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 March 31, 2000
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.)
2950 NORTH LOOP WEST, HOUSTON, TEXAS 77092
(Address of principal executive offices) (Zip Code)
(713) 802-0087
(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 May 3, 2000 is 107,116,261 shares.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 336,033 $ 1,753,707
Accounts and notes receivable, net 713,216 497,553
Inventory 300,049 723,088
Deferred financing costs 103,700 130,727
Prepaid expenses 1,071,418 793,956
------------- -------------
Total current assets 2,524,416 3,899,031
------------- -------------
Property, plant and equipment:
Unevaluated oil and gas property 32,407,559 31,556,376
Refinery property and equipment 38,016,375 37,999,682
Other 1,020,319 1,005,886
------------- -------------
71,444,253 70,561,944
Less - accumulated depreciation, depletion,
and amortization (6,988,836) (6,470,672)
------------- -------------
Net property, plant and equipment 64,455,417 64,091,272
Notes receiviable, less current portion 1,205,112 1,252,696
Other long-term assets, net 128,258 415,270
------------- -------------
Total assets $ 68,313,203 $ 69,658,269
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debentures $ 3,953,933 $ 2,223,500
Notes payable - trade 1,903,297 1,736,831
Accounts payable 1,896,425 3,641,886
Accrued liabilities 1,017,582 1,301,472
------------- -------------
Total current liabilities 8,771,237 8,903,689
Long-term debt 6,501,448 11,984,592
------------- -------------
Total liabilities 15,272,685 20,888,281
------------- -------------
Commitments and contingent liabilities -- --
Minority Interest Liability 305,956 305,956
Stockholders' equity:
Preferred stock, par value $0.01, 7,000,000 shares
authorized, none issued
Common stock, par value $.08, 200,000,000 shares authorized,
106,746,114 and 91,282,773 shares issued outstanding
at March 31, 2000 and December 31, 1999, respectively 8,539,688 7,302,621
Additional paid-in capital 152,056,546 145,605,966
Common stock issued as collateral, held in escrow (1,000,000) (1,065,938)
Accumulated deficit (106,861,672) (103,378,617)
------------- -------------
Total stockholders' equity 52,734,562 48,464,032
------------- -------------
Total liabilities and stockholders' equity $ 68,313,203 $ 69,658,269
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
2
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2000 1999
------------ ------------
Revenues:
Refinery operating revenues $ 1,182,957 $ 1,863,506
Other 27,873 41,382
------------ ------------
Total revenues 1,210,830 1,904,888
------------ ------------
Expenses:
Costs of goods sold - refinery 1,391,929 1,633,491
General and administrative 1,891,355 1,584,163
Depreciation, depletion and
amortization 518,164 332,210
Interest 892,437 1,392,169
------------ ------------
Total expenses 4,693,885 4,942,033
------------ ------------
Net loss $ (3,483,055) $ (3,037,145)
============ ============
Net loss per share of common stock - basic and diluted $ (0.04) $ (0.05)
============ ============
Weighted-average number of shares
of common stock outstanding 97,670,153 66,059,813
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (3,483,055) $ (3,037,145)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization and accretion of
discount on debt 1,096,891 678,350
Accretion of premium on notes receivable (22,416) (12,651)
Non-cash provision for services -- 131,251
Issuance of stock for compensation expense 11,250 --
Changes in assets and liabilities:
Accounts and notes receivable (215,663) (388,329)
Inventory 423,039 (20,311)
Prepaid and other (474,343) (30,986)
Accounts payable and accrued liabilities (398,067) (2,580,270)
------------ ------------
Net cash used in operating activities (3,062,364) (5,260,091)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (851,183) (854,878)
Additions to refinery property and equipment (16,693) (673,162)
Increase (decrease) to other long term assets 342,579 (183,651)
------------ ------------
Net cash used in investing activities (525,297) (1,711,691)
------------ ------------
Cash flows from financing activities:
Net increase in short-term debt 1,812,083 --
Net increase in notes payable 166,466 414,547
Repayments of long-term debt -- (5,300,000)
Proceeds from exercise of stock warrants
and options 191,438 --
Proceeds from issuance of debentures, net -- 11,800,000
------------ ------------
Net cash provided by financing activities 2,169,987 6,914,547
------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,417,674) (57,235)
Cash and cash equivalents at beginning of year 1,753,707 376,745
------------ ------------
Cash and cash equivalents at end of year $ 336,033 $ 319,510
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common
Common stock Additional Stock
------------------------ paid-in Held Accumulated
Shares Amount capital In Escrow deficit Total
----------- ---------- ------------ ---------- ------------- -----------
Balance, January 1, 2000 91,282,773 $7,302,621 $145,605,966 (1,065,938) $(103,378,617) $48,464,032
Conversions of debentures 12,091,697 967,336 4,847,779 -- -- 5,815,115
Issuance of stock in lieu of current
liabilities 1,793,303 143,464 1,050,322 -- -- 1,193,786
Issuance of stock for compensation 20,000 1,600 9,650 -- -- 11,250
Issuance of stock options and warrants -- -- 104,496 -- -- 104,496
Options and warrants exercised 1,558,341 124,667 66,771 -- -- 191,438
Adjustment to value of stock previously
issued for collateral on debt -- -- 371,562 65,938 -- 437,500
Net loss for the year -- -- -- -- (3,483,055) (3,483,055)
----------- ---------- ------------ ---------- ------------- -----------
Balance, March 31, 2000 106,746,114 $8,539,688 $152,056,546 (1,000,000) $(106,861,672) $52,734,562
=========== ========== ============ ========== ============= ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 March 31,
2000, the results of operations for the three month period ended March 31, 2000
and 1999 and cash flows for the three months ended March 31, 2000 and 1999.
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 1999 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
1999 Annual Report on Form 10-K.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company has two major segments of its business, refining and oil and gas
exploration and development, although the Company 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 Kazakhstan, where it has two gas and oil concessions, or
elsewhere. For the three months ending March 31, 2000, the Company's refining
segment, located in the United States, had sales revenues of $1,183,000 and
costs and operating expenses of $1,990,000. Intrest income and other corporate
revenues totaled $28,000 with general corporate expense, interest expense, and
depreciation being $1,294,000 and $892,000, and $518,000 respectively. The
Company's identifiable assets at March 31, 2000 total $30,666,847 operating
assets in the United States, $32,579,000 for Kazakhstan, and $1,867,575 of
corporate assets.
6
For the Three Months Ended March 31, 2000 as compared
to the Three Months Ended March 31, 1999
Refinery Operations:
During the first quarter of 2000, the Company recorded revenues of approximately
$1,183,000 compared to $1,864,000 during the same period in 1999. Asphalt sales
accounted for all the sales in the first quarter of 2000 compared to
approximately $1,450,000 in 1999 with the remaining revenues of approximately
$414,000 in 1999 being light-end petroleum product sales. Cost of sales for
asphalt products, excluding non asphalt operating costs, for 2000 and 1999,
approximated $1,184,000 and $1,160,000, respectively. Asphalt sales volumes
decreased approximately 36%, although asphalt sales revenues decreased only
approximately 18%. The decrease in sales volumes is attributable to the
Company's difficulties in acquiring sufficient asphalt material to supply its
customers during the first quarter of 2000. The shortage of product is due to
the decrease in the supply of crude oil and related petroleum products due to
the significant increase in world oil prices over the past twelve months. The
Company has made significant efforts to change its sales mix from low margin,
lower grade conventional asphalt to high margin, higher grade polymerized
performance ("PG") grade asphalt products. Approximately 79% of the Company's
asphalt sales during the first quarter of 2000 were PG-grade products compared
to approximately 66% during the same period in 1999. With the decision of the
oil producing nations during the first quarter of 2000 to increase petroleum
output, the Company does not anticipate a continued shortage of product during
the remainder of 2000. The Company currently has a backlog of asphalt sales
orders of approximately 60,000 tons. Due to the increased oil prices that were
in effect during most of 1999, the Company chose to purchase less expensive
wholesale asphalt on the spot market as opposed to purchasing crude oil and
operating its refining unit. The Company is continuing to purchase its asphalt
materials on the spot market. Because the Company did not operate its refining
unit during the first quarter of 2000, there were no light-end products produced
or sold compared to approximately $414,000 of light-end revenues in the first
quarter of 1999.
The Company's St. Marks, Florida refinery facility has not been in operation
since the last quarter of 1998. Because of the high cost of asphalt products due
to the shortage of petroleum products since early 1999, the higher demand for
the higher margin, PG-grade polymerized products in the Louisiana and Texas
markets, the lack thereof in the St. Marks markets, and the additional cost
which would be incurred to transport products to St. Marks from Lake Charles,
the Company has not operated in the St. Marks market during that time. These
conditions have continued and, thus, St Marks was not operated during the first
quarter of 2000. Operating the St. Marks facility will depend on the future
price and availability of petroleum products.
Other Revenues:
Other revenues decreased approximately $14,000, which is attributable to a
decrease of interest income due to fewer funds being on deposit during the
current quarter compared to the same period last year.
7
General and administrative:
General and administrative expenses, ("G&A") increased approximately $307,000
compared to the first quarter of 1999. Financing costs, included in G&A,
increased approximately $270,000 due to the write off of prepaid bond costs
associated with the conversions of approximately $5.8 million dollars of
debentures during the first quarter of 2000. Payroll and employee related costs
increased approximately $214,000 and public relations decreased approximately
$184,000.
Depreciation, depletion and amortization:
Depreciation, depletion and amortization expense increased approximately
$186,000 during the current period compared to the same period last year due to
assets having been placed in service during the first quarter of 1999 having a
full quarter of depreciation in 2000 compared to a partial depreciation in the
same period last year.
Interest expense:
Interest expense decreased approximately $500,000 during the current quarter
compared to the same quarter in 1999, primarily due to a $525,000 interest
payment paid on a prepaid principal payment on long-term debt during the first
quarter of 1999. Non-cash charges of approximately $382,000 were recorded during
the first quarter of 2000 for financing costs related to the Company's
convertible debentures outstanding during the current quarter compared to
$1,000,000 of non-cash charges recorded in 1999. No interest was capitalized in
the first quarter of 2000 compared to $548,000 of non-cash interest capitalized
during the same period last year.
Liquidity and Capital Resources
During the first quarter ended March 31, 2000, the Company used a net amount of
approximately $3,062,000 for operations, which reflects approximately $1,086,000
in non-cash provisions, including $579,000 in loan costs, issuance of stock in
lieu of cash payments of $11,000 and depreciation and amortization of $518,000.
Approximately $423,000 was provided during the period to decrease product and
feedstock inventory and $292,000 was used to decrease accounts payable and
accrued liabilities and to increase current assets other than cash. Additional
uses of funds during the quarter included additions to oil and gas properties
and Refinery property and equipment of $851,000 and $17,000, respectively. Cash
for operations was provided, in part, by proceeds from a short-term bridge note,
issued in February 2000, and net of expenses, of approximately $1,812,000 and an
increase in notes payable of approximately $166,000.
In February 1999, Mercantile International Petroleum, Inc. ("MIP") failed to pay
the $1.6 million outstanding balance due to the Company of the 5% convertible
debenture it issued to the Company as partial payment for the purchase of the
Company's oil and gas properties in
8
Columbia and Peru, South America in February 1997. In January 2000, the parties
reached an agreement (the "MIP Agreement"), whereby MIP acknowledged its
indebtedness to the Company in the amount of $1,581,000 for the outstanding
balance of the 5% convertible debenture and an additional amount of $1,306,000
in connection with the "earnout" provision" of the original purchase agreement.
MIP also agreed to repay the aggregate debt due to the Company of $2,888,000 by
issuing a new 11.5% convertible debenture to the Company, which is secured by
MIP's Colombian oil production. Beginning in February 2000, MIP agreed to pay
monthly to the Company the greater of $70,000 or 80% of its Colombian
subsidiary's net income during the calendar year 2000. Thereafter, MIP will pay
monthly the greater of $80,000 or 80% of the subsidiary's net income until the
debt is retired. The unpaid portion of the debt is convertible into MIP common
stock at the option of the Company, at any time at $1.50 per share.
MIP also agreed to issue the Company warrants entitling it at any time prior to
December 31, 2002 to purchase an aggregate of 2,347,000 common shares of MIP:
(i) during the year 2000, at the greater of $.25 per share or the weighted
average trading price for the first 10 days after MIP's shares resume
trading (MIP was delisted from the Toronto Exchange in 1999), to a
maximum of $.50;
(ii) during the year 2001, at $1.00 per share; and
(iii) during the year 2002, at $1.50 per share.
A dedicated bank account has been set up in Bogota, Columbia for deposit of oil
sales proceeds and disbursement of payments due to the Company pursuant to the
MIP Agreement. The Company began receiving the monthly payments in March of this
year and expects no interruption in the future.
The Company plans to begin its Shagryly-Shomysmty gas field ("Shagryly" or
"License 1551") development in Kazakhstan in the summer of 2000. The initial
phase of the development will cost approximately $4.5 million and is expected to
be funded from the proceeds derived from the sale of a portion of Shagryly and
from financing to be provided by the purchaser, which financing is expected to
also be provided to fund the Company's remaining interest in the project
subsequent to the sale. The total development cost for the project is estimated
at approximately $160 million to $180 million. The Company is also having
discussions with other financing entities, suppliers and export credit agencies
regarding project financing for the development of Shagryly. However, the
Company's strategy is to sell a minimum of 50% of Shagryly prior to commencing
the main phase of development. If the Company is unable to sell a portion of
Shagryly, the development could be delayed until adequate financing is
appropriated.
In April, 2000 the Company signed a protocol (letter of intent) for the
potential sale of a working interest in its License 1551 to Itera International
Energy LLC ("Itera"), a conglomerate principally engaged in owning and operating
natural gas properties in the Russian Federal Republic and Central Asia, and
marketing natural gas throughout the Commonwealth of Independent States (CIS).
The protocol represents progress in Itera's continuing evaluation in connection
with acquiring
9
a working interest in License 1551, and follows their review of the technical,
economic and contract data during their recent visit to AIPC's office in Almaty,
Kazakhstan. Commercial terms are yet to be finalized. AIPC would continue as the
operator of the License and Itera would provide marketing assistance and
financial support. This is the second protocol that AIPC has entered into.
The Company signed a separate protocol in December, 1999 with Tyumen Oil
Company, one of the leading oil and gas companies in Russia to form a joint
venture for the financing and development of License 1551. Tyumen would make an
up-front cash payment to AIPC and receive a one-half interest in the License and
assume responsibility for providing one-half of the cost of its development.
AIPC would be the operator of the License and Tyumen would provide key technical
and supervisory personnel to facilitate the low cost and expedient development
and operation of the gas field and associated facilities. Tyumen would also
provide financing guarantees for the Company's share of development costs. The
Company is working with both Itera and Tyumen to negotiation equitable terms for
all the parties to participate.
The Company met its minimum work and monetary obligations on its License 953 in
Kazakhstan during 1999. Its year 2000 obligation amounts to approximately $1.7
million, which it expects to fund with proceeds derived from the partial sale of
Shagryly and/or from supplemental financing. The Company has no current plans to
spend any additional amounts on License 953 during the year 2000, other than its
year 2000 obligations.
The Company is currently engaged in negotiations with Gasprom, the Russian gas
transport company, for the transportation and sale of its anticipated Shagryly
gas production. The Company expects that a U.S. Dollar or Eurodollar-based gas
sales and transportation contract to be concluded in the second quarter of 2000.
In the event the contract is consummated, the Company expects to have a
significant amount of proved gas reserves, which it could utilize as a borrowing
base for various Company capital requirements, including the development of the
Shagryly gas field. It has also been having discussions with the drilling
subsidiary of Gasprom regarding a drilling contract to develop the Shagryly gas
field.
In February 2000, AIRI entered into lease and service agreements (the "Maretech
Agreements") with Maretech Corporation ("Maretech"), an independent refinery
whereby Maretech will lease AIRI's ADU and process condensate crude oil
utilizing AIRI's personnel to operate the daily processing functions. Maretech
plans to produce naphtha and gas oil to be sold as feedstocks and diesel and JP8
to be marketed as finished products. The term of the Maretech Agreements is one
year renewable. Maretech will pay AIRI $.20 per barrel of feedstock run through
the ADU as a lease fee, which lease fees shall not be lower than $45,000 per
month. In addition, Maretech will pay all expenses directly associated with the
operation of the ADU including, but not limited to, wages, office expense,
normal maintenance, property taxes, utilities, fuel, chemicals, and insurance.
All payments will be made directly to each vendor by Maretech for services and
materials. The Agreement also calls for AIRI to receive 25% of Maretech's
profits from the operations.
10
Maretech has obtained financing guarantees for its feedstock supplies from a
large financial institution and has also provided AIRI with an Irrevocable
Letter of Credit in the amount of $400,000 to protect AIRI in the event of a
default by Maretech.
Since the Maretech Agreements only involve the ADU (although there is some
shared usage of other AIRI facilities provided for in the Maretech Agreements,
such as the dock facilities), AIRI will still operate its asphalt processing
facilities. As of March 31, 2000, AIRI had approximately $10.5 million in firm
backlog of orders and sales agreements, of which approximately 95% are for
higher-margin polymerized asphalt products. Asphalt prices, particularly
polymerized asphalts, have begun to rise in response to high crude oil prices
incurred in 1999 and early 2000, therefore the Company expects its asphalt
margins to improve in 2000 as compared to 1999, when only 60% of its asphalt
sales volumes were polymerized asphalts and asphalt prices were significantly
lower. In addition, the Company has implemented the use of escalation clauses in
its asphalt sales contracts, which enable it to increase its contracted sales
price by 5% per quarter if its feedstock prices rise to certain levels. This
should mitigate the problem the Company incurred in 1999 by committing to
long-term supply contracts at fixed prices.
As long as crude oil prices continue at current high levels, AIRI plans to
purchase wholesale asphalt to utilize as feedstock for blending and polymer
enhancement. The Company's strategy is to sell only higher-margin polymerized
asphalt products, which asphalts are expected approximate 75%-95% of its asphalt
sales during 2000. The Company has a $2 million credit facility for its
feedstock purchases, which it has utilized since June 1999.
The combination of the proceeds to be derived from the MIP Agreement, the
Maretech Agreements and the Company's asphalt operations are expected to provide
sufficient cash flows to support all of the Company's domestic operations
through the year 2000 and beyond.
The Company is seeking additional financing to supplement its cash flow from
operations during 2000. If the Company is unable to derive the necessary working
capital from the Refinery, St. Marks and AIM, or from a joint venture partner in
Kazakhstan, to support its operations during 2000, 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.
11
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On February 28, 2000, the Company issued a six-month $1.85 million bridge note,
(the "Bridge Note"), in a private placement to a single "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 a five-year warrant to purchase 500,000 shares of the
Company's common stock at an exercise price of 0.665 per share (the "Bridge
Warrant"). The Bridge Note and Bridge Warrant 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of Securities Purchase Agreement dated February 28, 2000
4.2 Form of Bridge Note issued in connection with Exhibit 4.1
4.3 Form of Warrant issued in connection with Exhibit 4.1
4.4 Form of Security Agreement issued in connection with Exhibit 4.1
4.5 Form of Registration Rights issued in connection with Exhibit 4.1
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
12
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: May 15, 2000
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
----------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of Securities Purchase Agreement dated February 28, 2000
4.2 Form of Bridge Note issued in connection with Exhibit 4.1
4.3 Form of Warrant issued in connection with Exhibit 4.1
4.4 Form of Security Agreement issued in connection with Exhibit 4.1
4.5 Form of Registration Rights issued in connection with Exhibit 4.1
27.1 Financial Data Schedule.
14