenues
from sales of asphalt. As mentioned above, aggregate operating and inventory
costs attributed to these sales (approximately $6,959,000) should not be
considered to be indicative of the future unit operating costs expected under
normal operations.
The Refinery's terminal operations in St. Marks Florida, which commenced in June
1998, had revenues of approximately $1,486,000 and cost of sales of
approximately $1,276,000 during the first three quarters of 1998.
Other Revenue:
- --------------
Other revenues increased approximately $154,000, or 80%, during the first nine
months of 1998 compared to the same period in 1997 due primarily to an increase
of approximately $146,000 of non-cash accretion of interest on notes receivable
during the current period compared to the same period last year.
General and administrative:
- ---------------------------
The Company experienced a slight decline of approximately $94,000 in its total
general and administrative expenses during the first nine months of the current
year compared to the same period last year, which reflects decreases of
approximately $131,000 in legal fees due to the settlement of several
outstanding legal actions, and approximately $280,000 of expenses related to the
sale in February 1997 of its South American properties. The Company also had
increases of approximately $173,000 in payroll and related employee costs, an
increase of approximately $53,000 and $235,000 of professional fees related to
various engineering studies and the upgrading of Company's management
information systems, respectively. The Company also capitalized approximately
$175,000 of G&A expenses during the first nine months of 1998, which also
contributed to the decrease in G&A expenses recognized during the current
period.
Depreciation, Depletion and Amortization:
- -----------------------------------------
Depreciation, Depletion, and Amortization increased approximately $195,000
during the current period compared to the same period last year, due primarily
to an increase in depreciation of $305,000 on newly constructed and acquired
assets at the Refinery, partially offset by a decrease in depletion expense of
$110,000 attributable to the sale of the South American properties in 1997.
Interest Expense:
- -----------------
Interest expense decreased by approximately $4,845,000 to $154,000 during the
first nine months of 1998 compared to the first nine months of 1997, primarily
because the Company capitalized approximately $5.8 million of non-cash interest
expense during the first nine months of
14
<PAGE>
1998. This expense was related to costs associated with the Company's October
1997 and April 1998 borrowings of $10 million and $12 million, respectively, the
proceeds from which were utilized by the Company for its oil and gas and
Refinery projects.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the third quarter of 1998, the Company issued an aggregate 3,274,250
shares of its common stock as payment for $2,804,099 in principal and interest
related to certain convertible notes it issued in October 1997. Additionally,
during the third quarter of 1998, the Company issued 181,786 shares of its
common stock for payment of $260,749 of interest accrued on the April 1998
Notes. These shares were issued pursuant to the exemption from the registration
requirements of the Securities Act of 1933 provided by Section 4(2) of the
Securities Act and Regulation D promulgated under that Section.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Year 2000 Compliance
The Company has developed and substantially implemented a plan to ensure its
systems are compliant with the requirements to process transactions in the year
2000. The Company continues to upgrade its internal information systems as part
of an overall operational plan to replace older systems with more efficient
current technology. The Company believes the costs, if any, related to the Year
2000 compliance issue will not be material.
The Company is also consulting with its processing banks and principle suppliers
to ensure that their services are Year 2000 compliant. The Company has been
advised by these service providers that their external information services and
systems are Year 2000 compliant.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
15
<PAGE>
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 12, 1998
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
--------------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule.
17
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000799119
<NAME> AMERICAN INTERNATIONAL PETROLEUM CORPORATION
<MULTIPLIER> 1
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,579,790
<SECURITIES> 0
<RECEIVABLES> 3,815,695
<ALLOWANCES> 0
<INVENTORY> 2,191,981
<CURRENT-ASSETS> 8,145,901
<PP&E> 56,099,780
<DEPRECIATION> 4,654,407
<TOTAL-ASSETS> 60,772,588
<CURRENT-LIABILITIES> 8,982,628
<BONDS> 11,313,495
0
0
<COMMON> 4,453,835
<OTHER-SE> 36,022,630
<TOTAL-LIABILITY-AND-EQUITY> 60,772,588
<SALES> 8,881,895
<TOTAL-REVENUES> 9,227,665
<CGS> 8,234,902
<TOTAL-COSTS> 11,457,239
<OTHER-EXPENSES> 1,134,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,193
<INCOME-PRETAX> 3,517,894
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,517,894)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
