<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 June 30, 1999
-----------------------
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, 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 16, 1999 is 74,531,859 shares.
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 234,025 $ 376,745
Accounts and notes receivable, net 1,092,812 548,442
Inventory 1,154,022 1,554,694
Deferred financing costs 329,492 8,563
Prepaid expenses 1,845,210 829,654
------------- -------------
Total current assets 4,655,561 3,318,098
------------- -------------
Property, plant and equipment:
Unevaluated oil and gas property 26,126,331 23,438,886
Refinery property and equipment 37,955,930 36,935,705
Other 779,448 626,910
------------- -------------
64,861,709 61,001,501
Less - accumulated depreciation, depletion
and amortization (5,502,229) (4,707,103)
------------- -------------
Net property, plant and equipment 59,359,480 56,294,398
Notes receivable, less current portion 1,185,448 1,118,200
Other long-term assets, net 37,500 130,638
------------- -------------
Total assets $ 65,237,989 $ 60,861,334
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and short term debt $ 3,199,630 $ --
Notes payable - trade 1,767,602 1,725,350
Notes payable - officers and directors 490,000 266,850
Accounts payable 2,299,624 4,081,557
Accrued liabilities 954,201 2,146,449
------------- -------------
Total current liabilities 8,711,057 8,220,206
Long-term debt 8,549,085 6,110,961
------------- -------------
Total liabilities 17,260,142 14,331,167
------------- -------------
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, 72,159,275 and 65,992,328 shares issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 5,772,742 5,279,385
Additional paid-in capital 137,733,037 129,711,531
Accumulated deficit (95,527,932) (88,460,749)
------------- -------------
Total stockholders' equity 47,977,847 46,530,167
------------- -------------
Total liabilities and stockholders' equity $ 65,237,989 $ 60,861,334
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Refinery operating revenues $ 2,156,652 $ 2,603,001
Other 36,669 157,478
------------ ------------
Total revenues 2,193,321 2,760,479
------------ ------------
Expenses:
Operating and product cost 2,508,173 2,541,563
General and administrative 1,644,867 874,685
Depreciation, depletion and
amortization 462,916 279,965
Interest 1,607,403 76,401
Unrealized and realized loss on marketable securities -- 192,747
------------ ------------
Total expenses 6,223,359 3,965,361
------------ ------------
Net loss $ (4,030,038) $ (1,204,882)
============ ============
Net loss per share of common stock - basic and diluted $ (0.06) $ (0.02)
============ ============
Weighted-average number of shares
of common stock outstanding 69,611,930 52,176,697
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Revenues:
<S> <C> <C>
Refinery operating revenues $ 4,020,158 $ 3,040,621
Other 78,051 225,903
------------ ------------
Total revenues 4,098,209 3,266,524
------------ ------------
Expenses:
Operating and product cost 4,141,664 2,844,711
General and administrative 3,229,030 1,693,568
Depreciation, depletion and
amortization 795,126 434,930
Interest 2,999,572 152,801
Unrealized and realized loss on marketable securities -- 192,747
------------ ------------
Total expenses 11,165,392 5,318,757
------------ ------------
Net loss $ (7,067,183) $ (2,052,233)
============ ============
Net loss per share of common stock - basic and diluted $ (0.10) $ (0.04)
============ ============
Weighted-average number of shares
of common stock outstanding 67,479,328 50,175,072
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED 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, January 1, 1999 65,992,328 $ 5,279,385 $129,711,531 $(88,460,749) $ 46,530,167
Conversions of debentures 2,093,269 167,462 1,189,017 -- 1,356,479
Issuance of stock in lieu of current
liabilities 1,347,690 107,815 1,259,257 -- 1,367,072
Issuance of stock and options for services 443,919 35,514 385,724 -- 421,238
Issuance of stock for property and equipment 790,000 63,200 973,466 -- 1,036,666
Issuance of stock options and warrants -- -- 1,243,903 -- 1,243,903
Imputed interest on debentures
convertible at a discount to market -- -- 1,764,705 -- 1,764,705
Options and warrants exercised 492,069 39,366 191,634 -- 231,000
Issuance of stock for collaeral on debt 1,000,000 80,000 1,013,800 -- 1,093,800
Net loss -- -- -- (7,067,183) (7,067,183)
----------- ------------ ------------ ------------ ------------
Balance, June 30, 1999 72,159,275 $ 5,772,742 $137,733,037 $(95,527,932) $ 47,977,847
=========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
5
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,067,183) $ (2,052,233)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, amortization and accretion of
discount on debt 2,205,939 434,930
Accretion of premium on notes receivable (25,302) (85,132)
Realized and unrealized loss on marketable securities -- 192,747
Issuance of common stock and options for services 421,238 196,900
Changes in assets and liabilities:
Accounts and notes receivable (544,370) 108,725
Inventory 400,672 (1,866,040)
Prepaid and other (281,896) 943,466
Accounts payable and accrued liabilities (1,628,380) 1,545,527
------------ ------------
Net cash used in operating activities (6,519,282) (581,110)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (1,365,996) (6,339,567)
Additions to refinery property and equipment (757,222) (6,580,880)
Proceeds from sale of marketable securities -- 289,473
Other (183,226) 6,169
------------ ------------
Net cash used in investing activities (2,306,444) (12,624,805)
------------ ------------
Cash flows from financing activities:
Net increase in notes payable 42,252 --
Increase in short term debt 1,686,604 --
Increase in notes payable - officers 223,150 --
Proceeds from long-term debt 10,000,000 11,880,000
Repayments of long-term debt (3,500,000) --
Proceeds from exercise of stock warrants
and options 231,000 759,166
------------ ------------
Net cash provided by financing activities 8,683,006 12,639,166
------------ ------------
Net decrease in cash and cash equivalents (142,720) (566,749)
Cash and cash equivalents at beginning of period 376,745 3,721,350
------------ ------------
Cash and cash equivalents at end of period $ 234,025 $ 3,154,601
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. Statement of Information Furnished
The accompanying unaudited condensed 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,
1999, the results of operations and cash flows for the three and six month
periods ended June 30, 1999 and 1998. 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 1998 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
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's 1998 Annual Report on Form 10-K.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Although the Company has two major segments of its business, refining and oil
and gas exploration and development, it has had no oil and gas production
operations since the first quarter of 1997 when it sold its South American
wholly-owned oil and gas subsidiaries. Since this sale, the Company's oil and
gas activities have included, but were not limited to, geological and
geophysical acquisition, reprocessing and/or analysis of data, acquisition of
additional licenses or projects, drilling, and marketing analysis and
negotiation. The Company has yet to implement oil and/or gas production
operations in Kazakstan or elsewhere. At that point in time, the Company will
include a more detailed discussion of the oil and gas exploration and
development segment of its business. Until then, the Company will only include a
discussion of operations in effect during the current reporting period, i.e.,
its refining and asphalt operations.
7
<PAGE>
For the Three Months Ended June 30, 1999 as compared
to the Three Months Ended June 30, 1998
Oil and Gas Operations:
The Company has not had any oil and gas operating or producing fields since it
sold it's South American operations in Colombia and Peru in February 1997 and,
therefore no revenues or expenses related to oil and gas operations were
recorded during the second quarters of 1998 or 1999.
Refinery Operations:
During the three months ended June 30, 1999, the Company had revenues of
approximately $2,157,000 compared to revenues of approximately $2,116,000 for
the same period during 1998. Operating and inventory costs attributed to the
related revenues for the three months ended June 30, 1999 were approximately
$2,475,000 compared to approximately $2,116,000 for the same period in 1998. The
increase in operating and inventory costs during the current quarter is
partially attributable to the increase in world oil prices and the
non-availability of certain types of crude oil during the first six months of
1999, the subsequent increase in asphalt feed stock prices that the Company has
incurred for its asphalt, and to an increase in operating costs to maintain the
refinery. Due to the significant increase in world oil prices during the first
six months of 1999 it has not been economically feasible for the Company to
purchase and process crude oil through its refining unit to manufacture asphalt
at this time. The Company has been purchasing general grade asphalt on a spot
basis to blend and supply various grades of asphalt to its customers. Even
though the Company has not operated the refining unit since January of this
year, the Company has had to maintain the unit in a state of readiness during
this period and thus it is currently experiencing additional operating overhead
costs attributed to maintaining the refining unit. Subject to favorable economic
conditions, the Company plans to utilize the refining unit during the fourth
quarter this year. If the refining unit does not commence operations at that
time appropriate measures will be taken to reduce the operating costs to
maintain the unit. Additionally, 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 are determined over
time as the Company's markets are developed and redefined in the different areas
it services.
The Refinery's terminal in St. Marks Florida was not operational and had no
revenues and incurred approximately $33,000 of maintenance costs for the three
months ended June 30, 1999 compared to operating revenues of approximately
$487,000 with associated operating costs of approximately $399,000 for the same
period in 1998. Taking into consideration the increase in oil prices, as
previously discussed, and its relative impact on product costs, the Company
determined it to be more economically feasible to direct its sales efforts to
the high demand, high quality and high margin asphalt in the Louisiana and Texas
markets rather than shipping lower margin conventional asphalt for sale into the
St. Marks, Florida market.
8
<PAGE>
Other Revenue:
Other revenues decreased approximately $121,000 during the second quarter of
1999 compared to the same period in 1998. A decrease of approximately $43,000 of
interest income during the current period compared to the same period last year
is attributable to the write off of certain notes receivable at December 31,
1998. Approximately $78,000 of the decrease is due to a decrease in interest
income from substantially less funds being on deposit during the current period
compared to the same period last year.
General and Administrative:
Actual General and Administrative expenses, ("G&A") increased approximately
$584,000 excluding $186,000 of G&A expenses capitalized during the same quarter
of 1998 in connection with construction at the Refinery during the second
quarter of 1998. During the current quarter compared to the same quarter last
year, payroll and related employee expenses increased by approximately $613,000
which includes approximately $180,000 of non-cash stock bonuses issued to key
employees, general insurance costs increased approximately $47,000 due to
increased coverage on new asset additions made during 1998, rent expenses
increased by $91,000, property taxes decreased approximately $106,000 due to
certain tax exemptions, and investor relations costs decreased by approximately
$105,000 due to timing differences.
Depreciation, Depletion, and Amortization:
Depreciation, Depletion, and Amortization increased approximately $183,000
during the current quarter compared to the same quarter last year and is
primarily attributable to new additions at the Company's refinery placed into
service during 1998.
Interest Expense:
Interest expense increased by approximately $1,531,000 during the second quarter
of 1999 compared to the same period last year. Interest expense for the quarter
ended June 30, 1999 represented non-cash interest of $1,090,000 related to the
Company's borrowings outstanding at December 31, 1998 and its long and
short-term debt incurred during the first six months of 1999. Recorded interest
expense for the three months ended June 30, 1999 was approximately $1,469,000
less than for the same period during 1998, during which the Company had
capitalized approximately $3 million of non-cash interest relating to costs
incurred by the Company for its oil and gas and refinery projects.
For the Six Months Ended June 30, 1999 as compared
to the Six Months Ended June 30, 1998
Oil and Gas Operations:
During the first six months of 1999 and 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.
9
<PAGE>
Refinery Operations:
During the first six months of 1999, refinery revenues increased approximately
$1,466,000 to $4,020,000 compared to $2,554,000 during the first six months of
1998. Operating and inventory costs associated with these revenues were
approximately $4,142,000 and $2,446,000 for the first six months of 1999 and
1998, respectively. The increase in the operating and inventory costs is
primarily due to the increase in the world oil prices, as previously discussed
in the three-month discussion.
The Refinery's terminal operations in St. Marks Florida, which commenced in June
1998, was not operational during the first six months of 1999 and therefore had
no revenues during this period compared to approximately $487,000 of revenues
during the same period last year and associated operating and direct costs of
inventory of approximately $399,000, all in the second quarter of 1998. As
previously discussed in the three-month discussion, the Company directed its
sales efforts into the Texas and Louisiana asphalt markets.
Other Revenue:
Other revenues decreased approximately $148,000, to $78,000 during the first six
months of 1999 compared to the same period in 1998. The decrease is due
primarily to the Company having substantially fewer funds on deposit during the
current quarter compared to the same period last year. Approximately $60,000 is
due to the decrease in accretion of income on certain note receivables, which
were reserved at the end of 1998.
General and administrative:
Actual General and Administrative, ("G&A") expenses increased approximately
$958,000, and with the effect of a decrease in the current period of $578,000 of
capitalized general and administrative expenses which were recorded during this
same period in 1998, the increase approximated $1,535,000 during the first six
months of 1999 compared to the same six month period in 1998. General and
administrative expenses have increased due to the increased activity of the
Company in its refinery operations and oil and gas activity. Certain G&A expense
have increased and decreased during the first six months of 1999 compared to the
same period during 1998 as follows: Payroll and related employee expenses
increased by approximately $475,000 which includes approximately $180,000 of
non-cash stock bonuses issued to key employees, general insurance costs
increased by approximately $95,000 due to increased coverage of new asset
additions placed in service during 1998, rent expenses increased approximately
$131,000, investor relations costs increased by approximately $160,000, bond
costs increased approximately $110,000 due to the Company's financing
activities, and professional fees decreased approximately $88,000.
10
<PAGE>
Depreciation, Depletion and Amortization:
Depreciation, Depletion, and Amortization increased approximately $360,000
during the current period compared to the same period last year, and are
primarily attributable to new additions at the Company's refinery during 1998.
Interest Expense:
Interest expense increased by approximately $2,847,000 to approximately
$3,000,000 during the first six months of 1999 compared to the first six months
of 1998. The Company actually incurred approximately $3,547,000 of interest
expense during the first six months of 1999 compared to actual interest expense
incurred of $4,869,000 during the same period in 1998. The Company capitalized
approximately $547,000 and $4,716,000 of non-cash interest expense during the
first six months of 1999 and 1998, respectively, relating to costs associated
with its financing activities, the proceeds from which were utilized by the
Company for its oil and gas and Refinery projects.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company used a net amount of
approximately $4,833,000 for operations, which reflects approximately $2,602,000
in non-cash provisions, including the issuance of stock in lieu of cash payments
for services of $421,000 and depreciation, amortization, and accretion of
discounts and premium of $2,181,000. Approximately $2,054,000 was used during
the period to decrease product and feedtock inventory, accounts payable and
accrued liabilities, and to increase current assets other than cash. Additional
uses of funds during the period included additions to oil and gas properties and
Refinery property and equipment of $1,366,000 and $757,000, respectively. Cash
for operations was provided, in part, by proceeds from the exercise of stock
options and warrants of $231,000 and from long short-term debt of approximately
$11,952,000, partially offset by cash used to repay long-term debt of
$3,500,000.
Since December 1998, the Company has borrowed an aggregate of approximately $6.4
million in non-equity financing, (secured by its accounts receivable, inventory,
asphalt barge, and the St. Marks facility), which it utilized to acquire
feedstock, refurbish equipment and for other working capital needs.
A convertible debenture with an aggregate outstanding balance of approximately
$1,530,000, due and payable to the Company on February 25, 1999, was not paid by
the maker, Mercantile Colombia Oil and Gas Inc. The Company recently filed suit
to recover all amounts due. See Part II. Item 1. "Legal Proceedings".
In February 1999, the Company sold a $10 million convertible debenture due and
payable in February 2004. A portion of the proceeds was used to reduce $3.5
million of principal balance from the Company's outstanding 14% convertible
debentures and a significant amount of
11
<PAGE>
current liabilities, including $1.3 million in excise tax and related interest
due to the IRS, and an aggregate of approximately $3 million for working capital
for the Refinery and in Kazakstan.
During 1998, the Refinery was operated on a limited basis (less than 10%
capacity) while extensive testing of equipment, various types of crude oil
feedstocks, and asphaltic blends took place. These processes severely limited
the Company's operating margins during the 1998 asphalt season. However, during
the first quarter of 1999, the asphalt division was operated without the burden
of construction and testing processes and consequently, its asphalt margins
improved even though it operated at very low levels during the off-season first
quarter, typically a slow period in the asphalt industry.
The Company had expected its margins and cash flow to continue to be stronger
for the second quarter of 1999 than in the same period last year. However, this
did not occur. Because of the higher cost and reduced supplies of the heavy
crude oils it utilizes as feedstock for asphalt manufacturing, the Company has
been purchasing wholesale asphalts from various sources and blending these
asphalts with additives and other asphalts for sale to its customers. The
reduction in the supply of heavy oil was the direct result of OPEC, Mexico and
Venezuela's strategy to obtain an increase in the world's crude oil prices. When
these countries cut back on the supply, they naturally reduce the availability
of the lower-priced heavy crudes - hence the supply shortages the company and
the rest of the industry is now experiencing.
Since the Company is blending asphalt and not processing crude oil, its crude
unit has been idle for most of 1999, consequently, the Company has had minimal
light-end revenues. In addition, because of the resultant lower throughput
volumes, increased costs for feedstock, and the fact that expected increases in
its product prices resulting from high crude oil prices did not occur, cash
flows derived from the Company's asphalt sales have been lower during the first
half of 1999 compared to the same period last year.
However, the expected increase in demand for asphalt has begun to materialize,
with the implementation on July 1, 1999 of the Federal governments "TEA 21 Act",
a $216 billion transportation bill, of which $32 billion is earmarked for the
states in which the Company does business. The Company's sales volumes,
particularly for polymerized asphalts, have increased significantly during July
1999. In addition, its product prices have begun to rise. These factors indicate
that the second half of 1999 should reflect improved asphalt revenues over those
so far this year.
Because of the dramatic reduction in crude oil feedstock supplies mentioned
above, the Company expects to operate the crude unit on a spot basis during
1999, if at all. Coupled with currently-available sources of non-equity
financing, the Company still expects sufficient positive operating margins to
support most of the Refinery's operational requirements for the remainder of
1999. As operations at the Refinery expand, the Company plans, to the extent
possible, to prudently obtain bank or other conventional, non-equity financing
to replace its existing convertible debt and provide the supplemental
12
<PAGE>
funds necessary to support all of its domestic operations and minimal work
programs in Kazakstan.
The Company is seeking a joint venture partner and financing for its Kazakstan
concessions. Depending on the timing and success of this process, the Company
intends to be very conservative with its expenditures overseas during 1999. As
of August 1999, the Company's existing working capital was insufficient to
provide it with all of the capital it may require to complete its minimum work
program for 1999. However, the Company believes it can obtain a deferral of
these minimum requirements. If it is unable to obtain the necessary financing to
meet these requirements or if it is unable to obtain a deferral thereof, certain
projects, expansions and other activities in Kazakstan could be delayed or
cancelled.
The Company is seeking financing to supplement its cash flow from operations
during 1999. If the Company is unable to derive the necessary working capital
from the Refinery, St. Marks, AIM, or from a joint venture partner in Kazakstan,
to support its operations during 1999, or obtain the necessary financing to
adequately supplement or provide all of its funding needs, its ability to
continue operations at current levels could be materially and adversely
effected.
Y2K Issues
The Company has been addressing the potential impact of the nearly universal
practice in the computer industry of using two digits rather than four to
designate the calendar year relating to the year 2000, ("Y2K") and has engaged
outside computer consultants to assist it with its evaluation. The Company is
not aware of any circumstances in which the failure of a supplier or customer to
deal successfully with the issue would have a material impact on the Company's
ability to continue to operate on an uninterrupted basis. The Company has
assessed its internal programs and hardware and concluded that all of its
systems are, or will be, in compliance prior to year-end. Should the Company
experience any such problems with regards to its internal systems, it has
estimated that in a worst-case scenario the aggregate cost to mitigate any
related problems would not exceed $75,000.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
American International Petroleum Corporation vs. Mercantile Colombia Oil and Gas
Inc. and Mercantile International Petroleum Inc.
A convertible debenture (the "Mercantile Debenture") with an aggregate
outstanding balance of principal and accrued interest of approximately
$1,530,000 due and payable to the Company on February 25, 1999 was not paid by
the maker, Mercantile Colombia oil and Gas Inc. On July 28, 1999, the Company
filed a lawsuit in the United States District Court Southern District of New
York to recover all amounts due under the Mercantile Debenture. At this time,
the Company is unable to determine the likelihood of recovering any or all of
the amounts due.
Item 2. Changes in Securities
In April 1999, the Company issued a six-month $1.825 million bridge note in a
private placement to an "accredited investor" (the "Investor"), within the
meaning of Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"). In connection with the issuance of this note, the Company
issued five-year warrants to purchase up to 500,000 shares of the Company's
common stock with an exercise price of $1.06 per share. The bridge note and
warrants were issued pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) of the Securities
Act and Rule 506 of Regulation D.
During the three months ended June 30, 1999, the Company issued 2,133,110 shares
of Common Stock upon conversion of its 14% Convertible Notes due April 21, 2000
and 15,931 shares of Common Stock in payment of accrued interest on those
Convertible Notes. The issuance of the shares upon conversion was exempt from
registration pursuant to Section 3(a)(9) of the Securities Act and the issuance
of shares in payment of accrued interest was exempt from registration pursuant
to Rule 506 of Regulation D.
During the three months ended June 30, 1999, the Company issued an aggregate of
1,952,113 shares to fourteen business entities as consideration for services
rendered on behalf of the Company. These shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act. Each
of these entities represented its intention to acquire the shares for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the shares.
Each entity had access to information about the Company and represented that it
was a sophisticated investor.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<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 16, 1999
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.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000799119
<NAME> AIPC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 234,025
<SECURITIES> 0
<RECEIVABLES> 1,092,812
<ALLOWANCES> 0
<INVENTORY> 1,154,022
<CURRENT-ASSETS> 4,655,561
<PP&E> 64,861,709
<DEPRECIATION> 5,502,229
<TOTAL-ASSETS> 65,237,989
<CURRENT-LIABILITIES> 8,711,057
<BONDS> 8,549,085
0
0
<COMMON> 5,772,742
<OTHER-SE> 42,205,105
<TOTAL-LIABILITY-AND-EQUITY> 65,237,989
<SALES> 4,020,158
<TOTAL-REVENUES> 4,098,209
<CGS> 0
<TOTAL-COSTS> 4,141,664
<OTHER-EXPENSES> 4,024,156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,999,572
<INCOME-PRETAX> (7,067,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,067,183)
<EPS-BASIC> (0.10)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000799119
<NAME> AIPC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 234,025
<SECURITIES> 0
<RECEIVABLES> 1,092,812
<ALLOWANCES> 0
<INVENTORY> 1,154,022
<CURRENT-ASSETS> 4,655,561
<PP&E> 64,861,709
<DEPRECIATION> 5,502,229
<TOTAL-ASSETS> 65,237,989
<CURRENT-LIABILITIES> 8,711,057
<BONDS> 8,549,085
0
0
<COMMON> 5,772,742
<OTHER-SE> 42,205,105
<TOTAL-LIABILITY-AND-EQUITY> 65,237,989
<SALES> 2,156,652
<TOTAL-REVENUES> 2,193,321
<CGS> 0
<TOTAL-COSTS> 2,508,173
<OTHER-EXPENSES> 2,107,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,607,403
<INCOME-PRETAX> (4,030,038)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,030,038)
<EPS-BASIC> (0.06)
<EPS-DILUTED> 0
</TABLE>
