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 June 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 August 6, 1998 is 54,137,120 shares.
<PAGE>
Part I. Financial Information
ITEM 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES ES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 3,154,601 $ 3,721,350
Marketable securities, at market 253,738 735,958
Accounts and notes receivable, net 2,830,626 1,831,008
Inventory 2,621,760 755,720
Deferred financing costs 195,299 353,490
Prepaid expenses 275,811 1,244,277
------------ -------------
Total current assets 9,331,835 8,641,803
------------ -------------
Property, plant and equipment:
Unevaluated oil and gas property 20,077,066 11,724,477
Oil and gas properties -- --
Refinery property and equipment 32,098,989 22,816,897
Other 351,816 216,803
------------ -------------
52,527,871 34,758,177
Less - accumulated depreciation, depletion,
amortization and impairments (4,328,945) (3,894,015)
------------ -------------
Total property, plant and equipment 48,198,926 30,864,162
Notes receivable, less current portion 1,050,952 2,333,895
Other 118,550 --
------------ -------------
Total assets $ 58,700,263 $ 41,839,860
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 2,330,834 $ 6,075,931
Accounts payable 2,903,434 1,452,642
Accrued liabilities 2,167,641 1,806,906
------------ -------------
Total current liabilities 7,401,909 9,335,479
Long-term debt 11,205,573 --
------------ -------------
Total liabilities 18,607,482 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, 53,613,115 shares issued
and outstanding at June 30, 1998 and
48,436,576 shares at December 31, 1997 4,289,049 3,874,926
Additional paid-in capital 117,213,601 107,987,091
Accumulated deficit (81,409,869) (79,357,636)
------------ -------------
Total stockholders' equity 40,092,781 32,504,381
------------ -------------
Commitments and contingent liabilities -- --
------------ -------------
Total liabilities and stockholders' equity $ 58,700,263 $ 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 JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Oil & gas production revenues $ -- $ --
Refinery revenues 2,603,001 --
Other 157,478 53,092
------------ ------------
Total revenues 2,760,479 53,092
------------ ------------
Expenses:
Operating 2,541,563 --
General and administrative 874,685 1,060,693
Depreciation, depletion and amortization 279,965 131,623
Interest 76,401 842,370
Unrealized and realized loss on marketable securities 192,747 1,639,977
Provision for bad debts -- --
Loss on sale of subsidiaries -- --
------------ ------------
Total expenses 3,965,361 3,674,663
------------ ------------
Net loss $ (1,204,882) $ (3,621,571)
============ ============
Net loss per share of common stock $ (0.02) $ (0.09)
============ ============
Weighted-average number of shares
of common stock outstanding 52,176,697 39,034,729
============ ============
</TABLE>
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 SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Oil & gas production revenues $ -- $ 260,579
Refinery revenues 3,040,621 --
Other 225,903 88,342
------------ ------------
Total revenues 3,266,524 348,921
------------ ------------
Expenses:
Operating 2,844,711 98,765
General and administrative 1,693,568 2,709,231
Depreciation, depletion and amortization 434,930 382,366
Interest 152,801 1,415,411
Unrealized and realized loss on marketable securities 192,747 3,393,727
Provision for bad debts -- 5,118
Loss on sale of subsidiaries -- 563,667
------------ ------------
Total expenses 5,318,757 8,568,285
------------ ------------
Net loss $ (2,052,233) $ (8,219,364)
============ ============
Net loss per share of common stock $ (0.04) $ (0.22)
============ ============
Weighted-average number of shares
of common stock outstanding 50,175,072 37,558,266
============ ============
</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>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,052,233) $ (8,219,364)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization and accretion of
discount on debt 434,930 831,599
Accretion of premium on notes receivable (85,132) --
Realized and unrealized loss on marketable securities 192,747 3,393,727
Provision for bad debts -- 5,118
Loss on sale of subsidiaries -- 563,667
Non-cash provision for services 196,900 134,219
Changes in assets and liabilities:
Accounts and notes receivable 108,725 223,074
Inventory (1,866,040) 56,974
Prepaid and other 943,466 47,070
Accounts payable and accrued liabilities 1,545,527 98,681
------------ ------------
Net cash provided by (used in) operating activities (581,110) (2,865,235)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (6,339,567) (451,181)
Additions to refinery property and equipment (6,580,880) (1,677,450)
Proceeds from sale of marketable securities 289,473 1,757,069
Other 6,169 (212,547)
------------ ------------
Net cash used in investing activities (12,624,805) (584,109)
------------ ------------
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 3,405,000
Repayments of long-term debt -- (1,915,234)
Proceeds from issuance of common stock and
warrants, net -- 439,770
Proceeds from exercise of stock warrants
and options 759,166 560
Proceeds from sale of subsidiaries -- 1,729,287
------------ ------------
Net cash provided by financing activities 12,639,166 3,457,482
------------ ------------
Net increase (decrease) in cash and
cash equivalents (566,749) 8,138
Cash and cash equivalents at beginning of period 3,721,350 11,058
------------ ------------
Cash and cash equivalents at end of period $ 3,154,601 $ 19,196
============ ============
</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>
Common stock Additional
--------------------- 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 48,430 710,736 -- 759,166
Conversion of debentures 4,183,295 334,663 6,940,337 -- 7,275,000
Issuance of stock in lieu of current liabilities 337,871 27,030 519,157 -- 546,187
Issuance of stock warrants -- -- 863,380 -- 863,380
Net loss for the period -- -- -- (2,052,233) (2,052,233)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 53,613,115 $ 4,289,049 $117,213,601 $(81,409,869) $ 40,092,781
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30,
1998, the results of operations for the six month period ended June 30, 1998 and
1997 and cash flows for the six months ended June 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 six months ended June 30, 1998, the Company utilized $581,000 for
operations, which reflects approximately $825,000 in non-cash provisions,
including issuance of stock as compensation for services of $197,000, and
depreciation, depletion and amortization of $435,000. Approximately $1,866,000
was used during the period to increase product and feedstock inventory and
$2,598,000 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 six months of 1998 included additions to oil and gas properties
and Refinery property and equipment of $6,340,000 and $6,581,000, 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 $759,000
and $289,000, respectively, and from proceeds from long-term debt of
$11,880,000.
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 provides 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"). Depending on its needs, the Company could use some or all of the
remaining portion of the Facility, which consists of a $40 million Equity Line
of Credit (the "Equity Line") from which the Company may draw funds in exchange
for shares of the Company's Common Stock at an approximate 15% discount from the
market price on the date of the draw down.
However, the Company recently signed an agreement with the Investors which, in
addition to extending the date and limiting the rate at which the Investors may
convert the April 1998 Notes, prevents the Company from drawing funds from the
Equity Line until the later of 1) January 1, 1999 or 2) 30 days after the
registration statement covering resales of the shares underlying the Equity Line
is declared
8
<PAGE>
effective by the SEC (the "Effective Registration"); provided, however, that if
all of the Company's outstanding convertible notes are paid in full, the Company
may draw funds from the Equity Line at any time after the Effective
Registration.
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.
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
9
<PAGE>
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 recently identified certain
environmental issues which could jeopardize the purchase or significantly reduce
the purchase price. In the event the Company decides not to purchase St. Marks,
it intends to continue operating under the lease terms of the Agreement and
either renew the lease under similar terms or identify an alternative facility
in the area to lease or purchase.
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 Company has
submitted a proposal to the IRS which would enable the Company to pay the tax
and interest due over a period of approximately one year; the tax would be paid
in four equal quarterly installments and the interest would be paid in a lump
sum at the end of the annual payment period. 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 $150,000 during
1998.
Depending on the availability of funds, during the next 12 months, the Company
expects to expend approximately $28 million for its operations and projects, of
which approximately $12 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 $14 million is expected to
be spent on seismic acquisition and reprocessing, drilling, and working capital
in Kazakstan, and approximately $2 million for other corporate uses. However, in
the event the Company obtains a joint venture partner in Kazakstan, its capital
requirements there should be significantly less than $14 million during the next
12 months. As of August 1998, the Company's existing working capital was
insufficient to provide the Company with all of the capital it requires to
complete these projects. However, the Company believes that the capital
available under the Equity Line, together with projected cash flows from the
Refinery, will satisfy its capital requirements during at least the next two
years. If the Company is unable to obtain the Effective Registration for the
Equity Line, absent alternative financing, 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
10
<PAGE>
value of $86 million, is completely unencumbered and available as collateral for
asset-backed lending. In addition, the Refinery currently has approximately $7
million in accounts receivable and inventory available for working capital lines
and letters of credit for future feedstock purchases. The Company currently is
discussing such financings with a number of merchant banks.
Depending upon the size and extent of these financings, the Company intends to
repay all 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 or supplement to the Equity Line, to
finance the needs of the Company in the future.
11
<PAGE>
Results of Operations
For the Three Months Ended June 30, 1998 as compared
to the Three Months Ended June 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 second quarters of 1997 or 1998.
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 June 30, 1998, the Company performed extensive
testing of the operations of the Refinery's crude unit, which resulted in
$490,000 in revenues from the sale of certain light-end products. The Company
also began testing its asphalt operating units and various types and blends of
crude oil feedstocks during this period and, as a result, had approximately
$1,626,000 in revenues from the sales of asphalt. Because of the extensive
testing and start-up costs incurred since the implementation of operations at
the Refinery, the relatively-high operating and inventory costs, totaling an
aggregate of approximately $2,142,000, attributed to these sales should not be
considered to be indicative of the upcoming unit operating cost expected in the
future from normal operations. 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. Marks Florida, which commenced in June
1998, had revenues of approximately $487,000, with associated operating costs of
approximately $399,000.
Other Revenue:
Other revenues increased approximately $104,000 during the second quarter of
1998 compared to the same period in 1997. Approximately $43,000 of interest
income is due to non-cash accretion of interest on notes receivable.
Approximately $61,000 of the increase is due to an increase in interest income
from substantially more funds being on deposit during the current period
compared to the same period last year.
12
<PAGE>
General and administrative:
Recorded General and Administrative expenses decreased approximately $186,000 in
the second quarter of 1998 compared to the same period in 1997, primarily
because of continued testing and capital construction at the Refinery having
extended into the second quarter of 1998, resulting in an increase in
capitalized general and administrative expenses for the second quarter of 1998
of approximately $40,000 to $186,000 compared to capitalized expenses during the
same period last year of $146,000.
Depreciation, Depletion, and Amortization:
Depreciation, Depletion, and Amortization increased approximately $148,000
during the current quarter compared to the same quarter last year and are
attributable to the new additions to the Company's refinery.
Interest Expense:
Interest expense decreased by approximately $766,000 during the second quarter
of 1998 compared to the same period last year. However, the Company has
capitalized interest expense of approximately $3 million during the second
quarter of 1998 all of which was non-cash 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 Six Months Ended June 30, 1998 as compared
to the Six Months Ended June 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 six 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 expanded the Refinery and converted it to
process heavy crude oil feedstocks to enable the manufacture of asphalt and
other products. During the first six months of 1998, the Company performed
extensive testing of the operations on the Refinery's crude unit, which resulted
in $928,000 in revenues from the sale of certain light-end products. The Company
also began testing its asphalt operating units and various types and blends of
crude oil feedstocks during this period and, as a result, had approximately
$1,626,000 in revenues from sales of asphalt. As
13
<PAGE>
discussed above, the relatively high aggregate operating and inventory costs
(approximately $2,446,000) attributed to these sales should not be considered to
be indicative of the upcoming unit operating cost expected in the future from
normal operations.
The Refinery's terminal operations in St. Marks Florida, which commenced in June
1998, had revenues of approximately $487,000, with associated operating and
direct costs of inventory of approximately $399,000, all in the second quarter
of 1998.
Other Revenue:
Other revenues increased approximately $138,000, or 155%, during the first six
months of 1998 compared to the same period in 1997. Approximately $85,000 of the
increase is due to non-cash accretion of interest on notes receivable and
$53,000 is due to an increase in interest income from substantially more funds
being on deposit during the current period compared to the same period last
year.
General and administrative:
General and Administrative expenses decreased approximately $1,016,000 compared
to the same six month period in 1997. This decline is primarily attributable to
a non-recurring charge of $695,000 during the first quarter of 1997 for
compensation adjustments, and an additional decrease of $279,000 attributable to
the sale of the Company's South American properties in February 1997. Other
general and administrative expenses have increased due to the increased activity
of the refinery operations and, because of the continued construction and
testing there in the second quarter of 1998, capitalized general and
administrative expenses increased by approximately $318,000 during the first six
months of 1998 compared to the same period last year.
Depreciation, Depletion and Amortization:
Depreciation, Depletion, and Amortization decreased approximately $56,000 during
the current period compared to the same period last year, due in part to, the
lack of any depletion and depreciation costs related to the South American
properties which were sold in February of 1997 and, additional depreciation of
approximately $29,000 attributable to the new additions to the Company's
refinery since the first half of 1997.
Interest Expense:
Interest expense decreased by approximately $1,263,000 to $153,000 during the
first six months of 1998 compared to the first six months of 1997, principally
because the Company capitalized approximately $4.7 million of non-cash interest
expense during the first six months of 1998 relating to costs associated with
its October 1997 and April
14
<PAGE>
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
On June 30, 1998, the Company and the Investors agreed to revise the conversion
terms of the April 1998 Notes. The Investors agreed not to convert any of the
April 1998 Notes until September 1, 1998. Previously, all of these Notes were
convertible at the end of June 1998. Additionally, the Investors agreed not to
convert more than $3 million principal amount of the April 1998 Notes in each of
September, October, November and December 1998. Any unconverted amounts would
rollover to subsequent months.
In exchange the Company reduced the exercise price of the 1,400,000 warrants
issued to the Investors with the April 1998 Notes from $2.76 to $2.00 per share.
Moreover, the terms of the April 1998 Notes were amended to provide that, should
the Company obtain any financing through the issuance of debt or equity
securities, the Company would use 100% of the proceeds of such financing to
repay all of any outstanding principal remaining from certain convertible
debentures sold to the Investors in October 1997 (the "October 1997 Notes")
(currently approximately $2.2 million) and a minimum of 75% of any remaining
proceeds to repay the April 1998 Notes.
Additionally, the initial draw date under the Equity Line was moved to the later
of January 1, 1999 or thirty days after the Effective Registration of the
underlying shares of the Equity Line; provided, however, that if the October
1997 Notes and the April 1998 Notes are paid in full, the Company may draw funds
from the Equity Line at any time after the Effective Registration.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on June 29, 1998.
The following Directors, constituting all of the Directors of the Company, were
elected at the meeting to serve as Directors until their successors are duly
elected and qualified. The Directors elected at the Annual Meeting received the
number of votes set forth opposite their respective names:
Votes Cast
----------
For Withheld
Election Authority/Abstained
-------- -------------------
George N. Faris 44,973,616 1,522,814
Daniel Y. Kim 44,949,364 1,547,066
Donald G. Rynne 44,926,157 1,570,273
William R. Smart 44,943,074 1,553,356
At the Annual Meeting, the stockholders also approved the following
proposals by the number of votes indicated below:
Ratification of the appointment of Hein + Associates LLP as independent
public accountants of the Company for 1998:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
45,031,005 695,472 790,153 0
Ratification of the adoption of the Company's 1998 Stock Option Plan:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
10,638,686 4,886,485 938,000 0
Ratification of the adoption of the Company's 1998 Stock Award Plan:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
9,254,237 5,064,979 894,851 0
Ratification of the issuance of 25,000 shares of Common Stock to each of
four officers of the Company in 1997.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
9,034,972 5,504,230 719,065 0
Ratification to transact such other business as may properly come before
the meeting and any adjournments thereof:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
42,135,070 1,874,224 2,486,336 0
Item 5. Other Events
In July 1998 a lawsuit was filed against the Company in the United States
District Court for the Southern District of New York by Chaim Klapholtz and
Lockwood Resources, Ltd. seeking liquidated compensatory damages of $21 million
in cash and 2.5 million shares of AIPC common stock, plus an additional $10
million in punitive damages, predicated on two Debentures by which a total of
$535,000 was borrowed by AIPC on April 1, 1997, at 8% interest. Plaintiffs
contend that AIPC is liable for liquidated damages for alleged failure to
convert the Debentures into shares of common stock. The plaintiffs did not
tender the documents required by the agreements to consummate a conversion of
the
15
<PAGE>
Debentures. Among other conditions of conversion, the plaintiffs were required
to furnish the Company with an opinion of counsel with respect to
transferability under the Federal Securities laws. The agreement provided that a
notice of conversion would not be operative unless it was accompanied by a
satisfactory opinion of counsel. No opinion was furnished. Moreover, the Company
redeemed certain of the Debentures in accordance with the terms thereof prior to
an effective conversion and the plaintiffs accepted the proceeds of such
redemption. The Company believes it has good, meritorious and complete defenses
to such claims and intends to contest them.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Letter Agreement dated June 26, 1998 between the Registrant
and the Investors.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
16
<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: August 11, 1998
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
---------------------------
Denis J. Fitzpatrick
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Letter Agreement dated June 26, 1998 between the Registrant and
the Investors.
27.1 Financial Data Schedule.
18
Exhibit 4.1
Dear ____________:
In furtherance of our recent conversation, I would like to propose as
my final offer the following changes to the terms of the $10 million 14%
Convertible Debentures due October 15, 1998 (the "October Notes") held by
___________ ("_______") _______________ ("__________"), the $12 million 14%
Convertible Notes due April 21, 2000 (the "April Notes", with the October Notes
and the April Notes to be referred hereinafter collectively as the "Notes")
currently held by _______________, _______________, ___________________
("________") and ____________ ("________", and together with ________, _________
and __________, the "_______") and the $40 million Structured Equity Funding
Line ("SEFL").
First, the Funds would agree not to convert any of the April Notes
until September 1, 1998. Additionally, the Funds would agree not to convert more
than $3 million principal amount of the April Notes in each of September,
October, November and December 1998. The Company understands, however, that
should the Funds not exercise their right to convert the maximum amount in any
of the foregoing months, any "unconverted" amount in such month shall be rolled
forward to the following month and added to the amount that could otherwise be
converted.
In exchange, the Company would agree to re-set the exercise price of
the warrants that were issued to the Funds in connection with the April Notes to
$2.00 per share. Thus, the 816,667 warrants issued to ________, the 233,333
warrants issued to _______, and the 175,000 warrants issued to each of _________
and _________ relating to the April Notes would be re-set at $2.00.
Moreover, the terms of the Notes would be amended so as to provide that
should the Company obtain any financing through the issuance of debt or equity
securities, the Company would use 100% of the proceeds of such financing to pay
off any outstanding balance of the October Notes at the Formula Price (as such
term is defined in the October Notes) and a minimum of 75% of any remaining
proceeds to pay off the outstanding balance of the April Notes at the Formula
Price (as such term is defined in the April Notes). Additionally, the initial
draw date under the SEFL would be re-set as the latter of (1) January 1, 1999 or
(2) thirty days after the registration statement covering resales of the shares
of AIPC common stock issuable under the SEFL is declared effective: provided,
however, that if the October Notes and April Notes are each paid in full, the
Company may draw on the SEFL at any time after such registration statement is
declared effective.
We believe that the aforementioned changes are in the best interests of
all parties involved, and we are anxious to complete a deal with you that will
lead to a favorable market reaction.
<PAGE>
Please note that the terms described above are for discussion purposes
only, and as such are non-binding in nature and will remain so until formal
documents evidencing the aforementioned changes have been executed by all
relevant parties.
Please don't hesitate to contact me at the above-referenced number
should have you any questions.
Very truly yours,
- ---------------------
Agreed and accepted this __________ day of ___________, 1998
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: /s/ Denis J. Fitzpatrick
----------------------------
Name: Denis J. Fitzptarick
Title: Chief Financial Officer:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,154,601
<SECURITIES> 253,738
<RECEIVABLES> 2,830,626
<ALLOWANCES> 0
<INVENTORY> 2,621,760
<CURRENT-ASSETS> 9,331,835
<PP&E> 52,527,871
<DEPRECIATION> (4,328,945)
<TOTAL-ASSETS> 58,700,263
<CURRENT-LIABILITIES> 7,401,909
<BONDS> 11,205,573
<COMMON> 4,289,049
0
0
<OTHER-SE> 35,803,732
<TOTAL-LIABILITY-AND-EQUITY> 58,700,263
<SALES> 3,040,621
<TOTAL-REVENUES> 3,266,524
<CGS> 2,844,711
<TOTAL-COSTS> 2,321,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,801
<INCOME-PRETAX> (2,052,233)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,052,233)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
