UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                   For the fiscal year ended December 31, 1999

                         Commission file number 0-14905

                  AMERICAN INTERNATIONAL PETROLEUM CORPORATION
             (Exact name of registrant as specified in its charter)


            Nevada                                       13-3130236
(State of other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


          2950 North Loop West, Houston, Texas                   77092
        (Address of principal executive offices)               (Zip Code)


        Registrant's telephone number, including area code (713) 802-0087
        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.08 per share

                              (Title of Each Class)


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____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,   in  the  definitive  proxy  statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

The  aggregate  market  value  of the  voting  stock of the  Registrant  held by
non-affiliates  as of March 21, 2000 was  approximately  $102 million  (assuming
solely for purposes of this  calculation  that all directors and officers of the
Registrant are "affiliates").

The number of shares of Common Stock of the  Registrant  outstanding as of March
21, 2000 was 106,871,202.



<PAGE>

                                     PART I

Item 1. BUSINESS

General

American  International  Petroleum  Corporation  ("AIPC" or the "Company"),  was
organized  on April 1, 1929 under the laws of the State of Nevada under the name
Pioneer Mines Operating  Company.  The Company's name was changed to its current
name in 1982. The Company implemented the production of asphalt,  vacuum gas oil
and other products at its subsidiary's Lake Charles,  Louisiana  refinery in the
first quarter of 1998 utilizing low-cost, low-gravity,  high-sulpher crudes from
Mexico and Venezuela and is engaged in oil and gas  exploration  and development
in western Kazakhstan. The Company is also seeking other oil and gas projects in
selected other countries.

The Company's wholly-owned  subsidiaries,  American International Refinery, Inc.
("AIRI") and St.  Mark's  Refinery  Inc.  ("St.  Marks) own  refineries  in Lake
Charles, Louisiana (the "Refinery") and in St. Marks, Florida,  respectively.  A
certain  portion of the Refinery,  a 30,000  barrel-per-day  crude  distillation
tower (the "Crude Unit" or "ADU") was leased by AIRI to Gold Line  Refining Ltd.
("Gold Line"), an independent refiner, from 1990 to March 20, 1997 under a lease
agreement  (the "Lease  Agreement")  between AIRI and Gold Line. The Company has
recently  agreed  to lease  its  Crude  Unit to  another  party.  See  "Domestic
Operations - Refinery - Recent  Developments" below. The Company is now blending
asphalt  products at the Refinery.  The Company has utilized St. Marks since its
purchase in 1998, only as a distribution  center for its asphalt  products.  The
refinery  at St.  Marks has been idle and the  Company  has no current  plans to
implement refinery operations there. See "Domestic Operations - Refinery" below.

The  Company's  wholly-owned   subsidiary,   American  International   Petroleum
Kazakhstan  ("AIPK") is the owner of a 100%  working  interest in a 264,000 acre
gas  concession in Kazakhstan  called  Shagryly-  Shomyshty  (the  "Shagryly" or
"License  1551")  and  a 70%  working  interest  in a  20,000  square  kilometer
exploration  block in western  Kazakhstan  ("License 953").  See  "International
Exploration and Development" below.

In  February  1998,  the  Company  organized  another  wholly-owned  subsidiary,
American Eurasia Petroleum  Corporation  ("AEPC"), to conduct business in Russia
and in Central Asia. In July 1998, the Company organized American  International
Marine,  Inc.  ("AIM")  to conduct  barging  and  transportation  of its own and
others' refined products.  In August 1998, it organized  American  International
Petroleum  Corporation  Holding  Inc.  ("AIPC  Holding")  to  hold  25%  of  the
outstanding  shares of Zao  Nafta,  a  Russian  closed-stock  company,  which it
received  as a default  payment  in 1999.  See  "International  Exploration  and
Development  - Zao  Nafta  Acquisition"  below.  AIM and AIPC  Holding  are also
wholly-owned  subsidiaries of the Company. The term the "Company" includes AIPC,
AIRI, AIPK, AEPC, AIM, AIPC Holding,  and St. Marks unless the context otherwise
requires.

Some of the information in this document, and in those incorporated by reference
herein,  may  contain  forward-looking   statements.   Such  statements  can  be
identified  by the use of  forward-looking  terminology  such as "may",  "will",
"expect", "believe", "intend", "anticipate",  "estimate", "continue", or similar
words. These statements discuss future  expectations,  estimate the happening of
future   events  or  the   Company's   financial   condition   or  state   other
"forward-looking" information. When considering such forward-looking statements,
one should keep in mind the risk factors and other cautionary statements in this
document and in those incorporated by reference herein,  including the Company's
continued losses, occasional working capital deficits, the ability to enter into
various  contracts  to operate  the  Refinery  and to sell  products  therefrom,
completion of any necessary  financing  requirements,  the impact of competitive
pricing , and  other  risks  detailed  from  time to time in the  Company's  SEC
reports.  Such risk factors could cause the Company's  actual  results to differ
materially from those contained in any forward-looking statement.

Domestic Operations

     Refinery

In July 1988,  AIRI acquired the Refinery,  which is located on 30 acres of land
bordering the Calcasieu  River near Lake  Charles,  Louisiana.  The Company also
owns 25 acres of vacant waterfront property adjacent to the Refinery and another
45 acres of vacant land  across the highway  from the  Refinery.  The  Calcasieu
River connects with the Port of Lake Charles,  the Lake Charles Ship Channel and
the Intercoastal Waterway. Most of the Refinery's feedstock and refined products
are handled through the Refinery's barge dock at the river.

                                       2

<PAGE>

The Company  recommissioned  and tested the Refinery during  operations  between
February and July 1989.  During that time it  processed up to 24,000  barrels of
oil per day. Numerous  modifications  were designed and implemented to bring the
Refinery into compliance with new and existing environmental  regulations and to
facilitate production of higher value products. Completion of most environmental
compliance  projects  and a military  specification  jet fuel  ("JP-4")  upgrade
project at the Refinery occurred in 1990.

The main unit of the  Refinery is the Crude Unit,  which is capable of producing
light  naphtha and the following  side cuts:  heavy  naphtha,  kerosene (for jet
fuel),  #2 diesel,  atmospheric gas oil and reduced crude oil sold as special #5
fuel oil. The Crude Unit is also  suitable for  adaptation to process sour crude
oil.

In 1989, the Company purchased a 16,500 barrel per day vacuum  distillation unit
(the "VDU") which was dismantled and moved to the Refinery.  Construction of the
VDU on the Refinery site was  completed in 1993 and  partially  utilized by Gold
Line.  For various  economic  reasons,  the VDU was idle until mid-1998 when the
Company completed the expansion of, and certain enhancements to, the Crude Unit,
VDU,  and other  components  of the  Refinery  to enable the  Company to produce
conventional and polymerized asphalt, vacuum gas oil ("VGO"),  diesel, and other
products.

Total petroleum  storage  capacity at the Refinery is 750,000  barrels.  Storage
tanks on the Refinery's land include  275,000 barrels of crude storage,  395,000
barrels of storage  for  finished  product  sales and 80,000  barrels of product
rundown storage.

The Crude Unit was leased by AIRI to Gold Line from 1990 to March 20, 1997 under
the Lease Agreement. The Lease Agreement was terminated because Gold Line was in
default under the terms thereof.  With the termination of the Lease Agreement in
March 1997,  the Company has staffed the Refinery with its own employees and all
operations are now under the direct control of its management.

     St. Marks Refinery

In November  1998,  the Company  purchased  100% of St. Marks  Refinery  Inc., a
20,000 barrels per day refinery and product storage  terminal located on the St.
Marks River near  Tallahassee,  Florida for 1.5 million  shares of the Company's
common stock.  Because of the high price of crude oil feedstock during 1999, St.
Marks has remained idle during most of 1999.

     American International Marine, Inc.

Also during 1998, the Company formed a new  subsidiary,  American  International
Marine,  Inc.  ("AIM"),  which  acquired  a 1,750 ton , 27,000  barrel  capacity
asphalt barge (the "Barge")  primarily to shuttle  asphalt  between the Refinery
and the asphalt  terminal at St.  Marks and to  transport  refined  products for
third  parties.  The Company has utilized the Barge during 1999 to transport its
own feedstocks and products.

     Recent Developments

In February 2000, the Company entered into agreements with Maretech  Corporation
to process  condensate crude oil through the ADU using AIRI personnel to operate
the daily processing  functions.  Maretech plans to process condensate crude oil
that produces  naphtha and gas oil to be marketed as  feedstocks  and diesel and
JP8 to be marketed as  finished  products.  (See  "Management's  Discussion  and
Analysis - Liquidity and Capital Resources").

International Exploration and Production

Generally,  oil and gas exploration is extremely  speculative,  involving a high
degree of risk.  Even if reserves are found as a result of drilling,  profitable
production from reserves cannot be assured.

     Kazakhstan Agreements

     License 953

In  May  1997,  the  Company,  through  its  wholly-owned  subsidiary,  American
International  Petroleum  Kazakhstan  ("AIPK"),  entered into an agreement  (the
"Kazakhstan  Agreement")with  MED Shipping and Trading S.A. ("MED"),  a Liberian
corporation with offices in Frankfurt,


                                       3
<PAGE>

Germany, to buy from MED, 70% of the stock of MED Shipping Usturt Petroleum Ltd.
("MSUP"), a Kazakhstan  corporation which owns 100% of the working interest in a
Kazakhstan oil and gas concession  (the  "Concession"  or "License  Area").  The
Concession   is   located    approximately   125   kilometers   from   Chevron's
multi-billion-barrel  Tengiz Oil field near the Caspian Sea in the North  Usturt
Basin.

The definitive agreement under which MSUP is to explore and evaluate hydrocarbon
reserves in the License Area  provides for the payment of a commercial  bonus of
0.5% of reserve  value, a  subscription  bonus of $975,000,  and grants MSUP the
exclusive right to a production license upon commercial  discovery.  The term of
the license is five years and may be extended  for an  additional  4 years.  The
five-year minimum work program required by the license calls for MSUP to acquire
and process 3,000  kilometers of new seismic data,  reprocess 500  kilometers of
existing  seismic  data,  and a minimum of 6,000  linear  meters of  exploratory
drilling. Initial production up to 650,000 barrels is exempt from royalty, which
otherwise  ranges  between 6% and 26%, to be  negotiated in  conjunction  with a
production  agreement  with the  government.  Income tax has been set at 30% and
social programs  payments at $200,000  annually during  exploration.  The social
program contribution  required in the Kazakhstan Agreement is not specific as to
any one program.  This contribution  concept is common to most contracts and the
amount is determined at the time of negotiating  the  respective  contracts on a
case by case basis. The Company has completed  acquisition of 13,500  kilometers
of new 2D seismic  data and  reprocessed  about 1,200  kilometers  of vintage 2D
seismic data over the License Area.  The Company  drilled one of the gas bearing
Eocene structures in December 1998 and a second Eocene prospect in October 1999.
Additional  flow  testing  on the 1998  well  was  conducted  in 1999,  but only
non-commercial  rates of gas were  measured.  The 1999 well was evaluated  using
electric  logging  techniques  and  determined  non-commercial.  At the time the
concession  was  acquired,   a  preliminary   evaluation   indicated   potential
recoverable  reserves from 12  structures  of possible oil bearing  Jurassic Age
sandstones and 8 structures of gas bearing Eocene Age sandstones. As a result of
further study of data  acquired  over the course of the last two years,  and the
drilling  results  stated  above,  the  Company's  prior  assessment  of reserve
potential of the evaluated  structures has been significantly  reduced.  Because
License 953 is known to contain other  geological  structures  with  unevaluated
geological  potential,  the Company fully  intends to have the required  minimum
work program completed in accordance with its contract.  However, the Company is
evaluating  various  available  options  with regard to  completing  the License
obligations under reduced-exposure arrangements.

     License 1551

In  February  1999,  the  Company  was  officially  notified  by the  Kazakhstan
government's  State  Investment  Committee  that it had won the  tender  for the
Shagyrly-Shomyshty gas field, ("Shagyrlyyl"), in western Kazakhstan. Fifty-eight
of the sixty-nine gas wells drilled to delineate the 200,000 acre gas field were
tested to have  commercial  gas by the  regional  development  authorities.  The
Company entered into a license agreement in 1999 with the Kazakhstan  government
for 100% ownership of the Shagyrly,  a 30-year agreement with effect from August
31, 1999.  The  Company's  drilling and  production  development  plan  involves
developing and  maintaining  daily gas production at 200 MMSCFD (5.7 MCMPD) from
the  "fairway," the most  productive  part of the field.  Facility  start-up and
natural gas sales are  anticipated to commence late in 2001,  provided  adequate
financing can be obtained.

The plan  development  provides for the initial  drilling of  approximately  100
horizontal  wells,  each with a horizontal  extension of 1500 feet.  Analysis of
wells tested to date indicate that individual  horizontally  drilled wells could
achieve an average production rate exceeding 6 MMSCFD.

The  ultimate  field  development  proposal  involves  use of  modular,  movable
production  process/compression  centers.  Such  facilities are planned to be in
service in late 2001 and 50 MMCFD modules would be relocated  upon  depletion of
the reserves at their initial location which are designed to filter,  dehydrate,
compress, and deliver a total of approximately 200 MMSCFD.

Ryder Scott Company,  L.P., a Houston-based  petroleum consulting firm, reviewed
the   Company's   horizontal   drilling  and   reservoir   development   studies
demonstrating  significant  recoverable  gas  reserves at Shagyrly and issued an
opinion letter stating that they are in general agreement with the estimates and
that the reserves were prepared in accordance with standard industry procedures.
The Company's studies included horizontal well recovery analyses for drainage of
reservoir  areas in the  640-1280  acre  range,  revised  operational  plans for
horizontal drilling,  and detailed analyses of prior gas well completions in the
License 1551 area. A pilot development drilling program is tentatively scheduled
for the summer of 2000 to verify the horizontal  drilling  application.  . These
reserves  would have been  classified  as proven  undeveloped  ("PUD") had a gas
sales  contract  been  in  place.  A gas  sales  agreement  is  currently  being
negotiated  with  Gasprom and is expected  to be  consummated  during the second
quarter of 2000.  Upon  consummation,  the  Company  expects to have  proved gas
reserves in the "fairway" and add more PUD's upon the successful implementation,
if any, of the horizontal pilot program.

The Company's strategy includes  developing shallow gas reserves in Shagyrly and
diversified  pursuit  of  field  development  opportunities  in  other  selected
countries  and  basins  where   perceived   geological   and   political   risks
areacceptable.

                                       4
<PAGE>

     Zao Nafta Acquisition

On March 18, 1998, the Company signed an agreement (the "Option") with Zao Nafta
("ZN") a Russian  closed  stock  company in which the Company  received a 90-day
option to acquire a 75% working  interest in a joint venture for the development
of 17 oil and gas licenses (the "Licenses") in the Samara and Saratov regions of
European Russia,  covering approximately 877,000 acres (a "closed stock company"
is a company which has its equity ownership  measured in registered  shares. The
shares are not publicly  traded or readily  available  for sale to another party
without first  offering other  shareholders  proportional  participation  in the
purchase  of the  shares to be sold).  During  its due  diligence  process,  the
Company  was  unable to reach an  agreement  with the owner of ZN over who would
control and manage  development of the acquired fields. As a result, the Company
informed the owner that it would not pursue the purchase and  requested a refund
of $300,000  deposit  called for in the Option.  When the refund was not paid by
the owner, the Company exercised its right under the Option to demand 25% of the
outstanding  shares of ZN (the "ZN Shares") from the owner. The ZN Shares may be
sold or traded in  private  commercial  transactions,  as they are not listed or
traded  on any  organized  exchange.  The  shares  are in the  process  of being
delivered  to the  Company's  counsel in Russia and will be held by AIPC Holding
until a decision  is made on how or if to  proceed.  The  Company  continues  to
consider various  alternatives  including the sale or barter of the ZN Shares to
acquire petroleum interests in the Samara region of Russia.

Recent Developments

In January 2000, the Company reached an agreement with Mercantile  International
Petroleum,  Inc.  ("MIP")  the  purchaser  of its  South  American  oil  and gas
properties  in February  1997,  whereby MIP agreed to repay  approximately  $2.9
million in indebtedness  to the Company by means of a secured 11.5%  convertible
debenture,  payable to the Company in monthly  installments  (See  "Management's
Discussion and Analysis - Liquidity and Capital Resources").

Competition

The Company has been approached by severalcompanies during 1999 to process crude
oil at the Refinery. However, the lack of a favorable "crack spread" during most
of the year caused  hesitancy on the part of the  customers.  Later in 1999, the
industry  experienced   "backwardation"   causing  great  risk  for  processors.
Backwardation  is a term used when the current  price is very high and the price
for  subsequent  months are lower.  Most  recently  there has been a drawback on
crude pricing coupled with a reasonable crack spread  therefore,  AIRI is seeing
renewed interest in processing through the VDU.

During 1999,  most State  Departments of  Transportation  converted to Strategic
Highway Research Program (SHRP) performance graded (PG) asphalt  specifications.
Therefore,  the number of asphalt competitors  continues to decline. In the past
year,  several  major oil  companies  have  announced  mergers and formed  joint
operation  spin-off  companies  in  a  move  to  consolidate  resources,  reduce
redundant  operation,   and  increase   efficiency.   This  has  resulted  in  a
supply/demand  shift  that  is  favorable  to  the  Company's  business.   As  a
consequence  of these  consolidations,  the number of major oil company  asphalt
refiner/suppliers has been reduced by almost 60% over the past two years.

The  geographic  location of the Refinery in Lake Charles,  Louisiana  gives the
Company a distinct freight  advantage over other asphalt  suppliers in the area.
Most of the Company's competition in its planned asphalt manufacturing  business
will come from those refiners who do not have downstream processing options such
as residual coking capacity. The major competitor in the local truck rack market
is a blending plant operation over 75 miles away. The average  distance from the
Company's  refinery  to the  nearest  competing  truck  rack  asphalt  producing
refinery is over 150 miles away. The Company's major  competitor for barge sales
is located over 400 miles farther away from the Company's  major market than the
Refinery.  This  distance  equates  to more  than a  $1.30  per  barrel  freight
advantage to the Company into the same markets.

Exxon  announced  during  1999  that the  strategic  decision  had been  made to
withdraw from the Texas asphalt market based in Baytown (Houston), Texas. It has
built a coker unit to convert  asphalt to gasoline  and heating  oil.  Exxon has
been one of AIRI's  major  competitors  in eastern  Texas over the past  several
years. A major consolidation involving Marathon Petroleum and Ashland Oil during
1999 has created the largest  downstream asphalt marketing company in the United
States.  Marathon Ashland Petroleum (MAP) recently upgraded their Garyville (New
Orleans),  Louisiana  asphalt rack at great expense and has subsequently  become
very  competitive  in  eastern  Louisiana  and  western   Mississippi.   Another
consolidation  involving  American  Petrofina  (Fina) Ultramar  Diamond Shamrock
(UDS) and Total has produced a combined  UDS and Total  asphalt  business  while
Fina has remained  independent to date.  This  consolidation  may have long-term
implications for AIRI's growth into Western Texas.

                                       5
<PAGE>

The oil and gas industry,  including oil refining,  is highly  competitive.  The
Company is in  competition  with numerous  major oil and gas companies and large
independent   companies  for  prospects,   skilled  labor,  drilling  contracts,
equipment and product sales  contracts.  Many of these  competitors have greater
resources  than the Company's.  Revenues  generated by the Company's oil and gas
operations  and the  carrying  value of its oil and gas  properties  are  highly
dependent  on the prices of oil and  natural  gas.  The price  which the Company
receives  for the oil or natural gas it may produce is dependent  upon  numerous
factors  beyond the control of the  Company's  management,  the exact  effect of
which cannot be predicted.  These factors  include,  but are not limited to, (i)
the quantity and quality of the oil or gas produced,  (ii) the overall supply of
domestic  and  foreign  oil or gas from  currently  producing  and  subsequently
discovered  fields,  (iii) the extent of importation of foreign oil or gas, (iv)
the marketing and  competitive  position of other fuels,  including  alternative
fuels, as well as other sources of energy, (v) the proximity,  capacity and cost
of oil or gas pipelines and other  facilities for the  transportation  of oil or
gas, (vi) the regulation of allowable  production by  governmental  authorities,
(vii) the regulations of the Federal Energy Regulatory  Commission governing the
transportation and marketing of oil and gas, and (viii) international  political
developments,  including  nationalization  of oil wells and political  unrest or
upheaval. All of the aforementioned factors,  coupled with the Company's ability
or inability to engage in effective marketing strategies,  may affect the supply
or demand for the Company's  oil, gas and other  products and,  thus,  the price
attainable for those products.

The Shagryl  development  has the usual  geological,  mechanical and competitive
risks  associated with  development of oil and gas reservoirs,  and in addition,
bears  additional risk unique to its location in a former Soviet Union republic.
The gas  production  from the field  will be  transferred  to markets in Western
Europe via a Russian-owned  Gazprom line.  Therefore the project bears political
risks of both Russia and Kazakhstan,  as well as market risks as Europe enters a
deregulated environment. Cost of transportation as well as cost of equipment and
drilling  and  completion  services,  are subject to  escalation  if oil and gas
development activity escalate.

     Financial  Information  Relating to Foreign  and  Domestic  Operations  and
Export Sales

The table below sets forth, for each of the last three fiscal years, the amounts
of  revenue,  operating  profit or loss and assets  attributable  to each of the
Company's geographical areas, and the amount of its export sales.

<TABLE>
<CAPTION>
                                                      1999              1998              1997
                                                      ----              ----              ----
<S>                                              <C>               <C>               <C>
Sales to unaffiliated customers:

     United States                               $  8,137,867      $ 11,394,009      $     23,298
     Colombia(1)                                         --                --             292,947
     Peru(1)                                             --                --                *
     Kazakhstan                                          --                --                --

Sales or transfers between geographic areas:

     United States                                       --                --                --
     Colombia(1)                                         --                --                --
     Peru(1)                                             --                --                --
     Kazakhstan                                          --                --                --

Operating profit or (loss):

     United States                               $ (4,978,963)     $ (2,820,758)     $ (1,165,890)
     Colombia(1)                                         --                --            (170,424)
     Peru(1)                                             --                --                *
     Kazakhstan                                          --                --                --

Identifiable assets:

     United States                               $ 33,877,437      $ 35,234,530      $ 21,159,627
     Colombia(1)                                         --                --                --
     Peru(1)                                             --                --                --
     Kazakhstan                                  $ 32,162,385      $ 22,677,073      $ 11,724,477
</TABLE>

Export sales:

(1) These properties were sold in February 1997.


                                       6
<PAGE>

*Information  was not available  due to dispute with partner,  which dispute was
settled subsequent to the sale of these properties in February 1997.

Insurance; Environmental Regulations

The Company's  operations are subject to all risks normally  incident to (i) the
refining  and  manufacturing  of  petroleum  products;  and  (ii)  oil  and  gas
exploratory and drilling  activities,  including,  but not limited to, blowouts,
extreme weather conditions,  pollution and fires. Any of these occurrences could
result in damage to or destruction of oil and gas wells,  related  equipment and
production  facilities and may otherwise inflict damage to persons and property.
The Company  maintains  comprehensive  and  general  liability  coverage,  as is
customary  in the oil and gas industry and  coverage  against  customary  risks,
although no assurance  can be given that such  coverage  will be  sufficient  to
cover all risks, be adequate in amount, or that any damages suffered will not be
governed by exclusionary clauses,  thereby rendering such coverage incomplete or
non-existent to protect the Company's interest in specific property. The Company
is not fully  covered for damages  incurred as a  consequence  of  environmental
mishaps.  The Company  believes it is presently in  compliance  with  government
regulations  and  follows  safety  procedures  which  meet  or  exceed  industry
standards.

Extensive  national and/or local  environmental laws and regulations in both the
United States and Kazakhstan affect nearly all of the operations of the Company.
These laws and regulations set various standards  regulating  certain aspects of
health and  environmental  quality,  provide for penalties and other liabilities
for the  violation of such  standards  and  establish  in certain  circumstances
obligations to remediate current and former  facilities and off-site  locations.
There can be no assurance that the Company will not incur substantial  financial
obligations in connection with environmental compliance.

The Company is occasionally  subject to nonrecurring  environmental  costs.  The
annual cost incurred in connection  with these  assessments  varies from year to
year,  depending  upon the Company's  activities in that year. The costs of such
environmental impact assessments were not material in 1999, and are not expected
to be material in future years,  however,  there can be no assurance these costs
will  not be  material.  The  Company  is not  aware  of any  other  anticipated
nonrecurring environmental costs.

Kazakhstan has comprehensive  environmental laws and regulations and has adopted
the environmental standards set out by the World Bank organizations. Enforcement
is administered through the Kazakhstan Ministry of Environment and related local
state agencies.  The Company's operations require a comprehensive  environmental
permit for all drilling and exploration activities.

The Company has no currently  outstanding or anticipated  reclamation  issues in
the United State or abroad.

Marketing

After  satisfactorily  completing  the  qualification  requirements  and asphalt
facility  inspection,  the  Company has  received  approval  from the  Louisiana
Department of Transportation Materials Inspection Division ("LADOT") to have its
paving asphalt  products placed on the QPL-41 list of eligible  suppliers.  This
enables the Company to bid on state and federal highway projects in the State of
Louisiana and provides an asphalt  quality  assurance  endorsement for non-state
and federal projects as well. The Company maintains an aggressive posture in its
efforts  to secure  asphalt  supply  sales  agreements  with  Louisiana  hot mix
manufacturers  both at highway bid  lettings  and through  private  conventional
paving projects.

In July of 1999, the Company received full  accreditation  certification for its
asphalt  quality  control and testing  program from the American  Association of
State  Highway  and  Transportation  officials  (AASHTO).  This was  followed in
November, 1999, by the awarding of the Louisiana approved supplier certification
by the Louisiana  Department of Transportation and Development,  for the Company
to self-certify its own asphalt products. The Company is the first and, to date,
the only asphalt supplier in Louisiana to achieve this level of proficiency.

Total  asphalt  sales  for 1999  were  63,910  tons with  income  from  sales of
$7,645,948 for an average price per ton of $119.64. Sales to Louisiana customers
made up  approximately  80 percent of the total,  while sales to Texas customers
accounted for the remainder.  Approximately  60% of the Company's  asphalt sales
volumes in 1999 were higher-margin  polymer modified products and about 40% were
conventional.

The rapid  escalation  of crude oil prices,  combined  with a very slow reacting
asphalt retail rack market in the southeast during 1999, created an unprofitable
economic scenario for sales out of St. Marks in 1999. Consequently, in a move to
control  overhead and  manufacturing  costs, the Company  temporarily  suspended
operations at St. Marks. The Company has mitigated this problem in the future by
including  escalation  clauses in all of its new asphalt sales  agreements which
allows the Company to increase its contract sales price by 5% per quarter


                                       7
<PAGE>

if feedstock prices increase to certain levels. The Company continually monitors
the market  conditions  in the region and  should  general  industry  conditions
change in future months,  the Company will reconsider  asphalt operations at St.
Marks.  In addition,  the Company  continues to investigate  the  possibility of
establishing  more truck rack retail locations outside the immediate area of its
current facility.

These  market  opportunities  have  the  potential  to  increase  the  Company's
expansion into new profitable  retail sales outlets at greater  net-back margins
than can be achieved  in the  wholesale  barge  markets.  As of March 2000,  the
Company continues to be successful at the state highway lettings and has already
accumulated  a firm  backlog of orders and sales  agreements  in excess of $10.5
million for its  polymerized  and  conventional  asphalt  products,  compared to
approximately  $6.5 million at the same date last year. The  Transportation  and
Equity Act for the 21st  Century  ("TEA-21")  authorizes  $173  billion over six
years  (1998-2003) for  construction  and maintenance of federal  highways.  The
six-state  Gulf  Coast  market  where the  Company  sells its  conventional  and
polymerized asphalt products has been allocated more than $32 billion in federal
funding under TEA-21, a 61% increase over the previous highway spending program.
TEA-21 is expected to provide a significant  increase in the overall  demand for
asphalt in the Company's markets. In addition,  matching state DOT highway funds
could increase the total spending for highway construction by another 10% - 50%.
The Company is committed to continue an  aggressive,  expanding,  retail  market
growth  program  across  the  Gulf  Coast  and  into  other  various  profitable
geographic areas.

James Corporation,  Davison Petroleum Products, R.E. Heidt Construction and O.S.
Johnson  accounted for 16%, 15%, 13% and 10% of the Company's sales during 1999,
respectively.

Oil and Gas

In May 1994,  AIPCC entered into an agreement with  Carbopetrol S.A. to sell all
of its crude oil produced in  Colombia.  Payments  were made in Colombian  Pesos
adjusted for expected  exchange  fluctuation.  Prices were based on the price of
local  fuel  oil and had an  average  price,  net of  transportation  costs,  of
approximately  $11.81 per barrel of oil in 1997. In Peru,  PAIPC's contract with
PetroPeru provided for a flexible royalty rate based on the amount of production
and world basket  price for this  contract  area  providing a net sales price to
PAIPC of approximately 65% of the world basket price for the field, which, based
on an average gross price of $16.53 per barrel of oil in 1997,  which provided a
net price to the Company of approximately $10.75 per barrel of oil. Sales of the
Company's  crude oil to  Carbopetrol  S.A. in Colombia  accounted for 29% of the
Company's 1997 revenues.  Sales to Ecopetrol  accounted for approximately 11% of
the  Company's  1997  revenues.  The  Company  had no  sales in 1999 and 1998 in
Colombia  because it sold its assets in Colombia  and Peru in  February  1997 to
Mercantile International Petroleum Inc. ("MIP") (the "S.A. Sale").

The Company is currently engaged in negotiations  with Gazprom,  the Russian gas
transport company,  for the transportation and sale of its anticipated  Shagryly
gas  production.  It is  anticipated  that a U.S.  Dollar or  Eurodollar  backed
contract will be concludedduring the second quarter of 2000.

Sources and Availability of Raw Materials

AIRI  requires sour  asphaltic  crudes and/or  performance  grade  asphalts as a
feedstock to produce its asphalt, which are generally in available supply within
the western hemisphere.  However, fast-rising crude oil prices and slower-rising
product prices  dramatically  reduced the "crack spread",  starting in the first
quarter  of 1999  and  continuing  throughout  the  year.  Consumption  of light
products such as gasoline and distillates  remained relatively static while rack
prices for asphalt products lagged crude prices in spite of reduced  production.
Competitive realities forced AIRI to maintain the refinery in a "warm" condition
to enable it to operate on short notice.  Because of the high price of crude oil
during 1999,  AIRI  switched  from  processing  Mexican  crude oil as an asphalt
feedstock to purchasing wholesale asphalt for blending and polymer enhancement.

Primary  sources of feedstock  include  Mexico,  Venezuela,  Colombia,  Ecuador,
Canada, and the wholesale asphalt markets in the U.S. "Roofer's flux" crudes can
be sourced from Saudi Arabia,  Oman,  U.S. Gulf  off-shore,  Texas and Louisiana
sweet  lights.  Many crudes can be blended into the primary  base  crudes.  AIRI
personnel have the experience and ability to source the necessary feedstocks.

Employees

As of March 31,  2000,  the Company  employed  60 persons on a full-time  basis,
including   12  persons  who  are   engaged  in   management,   accounting   and
administrative functions for AIPC and 37 who are employed by AIRI on a full-time
basis,  including 16 persons who are engaged in  management  and  administrative
functions,   and  6  persons  who  are  employed  by  AIPK  in  management   and
administrative


                                       8
<PAGE>

positions.  Two  persons  are  employed  by St.  Marks,  none  of  which  are in
management and  administration.  The Company  frequently engages the services of
consultants who are experts in various phases of the oil and gas industry,  such
as petroleum engineers,  refinery engineers,  geologists and geophysicists.  The
Company has no collective bargaining agreements and believes that relations with
its employees are satisfactory.

Item 2.  PROPERTIES

Office Facilities

The  Company  leases  approximately  4,800  square  feet of office  space at 444
Madison  Avenue,  New York,  N.Y.  10022.  This space  comprises  the  Company's
principal  executive office. The space was leased for a period of seven years at
a monthly  rental rate of $19,600 and expires on December 31, 2005.  The Company
has recently  agreed to sublet 2/3 of its space to another  Company for $152,472
per year  through  the end of its lease in New York.  In  addition,  the Company
leases approximately  10,500 square feet of office space in Houston,  Texas at a
monthly rental of $17,929. This lease expires on December 12, 2003.

The Company also owns 90 acres of vacant land in Lake Charles,  Louisiana  where
the Refinery is located. In addition to the structures and equipment  comprising
the  Refinery  facility  (See  "Item  1  -  Business  -  Domestic  Operations  -
Refinery"),  the Refinery  assets include an  approximately  a 4,400 square foot
office  building,   a  new  2,200  square  foot  asphalt  plant  office,  and  a
state-of-the-art  laboratory,  and two metal building structures serving as work
shops,  maintenance and storage  facilities with an aggregate  square footage of
approximately 4,300 square feet. The Company also owns approximately 68 acres of
vacant land adjacent to the St. Marks Refinery in Florida.

Oil and Gas Acreage and Wells

Gross acreage  presented below represents the total acreage in which the Company
owned a working  interest on December 31, 1999,  and net acreage  represents the
sum of the fractional working interests owned by the Company in such acreage.

The table below indicates the Company's  developed and undeveloped acreage as of
December 31, 1999.

<TABLE>
<CAPTION>
                            Gross             Gross                Net               Net
                          Developed        Undeveloped          Developed        Undeveloped
                           Acreage           Acreage             Acreage           Acreage
                           -------           -------             -------           -------
<S>                        <C>              <C>                  <C>              <C>
Kazakhstan
   License 953                --            4,734,097               --            3,313,868
   License 1551            263,853          4,997,950            263,853          3,577,721
</TABLE>

The table below  indicates the  Company's  gross and net oil and gas wells as of
December 31, 1999.  Gross wells  represents the total wells in which the Company
owned a working  interest,  and net wells  represents  the sum of the fractional
working interests owned by the Company in such wells.

                                                               Productive Wells
                                                               ----------------
<TABLE>
<CAPTION>
                                   Total                                Oil                                 Gas
                                   -----                                ---                                 ---
                        Gross                  Net            Gross                Net            Gross                Net
                        -----                  ---            -----                ---            -----                ---

<S>                     <C>                    <C>            <C>                  <C>            <C>                  <C>
Kazakhstan                --                   --               --                 --               --                 --
</TABLE>

                                       9

<PAGE>

Oil and Gas Production

The table below indicates the Company's net oil and gas production,  by country,
for each of the three years in the periods ended  December 31, 1999,  1998,  and
1997,  along with the average  sales  prices for such  production  during  these
periods.

                                    Production
                     Oil (in     Average Net Sales       Gas         Sales Price
                     Barrels)    Price (per Barrel)     (in mcf)     (per mcf)
                     --------    ------------------     --------     ---------

1999 -Kazakhstan        --          $   --                 --        $   --
     -Colombia(1)       --              --                 --            --
     -Peru(1)           --              --                 --            --

1998 -Kazakhstan        --          $   --                 --        $   --
     -Colombia(1)       --              --                 --            --
     -Peru(1)           *               *                  *             *

1997-Kazakhstan         --          $   --                 --        $   --
     Colombia(1)      18,625           11.81               --            --
     Peru(1)            *               *                  --            --

Average  foreign  lifting cost in 1997 was  approximately  $5.31 per  equivalent
barrel of oil. The Company incurred no lifting costs in 1998 and 1999 due to the
S.A. Sale.

(1)  These properties were sold in February 1997.

*Information  not  available  due to dispute  with  partner,  which  dispute was
resolved subsequent to the S.A. Sale.

Reserves

Huddleston  & Co.,  Inc.,  petroleum  and  geological  engineers,  performed  an
evaluation to estimate  proved reserves and future net revenues from oil and gas
interests  owned by AIPCC as of January 1, 1997.  As of January 1, 1997,  all of
the  Company's  proved  reserves  were  located in Colombia.  The report,  dated
February 6, 1997, is summarized below. Future net revenues were calculated after
deducting  applicable  taxes and after deducting  capital costs,  transportation
costs and operating  expenses,  but before  consideration of Federal income tax.
Future net revenues  were  discounted  at a rate of ten percent to determine the
"present  worth".  The present worth was shown to indicate the effect of time on
the value of money and should not be  construed  as being the fair market  value
for the Company's  properties.  Estimates of future revenues did not include any
salvage  value  for  lease  and well  equipment  or the cost of  abandoning  any
properties.

<TABLE>
<CAPTION>
                                           Colombian Reserves
                                           ------------------
                                                                                           Future
                                                                                          Revenues
                              Net Oil                                 Future             Discounted
                             (Barrels)        Net Gas (mmcf)         Revenues              at 10%
                             ---------        --------------         --------             ------
<S>                           <C>                <C>               <C>                  <C>
Proved Developed
     Producing                  917,522           1,121.1          $ 9,379,548          $ 5,899,502
Proved Developed
     Non-Producing               31,199           5,200.0            4,070,584            2,274,369
Proved Undeveloped            3,061,698           8,358.3           28,474,585           14,183,770
                              ---------          --------          -----------          -----------

          TOTAL               4,010,419          14,679.4          $41,924,717          $22,357,641
                              =========          ========          ===========          ===========
</TABLE>

Huddleston & Co., Inc. used the net market  price,  exclusive of  transportation
cost, of $12.20 per average barrel of oil, $0.40 per MCF for Toqui gas and $1.00
per MCF for Puli gas in their  report.  The oil prices  utilized were the prices
received  by  AIPCC  as of  December  31,  1996 for oil  produced  from  AIPCC's
leaseholds.  The gas prices  utilized were based on the Ecopetrol  spot price at
December 31, 1996.  The prices were held constant  throughout  the report except
for where contracts provide for increases.

Operating costs for AIPCC's and PAIPC's  leaseholds  included  direct  leasehold
expenses  only.   Capital   expenditures  were  included  as  required  for  new
development  wells,  developed  non-producing  wells and current wells requiring
restoration  to  operational  status  on the  basis of  prices  supplied  by the
Company.



                                       10
<PAGE>

The report  indicates  that the reserves were  estimates  only and should not be
construed as being exact quantities.

In  evaluating  the  information  at  their  disposal   concerning  the  report,
Huddleston & Co.  excluded from  consideration  all matters as to which legal or
accounting  interpretation may be controlling.  As in all aspects of oil and gas
evaluation,   there  are  uncertainties   inherent  in  the   interpretation  of
engineering  data and  such  conclusions  necessarily  represent  only  informed
professional judgments.

The data used in the  Huddleston & Co.  estimates were obtained from the Company
and were assumed to be accurate by Huddleston & Co.. Basic geologic, engineering
and  field   performance   data  are  now   maintained  on  file  by  Mercantile
International Petroleum Inc., who purchased these properties from the Company in
February 1997.

Drilling

The Company sold all of its oil and gas producing  properties in February  1997,
as previously  discussed,  and has not yet implemented  production operations in
Kazakhstan,  therefore it had no  exploration  or  development  wells during the
current year. The following  table sets forth the gross and net  exploratory and
development wells which were completed, capped or abandoned in which the Company
participated during the years indicated.

<TABLE>
<CAPTION>
                                            1999                          1998                              1997
                                            ----                          ----                              ----
                                    Gross           Net           Gross           Net              Gross            Net
                                    -----           ---           -----           ---              -----            ---
<S>                                 <C>            <C>           <C>             <C>               <C>            <C>
Exploratory Wells:
    Kazakhstan
       Oil                             --             --             --             --                --             --
       Gas                             --             --             --             --                --             --
       Dry                              2            1.4             --             --                --             --
                                    -----          -----          -----          -----             -----          -----
    TOTAL                               2            1.4             --             --                --

Development Wells:
    Kazakhstan                         --             --             --             --                --             --
    South America                      --             --             --             --                --             --
                                    -----          -----          -----          -----             -----          -----

    TOTAL                              --             --             --             --                --             --
                                    -----          -----          -----          -----             -----          -----

TOTAL                                   2            1.4             --             --                --             --
                                    =====          =====          =====          =====             =====          =====
</TABLE>

Item 3. LEGAL PROCEEDINGS

In 1998, Neste Trifinery  ("Trifinery"),  filed suit in a Harris County District
Court   against   the  Company  and  its   wholly-owned   subsidiary,   American
International Refinery, Inc. ("AIRI") (Neste Trifinery v. American International
Refinery,  Inc. Etc. Case No. 98-11453;  in the 269th Judicial District;  in and
For Harris  County,  Texas).  Trifinery  has  asserted  claims for  recovery  of
compensatory and punitive  damages based on the following  theories of recovery;
(1) breach of contract,  (2)  disclosure of  confidential  information;  and (3)
tortuous interference with existing contractual relations.  Generally, Trifinery
has alleged that in connection  with the due diligence  conducted by the Company
and AIRI of the  business  of  Trifinery,  the  Company  and AIRI had  access to
confidential  or trade  secret  information  and that the  Company and AIRI have
exploited that information,  in breach of an executed Confidentiality Agreement,
to the detriment of Trifinery.  Trifinery  seeks the recovery of  $20,000,000 in
compensatory damages and an undisclosed sum in connection with its claim for the
recovery of punitive damages.

In addition  to seeking  the  recovery of  compensatory  and  punitive  damages,
Trifinery sought injunctive relief. Specifically, Trifinery sought to enjoin the
Company and AIRI from: (1) offering employment positions to the key employees of
Trifinery; (2) contacting the suppliers, joint venture partners and customers of
Trifinery in the pursuit of business  opportunities;  (3)  interfering  with the
contractual  relationship  existing  between  Trifinery and St. Marks  Refinery,
Inc.; and (4) disclosing or using any confidential  information  obtained during
the due diligence  process to the  detriment of Trifinery.  The Company and AIRI
have asserted to a general denial to the allegations asserted by Trifinery.  The
Company  and  AIRI  also  moved  the  district  court  to refer  the  matter  to
arbitration,  as provided for in the Confidentiality  Agreement, and to stay the
pending litigation. On March 27, 1998, the district court referred the matter to
arbitration,  as requested by the Company and AIRI,  and stayed  litigation.  At
present,  the dispute existing between the Company,  AIRI and Trifinery in Texas
will be  decided  by a panel of three  arbitration  judges  under  the  American
Arbitration Association rules for commercial disputes. Two arbitrators

                                       11

<PAGE>

have been  identified  by the  parties  and the third is in the process of being
chosen.  The  Company  and AIRI are  vigorously  defending  this  matter and the
Company's counsel anticipates a favorable outcome, although a definitive outcome
is not yet determinable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None



                                       12
<PAGE>

                                     PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

The Company's Common Stock is traded on NASDAQ/NMS under the symbol "AIPN".  The
following table sets forth, for the periods indicated, the range of closing high
and low bid prices of the Common Stock and the as reported by NASDAQ.

                                                       Common Stock
                                                       ------------
                                               High Bid             Low Bid
                                               --------             -------

1999     First Quarter                          $1.067                $.978
         Second Quarter                          1.072                 .951
         Third Quarter                           1.008                 .920
         Fourth Quarter                           .649                 .539

1998     First Quarter                           $4.91                $3.19
         Second Quarter                           4.34                 1.53
         Third Quarter                            1.94                 0.94
         Fourth Quarter                           2.50                 0.69


At March 21, 2000, the Company had approximately 1,726 shareholders of record of
its Common Stock. The Company estimates that an additional  18,000  shareholders
hold Common Stock in street name.

During the fourth  quarter 1999,  the Company  issued an aggregate of 13,521,285
shares of Common Stock upon  conversion of, and in payment of accrued  interest,
on its convertible debentures. The issuance of those shares were exempt from the
Registration requirements of the Securities Act under Sections 3(a)(9) and 4(2),
respectively of the Securities Act.

Dividend Policy

The  policy of the Board of  Directors  is to retain  earnings  to  finance  the
operations and development of the Company's business.  Accordingly,  the Company
has never paid cash  dividends on its Common  Stock,  and no cash  dividends are
contemplated to be paid in the foreseeable future.

Item 6. SELECTED FINANCIAL INFORMATION

The following  selected  financial data for each of the five years in the period
ended  December  31,  1999  have  been  derived  from the  audited  consolidated
financial  statements for those respective  years.  The selected  financial data
should be read in conjunction with the consolidated  financial statements of the
Company and the related notes included elsewhere herein:

<TABLE>
<CAPTION>
                                                                             For the Years Ended December 31,
                                                                             --------------------------------
                                                            1999           1998            1997            1996            1995
                                                            ----           ----            ----            ----            ----
<S>                                                    <C>             <C>             <C>             <C>             <C>
Condensed consolidated statement of operations:
     Revenues                                          $  8,352,038    $ 11,854,606    $    827,964    $  4,003,006    $  2,811,308
     Net loss(1)                                        (14,917,868)     (9,103,113)    (17,953,621)     (4,652,207)     (4,338,322)
     Net loss per share - basic and diluted                   (0.20)          (0.17)          (0.43)          (0.16)          (0.20)

<CAPTION>
                                                                                      At December 31,
                                                                                      ---------------
                                                            1999           1998            1997            1996            1995
                                                            ----           ----            ----            ----            ----
<S>                                                    <C>             <C>             <C>             <C>             <C>
Condensed consolidated balance sheet:
     Working capital (deficit)                         $ (5,004,658)   $ (4,596,152)   $   (693,676)   $ (9,823,229)   $ (3,402,543)
     Total assets                                        69,658,269      60,861,334      41,839,860      34,492,431      32,640,362
     Total current liabilities                            8,903,689       7,914,250       9,335,479      13,164,713      11,349,670
     Long-term debt                                      11,984,592       6,110,961             -0-       6,766,592       7,302,671
     Stockholders' equity                                48,464,032      46,530,167      32,504,381      21,327,718      21,290,692
     Cash Dividends declared                                    -0-             -0-             -0-             -0-             -0-
</TABLE>

1)   Net loss in 1996  included a provision  for the write down of the  carrying
     costs of oil and gas properties of $200,000.

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

                                       13
<PAGE>

Results of Operations

The following  table  highlights  the results of operations  for the years ended
December 31, 1999, 1998 and 1997.

                                               For the Years Ended December 31,
                                               --------------------------------
                                                1999         1998         1997
                                                ----         ----         ----
Refinery Processing Operations:
    Refinery product revenues (000's)          $8,138      $11,394           --
    Product Costs (000's)                      $5,944       $8,194           --
    Operating Costs (000's)                    $2,727       $3,087

Exploration and Production Activity:
Colombia Properties(1):
    Revenue - Oil Sales (000's)                    --           --         $261
    Lease Operating Expenses (000's)               --           --          $99
    Production Volume - Barrels                    --           --      318,625
    Average Price per Bbl                          --           --       $14.01
    Production Cost per Bbl                        --           --        $5.31
    DD&A per Bbl (2)                               --           --        $3.77

Peru Properties:
    Revenue - Oil Sales (000's)                    --           --           --
    Lease Operating Expenses (000's)               --           --           --
    Production Volume - Bbls                       --           --           --
    Average Price per Bbl                          --           --           --
    Production Cost per Bbl                        --           --           --
    DD&A per Bbl                                   --           --           --

Refinery Operations:
    Refinery Lease Fees (000's)                    --           --           --
    Average Daily Throughput (Bbls)                --           --           --
    Average Throughput Fee                         --           --           --

----------

(1)  Reflects activity through the closing of the S.A. Sale.

(2)  Excludes  provision for reduction of oil and gas  properties of $200,000 in
     1996.

Refinery Operations

For the Year Ended  December  31, 1999  compared to the Year Ended  December 31,
1998

During 1999,  the Company  generated  revenues of  approximately  $7,621,000  in
asphalt  sales from its Lake Charles  facility and  approximately  $513,000 from
sales of  certain  light-end  and  other  products,  compared  to  approximately
$5,965,000  and  $3,357,000,  respectively,  generated  in  1998.  Although  the
Company's  asphalt  volumes  were up only  approximately  10%  over  last  year,
revenues were up  approximately  28%,  primarily due to a greater demand for the
higher  priced,  higher  grades of polymer  asphalt by its  customers.  However,
polymerized  asphalts  only  accounted  for  approximately  60% of the Company's
asphalt  sales  volumes in 1999.  Most of its sales backlog was incurred late in
1998 and in early 1999 when crude oil and asphalt  sales prices were much lower.
Consequently,  the  Company was  committed  to selling  low-priced  conventional
asphalts  at a loss or at  break-even  throughout  most of 1999 and early  2000.
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 provisions in its asphalt sales contracts,  which enable it to
increase  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


                                       14
<PAGE>

prices.   The  Company's   sales  prices  on  its  retail  asphalt  ranged  from
approximately  $78 to $162 a ton. Due to the significant  increases in world oil
prices that occurred  throughout 1999, it was not economically  feasible for the
Company to purchase and process crude oil through its crude unit to  manufacture
asphalt  as it had done in 1998.  Because  of this,  the  light-ends  and  other
products provided though this process were  significantly  decreased in 1999 and
was the primary  reason for the decrease in light-end and other product sales in
1999 compared to 1998. The Company  purchased  general grade asphalt on the spot
market to blend and supply  various grades of asphalt to its Louisiana and Texas
customers.  Operating and inventory costs attributed to the related revenues for
1999 were  approximately  $8,486,000,  compared to  approximately  $9,500,000 of
operating  and  inventory  costs in 1998.  The  relatively  high  operating  and
inventory  costs during the year are partially  attributable  to the increase in
the world oil prices  and the  non-availability  of  certain  types of crude oil
during the year,  the  related  increase in asphalt  feed stock  prices that the
Company had to incur for its asphalt,  and to an increase in operating  costs to
maintain  the  refinery  during  this  period.  Even  though the Company has not
operated the crude unit since  January of 1999,  it has had to maintain the unit
in a state of readiness  and thus has  incurred  additional  operating  overhead
costs  attributed to  maintaining  the unit.  Some of these  overhead costs were
incurred in preparing the crude unit and related  equipment to process  products
for a third party with which the Company has  entered  into an  agreement.  (See
Item 7. "Management's Discussion - Liquidity and Capital Resources").  This will
not preclude the Company from operating its vacuum unit or its asphalt  blending
business.  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 Company's  terminal in St. Marks Florida was not operational during 1999 and
had no revenues but incurred  approximately  $96,000 of maintenance and security
costs  during the year,  compared to revenues of  approximately  $2,000,000  and
related costs of  approximately  $1,800,000 in 1998. Due to the increased  costs
and the subsequent  decrease in supply of product  brought on by the increase in
world oil prices, the Company determined it to be more economically  feasible to
direct its sales efforts and strategy 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.

For the Year Ended  December  31, 1998  compared to the Year Ended  December 31,
1997

During 1997, the Company  commenced  expansion of the Refinery and conversion of
the crude unit to a heavy crude  processing  unit to enable the  manufacture  of
asphalt and other products.  During 1998 the Company undertook extensive testing
of  its  refinery  equipment  and  processing  capabilities.  The  Refinery  did
extensive  process  sampling  with  various  types of crude oils in an effort to
determine the most  economical and  technically  acceptable  crude  feedstock to
develop and  produce the basic  asphalt  material to be used in  developing  the
specialty asphalts the asphalt road construction  industry will require,  and in
some areas is currently  requiring,  to be used.  As a result of the  Refinery's
testing activity in 1998, it manufactured  products which generated  revenues of
approximately  $6 million dollars from asphalt products and  approximately  $3.4
million dollars from certain  light-end and other products.  The Company's sales
prices on its retail asphalt ranged from $75 to $187 a ton. The Company incurred
approximately  $6.8  million in product  costs  related  to those  revenues  and
approximately  $2.7 in operating  costs  during this  extensive  testing  period
throughout  1998.  Because of very low operating  levels during most of 1998 and
redundant  processing  and blending of feedstock and asphalt  during the testing
process,  the Company's margins were severely  distorted and were not indicative
of margins  expected during normal  operating  conditions.  Costs, and likewise,
revenues and margins,  will vary depending  upon a number of factors,  including
but not limited to feedstock  prices,  and from the Company's product mix, which
will be determined over time as the Company's markets are further developed.

The Refinery's  terminal  operations in St. Marks,  Florida,  which commenced in
June 1998,  had  revenues  of  approximately  $2 million  dollars  from sales of
asphalt and costs of sales of approximately  $1.8 million related to those sales
during 1998.

Oil and Gas Production Activity

For the Year Ended  December  31, 1999  compared to the Year ended  December 31,
1998

The  Company  had no oil and gas  production  activity  during  the  year  ended
December 31, 1999

For the Year Ended  December  31, 1998  compared to the Year Ended  December 31,
1997

The  Company  had no oil and gas  production  activity  during  the  year  ended
December 31, 1998.

The oil and gas production  revenues reflected are the results of operations for
Colombia and Peru for 1997 and reflect  results for the period through  February
25, 1997, the date of the sale of the Colombia and Peru subsidiaries.

                                       15

<PAGE>

Other Income

For the Year Ended  December  31, 1999  compared to the Year Ended  December 31,
1998.

Other  income  decreased  during  1999 by  approximately  $246,000  to  $214,000
compared to 1998,  primarily from a $251,000  decrease in interest income due to
decrease in funds on deposit in 1999 compared to those on deposit in 1998.

For the Year Ended  December  31, 1998  compared to the Year Ended  December 31,
1997.

Other  income  decreased  during  1998 by  approximately  $107,000  to  $461,000
compared to 1997,  primarily from a $63,000  decrease in interest  income due to
reduced  funds on deposit  in 1998  compared  to those on  deposit  in 1997.  An
additional  decrease  of  approximately  $50,000  in 1998  compared  to 1997 was
attributable to a one-time  $50,000  non-cash  reduction of an accounts  payable
item recorded as income in 1997.

General and Administrative

For the Year ended  December  31, 1999  compared to the Year ended  December 31,
1998

Total General and  Administrative  expenses  ("G&A")  increased by approximately
$693,000,  or 12%, in 1999 compared to 1998.  The  acquisition  of the St. Marks
refinery at the end of 1998 accounted for an increase of approximately  $180,000
of G&A related to payroll  and  insurance  costs.  Other  payroll  and  employee
related  costs  increased  approximately  $285,000.   Insurance  cost  increased
approximately  $183,000 in 1999 compared to 1998 due to  additional  coverage on
new  additions to the  refinery at end of 1998.  Rents  increased  approximately
$281,000 in 1999  compared to 1998.  The Company has entered into a agreement to
sublease out part of it's available  office space which will be effective during
the second quarter 2000, and will effectively  reduce the Company's current rent
expense by approximately $161,000 a year. The Company did not capitalize any G&A
during 1999, compared to approximately $578,000 capitalized in 1998.

For the Year ended  December  31, 1998  compared to the Year ended  December 31,
1997

Total G&A increased by approximately $469,870, or 10%, in 1998 compared to 1997.
The Company incurred  approximately  $1.4 million in additional G&A during 1998,
principally due to increased  activity at the Refinery,  which were offset by an
aggregate  of  approximately  $1.0  million  in  reduced  G&A  resulting  from a
reduction  of $279,000  related to the sale of its Colombia and Peru oil and gas
operations in 1997 and a non-cash  charge of $745,000 in 1997 in connection with
the  issuance  of stock  options.  In  addition,  legal  expenses  decreased  by
approximately $90,000 due primarily to the settlement of the IRS Excise tax case
and an  environmental  lawsuit.  Due to the increased  activity at the refinery,
payroll and related employee  expenses  increased by approximately  $434,000 and
general  insurance  costs  increased by  approximately  $86,000 due to increased
coverage of the Refinery equipment and liability.  General office administrative
expenses  increased by $80,000 due to the increased  sales and operations at the
refinery.  Additional costs of approximately  $70,000 were incurred in upgrading
computers systems due in part to Year 2000 compliance  considerations.  Investor
relations  increased  in 1998 by  approximately  $111,000  compared  to 1997 and
professional  consulting fees increased by approximately  $500,000.  The Company
capitalized  approximately  $578,000 of G&A in 1998  compared  to  approximately
$622,000 in 1997 in connection with the Refinery expansion.

Depreciation, Depletion and Amortization

For the Year ended  December  31, 1999  compared to the Year ended  December 31,
1998

Depreciation,   Depletion  and  Amortization  ("DDA")  increased   approximately
$918,000 in 1999  compared to the same period in 1998.  DDA in 1999 reflects the
increased depreciation of the Company's $18.6 million dollar asphalt and related
equipment  construction  project at its refinery that  commenced in 1996 and was
completed in December of 1998.  This new addition  doubled the book value of the
refinery  and accounts  for the 100%  increase in DDA. In addition,  the Company
commenced depreciating the St Marks facility and its marine equipment during the
first quarter of 1999.

For the Year ended  December  31, 1998  compared to the Year ended  December 31,
1997

Depreciation, Depletion and Amortization ("DDA") increased approximately $39,000
in 1998 compared to the same period in 1997. The


                                       16
<PAGE>

increase in 1998 of $124,000,  due to an increase in refinery depreciable assets
during  1998,  was offset by a decrease in 1998 of  depreciation  and  depletion
attributable to the Colombia and Peru operations that were sold in 1997.

Interest

Imputed  interest of  approximately  $3,044,000,  $6,042,000,  and $1,899,000 in
1999, 1998,and 1997, respectively, was related to the presumed incremental yield
the investor may derive from the discounted  conversion rate of debt instruments
issued by the Company during these years.  Management  believes that the related
amount of interest  recorded by the Company is not  necessarily the true cost to
the  Company  of the  instruments  it issued  and that it may be  reasonable  to
conclude that the fair value of the Common Stock into which these securities may
be  converted  was less than such  stock's  quoted  market price at the date the
convertible  securities were issued (considering  factors such as the period for
which sale of the stock is restricted, which in certain cases was as long as six
months, large block factors, lack of a sufficiently-active market into which the
stock can be quickly  sold,  time  value,  etc.).  However,  generally  accepted
accounting  principles  requires that the  "intrinsic  value" of the  conversion
feature  at the  date  of  issuance  should  be  accounted  for  and  that  such
incremental yield should be measured based on the stock's quoted market price at
the date of issuance, regardless if such yield is assured.

The Company  expenses and also  capitalizes  certain other costs associated with
the offering and sale of debentures. Capitalized costs are amortized as interest
expense over the life of the related debt  instrument.  These costs  include the
accounting  for  Common  Stock  warrants  issued  with and  related  to  certain
convertible debentures, commissions paid, and certain legal expenses

For the Year ended  December  31, 1999  compared to the Year ended  December 31,
1998

Interest  expense  for 1999  was  $6,500,579,  net of  capitalized  interest  of
$547,786,  compared  to  interest  expense  of  $1,912,949,  net of  capitalized
interest of $7,055,340 in 1998. The Company incurred approximately $1,898,000 of
interest  on  debentures  and  short-term  notes  outstanding  during  the year,
expensed  non-cash  imputed  interest,  as  discussed  above,  of  approximately
$2,882,000,  interest on trade notes of  approximately  $638,000,  approximately
$1,619,000 of non-cash interest related to amortized bond costs.

For the Year ended  December  31, 1998  compared to the Year ended  December 31,
1997

Interest  expense  for 1998  was  $1,912,949,  net of  capitalized  interest  of
$7,055,340,  compared to an interest  expense of $6,663,992,  net of capitalized
interest of $340,988 in 1997. The Company incurred  approximately  $1,670,000 of
interest on debentures  outstanding  during the year.  The Company also incurred
approximately  $2,118,000  of  imputed  interest  costs  on the  sale of its $12
million debentures in April 1998 and amortized an additional  $3,924,000 related
to the  conversion  of  debentures  held  at  December  31,  1997.  The  Company
capitalized  interest expense of $7,055,000  incurred in connection with its oil
and gas and refinery projects during 1998.

Realized and Unrealized Loss on Marketable Securities

The Company neither held nor sold any Marketable Securities during 1999.

As partial proceeds from the S.A. Sale, the Company received  approximately $4.4
million  shares of MIP common stock valued at $2.00 per share.  However,  during
1997 and 1998, the market value of MIP's shares declined  significantly.  During
1997, the Company sold and disposed of approximately 1,441,000 shares of the MIP
shares for proceeds of  approximately  $1,979,000  and recorded an aggregate net
realized and unrealized loss of $6,053,000 for the year ended December 31, 1997.
During 1998 the Company  sold all of its  remaining  MIP shares for  proceeds of
approximately   $377,000  and  recorded  an  aggregate   net  realized  loss  of
approximately $369,000.

Loss on Sale of Assets

The Company  recorded an aggregate  $564,000  loss in 1997 on the sale of two of
its' wholly-owned subsidiaries which includes the current discount to fair value
of the $3  million  Exchangeable  Debenture  and the  $1.4  million  performance
earn-out, both received in the S.A. Sale.

Liquidity and Capital Resources

During  the year ended  December  31,  1999,  the  Company  used a net amount of
approximately $7,306,000 for operations, which reflects approximately $6,320,000
in non-cash provisions,  including  depreciation,  depletion and amortization of
$5,717,000.  Approximately  $832,000 was provided  during the period to decrease
product and  feedstock  inventory  and  $459,000  was provided by an increase in
accounts payable and accrued  liabilities and in current assets other than cash.
Additional  uses  of  funds  during  1999  included  additions  to oil  and  gas
properties  and Refinery  property and  equipment of  $5,980,000  and  $801,000,
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


                                       17
<PAGE>

$769,000,  and from  proceeds  from long and  short-term  debt of  approximately
$19,216,000.  At December 31, 1999, the Company had negative  working capital of
approximately $5.0 million dollars.

During 1999, the Company issued an aggregate of $17,250,000  principal amount of
5% and 6% convertible debentures.  As of March 21, 2000, only approximately $6.8
million remained outstanding. The proceeds derived from these private placements
were utilized to fund the Company's projects in Kazakhstan, expand the Refinery,
repay debt, and for working capital purposes.

Also during 1999, the Company borrowed an aggregate of approximately $10 million
for  feedstock  purchases  and  expansion  at  the  Refinery,   funding  certain
expenditures  in  Kazakhstan,  and for  working  capital  purposes.  The Company
utilized its  inventory,  receivables , St Marks and its adjacent real estate as
collateral.  Of this amount,  approximately $3.8 million remained outstanding as
of December 31, 1999.

The Company plans to begin its Shagryly gas field  development  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 costs 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.

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.

As  mentioned  above,  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 will 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 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 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 $1,306,258 in connection  with the "earnout  provision" of
the original purchase agreement. MIP also agreed to repay the aggregate debt due
to the Company of $2,887,508 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 has received the initial monthly payment and expects
no interruption in the future.



                                       18
<PAGE>

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  at the  contract  anniversary  date.  Maretech has the right to
terminate  the Maretech  Agreement if its  operation  is  unprofitable  over any
30-day  period.  Maretech will pay AIRI $.20 per barrel of feedstock run through
the ADU as a lease fee,  which  lease fees shall not be lower that  $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.

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 21, 2000, AIRI had approximately  $10.5 million in firm
backlog  of  orders  and sales  agreements,  of which  approximately  95% is 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  asphalts 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  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 plans to repay the outstanding aggregate balance of its Bridge Loans
(approximately  $4.35  million)  with the proceeds  expected  from the sale of a
portion of its License 1551. It is also seeking other sources of capital for the
repayment of this debt as well as its outstanding 5% Convertible Debentures.

If the  Company  is unable to obtain  the  necessary  working  capital  from the
Refinery,  St. Marks, AIM, the sale of a portion of License 1551, or from one or
more joint venture partners 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  could be  materially  and
adversely effected.

Y2K Issues

The Company  evaluated the potential impact of the nearly universal  practice in
the  computer  industry of using two digits  rather than four to  designate  the
calendar  year,  leading to incorrect  results when computer  software  performs
arithmetic  operations,  comparisons or date field sorting involving years later
than  1999.  Management  believes  that in light of the  limited  nature  of the
computer  software used by the Company and the limited  scope of its  electronic
interaction with other entities,  issues relating to modification or replacement
of  existing  systems  will not have a  material  effect  on the  operations  or
financial  condition  of the  Company.  Although the Company is not aware of any
circumstances   in  which  the  failure  of  a  supplier  or  customer  to  deal
successfully  with such  issues  would have a material  impact,  there can be no
assurance  that such will be the case. As of March 31, 2000, the Company had not
encountered  any  negative  effects  relating  to the Year 2000  issues,  either
internally or with any of its vendors or suppliers.

Market Risk

The Company is exposed to various  types of market risk in the normal  course of
business,  including  the impact of interest  rate changes and foreign  currency
exchange  rate  fluctuations.  The  Company  does  not  employ  risk  management
strategies,  such as derivatives or various interest rate and currency swaps, to
mitigate these risks.



                                       19
<PAGE>

     Foreign Exchange Risk

The Company is subject to risk from  changes in foreign  exchange  rates for its
international  operations  which  uses a foreign  currency  as their  functional
currency and are translated to U.S. dollars. The Company has not experienced any
significant gains or losses from such events.

     Interest Rate Risk

The  Company  is  exposed  to  interest  rate  risk from its  various  financing
activities.  The following table provides  information,  by maturity date, about
the Company's  interest rate sensitive  financial  instruments,  which are fixed
rate  debt  obligations.   The  fair  value  of  financial  instruments  closely
approximates  the carrying  values of the  instruments  due to the short-term or
recent issuance of such instruments.

                                                    Total
                                                   Recorded         Fair
                2000              2004              Amount          Value
                ----              ----             --------         -----

Debt:        $3,853,480        $12,621,250        $16,474,730      $16,474,730
                 11.3%              27.5%

A 10%  increase in interest  rates would  decrease  the  Company's  cash flow by
approximately $1,650,000 and would decrease the fair value of the Company's debt
instruments.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.


                                       20
<PAGE>

                                    PART III.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth  information  concerning the Company's  executive
officers and directors.
                                                                 Year First
                                                             Became a Director
    Name                Age   Position(s)                        or Officer
    ----                ---   -----------                    -----------------

George N. Faris         59    Chairman of the Board                1981

Joe Michael McKinney    60    Chief Executive Officer              1999

William R. Smart        79    Director                             1987

Daniel Y. Kim           75    Director                             1987

Donald G. Rynne         77    Director                             1992

John H. Kelly           60    Director                             1999

Denis J. Fitzpatrick    55    Vice President, Secretary and        1994
                              Chief Financial Officer

William L. Tracy        52    Treasurer and Controller             1992

----------

Biographical Information

Dr.  George N. Faris has served as  Chairman  of the Board of  Directors  of the
Company  since 1981 He served as Chief  Executive  Officer from 1981 to December
1999 . Dr.  Faris was the  founder of ICAT,  an  international  engineering  and
construction  company, and served as its President from ICAT's inception in 1972
until October 1985.  Prior to 1972,  Dr. Faris was the President and Chairman of
the Board of Directors of Donbar Development  Corporation,  a company engaged in
the patent  development of rotary heat  exchangers,  devices which exchange heat
from  medium to medium and on which Dr.  Faris was  granted a number of patents.
Dr. Faris received a Ph.D. in Mechanical  Engineering from Purdue  University in
1968.

Mr. Joe  Michael  McKinney  joined the  Company in July 1999 as Chief  Operating
Officer and was appointed Chief Executive  Officer and a Director of the Company
in December  1999. Mr.  McKinney was Vice  President and General  Manager of all
domestic  onshore  operations at Union Texas  Petroleum from 1987 until 1991. He
was  Senior  Vice  President  of  International  Operations  at Enron  Oil & Gas
Corporation  from  1991-1993 and was promoted to President  and Chief  Operating
Officer  responsible for all exploration  and  development  activies  outside of
North  America  from 1994 until 1996.  From 1996 until 1999,  Mr.  McKinney  was
employed  by Wind  Walker  Consulting  as a petroleum  management  and  business
consultant  to  companies  in the energy  field.  Mr.  McKinney is a  registered
Professional  Engineer and is a member of the Society of Petroleum Engineers and
the Association of  International  Petroleum  Negotiators.  He received his B.S.
degree in Mechanical Engineering from Texas Tech University in 1962.

Mr. William R. Smart has served as a member of the Company's  Board of Directors
since  June 1987.  Since  November  1,  1983,  Mr.  Smart has been  Senior  Vice
President of Cambridge Strategic Management Group, a management consulting firm.
Mr. Smart was Chairman of the Board of Directors of Electronic Associates, Inc.,
a  manufacturer  of electronic  equipment,  from May 1984 until May 1992. He has
served on the  Board of  Directors  of Apollo  Computer  Company  and  Executone
Information  Systems,  Inc.  Mr.  Smart is  presently  a  director  of  National
Datacomputer  Company and Hollingsworth  and Voss Company.  Mr. Smart received a
B.S. degree in Electrical Engineering from Princeton University in 1941.

Dr.  Daniel Y. Kim has served as a member of the  Company's  Board of  Directors
since July 1987. Dr. Kim is a Registered Professional Geophysicist in California
and Colorado.  From 1981 until 1984,  Dr. Kim was President and Chief  Executive
Officer of Kim Tech,  Inc., a


                                       21
<PAGE>

research and development  company.  In 1984, Kim Tech, Inc. was merged into Bolt
Industries,  a  public  company  engaged  in the  manufacture  of air  guns  and
auxiliary equipment used to generate shock waves in seismic exploration for oil,
gas and  minerals.  Dr. Kim has been a director of Bolt  Industries  since 1984.
From 1977 to 1980, Dr. Kim was Chief  Consulting  Geophysicist  for Standard Oil
Company of Indiana.  Dr. Kim received a B.S.  degree in  Geophysics  and a Ph.D.
degree in Geophysics from the University of Utah in 1951 and 1955, respectively.

Mr. Donald G. Rynne has served as a member of the  Company's  Board of Directors
since  September  1992. Mr. Rynne has been Chairman of the Board of Directors of
Donald G. Rynne & Co., Inc., a privately owned company engaged in  international
consulting  and  trading,  since  founding  that  company in 1956.  Mr. Rynne is
involved in international maritime trading and consulting,  dealing primarily in
the Middle  East in  hydrocarbon  products  and  capital  equipment.  Mr.  Rynne
received a B.A. degree from Columbia University in 1949.

Ambassador  John H.  Kelly  has  served as a member  of the  Company's  Board of
Directors since December 1999. Ambassador Kelly was Assistant Secretary of State
for South  Asian and Near  Eastern  affairs  from 1989 to 1991 and is  currently
Ambassador in Residence at the Center for  International  Strategy,  Technology,
and Policy at the Sam Nunn School of  International  Affairs at Georgia  Tech in
Atlanta.  Ambassador  Kelly  is a career  diplomat  and was  four  times  Deputy
Assistant  Secretary of State as well as Ambassador  to Finland and Lebanon.  He
attended  Emory  University  and the Armed Forces Staff  College.  He has been a
frequent  commentator for "Meet the Press", the "Today Show", and on CNN, C-Span
BBC, and other media.

The business  background of each executive officer of the Company, to the extent
not set forth above, is described below.

Mr. Denis J.  Fitzpatrick  joined the Company in August 1994 as Vice  President,
Secretary  and Chief  Financial  Officer.  During the previous  five years,  Mr.
Fitzpatrick was the Chief Financial  Officer of Nahama & Weagant Energy Company,
a  publicly  traded  independent   exploration  and  production   company.   Mr.
Fitzpatrick  has held various  accounting  and  financial  management  positions
during  his 24  years  in the oil and gas  industry.  He has  also  served  as a
Director or Officer of the Council of Petroleum  Accountants Society;  served on
the Tax  Committee of the American  Petroleum  Institute  and as a member of the
American  Management  Association.  Mr.  Fitzpatrick  received a B.S.  degree in
Accounting from the University of Southern California in 1974.

Mr.  William L. Tracy has been employed by the Company  since  February 1992 and
has been  Treasurer and  Controller  of the Company since August 1993.  From May
1989 until February 1992, Mr. Tracy was  self-employed  as an energy  consultant
with the  Commonwealth  of  Kentucky.  From June 1985 until May 1989,  Mr. Tracy
served as President  of City Gas and  Transmission  Corp.,  a public oil and gas
production and refining company.  He received his BBA from Bellarmine College in
Louisville, Kentucky in 1974.

The Company's  executive  officers are appointed  annually by the Board to serve
until their successors are duly elected and qualified.

Item 11. EXECUTIVE COMPENSATION

The  following  table  discloses  compensation  for  services  rendered  by  the
Company's  Chief  Executive  Officer  and all other  executive  officers  of the
Company whose compensation exceeded $100,000 in 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                          Annual Compensation                                  Long Term Compensation
-------------------------------------------------------------      ----------------------------------------------
Name and Principal                                                 Other Annual                        All Other
Position                    Year       Salary          Bonus       Compensation      0ptions(#)      Compensation
-----------                 ----       ------          -----       ------------      ----------      ------------
<S>                         <C>       <C>            <C>           <C>                <C>            <C>
George N. Faris             1999      $335,769       $ 41,250      $      --          500,000        $      --
Chairman of the             1998       330,000        120,000             --        1,000,000(1)            --
Board                       1997       312,000        257,000          7,200(2)       750,000          193,000(3)

Joe Mike McKinney           1999      $118,461         $5,625         $2,500(2)       700,000        $   2,500(2)
Chief Executive Officer     1998            -- (6)                        --               --               --
                            1997            -- (6)                        --               --               --

Denis J. Fitzpatrick        1999      $135,769       $ 15,000      $      --          100,000        $      --
Secretary, Vice             1998       140,000         31,250             --          170,000(4)            --
President and Chief         1997       118,000        102,000             --          125,000           25,000(5)
Financial Officer

William L. Tracy            1999      $100,000       $ 10,006      $      --           75,000        $      --
Treasurer and               1998       100,000         13,500             --          106,000(7)            --
Controller                  1997        88,000         62,000             --           75,000           23,000(5)
</TABLE>

                                       22
<PAGE>

(1)  Includes 420,000 regular options which vest 25% per year beginning December
     31,  1998 and  580,000  contingent  options  which  will  vest  only if the
     Company's common stock trades at $5.00 per share for 15 consecutive days at
     any time before December 31, 1999.

(2)  Vehicle allowance.

(3)  Includes  deferred salary payment of $109,000 and income tax  reimbursement
     of $84,000.

(4)  Includes 70,000 regular options which vest 25% per year beginning  December
     31,  1998 and  100,000  contingent  options  which  will  vest  only if the
     Company's common stock trades at $5.00 per share for 15 consecutive days at
     any time before December 31, 1999.

(5)  Deferred salary payment.

(6)  Mr.  McKinney was hired in July 1999. He was granted  200,000  options as a
     signing bonus.

(7)  Includes 56,000 regular options which vest 25% per year beginning  December
     31,  1998  and  50,000  contingent  options  which  will  vest  only if the
     Company's common stock trades at $5.00 per share for 15 consecutive days at
     any time before December 31, 1999.

Note: The contingent options  terminated,  since the Company's  common stock did
      not trade at $5.00 per share for 15 consecutive days prior to December 31,
      1999.

STOCK OPTION PLAN

The Company has established a 1998 Stock Option Plan (the "1998 Plan"). The 1998
Plan was approved by the Board of Directors on May 29, 1998 and by the Company's
shareholders  on June 29, 1998.  The 1998 Plan is  administered  by the Board of
Directors of the Company or a Committee  designated by them. Under the 1998 Plan
employees,  including  officers and  managerial or  supervising  personnel,  are
eligible to receive  Incentive  Stock Options  ("ISO's") or ISO's in tandem with
stock appreciation rights ("SAR's"), and employees,  Directors,  contractors and
consultants are eligible to receive  non-qualified  stock options  ("NQSO's") or
NQSO's in tandem  with  SAR's.  Options  may be  granted  under the 1998 Plan to
purchase an aggregate of 5,000,000  shares of Common Stock. If an option granted
under the 1998 Plan terminates or expires without having been exercised in full,
the  unexercised  shares  subject to that option will be available for a further
grant of options under the 1998 Plan.  Options may not be transferred other than
by will or the laws of descent and distribution  and, during the lifetime of the
optionee, may be exercised only by the optionee.

Options may not be granted under the 1998 Plan after May 29, 2008.  The exercise
price of the  options  granted  under the 1998 Plan cannot be less than the fair
market  value of the shares of Common  Stock on the date the option is  granted.
ISO's granted to shareholders owning 10% or more of the outstanding voting power
of the Company  must be  exercised at a price equal to at least 110% of the fair
market value of the shares of Common Stock on the date of grant.  The  aggregate
fair market value of Common  Stock,  as determined at the time of the grant with
respect to which ISO's are exercisable for the first time by any employee during
any calendar year, shall not exceed $100,000.  Any additional Common Stock as to
which  options  become  exercisable  for the first time during any such year are
treated as NQSO's.  The total number of options  granted under the 1998 Plan, as
of March 21, 1999 was  4,249,275 of which  1,260,000  were  conditional  options
which expired and were placed back in the 1998 Plan for future issuance.



                                       23
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The  table  below  includes  the  number of stock  options  granted  to  certain
executive officers during the year ended December 31, 1999, exercise information
and potential realizable value.

<TABLE>
<CAPTION>
                         Individual Grants                                               Potential Realizable
                         -----------------                                               Value at Assumed
                       Number of       Percent of                                        Annual Rates of Stock
                       Securities      Total Options                                     Price Appreciation
                       Underlying      Granted to                                        for Option Term
                       Options         Employees in     Exercise       Expiration        ---------------------
  Name                 Granted(#)      Fiscal Year      Price($/sh)       Date           5%($)          10%($)
  ----                 ----------      -----------      -----------    ----------        -----          ------
<S>                      <C>               <C>            <C>           <C>              <C>            <C>
George Faris             500,000           24%            $0.825        03/30/04         $ -0-          $ -0-

Joe Michael McKinney     200,000           10%            $ 1.24        07/21/04         $ -0-          $ -0-
                         250,000           12%            $ 0.50        12/31/04         $ -0-          $ -0-
                         250,000           12%            $ 1.00        12/31/04         $ -0-          $ -0-

Denis Fitzpatrick        100,000            5%            $0.825        03/30/04         $ -0-          $ -0-

William L. Tracy          75,000            4%            $0.825        03/30/04         $ -0-          $ -0-
</TABLE>

AGGREGATE OPTION EXERCISES IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999

The table below  includes the number of shares covered by both  exercisable  and
non-exercisable stock options owned by certain executive officers as of December
31,  1999.  Also  reported  are the  values  for  "in-the-money"  options  which
represent the positive spread between  exercise price of any such existing stock
options and the year-end price.

<TABLE>
<CAPTION>
                                      Shares
                                      ------
                            Acquired on        Value             Number of Unexercised             Value of Unexercised
Name                         Exercised       Realized             Options at Year End              In-the-money Options
-----                        ---------       ---------            -------------------              --------------------

                                                             Exercisable      Unexercisable    Exercisable     Unexercisable
                                                             -----------      -------------    -----------     -------------
<S>                           <C>              <C>              <C>               <C>           <C>              <C>
George N. Faris                  --               --          2,308,334          564,166          $75,156        $    --

Denis J. Fitzpatrick          120,000          146,227          226,666           68,334          $  --          $    --

Joe Michael McKinney             --               --            125,000          575,000          $ 3,906        $  11,719

William L. Tracy               51,000           82,988          153,000           53,000          $  --          $    --
</TABLE>

EMPLOYMENT CONTRACTS

Effective  July 21,  1999 the  Company  entered  into a one (1) year  employment
agreement  with Joe Michael  McKinney to serve as President of the Company at an
annual salary of $300,000,  25,000 shares of the Company's  stock,  and five (5)
year options to purchase  200,000 shares of Company stock with an exercise price
equal to 110% of the  market  price on July 21,  1999 and vest  over a three (3)
year  period.  On November  18, 1999 Mr.  McKinney's  employment  agreement  was
amended to a three (3) year agreement, with successive one (1) year renewals, to
serve as the  Company's  Chief  Executive  Officer  and  President  at an annual
salary,  effective  January 1, 2000, of $350,000 with  additional  five (5) year
options to purchase  500,000 shares of Company stock at exercise prices of $0.50
to $1.00 and vesting over a two year period. The agreement also provides for, a)
a severance  payment for termination  without cause equal to one month of salary
for each  full year of prior  employment  with the  Company,  and b) a change in
control  payment in the amount  equal to 2.99 times annual base salary in effect
immediately  prior to  termination  as a result  of a change in  control  of the
Company.

                                       24

<PAGE>

Simultaneously  with the  appointment  of Mr.  McKinney to the position of Chief
Executive  Officer and President on November 18, 1999,  the  Company's  existing
employment  agreement  with Dr.  George N. Faris was  amended to provide for Dr.
Faris to  continue  to serve as  Chairman  of the  Board of the  Company  for an
initial term of three years at an annual salary of $250,000,  and if the initial
term is not extended by in writing by both parties, the Company agrees to retain
Dr. Faris, at his discretion, as a consultant for a period of two calendar years
ending  December  31, 2004 at an annual  salary  equal to 50% of his annual base
salary at December 31, 2002.  The  agreement  also  provides for, a) a severance
payment equal to one month's  salary for each full year of employment  beginning
January 1, 1995,  based on base salary at  December  31, 1999 and b) a change in
control payment equal to 2.99 times the greater of (i) $350,000 or (ii) his base
salary in effect on date of  termination  as a result of a change in  control of
the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the  Compensation  Committee  was an  officer  or  employee  of the
Company or of any of its  subsidiaries  during the prior year or was formerly an
officer of the Company or any of its subsidiaries.  During the last fiscal year,
none of the  executive  officers  of the  Company  has  served  on the  Board or
Compensation  Committee of any other entity whose officers  served either on the
Board of  Directors  of the  Company  or on the  Compensation  Committee  of the
Company.

Item 12. SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The  following  table  sets forth  certain  information,  as of March 21,  2000,
regarding the  beneficial  ownership of Common Stock of (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock; (ii)
each Director;  (iii) each executive  officer named in the Summary  Compensation
Table below; and (iv) all Directors and executive officers as a group.

Name and Address                    Amount and Nature of               Percent
of Beneficial Holder(1)             Beneficial Ownership              of Class
-----------------------             --------------------              --------

George N. Faris                         3,826,944(2)                   3.5%

Joe Michael McKinney                       72,833(3)                      *

Daniel Y. Kim                             223,378(4)                      *

Donald G. Rynne                           729,092                         *

William R. Smart                          250,012                         *

John Kelly                                 52,000(5)                      *

Denis J. Fitzpatrick                      122,187(6)                      *

William L. Tracy                          137,571(7)                      *

All officers and Directors
as a group (consisting of
8 persons)                              5,414,017(8)                  4.8%

The Palladin Group, L.P.               11,766,627(9)                  9.9%
195 Maplewood Avenue
Maplewood, NJ  07040

----------
*    Less than 1% of class

(1)  All officers  and  Directors  have an address c/o the Company,  444 Madison
     Avenue, New York, NY 10022.

                                       25
<PAGE>

(2)  Includes 770,834 shares of common stock issuable upon the exercise of stock
     options owned by Dr. Faris. Excludes 376,667 options not exercisable within
     60 days.

(3)  Excludes  575,000  stock  options  owned  by Mr.  McKinney,  which  are not
     exercisable within 60 days.

(4)  Includes 205,500 shares of common stock issuable upon the exercise of stock
     options owned by Dr. Kim.

(5)  Includes  50,000 shares of common stock issuable upon the exercise of stock
     options of common stock owned by Ambassador  Kelly.  Excludes 50,000 option
     not exercisable within 60 days.

(6)  Includes  34,667 shares of common stock issuable upon the exercise of stock
     options owned by Mr.  Fitzpatrick.  Excludes 68,333 options not exercisable
     within 60 days.

(7)  Includes  28,000 shares of common stock issuable upon the exercise of stock
     options owned by Mr. Tracy.  Excludes 53,000 options not exercisable within
     60 days.

(8)  Includes  all of the shares of common stock  issuable  upon the exercise of
     options described in Notes (2) through (7) above.

(9)  The Palladin  Group,  L.P.  serves as investment  advisor to Hallifax Fund,
     L.P.  ("Hallifax"),  the registered  owners of the Company's 5% Convertible
     Secured  Debenture  (the "5%  Debenture")  and warrants to purchase  Common
     Stock,  and has been granted  investment  discretion over the securities of
     the Company owned by this fund. In this capacity,  The Palladin Group, L.P.
     may be deemed to have voting and  dispositive  power over such  securities.
     Mr.  Jeffrey  Devers is the principal  officer of The Palladin  Group.  The
     terms of the 5% Debenture  and  warrants  provide that the number of shares
     that the registered  owners may acquire upon conversion or exercise may not
     exceed that number that would render  Hallifax Fund, L.P. as the beneficial
     owner of more than 9.99% of the then outstanding shares of Common Stock.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers and Directors, and persons who own more than 10 percent of a registered
class of the  Company's  equity  securities,  to file reports of  ownership  and
changes in ownership with the Securities and Exchange Commission. Such reporting
persons are  required by  regulation  to furnish the Company  with copies of all
Section 16(a) reports that they file.

Based  solely on its review of the  copies of such  reports  received  by it, or
written  representations  from  certain  reporting  persons  that  no Form 5 was
required for those persons,  the Company  believes that,  during the period from
January 1, 1999 through December 31, 1999, all filing requirements applicable to
its  officers,  Directors  and greater  than 10 percent  beneficial  owners were
complied with.

                                       26

<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1999 the Company's Chairman and CEO, Dr. George Faris, loaned the Company
an  aggregate  of  $500,000  at an annual  interest  rate of 10% per annum.  The
Company  repaid  $765,000  ($265,000  of a remaining  balance  from 1998 and the
$500,000 balance from 1999) in the second quarter of 1999.

Also during 1999, Mr. Donald Rynne,  a current member of the Company's  Board of
Directors,  loaned the Company an  aggregate  of $140,000 at an annual  interest
rate of 10% per annum.  The Company  repaid the entire  amount during the second
quarter of 1999.



                                       27
<PAGE>

                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K

(a)  Documents Filed as Part of the Report

(1)  Financial Statements.                                              Page No.

        Reports of Independent Accountants                                  F-1
        Consolidated Balance Sheets(2)
           December 31, 1999 and 1998                                       F-2
        Consolidated Statement of Operations
           Years Ended December 31, 1999, 1998 and 1997                     F-3
        Consolidated Statement of Cash Flows
           Years Ended December 31, 1999, 1998 and 1997                     F-4
        Consolidated Statement of Changes in
           Stockholders' Equity - Years Ended
           December 31, 1999, 1998 and 1997                                 F-5
        Notes to Consolidated Financial Statements                          F-8
        Supplementary Oil and Gas Information                               F-27

(2)  Financial Statement Schedules.

None.

(3)  Exhibits.

2.1     Share Purchase  Agreement dated February 25, 1997,  among Registrant and
        AIPCC, PAIPC and MIP. (8)

3.1     Restated Articles of Incorporation of the Registrant. (6)

3.2     By-laws of the Registrant, as amended. (11)

4.1     Form of Class A Warrant. (3)

4.2     1995 Stock  Option  Plan and Form of related  Option  Agreements  of the
        Registrant. (5)

4.3     Form of 8% Convertible Subordinated Debentures due August 1, 1999. (9)

4.4     Form of  Subscription  Agreement used in connection with the offering of
        the Registrants' debentures referenced in Exhibit 4.3. (9)

4.5     Form of Warrant to  purchase  shares of the  Registrants'  Common  Stock
        issued in connection  with the offering of the  Registrants'  debentures
        referenced in Exhibit 4.3. (9)

4.6     Form of  Registration  Agreement used in connection with the offering of
        the Registrants' debentures referenced in Exhibit 4.3.(9)

4.7     Form of 14% convertible Notes due October 15, 1999. (10)

4.8     Form of  Subscription  Agreement used in connection with the offering of
        the Registrants' debentures referenced in Exhibit 4.7. (10)

                                       28

<PAGE>

4.9     Form of Warrant to  purchase  shares of the  Registrants'  common  Stock
        issued in connection  with the offering of the  Registrants'  debentures
        referenced in Exhibit 4.7. (10)

4.10    Form of  Registration  Rights  Agreement  used in  connection  with  the
        offering of the Registrants' debentures referenced in Exhibit 4.7. (10)

4.11    Form of Subscription  Agreement used in connection with the repayment of
        debt to a foreign individual. (10)

4.12    Form of Subscription  Agreement used in connection with the Registrant's
        purchase of a 70%  interest of MED  Shipping  Usturt  Petroleum  Company
        Ltd.(10)

4.13    Form of Warrant to  purchase  shares of the  Registrant's  common  Stock
        issued in connection with the purchase referenced in Exhibit 4.12. (10)

4.14    1998 Stock Option Plan of the Registrant.(14)

4.15    1998 Stock Award Plan of the Registrant.(14)

4.16    14% Convertible Note due April 21, 2000 (12)

4.17    Securities Purchase Agreement dated April 21, 2000 (12)

4.18    Agreement  and First  Amendment  dated April 21, 1998 to the  Securities
        Purchase Agreement dated October 9, 1997. (12)

4.19    Form of Warrant issued  pursuant to the  Securities  Purchase and Equity
        Agreements associated with Exhibits 4.17 and 4.20 (12)

4.20    Equity Financing Agreement dated April 21, 1998. (12)

4.21    Registration Rights Agreement dated April 21, 1998. (12)

4.22    Letter  Agreement dated June 26, 1998 between the Registrant and certain
        investors. (13)

4.23    Convertible Debenture Purchase Agreement dated February 18, 1999. (2)

4.24    Form of 5% Convertible Secured Debenture dated February 18, 1999. (2)

4.25    Form of Warrant issued pursuant to Convertible  Secured  Debenture dated
        February 11, 1999. (2)

4.26    Form of Registration Rights Agreement dated February 18, 1999. (2)

4.27    Form  of  Mortgage  and  Security   Agreement  issued  pursuant  to  the
        Convertible Secured Debentures dated February 11, 1999. (2)

4.28    Form of 6% Convertible  Debenture  Purchase  Agreement  dated August 19,
        1999. (15)

4.29    Form of 6% Convertible  Secured  Debenture issued in connection with the
        6% Convertible Debentures referenced in Exhibit 4.28 (15)

4.30    Form of Warrant issued in connection with the 6% Convertible  Debentures
        referenced in Exhibit 4.28. (15)

4.31    Form of Registration  Rights  Agreement issued in connection with the 6%
        Convertible Debentures in Exhibit 4.28. (15)

4.32    Form of Security  Agreement issued in connection with the 6% Convertible
        Debentures in Exhibit 4.28. (15)

4.33    Form of  Securities  Purchase  Agreement  dated  December 1, 1999 by and
        among the Registrant and GCA Investment Fund Limited.



                                       29
<PAGE>

4.34    Form of Mortgage and Security Agreement between St. Marks Refinery, Inc.
        and GCA Strategic Investment Fund.

4.35    Form of  Warrant  issued  in  connection  with the  Securities  Purchase
        Agreement referenced in Exhibit 4.33.

10.1    Employment  Agreement  dated May 1, 1989 by and between  George N. Faris
        and the Registrant. (1)

10.2    Amendment #1 to Employment Agreement,  dated May 1, 1989, between George
        N. Faris and the Registrant. (6)

10.3    Registration  Rights  Agreement  dated July 11, 1996  between  George N.
        Faris and the Registrant. (6)

10.4    $3 million  Exchangeable  Debenture,  granted by AIPCC to the Registrant
        due February 25, 1999. (8)

10.5    Agreement  dated April 22, 1997 between the  Registrant and MED Shipping
        and Trading S.A. used in connection with the Registrant's  purchase of a
        70% interest of MED Shipping Usturt Petroleum Company Ltd. (10)

10.6    Amendment dated May 9, 1997 to the Agreement  attached hereto as Exhibit
        10.5. (10)

10.7    Consulting Agreement dated December 2, 1998. (15)

10.8    Amendement #2 to Employment  Agreement  dated May 1, 1989 by and between
        Registrant and George N. Faris.

10.9    Employment  Agreement  dated July 21, 1999 by and between the Registrant
        and Joe Michael McKinney.

10.10   Amendment #1 to Employment  Agreement dated July 21, 1999 by and between
        the Registrant and Joe Michael McKinney.

21.1    Subsidiaries of the Registrant.

27.1    Financial Data Schedule.

----------

(1)  Incorporated herein by reference to the Registration  Statement on Form S-1
     declared effective on February 13, 1990.

(2)  Incorporated  herein by reference to the Registrant's form 8-K, dated March
     1, 1999, as amended April 26, 1999.

(3)  Incorporated herein by reference to the Registration Statement on Form S-3,
     declared effective January 15, 1998.

(4)  Incorporated herein by reference to Amendment #19 to Schedule 13D of George
     N. Faris for October 13, 1995.

(5)  Incorporated  herein by reference to the Registrant's Annual Report on Form
     10-K for the fiscal year ended December 31, 1995.

(6)  Incorporated  herein by reference to the  Registrant's  Quarterly Report on
     Form 10-Q for the quarter ended June 30, 1996

(7)  Incorporated  herein by reference to the Registrant's Form 8-K dated August
     19, 1996.

(8)  Incorporated  herein by reference to the Registrant's  Form 8-K dated March
     12, 1997.

(9)  Incorporated  herein by reference to the  Registrant's  Quarterly Report on
     Form 10-QA for the quarter ended June 30, 1997.

(10) Incorporated  herein by reference to the  Registrant's  Quarterly Report on
     Form 10-QA for the quarter ended September 30, 1997.

(11) Incorporated  herein by reference to the Registrant's Annual Report on Form
     10-KA for the year ended December 31, 1997.

(12) Incorporated  by reference  to the  Registrants'  Quarterly  Report on Form
     10-Q-A for the quarter ended March 31, 1998



                                       30
<PAGE>

(13) Incorporated  by reference  to the  Registrants'  Quarterly  Report on Form
     10-Q-A for the quarter ended June 30, 1998

(14) Incorporated  by  reference  to the  Registrants'  Report on Form S-8 dated
     January 4, 1999.

(15) Incorporated  by  reference  to the  Registrants'  Report on Form 8-K dated
     September 9, 1999.

(b)  Reports on Form 8-K

     None.



                                       31
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and
Stockholders American International Petroleum Corporation

We have  audited  the  accompanying  consolidated  balance  sheets  of  American
International Petroleum Corporation and Subsidiaries as of December 31, 1999 and
1998, and related  consolidated  statements of operations,  stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1999. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated  financial  statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
American International Petroleum Corporation and Subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended  December 31, 1999,  in  conformity  with
generally accepted accounting principles.

The Company reported a net loss of  approximately  $14.9 million during 1999, of
which  approximately $6.3 million  represented  non-cash items and has a working
capital deficit of approximately  $5.0 million at December 31, 1999. The Company
had limited revenue generating operating activities during 1999 and does not, as
of December 31, 1999,  have the  resources to fulfill its  operating and capital
commitments.  The Company's refinery facility suspended  operations in late 1999
and is not expected to resume operation before the second quarter of 2000. These
matters raise a substantial  doubt about the Company's  ability to continue as a
going concern.  Management's  plans in regards to these matters are discussed in
Note 2 to the  financial  statements.  As of December 31, 1999,  the Company has
costs capitalized in the accompanying balance sheet of approximately $31,600,000
relating to unevaluated  oil and properties in Kazakhstan.  At the present time,
the Company has no commercially  feasible means of transporting  any oil and gas
production  it may produce  from the  Kazakhstan  properties.  The Company  will
require a substantial amount of additional  capital  expenditures to recover its
investment in the oil and gas concession.  At the present time, the Company does
not have the resources to develop these  properties and to meet the minimum work
program required.

HEIN + ASSOCIATES, LLP
Houston, Texas
March 30, 2000



                                      F-1
<PAGE>
          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                           December 31,
                                                                --------------------------------

                                                                     1999               1998
                                                                -------------      -------------
<S>                                                             <C>                <C>
                                     Assets
Current assets:
  Cash and cash equivalents                                     $   1,753,707      $     376,745
  Accounts and notes receivable, net                                  497,553            548,442
  Inventory                                                           723,088          1,554,694
  Deferred financing costs                                            130,727              8,563
  Prepaid expenses                                                    793,956            829,654
                                                                -------------      -------------
       Total current assets                                         3,899,031          3,318,098
                                                                -------------      -------------
Property, plant and equipment:
  Unevaluated oil and gas property                                 31,556,376         23,438,886
  Refinery property and equipment                                  37,999,682         36,935,705
  Other                                                             1,005,886            626,910
                                                                -------------      -------------
                                                                   70,561,944         61,001,501
Less - accumulated depreciation, depletion,
 and amortization                                                  (6,470,672)        (4,707,103)
                                                                -------------      -------------
       Net property, plant and equipment                           64,091,272         56,294,398
Notes receiviable, less current portion                             1,252,696          1,118,200
Other long-term assets, net                                           415,270            130,638
                                                                -------------      -------------

       Total assets                                             $  69,658,269      $  60,861,334
                                                                =============      =============

                      Liabilities and Stockholders' Equity
Current liabilities:
  Short-term debentures                                         $   2,223,500      $        --
  Notes payable - trade                                             1,736,831          1,725,350
  Notes payable - officers                                               --              266,850
  Accounts payable                                                  3,641,886          4,081,557
  Accrued liabilities                                               1,301,472          1,840,493
                                                                -------------      -------------
       Total current liabilities                                    8,903,689          7,914,250
Long-term debt                                                     11,984,592          6,110,961
                                                                -------------      -------------
       Total liabilities                                           20,888,281         14,025,211
                                                                -------------      -------------

Commitments and contingent liabilities (Note 10)                         --                 --
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,  91,282,773 and 65,992,328 shares issued
    outstanding at December 31, 1999 and December 31, 1998,
    respectively                                                    7,302,621          5,279,385
  Additional paid-in capital                                      145,605,966        129,711,531
  Common stock held in escrow as collateral                        (1,065,938)              --
  Accumulated deficit                                            (103,378,617)       (88,460,749)
                                                                -------------      -------------
       Total stockholders' equity                                  48,464,032         46,530,167
                                                                -------------      -------------

Total liabilities and stockholders' equity                      $  69,658,269      $  60,861,334
                                                                =============      =============
</TABLE>


              The accompanying notes are an integral part of these
                        consolidated fnancial statements.

                                      F-2
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                      For the years ended December 31,
                                                             ------------------------------------------------
                                                                  1999              1998             1997
                                                             ------------      ------------      ------------
<S>                                                          <C>               <C>               <C>
Revenues:
  Oil and gas production and
   pipeline fees                                             $       --        $       --        $    260,579
  Refinery operating revenues                                   8,137,867        11,394,009              --
  Other                                                           214,171           460,597           567,385
                                                             ------------      ------------      ------------
       Total revenues                                           8,352,038        11,854,606           827,964
                                                             ------------      ------------      ------------
Expenses:
  Lease operating                                                    --                --              98,766
  Costs of goods sold - refinery                                8,670,760        11,281,139              --
  General and administrative                                    6,367,857         5,097,468         4,627,598
  Depreciation, depletion and
   amortization                                                 1,730,710           813,088           774,264
  Interest                                                      6,500,579         1,912,949         6,663,992
  Realized  and unrealized loss on marketable securities             --             359,325         6,053,298
  Loss on sale of subsidiaries                                       --                --             563,667
  Provison for bad debts                                             --           1,493,750              --
                                                             ------------      ------------      ------------
       Total expenses                                          23,269,906        20,957,719        18,781,585
                                                             ------------      ------------      ------------

Net loss                                                     $(14,917,868)     $ (9,103,113)     $(17,953,621)
                                                             ============      ============      ============

Net loss per share of common stock - basic and diluted       $      (0.20)     $      (0.17)     $      (0.43)
                                                             ============      ============      ============

Weighted-average number of shares
 of common stock outstanding                                   72,855,230        53,741,498        41,309,102
                                                             ============      ============      ============
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        For the years ended December 31,
                                                                ------------------------------------------------
                                                                     1999             1998              1997
                                                                ------------      ------------      ------------
<S>                                                             <C>               <C>               <C>
Cash flows from operating activities:
  Net loss                                                      $(14,917,868)     $ (9,103,113)     $(17,953,621)
  Adjustments to reconcile net loss to net
   cash (used) by operating activities:
     Depreciation, depletion, amortization and accretion of
          discount on debt                                         5,716,550         2,472,751         5,125,934
     Accretion of premium on notes receivable                        (50,604)         (208,886)         (167,167)
     Provision for bad debts                                            --           1,493,750              --
     Realized and unrealized loss on marketable securities              --             359,325         6,053,298
     Loss on sale  of subsidiaries                                      --                --             563,667
     Issuance of stock for compensation expense                      186,233           196,900            40,000
     Forgiveness of debt                                                --                --             (50,342)
     Compensatory stock options                                         --                --             744,700
     Issuance of stock and options for services                      468,220           255,814           247,607
     Changes in assets and liabilities:
        Accounts and notes receivable                                 50,889         1,313,816            57,835
        Inventory                                                    831,606          (798,974)         (698,746)
        Prepaid and other                                            (86,466)          426,060        (1,387,484)
        Accounts payable and accrued liabilities                     495,021         2,968,458           (16,688)
                                                                ------------      ------------      ------------
            Net cash (used in) operating activities               (7,306,419)         (624,099)       (7,441,007)
                                                                ------------      ------------      ------------
Cash flows from investing activities:
  Additions to oil and gas properties                             (5,980,341)       (8,512,328)       (2,663,694)
  Additions to refinery property and equipment                      (800,974)       (8,578,049)       (5,581,714)
  Proceeds from sales of marketable securities                          --             376,633         1,979,494
  Proceeds from sale of subsidiaries                                    --                --           1,764,548
  Additions to other long term assets                               (752,988)         (592,444)          (94,191)
                                                                ------------      ------------      ------------
             Net cash used in investing activities                (7,534,303)      (17,306,188)       (4,595,557)
                                                                ------------      ------------      ------------
Cash flows from financing activities:
  Net increase in short-term debt                                  2,500,000              --                --
  Net increase (decrease) in notes payable                            11,481         1,725,350          (237,162)
  Increase (decrease) in notes payable - officers                   (266,850)          266,850              --
  Repayments of long-term debt                                    (3,500,000)             --          (5,791,420)
  Proceeds from issuance of common stock and
    warrants, net                                                       --                --             447,810
  Proceeds from exercise of stock warrants
    and options                                                      768,877           738,482         1,272,333
  Proceeds from issuance of debentures, net                       16,704,176        11,855,000        20,055,295
                                                                ------------      ------------      ------------
             Net cash provided by financing activities            16,217,684        14,585,682        15,746,856
                                                                ------------      ------------      ------------
Net increase (decrease) in cash and
  cash equivalents                                                 1,376,962        (3,344,605)        3,710,292
Cash and cash equivalents at beginning of year                       376,745         3,721,350            11,058
                                                                ------------      ------------      ------------

Cash and cash equivalents at end of year                        $  1,753,707      $    376,745      $  3,721,350
                                                                ============      ============      ============
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-4
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                Additional
                                                          Common stock            paid-in        Common Stock    Accumulated
                                                    Shares         Amount         capital       Held In Escrow     deficit
                                                  ----------   -------------   -------------      ----------    -------------
<S>                                                <C>         <C>             <C>               <C>            <C>
Balance, January 1, 1999                          65,992,328   $   5,279,385   $ 129,711,531            --      $ (88,460,749)

Conversions of debentures                         17,574,305       1,405,944       6,196,429            --               --
Issuance of stock in lieu of current
    liabilities                                    1,798,968         143,917       1,329,796            --               --
Issuance of stock for compensation                   223,919          17,914         168,319            --               --
Issuance of stock and options for services           425,000          34,000         434,220            --               --
Issuance of stock for property and equipment       2,090,000         167,200       1,685,166            --               --
Issuance of stock options and warrants                  --              --         1,455,835            --               --
Options and warrants exercised                     1,283,253         102,661         666,216            --               --
Imputed interest on debentures
    convertible at a discount to market                 --              --         3,044,116            --               --
Issuance of stock for collateral on debt           1,895,000         151,600         914,338      (1,065,938)            --
Net loss for the year                                   --              --              --              --        (14,917,868)
                                                  ----------   -------------   -------------      ----------    -------------

Balance, December 31, 1999                        91,282,773   $   7,302,621   $ 145,605,966      (1,065,938)   $(103,378,617)
                                                  ==========   =============   =============   =============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                           Total
                                                     -------------
<S>                                                  <C>
Balance, January 1, 1999                             $  46,530,167

Conversions of debentures                                7,602,373
Issuance of stock in lieu of current
    liabilities                                          1,473,713
Issuance of stock for compensation                         186,233
Issuance of stock and options for services                 468,220
Issuance of stock for property and equipment             1,852,366
Issuance of stock options and warrants                   1,455,835
Options and warrants exercised                             768,877
Imputed interest on debentures
    convertible at a discount to market                  3,044,116
Issuance of stock for collateral on debt
Net loss for the year                                  (14,917,868)
                                                     -------------

Balance, December 31, 1999                           $  48,464,032
                                                     =============
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                      Additional
                                                              Common stock              paid-in        Accumulated
                                                         Shares           Amount        capital          deficit           Total
                                                      ------------    ------------    ------------    ------------     ------------

<S>                                                     <C>           <C>             <C>             <C>              <C>
Balance, January 1, 1998                                48,436,576    $  3,874,926    $107,987,091    $(79,357,636)    $ 32,504,381

Conversions of Debentures                               13,794,032       1,103,521      14,422,859            --         15,526,380
Issuance of stock in lieu of current
    liabilities                                          1,506,347         120,508       1,549,209            --          1,669,717
Issuance of stock for compensation                          50,000           4,000         192,900            --            196,900
Issuance of stock and options for services                 100,000           8,000         247,814            --            255,814
Issuance of stock for refinery property and
     equipment - Regulation S Offering                   1,500,000         120,000       1,567,500            --          1,687,500
Issuance of stock options and warrants                        --              --           936,459            --            936,459
Options and warrants exercised                             605,373          48,430         690,052            --            738,482
Imputed interest on debentures
    convertible at a discount to market                       --              --         2,117,647            --          2,117,647
Net loss for the year                                         --              --              --        (9,103,113)      (9,103,113)
                                                      ------------    ------------    ------------    ------------     ------------

Balance, December 31, 1998                              65,992,328    $  5,279,385    $129,711,531    $(88,460,749)    $ 46,530,167
                                                      ============    ============    ============    ============     ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-6
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                        Additional
                                                 Common stock             paid-in     Accumulated
                                             Shares         Amount        capital        deficit          Total
                                          ------------   ------------   ------------   ------------    ------------
<S>                                         <C>          <C>            <C>            <C>             <C>
Balance, January 1, 1997                    34,458,921   $  2,756,714   $ 79,975,019   $(61,404,015)   $ 21,327,718

Conversions of debentures                    7,246,882        579,751      8,763,271           --         9,343,022
Issuance of stock in lieu of current
    liabilities                                243,459         19,477        214,082           --           233,559
Issuance of stock for compensation             100,000          8,000         32,000           --            40,000
Issuance of stock  for services                260,000         20,800        226,807           --           247,607
Issuance of stock - Reg S Offering           1,635,593        130,847        314,465           --           445,312
Issuance of stock for oil and
    gas properties - Reg S Offering          3,250,000        260,000      8,275,938           --         8,535,938
Issuance of stock warrants for oil and
    gas properties                                --             --          718,750           --           718,750
Issuance of stock warrants                        --             --        6,264,411           --         6,264,411
Options and warrants exercised               1,241,721         99,337        694,189           --           793,526
Imputed interest on debentures
    convertible at a discount to market           --             --        1,763,459           --         1,763,459
Compensatory stock options                        --             --          744,700           --           744,700
Net loss for the year                             --             --             --      (17,953,621)    (17,953,621)
                                          ------------   ------------   ------------   ------------    ------------

Balance, December 31, 1997                  48,436,576   $  3,874,926   $107,987,091   $(79,357,636)   $ 32,504,381
                                          ============   ============   ============   ============    ============
</TABLE>




              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-7
<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL, ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

American International Petroleum Corporation (the "Company") was incorporated in
the State of Nevada and, through its wholly-owned subsidiaries,  is the owner of
a refinery in Lake Charles,  Louisiana,  which  processes and sells asphalt into
the Gulf Coast asphalt  market and has the  capability to refine other crude oil
products,  such as vacuum gas oil, naptha and diesel, a refinery and terminal in
St. Marks, Florida,  which it utilizes as a distribution facility to market some
of its asphalt, a 26,000 barrel asphalt transport barge, a 100% working interest
in a gas concession  and a 70% working  interest in an oil and gas concession in
Kazakhstan.  The Company is also seeking domestic and  international oil and gas
properties and projects.

Sale of Subsidiaries

On February 25, 1997, the Company sold all of the issued and outstanding  common
stock of two of its wholly-owned subsidiaries,  American International Petroleum
Corporation  of  Colombia  ("AIPCC")  and  Pan  American  Petroleum  Corporation
("PAIPC") to Mercantile International Petroleum Inc. ("MIP").  Consequently, all
references to these subsidiaries herein are presented in the past tense.

The assets of AIPCC and PAIPC  consisted of oil and gas properties and equipment
in South  America  with an  aggregate  net book  value  of  approximately  $17.9
million.  The total  aggregate  purchase  price payable by MIP for the Purchased
Shares was valued at up to approximately $20.2 million, determined as follows:

(a) Cash payments of approximately  $3.9 million,  of which  approximately  $2.2
million was paid  simultaneously  with the closing to retire the  Company's  12%
Secured  Debentures  due December 31, 1997,  which were secured by the Company's
shares of AIPCC,  (b) assumption of AIPCC and PAIPC debt of an aggregate  amount
of $634,000,  (c) 4,384,375 shares of MIP Common Stock (the "MIP Shares") with a
trading price of approximately $2.00 per share on the date the parties agreed in
principle to the sale,  (d) a two-year $3 million 5%  exchangeable  subordinated
debenture of AIPCC (the "Exchangeable  Debenture"),  exchangeable into shares of
common stock of MIP on the basis of $3 principal  amount of such  debenture  for
one share of MIP on or after February 25, 1998; or Registrant may demand payment
on that  date of $1.5  million  of the  principal  balance  thereof,  (e) a $1.4
million "performance earn-out" from future production in Colombia, plus interest
at 8% per annum, (f) up to $2.5 million (reduced  proportionately  to the extent
the Net  Operating  Loss and Deferred Cost  Deductions  accrued by AIPCC through
December 31, 1996  ("Accrued Tax benefit  Deductions")  is less than $50 million
but more than $20  million  (payable  from 25% of  AIPCC's  future  tax  savings
related to Accrued Tax Benefit Deductions,  if any, available to AIPCC on future
tax filings in Colombia).  In January 1998, the Company demanded payment of $1.5
million in principal, which was received by the Company in February 1998.

The  purchase  price  included an  aggregate  of  approximately  $2.5 million in
payments  from MIP in  connection  with MIP's  future  potential  tax savings in
Colombia  and $3  million  of long  and  short-term  notes  at face  value  (not
discounted to present  value).  Taking into  consideration  the $2.5 million tax
payments,  which were not recorded because of their contingent  nature,  and the
discounted portion of the notes of approximately  $452,000, the Company recorded
an aggregate loss of approximately $564,000 on the sale of the subsidiaries.

Principles of consolidation

The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned subsidiaries, American International Refinery, Inc.
("AIRI"),  American International Marine, Inc. ("AIM"), St. Marks Refinery, Inc.
("SMR") American International  Petroleum Kazakhstan ("AIPK"),  American Eurasia
Petroleum Corporation  ("AEPC"),  American  International  Petroleum Corporation
Holding, Inc. ("AIPC Holdings), AIPCC and PAIPC.

Intercompany balances and transactions are eliminated in consolidation.

Cash and cash equivalents

All liquid short-term  instruments  purchased with original  maturities of three
months or less are considered cash equivalents

                                       F-8

<PAGE>

Marketable Securities

Marketable  securities  classified  as  available-for-sale  are stated at market
value,  with  unrealized  gains and losses  reported as a separate  component of
stockholders' equity, net of deferred income taxes. If a decline in market value
is determined to be other than temporary,  any such loss is charged to earnings.
Trading  securities are stated at fair value,  with unrealized  gains and losses
recognized  in  earnings.  The  Company  records  the  purchases  and  sales  of
marketable  securities and records  realized gains and losses on the trade date.
Realized  gains  or  losses  on the sale of  securities  are  recognized  on the
specific identification method.

The Company held 2,943,818  shares of MIP at December 31, 1997.  During the year
the  Company  sold or  dispersed  1,440,557  shares  for net  cash  proceeds  of
$1,979,494.  The realized losses on shares disposed of during 1997 was $901,616.
The  unrealized  loss on shares  available  for sale at  December  31,  1997 was
$5,151,682.  The MIP stock was deemed permanently  impaired at December 31, 1997
and the  unrealized  loss at that date was recognized as a loss during 1997. The
impairment is reflected in realized and unrealized loss on marketable securities
in the accompanying  Statement of Operations.  During 1998, the Company sold all
its  remaining  shares of MIP for net cash  proceeds  of  $376,633,  recording a
realized loss of $359,325.

Inventory

Inventory  consists  of crude oil and asphalt  feedstock.  Crude oil and asphalt
feedstocks  are  stated  at the  lower of cost or  market  value  by  using  the
first-in, first-out method.

Property, plant and equipment

Oil and gas properties

The Company  follows  the full cost method of  accounting  for  exploration  and
development  of oil and gas reserves,  whereby all costs  incurred in acquiring,
exploring and developing  properties  are  capitalized,  including  estimates of
abandonment costs, net of estimated equipment salvage costs. No costs related to
production,   general  corporate  overhead,  or  similar  activities  have  been
capitalized.  Individual  countries are designated as separate cost centers. All
capitalized  costs  plus the  undiscounted  future  development  costs of proved
reserves are depleted using the unit-of-production  method based on total proved
reserves  applicable to each country.  Under the full cost method of accounting,
unevaluated  property costs are not  amortized.  A gain or loss is recognized on
sales  of oil and  gas  properties  only  when  the  sale  involves  significant
reserves.  Costs  related to  acquisition,  holding and initial  exploration  of
concessions in countries with no proved  reserves are initially  capitalized and
periodically evaluated for impairment.

Costs not subject to amortization:

The following table summarizes the categories of cost, which comprise the amount
of unproved properties not subject to amortization.

                                                    December 31,
                                   ---------------------------------------------
                                       1999             1998             1997
                                       ----             ----             ----
Kazakhstan:
    Acquisition Cost               $11,724,477      $11,724,477      $11,724,477
    Exploration Cost                19,072,440       10,748,427             --

Other
     Acquisition cost                  759,459          965,982             --
                                   -----------      -----------      -----------
                                   $31,556,376      $23,438,886      $11,724,477
                                   ===========      ===========      ===========

Acquisition costs of unproved properties not subject to amortization at December
31, 1999 1998 and 1997, respectively, consists mainly of lease acquisition costs
related to  unproved  areas.  The period in which the  amortization  cost of the
Kazakhstan  properties  will commence is subject to the results of the Company's
exploration  program,  which began in 1999.  Certain  geological and general and
administrative  costs are  capitalized  into the cost pools of the country  cost
centers.  Such costs include certain salaries and benefits,  office  facilities,
equipment and insurance.  Capitalized  geological and general and administrative
costs for Kazakhstan and the Other category totaled $8,117,490,  $11,164,180 and
$2,437,289 for 1999, 1998 and 1997, respectively.

                                       F-9

<PAGE>

The net capitalized  costs of oil and gas properties for each cost center,  less
related deferred income taxes, are expensed to the extent they exceed the sum of
(i) the estimated  future net revenues from the  properties,  discounted at 10%,
(ii)  unevaluated  costs  not  being  amortized;  and (iii) the lower of cost or
estimated fair value of unproved  properties being  amortized;  less (iv) income
tax effects related to differences between the financial statement basis and tax
basis of oil and gas properties.  The independent reservoir engineer's report of
Estimated Future Reserves and Revenues is based on information available "as of"
the date of such Report. Upward or downward revisions to the estimated value and
volume of oil and gas reserves may occur based on circumstances  occurring,  and
information  obtained,  subsequent to the date of the  engineer's  report.  (See
"Supplementary  Oil and Gas  Information  for the Years Ended December 31, 1999,
1998 and 1997 - Oil and Gas Reserves.

Property and equipment - other than oil and gas properties

Property  and  equipment  are  carried at cost and  included  interest  on funds
borrowed to finance construction. Capitalized interest was $547,786, $7,055,340,
and $341,000 in 1999, 1998 and 1997, respectively. Depreciation and amortization
are calculated under the straight-line  method over the anticipated useful lives
of the assets,  which range from 5 to 25 years. Major additions are capitalized.
Expenditures   for  repairs  and  maintenance  are  charged  against   earnings.
Depreciation,  depletion and amortization expense on property and equipment were
$1,730,710,  $813,088,  and $774,264 for the years ended December 31, 1999, 1998
and 1997, respectively.

Revenue recognition

Oil and gas  production  revenues are  recognized  at the time and point of sale
after  the  product  has been  extracted  from  the  ground.  Pipeline  fees are
recognized  at the time and point of expulsion of the product from the pipeline.
Refinery revenues are recognized upon delivery.

Discounts and premiums

Discounts and premiums on accounts and notes  receivables  and notes payable are
amortized as interest  expense or income over the life of the  instrument on the
interest method.

Earnings per share

Earnings per share of common stock are based on the  weighted-average  number of
shares  outstanding.  Basic and diluted earnings per share were the same for all
years presented.  Options to purchase  13,202,753 and 7,100,681 shares of common
stock at various prices were outstanding during 1999 and 1998, respectively, but
were not  included  in the  computation  of diluted  EPS  because  the  options'
exercise price was greater than the average market price of the common shares.

                                       For the Year Ended December 31, 1999
                                       ------------------------------------

                                  Net Income(Loss)  Weighted Average   Per Share
                                     (Numerator)         Shares          Amount
                                     -----------         ------          ------
Basic EPS:
Loss available to                   $(14,917,868)      72,855,230       $(0.20)
 Common Shareholders

Effect of Dilutive Securities
 Warrants and Options (1)(2)                --               --           --
                                    ------------     ------------       ------

Diluted EPS:
Loss available to                   $(14,917,868)      72,855,230       $(0.20)
 Common Shareholders

(1) The effect of these  shares in the  Dilutive  EPS were not  reflected on the
face of the  Statement of Operations  as they were  anti-dilutive  in accordance
with paragraph 13, of SFAS 128.

(2)  Options  and  warrants to  purchase  13,202,753  shares of common  stock at
various  prices were  outstanding at December 31, 1999, but were not included in
the  computation  of diluted EPS because the exercise price was greater than the
average  market  price of the common  shares or the  options  were not vested at
December 31, 1999.

                                      F-10

<PAGE>

Foreign currency

Foreign currency  transaction  gains and losses are included in the consolidated
statement of operations.  The Company does not engage in hedging transactions to
reduce the risk of  foreign  currency  exchange  rate  fluctuations  and has not
experienced  significant gains or losses related to such events.  The functional
currency of the AIPK subsidiary is U.S. dollars,  as the Company  negotiates all
transactions based upon U.S. dollar-equivalents and the Company is providing all
of the funding  requirements of AIPK. The Company  anticipates  little,  if any,
currency  and  exchange  risks  during  the  initial  three to five years of its
operations in Kazakhstan due to the Company negotiating all transactions in U.S.
dollars.  Any revenues  generated from Kazakhstan during this period are planned
to be reinvested  in the Company's  projects in  Kazakhstan.  Subsequently,  the
Company  will be exposed to the currency and  exchange  risks,  which  typically
present  themselves in the Confederate of Independent  States ("CIS") countries.
The  Company  collected  sales  of oil and gas in  Colombia  and  Peru in  local
currency and utilized those receipts for local operations.  Periodically,  funds
were transferred from U.S. accounts to Columbia or Peru and converted into pesos
or soles, respectively, when local currency was insufficient to meet obligations
payable in local currency. Foreign Exchange losses in 1997 were $75,878.

Deferred charges

The Company  capitalizes  certain costs,  primarily  commissions and legal fees,
associated with the offering and sale of debentures. Such costs are amortized as
interest  expense  over  the  life of the  related  debt  instrument.  Sales  of
debentures  and  notes  at  face  value  were  $23,375,000,   $12,000,000,   and
$20,537,000  in  1999,  1998,  and  1997,   respectively.   Debenture  costs  of
$1,618,415,  $1,126,930,  and $3,253,035  were amortized in the years 1999, 1998
and 1997, respectively.

Stock-based compensation

Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based Compensation" defines a fair value based method of accounting for an
employee stock option or similar equity  instrument or plan.  However,  SFAS No.
123 allows an entity to continue to measure  compensation  costs for these plans
under APB 25. The Company has elected to account for employee stock compensation
plans as provided  under APB 25 and to adopt the  disclosure  provisions of SFAS
123.

Fair Value of Financial Instruments

The fair value of financial instruments, primarily accounts receivable, accounts
payable and notes  payable and  debentures,  closely  approximate  the  carrying
values of the instruments due to the short-term maturities or recent issuance of
such instruments.

Comprehensive Income (Loss)

Comprehensive  income  is  defined  as  all  changes  in  stockholders'  equity,
exclusive   of   transactions   with  owners,   such  as  capital   investments.
Comprehensive  income includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as translation adjustments
on investments in foreign  subsidiaries,  and certain changes in minimum pension
liabilities.  The  Company's  comprehensive  income  (loss) was equal to its net
income (loss) for all periods presented in these financial statements.

Long Lived Assets

The  Company  reviews  for the  impairment  of  long-lived  assets  and  certain
identifiable  intangibles  whenever events or changes in circumstances  indicate
that the carrying amount of an asset may not be recoverable.  An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual  disposition is less than its carrying amount.
The Company has not identified any impairment loss during 1999, 1998 and 1997.

                                      F-11

<PAGE>

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of certain assets and liabilities and disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
the related  reported  amounts of revenues  and  expenses  during the  reporting
period.  Actual results could differ from those estimates.  Management  believes
that the estimates are reasonable.  The Company's financial statements are based
on a number of significant  estimates including the valuation of unevaluated oil
and gas properties  which are the basis for the calculation of impairment of oil
and gas properties.  Because  estimates of fair value of unevaluated oil and gas
properties  are  inherently  imprecise,  it  is  reasonably  probable  that  the
estimates  of fair value  associated  with the  concession  in  Kazakhstan  will
materially change during the next year.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

Accounting for Income Taxes

The Company uses the asset and liability  approach for financial  accounting and
reporting  for  income  taxes.  Under  this  method,  deferred  tax  assets  and
liabilities are determined based on differences  between financial reporting and
tax bases of assets and liabilities. Valuation allowances are recorded to reduce
deferred  tax assets when it is more likely than not that a tax benefit will not
be realized.

NOTE 2 - MANAGEMENT PLANS

The Company reported a net loss of  approximately  $14.9 million during 1999, of
which approximately $6.3 million represented non-cash items, and has commitments
to fund the operations of its Kazakhstan  subsidiary (see Note 10), $4.2 million
of  non-convertible  secured  debt,  and  has  convertible  debentures  totaling
approximately  $12.6  million  (see  Note 6 and  7),  which  may  or may  not be
converted to common  stock,  that mature in 2004.  As of December 31, 1999;  the
Company had 4.6 million of negative working  capital.  The Company intends to be
very  conservative with its spending overseas during 2000. As of March 2000, the
Company's  existing working capital was insufficient to provide all the funds it
requires to  complete  its  minimum  work  program in  Kazakhstan  during  2000.
However, in the past, the Company has negotiated reductions and deferrals of its
minimum requirements in Kazakhstan and believes that, if necessary, it can do so
again. The Company's reservoir development studies,  which have been verified by
Ryder Scott Company L.P., a Houston-based  petroleum  consulting firm,  indicate
the  presence  of a  significant  amount  of  recoverable  gas  reserves  at the
Company's  License 1551. The Company is currently  negotiating with two separate
large  Russian/American  oil and gas companies  regarding a sale of up to 75% of
its  ownership  interest in License  1551,  and one of these  companies has also
expressed  an  interest in  providing  development  financing  to the Company in
addition to a purchase of a partial interest.  In addition,  the Company expects
to sign a gas sales agreement in the second quarter of 2000 with Gazprom,  which
will allow the Company to classify the gas reserves as proved reserves,  thereby
potentially  providing  it with a  borrowing  base (the  "Borrowing  Base")  for
development and working capital. The proceeds derived from the sale of a portion
of License 1551 and/or the  Borrowing  Base should  provide the Company with the
necessary capital to fund its obligations during 2000 and beyond.

The Company recently signed an agreement with Maretech  Corporation to lease its
crude unit at Lake  Charles.  The  agreement  is expected to provide the Company
with sufficient working capital to fund most of its domestic operations overhead
during the year 2000 and beyond.  This agreement will also enable the Company to
continue its asphalt operations. As of March 21, 2000, the Company has a backlog
of  asphalt  sales  of   approximately   $10.5  million,   which  are  primarily
higher-margin polymer-enhanced products. Management of the Company has also been
seeking  sources of capital to enable the Company to  supplement  its  operating
activities  and to  fulfill  commitments  which  may  arise in 2000 and  beyond.
Maretech may cancel the  agreement  should they be unable to operate  profitably
and in certain other circumstances provided in the lease agreement.

As operations  at the Refinery  expand during 2000,  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
funds   necessary  to  support  its  operations  and  minimum  work  program  in
Kazakhstan.  If the Company is unable to derive the  necessary  working  capital
from the  Refinery,  St.  Marks,  AIM, the sale of a portion of its License 1551
properties,  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  could be materially and adversely  effected.  As a result,  there is
substantial doubt about the Company's ability to continue as a going concern.

                                      F-12

<PAGE>

NOTE 3 - ACCOUNTS AND SHORT-TERM NOTES RECEIVABLE:

Accounts and notes receivable are shown below:

                                                           December 31,
                                                   ----------------------------
                                                       1999             1998
                                                       ----             ----

Accounts receivable - trade                        $   377,125      $ 1,499,651
Note receivable - Gold Line (See Note 8)                  --            900,732
Current portion - Note receivable - MIP              1,493,750        1,515,750
Other                                                  120,428           46,936
                                                   -----------      -----------
                                                     1,991,303        3,963,069
Less - allowance for doubtful accounts              (1,493,950)      (3,414,627)
                                                   -----------      -----------
                                                   $   497,553      $   548,442
                                                   ===========      ===========

NOTE 4 - OTHER LONG-TERM ASSETS:

Other long-term assets consist of the following:

                                                              December 31,
                                                        -----------------------
                                                           1999          1998
                                                           ----          ----
Note receivable - MIP (See Note 1), net of
 discount of $18,651 and $69,255, respectively          $1,252,696    $1,118,200
                                                        ==========    ==========

NOTE 5 - ACCRUED LIABILITIES:

Accrued liabilities consist of the following:

                                                          December 31,
                                                 -------------------------------
                                                    1999                 1998
                                                    ----                 ----

Accrued payroll                                  $   15,935           $   35,756
Accrued interest                                    499,666               47,206
Corporate taxes                                     116,608              171,768
Excise taxes                                           --              1,246,684
Property taxes                                      176,591              175,000
Sales Taxes                                          56,913              107,135
Other                                               435,758               56,944
                                                 ----------           ----------

                                                 $1,301,472           $1,840,493
                                                 ==========           ==========

NOTE 6 - SHORT TERM DEBT

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                 ----------------------------
                                                                    1999              1998
                                                                    ----              ----
<S>                                                              <C>               <C>
13% - $2,500,000 secured Bridge Note, net of unamortized
  discount of $276,000 - due June 1, 2000, collateralized
  by the shares of the St. Marks subsidiary and certain
  St. Marks real estate, effective interest rate - 13%           $2,223,500        $     --

10% - $265,000 unsecured demand note due to officers -
 includes interest of $1,850 due at December 31, 1998                  --             266,850

Trade notes payable - various notes due from one
  month to twelve months - interest ranges from 8.5%
  to 14.5%, includes $106,851 of interest due at
  December 31, 1999 - collateralized by accounts
  receivable, inventory, and certain fixed assets                 1,736,831         1,725,350
                                                                 ----------        ----------
                                                                 $3,960,331        $1,992,200
                                                                 ==========        ==========
</TABLE>

                                      F-13

<PAGE>

NOTE 7 - LONG-TERM DEBT:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                        ------------------------------
                                                                            1999               1998
                                                                            ----               ----
<S>                                                                     <C>                <C>
14% - $12,000,000 unsecured convertible debenture, due
  April 21, 2000, net of unamortized financing cost of $362,659,
  Effective interest rate - 40% (1)                                     $      --          $ 6,110,961

5% - $10,000,000 secured convertible debenture, due
  February 18, 2004, net of unamortized financing cost
  of $437,050, collateralized by the Lake Charles facility,
  effective interest rate - 28% (2)                                       8,734,200               --

6% - $7,250,000 secured convertible debenture, due
  August 18, 2004, net of unamortized financing cost
  of $199,608, collateralized by the fixed assets at the
  St. Marks facility, effective interest rate - 26% (2)                 $ 3,250,392               --
                                                                        -----------        -----------
                                                                        $11,984,592        $ 6,110,961
                                                                        ===========        ===========
</TABLE>

(1)  Convertible  into the  Company's  common stock at the average of the lowest
five (5) consecutive  daily weighted average sales prices of the common stock as
reported  by  Bloomberg,  LP for the forty (40)  trading  days ending on the day
prior to the date of conversion.

(2)  Convertible  into the  Company's  common stock at the average of the lowest
five (3) consecutive  daily weighted average sales prices of the common stock as
reported  by  Bloomberg,  LP for the forty (20)  trading  days ending on the day
prior to the date of conversion.

The effective  interest rate as stated for debt instruments does not necessarily
reflect the actual cash cost to the Company for that specific  debt  instrument.
The effective  interest rate reflects  presumed  incremental yield the holder of
the debt  instrument  may derive  from the  discounted  conversion  rate of such
instrument and the fair value of warrants  issued to debt holders.  During 1999,
the Company  sold  convertible  debentures  totaling  $17,250,000.  During 1999,
$7,602,373 of convertible  debentures  were converted into the Company's  common
stock at discounts to market of 15%.

NOTE 8 - REFINERY LEASE:

In October 1990,  the Company leased its refinery to Gold Line. All amounts owed
to AIRI by Gold Line on October  1, 1992 were  restructured  to a note  totaling
$1,244,192,  due on September  30, 1995  bearing  interest at prime plus 2%. The
note was to be  retired  in  monthly  installments  equal to 10% of Gold  Line's
monthly  operating  cash flow,  if such  operating  cash flow was  positive.  No
amounts were collected pursuant to the provision and the note was fully reserved
for during 1992. No interest was accrued with respect to this note.

On March 22, 1995, the term of the lease was extended through March 31, 1998. In
consideration   for  extending  the  lease,  Gold  Line  executed  a  $1,801,464
promissory note (which amount includes the $1,244,192 note referred to above and
certain trade  receivables owed the Company by Gold Line of $506,332 at December
31, 1994) payable in  installments  of principal  and interest  through June 15,
1997.  The  promissory  note  bears  interest  at  prime  plus 1%.  The  Company
established a reserve for doubtful  accounts of $1,921,518 at December 31, 1996.
In February 1996, in order to enhance the business strength of the lessee of its
Refinery  and to assist it in securing a new  government  contract,  the Company
agreed to reduce the fully  reserved  principal  balance of its note  receivable
from the lessee to $900,732 from $1,801,464.

During the third and fourth  quarters of 1996, Gold Line began to fall behind in
their  monthly  lease fee  payments to AIRI,  even though it was  processing  an
average  in excess of  400,000  barrels  of  feedstock  per month  during  these
periods.  On February 3, 1997,  the Company  delivered a Default  Notice to Gold
Line informing Gold Line of various items of default under the Lease  Agreement,
including  non-payment  of lease fees totaling  approximately  $567,000 and 1996
real estate taxes of approximately $208,000.  Subsequent Notices of Default were
also delivered to Gold Line covering  additional items of default,  including an
additional  $287,000  in unpaid  lease  fees and  $29,000  of  unpaid  insurance
premiums  (which  premiums were paid by AIRI). On February 18, 1997, the Company
delivered  a  Termination  Notice and Notice to  Vacate,  pursuant  to the Lease
Agreement,  whereby the Company gave  written  notice to Gold Line to vacate the
leased premises five days from the date the Notice was delivered.  Gold Line did
not comply with the  Company's  Notice to Vacate,  so on  February  26, 1997 the
Company  filed suit against Gold Line. On March 20, 1997,  the court  terminated
the Lease Agreement and ordered Gold Line to vacate the refinery premises within
24 hours of the Order, with which Gold Line complied.

                                      F-14

<PAGE>

In light of the events,  which  occurred  after  December 31, 1996,  the Company
reserved  all lease fees due from Gold Line as of December  31, 1996 and did not
record earned lease fees of $443,000 during 1997. See Note 10 - "Commitments and
Contingent Liabilities - Gold Line Defaults".

NOTE 9 - STOCK OPTIONS AND WARRANTS:

Outstanding warrants and options

At December 31, 1999, 1998 and 1997, the following  warrants and options for the
purchase of common stock of the Company were outstanding,  which are exercisable
upon demand any time prior to the expiration date.

     Number of Shares Underlying
        Options and Warrants
          at December 31,
  --------------------------------        Exercise        Expiration
  1999          1998          1997         Price             Date
  ----          ----          ----         -----             ----

       --            --     5,957,207      $4.000     March 1, 1998 (3)(2)
       --            --       100,000      $0.487     January 31, 1999(4)(2)
       --        22,681        22,681      $2.131     July 22, 1999(4)(2)
       --       864,000       960,000      $2.713     August 6, 1999(4)(2)
       --       200,000            --      $2.000     August 24, 1999(4)(2)
       --     1,500,000            --      $2.000     October 9, 1999(1)(2)
       --            --     1,500,000      $6.250     October 9, 1999(4)(2)
       --     1,781,000     1,852,500      $0.500     December 31, 1999(1)(2)
       --     1,210,000            --      $2.000     December 31, 1999(1)(2)
1,358,000            --            --     $0.5000     July 31, 2000(1)
   50,000        50,000        50,000     $0.5000     November 1, 2000(1)
       --            --        61,547      $0.469     July 15, 2001(4)(2)
       --            --       100,000      $1.000     July 15, 2001(4)(2)
       --            --        10,500      $0.475     July 16, 2001(4)(2)
       --            --         8,333      $0.415     August 19, 2001(4)(2)
   16,667        16,667        16,667      $0.413     August 20, 2001(4)
    8,420         8,420        18,519      $0.406     October 31, 2001(4)
       --            --        10,000      $0.500     November 11, 2001(4)(2)
       --            --        20,000      $0.500     November 12, 2001(4)(2)
       --            --        30,000      $0.398     April 1, 2002(4)(2)
       --        60,000        60,000      $0.398     June 6, 2002(4)
  200,000       200,000       200,000      $2.000     July 30, 2002(4)
   64,000            --            --      $1.200     October 6, 2002(4)
1,500,000            --            --      $2.000     October 9, 2002(1)
       --       197,500            --      $3.000     October 14, 2002(4)(2)
       --            --       197,500      $6.250     October 14, 2002(4)(2)
       --            --        10,000      $0.500     November 5, 2002(4)(2)
  100,000       100,000            --      $2.000     December 1, 2002(1)
1,400,000     1,500,000     1,518,750      $1.050     December 31, 2002(1)(2)
       --            --       100,000      $4.280     December 31, 2002(1)(2)
1,400,000     1,400,000            --      $2.000     April 21, 2003(4)
       --       118,500            --      $2.000     April 21, 2003(4)(2)
       --       100,000            --      $2.600     April 21, 2003(4)(2)
       --        25,000            --      $3.000     April 21, 2003(4)(2)
1,595,978            --            --      $2.000     April 22, 2003(4)
   15,000        15,000            --      $1.375     June 29, 2003(1)(2)
  782,000       782,000            --      $2.000     June 29, 2003(1)


                                      F-15

<PAGE>

   197,500           --             --     $1.200     October 14, 2003(4)
 2,000,000           --             --     $2.562     February 18, 2004 (4)
 1,342,275           --             --     $0.825     March 30, 2004(1)
   118,500           --             --     $1.200     April 21, 2004(4)
   200,000           --             --     $1.238     July 21, 2004 (1)
   712,500           --             --     $1.450     August 18, 2004(4)
   100,000           --             --     $1.000     September 30, 2004(4)
    50,000           --             --     $1.500     September 30, 2004(4)
    50,000           --             --     $0.750     October 19, 2004(4)
   375,000           --             --     $0.800     November 2, 2004(4)
   400,000           --             --     $0.900     December 1, 2004(4)
   250,000           --             --     $0.500     December 31, 2004(1)
   250,000           --             --     $1.000     December 31, 2004(1)
    50,000           --             --     $0.800     July 14, 2005(4)
   300,000           --             --     $0.800     August 18, 2005(4)
----------   ----------     ----------
14,885,840   10,150,768     12,804,204
==========   ==========     ==========

(1)  Represents  options held by  employees  and  directors of the Company.  The
     exercise price and expiration date of such options reflects the adjustments
     approved by the Company's Board of Directors.

(2)  These options and warrants were canceled or expired, as applicable, in 1997
     or 1998 as indicated in the table.

(3)  Class A Warrants;

(4)  Other non-employee warrants.


     Stock option plans

1995 Plan

The Company  established  a 1995 Stock Option Plan (the "1995  Plan").  The 1995
Plan was  approved  by the Board of  Directors  on  November  8, 1995 and by the
Company's  shareholders  on July 11, 1996. The 1995 Plan is  administered by the
Board of Directors of the Company or a Committee  designated by them.  Under the
1995 Plan employees, including officers and managerial or supervising personnel,
are eligible to receive  Incentive  Stock  Options  ("ISO's") or ISO's in tandem
with stock appreciation rights ("SAR's"), and employees, Directors,  contractors
and consultants are eligible to receive  non-qualified  stock options ("NQSO's")
or NQSO's in  tandemwith  SAR's.  Options may be granted  under the 1995 Plan to
purchase an aggregate of 3,500,000  shares of Common Stock. If an option granted
under the 1995 Plan terminates or expires without having been exercised in full,
the  unexercised  shares  subject to that option will be available for a further
grant of options under the 1995 Plan.  Options may not be transferred other than
by will or the laws of descent and distribution  and, during the lifetime of the
optionee, may be exercised only by the optionee.

Options  may not be granted  under the 1995 Plan  after  November  7, 2005.  The
exercise  price of the options  granted  under the 1995 Plan cannot be less than
the fair  market  value of the shares of Common  Stock on the date the option is
granted.  ISO's granted to  shareholders  owning 10% or more of the  outstanding
voting  power of the Company must be exercised at a price equal to at least 110%
of the fair market value of the shares of Common Stock on the date of grant. The
aggregate  fair market value of Common  Stock,  as determined at the time of the
grant with  respect  to which  ISO's are  exercisable  for the first time by any
employee  during any calendar year,  shall not exceed  $100,000.  Any additional
Common Stock as to which options  become  exercisable  for the first time during
any such year are treated as NQSO's.  The total number of options  granted under
the 1995 Plan, as of December 31, 1999 was 3,333,750.



                                      F-16

<PAGE>

1998 Plan

Under the  Company's  1998 Stock Option Plan (the "1998  Plan"),  the  Company's
employees,  Directors,  independent contractors, and consultants are eligible to
receive  options to purchase  shares of the  Company's  common  stock.  The Plan
allows the Company to grant incentive stock options ("ISOs"), nonqualified stock
options ("NQSOs"),  and ISOs and NQSOs in tandem with stock appreciation  rights
("SARs",  collectively  "Options").  A maximum of 5,000,000 shares may be issued
and no  options  may be  granted  after ten years from the date the 1998 Plan is
adopted,  or the date the Plan is approved by the  stockholders  of the Company,
whichever is earlier.  The exercise price of the Options cannot be less than the
fair  market  value of the  shares  of  common  stock on the date the  Option is
granted.  Options  granted to individuals  owning 10% or more of the outstanding
voting power of the Company must be  exercisable at a price equal to 110% of the
fair market value on the date of the grant.  The 1998 Plan was  submitted to and
approved by the Company's stockholders at its annual meeting in 1998.

Activity in the 1995 and 1998 Stock  Option  Plans for the years ended  December
31, 1997, 1998 and 1999 was as follows:

                                                              Weighted Average
                                               Number of       Exercise Price
                                                 Shares          Per Share
                                                 ------          ---------

Outstanding, January 1, 1997                   1,902,500           $0.50
Canceled                                      (1,852,500)          $0.50
Granted                                        3,471,250           $0.84
Expired                                               --              --
                                               ---------

Outstanding, December 31, 1997                 3,521,250           $0.83
Canceled                                         (68,750)          $.074
Granted                                        2,007,000           $2.00
Exercised                                        (21,500)          $.050
                                               ---------

Outstanding December 31, 1998                  5,438,000           $1.23
Granted                                        2,242,275           $0.95
Exercised                                       (523,000)          $0.61
Expired                                       (1,410,000)          $2.00
                                               ---------

Outstanding December 31, 1999                  5,747,275           $0.99
                                               =========

As of December 31, 1999,  options to acquire  4,093,850  shares of the Company's
common stock with exercise prices ranging from $0.50 to $2.00, were fully vested
and  exercisable at a weighted  average  exercise price of $0.92 per share.  The
remaining 1,653,425 options,  with exercise prices ranging from $0.825 to $2.00,
having a weighted average  exercise price of $1.15 per share,  will vest through
2004.

If not previously  exercised,  options  outstanding  at December 31, 1999,  will
expire as follows:  1,358,000  options  expire on July 31,2000;  50,000  options
expire on  November  1, 2000;  100,000  expire on  December  1, 2002;  1,400,000
options  expire on December 31, 2002;  797,000  options expire on June 29, 2003;
1,342,275  options expire on March 30, 2004;  200,000 options expire on July 21,
2004;  and 500,000  options  expire on December 31, 2004.  The weighted  average
grant date fair value of the options issued during 1997 and the weighted average
exercise price of those options amounted to $0.75 and $0.85,  respectively.  The
weighted average grant date fair value of the options issued during 1998 and the
weighted  average  exercise price of those options  amounted to $0.68 and $2.00,
respectively.  The weighted  average grant date fair value of the options issued
during 1999 and the weighted  averaged  exercise price of those options amounted
to $0.75 and $0.95, respectively.

The options to acquire 2,242,275 of common stock issued during 1999 were granted
with exercise prices greater than the stock price on the grant date.

During 1997,  1,852,500  options were granted whose exercise price was less than
the stock price on grant date.  These  options were existing  options  issued in
prior years and whose expiration date was extended in 1997 to December 31, 1999.
The option exercise price was not changed during 1997. Under generally  accepted
accounting practices,  the extension of these expiration dates constitutes a new
issue of options.  New issues in 1997 of  1,618,750  options  were  granted with
exercise prices greater than the stock price on grant date.


                                      F-17

<PAGE>

In October 1995, the Financial Accounting Standards Board issued a new statement
titled   "Accounting  for  Stock-Based   Compensation"   (SFAS  123).  SFAS  123
encourages,  but does not require,  companies to recognize  compensation expense
for grants of stock,  stock options,  and other equity  instruments to employees
based on fair value. Fair value is generally  determined under an option pricing
model using the criteria set forth in SFAS 123.

The Company applies APB Opinion 25, Accounting of Stock Issued to Employees, and
related   Interpretations   in  accounting  for  its  plans.   Accordingly,   no
compensation  cost has been  recognized  for its fixed price stock option plans.
Had compensation  expense for the Company's stock based  compensation plans been
determined  based on the fair value at the grant  dates for awards  under  those
plans  consistent  with the method of SFAS 123, the  Company's net loss and loss
per common share would have been  increased to the pro forma  amounts  indicated
below:

<TABLE>
<CAPTION>
                                                   1999              1998               1997
                                                   ----              ----               ----

<S>                                            <C>               <C>               <C>
Net loss                       As reported     $(14,917,868)     $ (9,103,113)     $(17,953,621)
                               Pro forma        (16,314,519)      (10,545,636)      (19,325,148)

Net loss per common share      As reported     $      (0.20)     $      (0.17)     $      (0.43)
                               Pro forma              (0.22)            (0.20)            (0.47)
</TABLE>

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes  option pricing model with the following  assumptions:  risk- free
rates of 4.5% to 6.1%;  volatility  ranging  from 96.01% to 105.51%,  no assumed
dividend yield; and expected lives of 1.5 months to 3 years.

During 1997, the expiration  date of certain options were extended from December
31, 1997 until  December 31, 1999. In accordance  with SFAS 123 the  revaluation
and/or the extension of the  expiration  dates of the options  constitutes a new
issuance of options. In 1997,  $744,000 was charged to compensation  expense and
is reflected in the net loss as reported.

NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES:

IRS Excise Tax Claim

In May 1992,  AIRI was advised by the Internal  Revenue Service ("IRS") that the
IRS was  considering  an assessment  of excise taxes,  penalties and interest of
approximately  $3,500,000  related to the sale of fuel products during 1989. The
IRS claimed  that AIRI failed to comply with an  administrative  procedure  that
required  sellers and buyers in tax-free  transactions  to obtain  certification
from the IRS. The Company  believes that AIRI complied with the substance of the
then  existing  requirements  and that such sales were  either  tax-free or such
excise  taxes  were paid by the  end-users  of such  products.  AIRI  offered to
negotiate a settlement  of this matter with IRS Appeals  since early 1993.  Such
negotiations  included face-to-face  meetings,  numerous phone calls and written
transmittals  and several  offers of settlement by both the Company and the IRS.
During these negotiations,  the IRS Appeals officers offered to waive all of the
penalties  and 75% of the amount of the proposed tax  liability.  However,  AIRI
rejected this offer and requested the IRS' National Office to provide  technical
advice to its Appeals officers.  After numerous conferences and discussions with
the National  Office in 1995,  the National  Office issued an adverse  Technical
Advice Memorandum ("TAM") to its Appeals Office in Dallas,  Texas, to the effect
that AIRI  should be liable for the tax on the sale of diesel fuel for the first
three quarters of 1989. However,  subsequent to the issuance of the TAM, the IRS
Appeals  officer  indicated  to AIRI that the IRS still  wanted to  negotiate  a
settlement. In 1998, the Company reached a final agreement (the "IRS Agreement")
with the IRS to settle this matter by agreeing to pay an  aggregate  of $646,633
in tax, plus interest accrued for the applicable  periods  involved.  In the IRS
Agreement,  the IRS waived all penalties and 75% of the amount of the originally
proposed tax liability.  The Company continues to maintain that it is not liable
for  the  excise  taxes  at  issue,  but  agreed  to  settle  the  dispute  at a
significantly  lower  amount of  liability  in order to bring this  long-running
issue to  conclusion.  In February 1999, the Company paid all amounts due to the
IRS on this matter, which totaled approximately $1.3 million.

Environmental Lawsuit

In  January  1994,  a  lawsuit  captioned  Paul  R.  Thibodeaux,   et  al.  (the
"Plaintiffs") v. Gold Line Refinery Ltd. (a limited  partnership),  Earl Thomas,
individually and d/b/a Gold Line Refinery Ltd., American International Refinery,
Inc., Joseph Chamberlain individually  (collectively,  the "Defendants") (Docket
No.  94-396),  was filed in the 14th Judicial  District  Court for the Parish of
Calcasieu,  State of  Louisiana.  Subsequently,  several  parties were joined as
plaintiffs  or  defendants  in the  lawsuit.  The lawsuit  alleged,  among other
things,


                                      F-18

<PAGE>

that the  defendants,  including  AIRI,  caused or  permitted  the  discharge of
hazardous and toxic substances from the Lake Charles Refinery into the Calcasieu
River. The plaintiffs sought an unspecified amount of damages, including special
and exemplary  damages.  In October 1997, the  Plaintiffs and Defendants  agreed
upon a cash settlement,  of which the Company's share of $45,000 was placed into
escrow in  October  1997 and paid in 1998.  This  matter  was fully and  finally
settled  during the first  quarter of 1998 and all claims  were  dismissed  with
prejudice as to all defendants, which included the Company and AIRI.

Employment agreements

The Company has employment  agreements with its Chairman and its Chief Executive
Officer under which these officers receive an annual base salary of $250,000 and
$350,000, respectively.

Transfer of Funds - U.S. and Foreign

The Company  currently  operates in the Republic of Kazakhstan  and there are no
restrictions  on the  transfer of funds into and out of the country  between the
Company's U.S. and foreign branch of its subsidiary, AIPK.

Gold Line Defaults

During the third and  fourth  quarters  of 1996,  Gold Line  defaulted  on their
obligations  to pay lease fees,  insurance  premiums,  property  taxes and other
items to AIRI under the terms of the Lease  Agreement  totaling an  aggregate of
$567,000.  In  addition,  Gold Line paid no lease fees to AIRI  during the first
quarter of 1997.  On February  18,  1997,  AIRI filed suit against Gold Line for
termination of the Lease Agreement and damages including unpaid processing fees,
real-estate taxes,  insurance premium and other items which may be due under the
terms of the Lease  Agreement.  Notice to vacate was also sent to Gold Line, and
after the demand to vacate was not met, a pleading  to evict Gold Line was filed
as an incident to the  original  suit.  After a hearing on March 20,  1997,  the
court  granted the eviction and Gold Line  vacated the  Refinery  premises.  The
Company  filed suit for  damages  and  received a judgment  in its favor of $1.5
million.  However,  since Gold Line has filed for protection under Chapter 11 of
the  Bankruptcy  Code,  and there are certain  secured  creditors  who have made
significant  claims  against Gold Line, the total of which claims may exceed the
total value of Gold Line's assets,  the  collectibility  of this judgment by the
Company is  uncertain.  The Company has  provided  an  allowance  during 1996 of
$682,000, which fully reserves all amounts due AIRI from Gold Line.

Lease commitments

The Company leases office space under two operating  leases which expire in 2003
and 2006.  Future  minimum  annual  payments  under these  operating  leases are
$459,000,  $464,000,  $474,000,  $479,000  and $268,800  for 2000,  2001,  2002,
2003and 2004, respectively, and $268,800 thereafter.

Minimum lease payments have not been reduced by minimum  sublease rentals due in
the future  under  noncancelable  subleases.  The  composition  of total  rental
expense for all operating leases was as follows:

                                         1999           1998            1997
                                         ----           ----            ----

Minimum rentals                       $ 431,242       $ 150,530       $ 158,313
Less - sublease rentals                    --              --           (21,740)
                                      ---------       ---------       ---------

Total rent expense                    $ 431,242       $ 150,530       $ 136,573
                                      =========       =========       =========

Other Contingencies

In addition to certain matters described above, the Company and its subsidiaries
are party to various legal  proceedings.  Although the ultimate  disposition  of
these proceedings is not presently determinable,  in the opinion of the Company,
any  liability  that  might  ensue  would not be  material  in  relation  to the
consolidated financial position or results of operations of the Company.

                                      F-19

<PAGE>

Trifinery V. American International  Refinery,  Inc. Etc. Cause No. 98-11453; in
the  269th  Judicial  District;  in and  For  Harris  County,  Texas  Plaintiff,
Trifinery,  has filed suit in a Harris County District Court against the Company
and its wholly-owned subsidiary, American International Refinery, Inc. ("AIRI").
Trifinery has asserted claims for recovery of compensatory  and punitive damages
based on the  following  theories  of  recovery;  (1)  breach of  contract,  (2)
disclosure  of  confidential  information;  and (3) tortuous  interference  with
existing  contractual  relations.  Generally,  Trifinery  has  alleged  that  in
connection  with the due  diligence  conducted  by the  Company  and AIRI of the
business of Trifinery,  the Company and AIRI had access to confidential or trade
secret   information   and  that  the  Company  and  AIRI  have  exploited  that
information,  in  breach  of  an  executed  Confidentiality  Agreement,  to  the
detriment  of  Trifinery.   Trifinery  seeks  the  recovery  of  $20,000,000  in
compensatory damages and an undisclosed sum in connection with its claim for the
recovery of punitive damages.

  In addition to seeking the  recovery of  compensatory  and  punitive  damages,
Trifinery sought injunctive relief. Specifically, Trifinery sought to enjoin the
Company and AIRI from: (1) offering employment positions to the key employees of
Trifinery; (2) contacting the suppliers, joint venture partners and customers of
Trifinery in the pursuit of business  opportunities;  (3)  interfering  with the
contractual  relationship  existing  between  Trifinery and St. Marks  Refinery,
Inc.; and (4) disclosing or using any confidential  information  obtained during
the due diligence  process to the  detriment of Trifinery.  The Company and AIRI
have asserted to a general denial to the allegations asserted by Trifinery.  The
Company  and  AIRI  also  moved  the  district  court  to refer  the  matter  to
arbitration,  as provided for in the Confidentiality  Agreement, and to stay the
pending litigation. On March 27, 1999, the district court referred the matter to
arbitration,  as requested by the Company and AIRI,  and stayed  litigation.  At
present,  the dispute existing between the Company,  AIRI and Trifinery in Texas
will be  decided  by a panel of three  arbitration  judges  under  the  American
Arbitration Association rules for commercial disputes. Two arbitrators have been
identified by the parties and the third is in the process of being  chosen.  The
Company and AIRI are vigorously  defending this matter and the Company's counsel
anticipates  a  favorable  outcome,  although  a  definitive  outcome is not yet
determinable.

On February 26, 1998,  the Company  entered  into a Letter  Agreement  with DSE,
Inc., the parent  corporation of St. Marks Refinery,  Inc.,  whereby the Company
agreed to purchase or lease the refinery and terminals  facility  located at St.
Marks, Florida.  Thereafter,  St. Marks Refinery,  Inc. elected to terminate its
storage  agreement with Trifinery.  On March 10, 1998,  Trifinery sued St. Marks
Refinery,  Inc. in the United states District Court for the Northern District of
Florida,  Case No.  4:98cv86-WS,  and sought an injunction to prevent  immediate
termination  of its storage  agreement.  Following an evidentiary  hearing,  the
District Judge denied Trifinery's  application for injunctive relief and adopted
the  recommendations  of the  Magistrate,  who found in part that  Trifinery had
failed to prove a substantial  likelihood of success on the merits. The District
Court's  order was appealed by  Trifinery to the United  States Court of Appeals
for the Eleventh Circuit,  but the Appellate Court denied Trifinery's motion for
injunction  pending  appeal.  On appeal,  the  federal  court  found in favor of
Trifinery and issued a judgement related thereto for $175,000, which was paid by
the Company on behalf of St. Marks in March 1999. However,  DSE, Inc. has agreed
to  reimburse  the Company  $75,000 of the  $175,000,  pursuant  to DSE,  Inc.'s
indemnification  of the Company  included in the Stock Purchase  Agreement under
which the Company purchased St. Marks. The remaining $100,000 was capitalized as
acquisition cost of the St. Marks Refinery.

Kazakhstan

On May 12, 1997,  the Company,  through its  wholly-owned  subsidiary,  American
International Petroleum Kazakhstan ("AIPK"),  entered into an agreement with Med
Shipping and Trading S.A.  ("MED"),  a Liberian  corporation to buy from MED, in
exchange  for a  combination  of cash and stock,  a 70%  working  interest  in a
Kazakhstan  concession.  As part of the acquisition,  the Company is required to
perform  certain minimum work programs over a five year period which consists of
the  acquisition  and  processing  of  3,000  kilometers  of new  seismic  data,
reprocessing  500  kilometers of existing  seismic data,  and a minimum of 6,000
linear  meters of  exploratory  drilling.  In addition,  the Company  assumed an
obligation to pay the Kazakhstan  Government  three annual  payments of $200,000
each  beginning  July 1998 for the purchase of existing  seismic and  geological
data on the  Kazakhstan  concession.  The total cost  remaining for this minimum
program is $5.6 million before the end of 2001.

The Company has also entered into a consulting agreement with certain MSUP joint
venture partners.  The consulting agreement requires monthly payments of $12,500
through July 31, 1998 and $23,000 monthly through April 22, 2000.

                                      F-20
<PAGE>

Year 2000 Issues

The Company  evaluated the potential impact of the nearly universal  practice in
the  computer  industry of using two digits  rather than four to  designate  the
calendar  year,  leading to incorrect  results when computer  software  performs
arithmetic  operations,  comparisons or date field sorting involving years later
than  1999.  Management  believes  that in light of the  limited  nature  of the
computer  software used by the Company and the limited  scope of its  electronic
interaction with other entities,  issues relating to modification or replacement
of  existing  systems  will not have a  material  effect  on the  operations  or
financial  condition  of the  Company.  Although the Company is not aware of any
circumstances   in  which  the  failure  of  a  supplier  or  customer  to  deal
successfully  with such  issues  would have a material  impact,  there can be no
assurance  that such will be the case. As of March 31, 2000, the Company had not
encountered  any  negative  effects  relating  to the Year 2000  issues,  either
internally or with any of its vendors or suppliers.

NOTE 11 - INCOME TAXES:

The Company reported a loss from operations  during 1997, 1998, and 1999 and has
a net operating loss carryforward from prior years' operations.  Accordingly, no
income  tax  provision  has  been  provided  in the  accompanying  statement  of
operations.   The  Company  has  available   unused  tax  net   operating   loss
carryforwards  of approximately  $52,000,000  which expire in years 2000 through
2019.  Due to a change in  control,  as defined in Section  382 of the  Internal
Revenue Code ("382"),  which occurred in 1994 and 1998, the Company's utilizable
tax operating loss  carryforwards  to offset future income have been restricted.
These   restrictions   will  limit  the   Company's   future  use  of  its  loss
carryforwards.

The  components  of the  Company's  deferred tax assets and  liabilities  are as
follows:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                              ------------------------------
                                                                   1999              1998
                                                              ------------      ------------
<S>                                                             <C>             <C>
Deferred taxes:
     Net operating loss carryforwards                           19,745,000      $ 14,807,000
     Allowance for doubtful accounts                             1,300,000         1,300,000
     Depreciation, depletion, amortization and impairment       (1,951,000)       (1,650,000)
                                                              ------------      ------------
Net deferred tax asset                                          19,094,000        14,457,000
                                                              ------------      ------------
Valuation allowance                                           $(19,094,000)     $(14,457,000)
                                                              ============      ============
</TABLE>

The valuation  allowance relates to the uncertainty as to the future utilization
of net operating  loss  carryforwards.  The increase in the valuation  allowance
during 1999 of approximately  $4,637,000 primarily reflects the increase in the
Company's net operating loss carryforwards during the year.

A  reconciliation  of the  provision  for income taxes to the  statutory  United
States tax rate is as follows (in thousands):

<TABLE>
<CAPTION>
                                                            For the Year Ended December 31,
                                                     ------------------------------------------------
                                                          1999              1998             1999
                                                     -------------     -------------    -------------
<S>                                                  <C>               <C>              <C>
Federal tax benefit computed at statutory rate       $ (5,072,000)     $ (3,095,000)    $ (6,104,000)
Other, net                                                435,000          (212,000)       1,633,000
Increase in valuation allowance                      $ (4,637,000)     $ (3,307,000)    $ (4,471,000)
                                                     ------------      ------------     ------------
     Actual provision                                $       --        $       --       $       --
                                                     ============      ============     ============
</TABLE>

NOTE 12 - CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:

Financial  instruments which potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts  receivable and notes receivable
and  marketable  securities.  For  investments,  fair value equals quoted market
price.  Trade  accounts  receivable  outstanding  at December 31, 1999 have been
collected in the normal course of business. An MIP note receivable of $1,493,750
received  in the  sale  of the  Colombia  and  Peru  properties,  as  previously
discussed,  was due during  1998 and in default  and has been fully  reserved at
December 31, 1999. An additional MIP note receivable of $1,252,696 also received
in the sale  mentioned  above and due in 2000 is payable out of production  from
the Colombia properties. This note is carried at full value at December 31, 1999
and  the  Company  has no  reason  to  believe  that it will  not  collect  this
receivable.  Fair value of fixed-rate  long-term  debt and notes  receivable are
determined by

                                      F-21

<PAGE>

reference to rates currently available for debt with similar terms and remaining
maturities.  The Company  believes  the  carrying  value of its  short-term  and
long-term  debt  approximates  fair value.  The  reported  amounts of  financial
instruments such as cash  equivalents,  accounts  receivable,  accounts payable,
short-term debt, and accrued liabilities approximate fair value because of their
short-term  maturities.  The MIP notes receivable were recorded at a discount to
yield a fair market interest rate. The Company  believes the effective  interest
rate on the MIP notes approximates market rates at December 31, 1999.

Four of the Company's  asphalt  customers account for an aggregate of 54% of the
Company's  sales in 1999. The Company has the ability to draw on it's customer's
posted  performance  bonds  and  personal  guarantees  to  collect  any past due
accounts.

The estimated fair value of the Company's financial instruments is as follows:

<TABLE>
<CAPTION>
                                    1999                            1998
                         ---------------------------     ---------------------------
                          Carrying          Fair          Carrying          Fair
                            value           value           value           value
                            -----           -----           -----           -----
<S>                      <C>             <C>             <C>             <C>
MIP Notes Receivable     $ 1,252,696     $ 1,252,696     $ 1,118,200     $ 1,118,200

Short-term debt          $ 3,960,331     $ 3,960,331     $ 1,992,200     $ 1,992,200

Long-term debt           $11,984,592     $11,984,592     $ 6,110,961     $ 6,110,961
</TABLE>

NOTE 13 - GEOGRAPHICAL SEGMENT INFORMATION:

The  Company  has had  three  reportable  segments  which are  primarily  in the
business of oil and natural gas,  exploration,  development,  and production and
the refining and marketing of petroleum products. The accounting policies of the
segments  are  the  same  as  those  described  in the  summary  of  significant
accounting policies. The Company evaluates performances based on profit and loss
before income and expense items incidental to their respective  operations.  The
Company's reportable segments are managed separately because of their geographic
locations. Financial information by operating segment is presented below:


                                      F-22

<PAGE>

Financial information, summarized by geographic area, is as follows:

<TABLE>
<CAPTION>
                                                                     Geographic Segment
                                                            ----------------------------------            Consolidated
1999                                United States              Colombia             Kazakhstan                Total
----                                -------------              --------             ----------             ----------
<S>                                  <C>                    <C>                    <C>                    <C>
Sales and other
     operating revenue               $  8,137,867           $        --            $        --            $  8,137,867
Interest income and other
     corporate revenues                                                                                        214,171
                                     ------------           -------------          -------------          ------------

Total revenue                        $  8,137,867                    --                     --               8,352,038
                                                            -------------
Costs and operating
     expense                           13,116,830                    --            $        --              13,116,830
                                     ------------           -------------          -------------          ------------

Operating profit (loss)              $ (4,978,963)          $        --            $        --            $ (4,764,792)
                                     ============           =============          ============

General corporate expense                                                                                    3,652,497
Interest expense                                                                                             6,500,579
                                                                                                          ------------

Net loss                                                                                                  $(14,917,868)
                                                                                                          ============

Identifiable assets
     at December 31, 1999            $ 33,877,437           $        --            $  32,162,385          $ 66,039,822
                                     ============           =============          =============          ============

Corporate assets                                                                                             3,618,447
                                                                                                          ------------

Total assets at
     December 31, 1999                                                                                    $ 69,658,269
                                                                                                          ============

Depreciation, depletion
     and amortization                $  1,730,710           $        --            $        --            $  1,730,710
                                     ------------           -------------          -------------          ============

Capital Expenditures,
     net of cost recoveries          $  1,062,053           $        --            $   8,498,390          $  9,560,443
                                     ============           =============          =============          ============
</TABLE>

                                      F-23

<PAGE>

<TABLE>
<CAPTION>
                                                Geographic Segment
                                                ------------------
                                                                                                        Consolidated
1998                                     United States          Colombia           Kazakhstan               Total
----                                     -------------          --------           ----------               -----
<S>                                       <C>                    <C>              <C>                   <C>
Sales and other
   Refinery operating revenue(1)          $ 11,394,009           $  --            $       --            $ 11,394,009
Interest income and other
   corporate revenues                                                                                        460,597
                                          ------------           --------         ------------          ------------

Total revenue                               11,394,009              --                    --              11,854,606
Refinery costs and operating
   expense                                  14,214,767              --            $       --              14,214,767
                                          ------------           -------          ------------          ------------

Operating profit (loss)                   $ (2,820,758)          $  --            $       --            $ (2,360,061)
                                          ============           =======          ============
General corporate expense                                                                                  4,830,003
Interest expense                                                                                           1,912,949
                                                                                                        ------------

Net loss                                                                                                $ (9,103,113)
                                                                                                        ============

Identifiable assets
     at December 31, 1998                 $ 35,234,530           $  --            $ 22,677,073          $ 57,911,603
                                          ============           =======          ============          ============

Corporate assets                                                                                        $  2,949,731
                                                                                                        ------------

Total assets at
     December 31, 1998                                                                                  $ 60,861,334
                                                                                                        ============

Depreciation, depletion
     and amortization                     $    813,088           $    --          $         --          $    813,088
                                          ============           =======          ============          ============

Capital Expenditures,
     net of cost recoveries               $ 15,494,897           $    --          $ 10,748,427          $ 26,243,324
                                          ============           =======          ============          ============
</TABLE>

(1)  Refinery  sales to Conoco  accounted for 19% of the Company's  sales during
     the year.


                                      F-24


<PAGE>

<TABLE>
<CAPTION>
                                                Geographic Segment
                                                ------------------
                                                                                                          Consolidated
1997                                 United States            Columbia              Kazakhstan               Total
----                                 -------------            --------              ----------            ------------
<S>                                  <C>                    <C>                    <C>                   <C>

Sales and other
     operating revenue               $     23,298           $    292,947           $       --            $    316,245
Interest income and other
     corporate revenues                                                                                       511,719
                                     ------------           ------------           ------------          ------------

Total revenue                              23,298                292,947                   --            $    827,964
Costs and operating
     expense                            1,189,188                463,371           $       --               1,652,559
                                     ------------           ------------           ------------          ------------

Operating profit (loss)              $ (1,165,890)          $   (170,424)          $       --            $   (824,595)
                                     ============           ============           ============


General corporate expense                                                                                  10,465,064
Interest expense                                                                                            6,663,992
                                                                                                         ------------

Net loss                                                                                                 $(17,953,651)
                                                                                                         ============


Identifiable assets
     at December 31, 1997            $ 21,159,627           $       --             $ 11,724,477          $ 32,884,104
                                     ------------           ------------           ------------


Corporate assets                                                                                            8,955,756
                                                                                                         ------------

Total assets at
     December 31, 1997                                                                                   $ 41,839.860
                                                                                                         ============

Depreciation, depletion
     and amortization                $    704,048           $     70,216           $       --            $    774,264
                                     ============           ============           ============          ============


Capital Expenditures,
     net of cost recoveries          $  5,606,031           $       --             $ 11,724,477          $ 17,330,508
                                     ============           ============           ============          ============
</TABLE>


                                                       F-25

<PAGE>

NOTE 14 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
AND DISCLOSURES OF CASH FLOW INFORMATION:

The Company has issued  shares of common stock and common stock  warrants in the
acquisitions and conversions of the following noncash transactions:

<TABLE>
<CAPTION>
                                                                        1999                 1998                  1997
                                                                        ----                 ----                  ----
<S>                                                                  <C>                  <C>                  <C>
Conversion of debentures                                             $ 7,602,373          $15,526,380          $ 9,343,022
Stock issued in lieu of current liabilities                            1,473,713            1,669,717              233,559
Issuance of warrants related to convertible debentures                 1,584,106              936,459            6,264,411
Issuance of stock - unearned compensation                                     --              196,900                   --
Issuance of stock - compensation                                              --                   --               40,000
Issuance of stock - services                                             654,453              128,125              247,607
Issuance of stock and warrants - for oil and gas properties            1,852,366                   --            9,254,688
Issuance of stock- for refinery and equipment                                 --            1,687,500                   --
Issuance of stock for collateral on debt                             $ 1,065,938                   --                   --
</TABLE>

Cash paid for interest, net of amounts capitalized, was $1,943,124, $62,532, and
$765,312,  during 1999,  1998, and 1997,  respectively.  Cash paid for corporate
franchise taxes was $94,506,  $60,078, and $70,003,  during 1999, 1998 and 1997,
respectively.

Interest capitalized was $547,786;  $7,055,340;  $340,966 during the years ended
December 31, 1999, 1998, 1997, respectively.

NOTE 15 - SUBSEQUENT EVENTS:

Financing

In  February  2000,  the  Company  sold a  $2,500,000  Bridge  Note in a private
placement to a single  investor.  The note is a 13%  six-month  note due June 1,
2000. The proceeds of the sale were used for working capital.

NOTE 16 - EMPLOYEE BENEFITS:

During the fourth quarter of 1997 the Company established a defined contribution
401(k) Plan for its  employees.  The plan provides  participants a mechanism for
making  contributions  for  retirement  savings.  Each  employee may  contribute
certain amounts of eligible compensation.  In July 1998, the Company amended the
plan to include a Company matching contribution  provision.  The plan allows for
the Company to match employee  contributions  into the plan at the rate of $0.50
for each $1.00 contributed by the employee, with a Company matching contribution
limited  to a maximum  of 5% of the  employee  salary.  To be  eligible  for the
Company matching program, employees must be employed by the Company for 90 days.
Employer  contributions  vest  evenly  over  three  years  from  the  employee's
anniversary  date. The Company had contributions for the year ended December 31,
1999 totaling approximately $61,500.

                                      F-26

<PAGE>

                      SUPPLEMENTARY OIL AND GAS INFORMATION
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

The   accompanying   unaudited  oil  and  gas   disclosures   are  presented  as
supplementary  information in accordance  with Statement No. 69 of the Financial
Accounting Standards Board.



                                      F-27

<PAGE>

                AMERICAN INTERNATIONAL PETROLEUM AND SUBSIDIARIES
                      SUPPLEMENTARY OIL AND GAS INFORMATION
                                   (UNAUDITED)

Capitalized  costs  relating to oil and gas activities and costs incurred in oil
and gas property  acquisition,  exploration and development  activities for each
year are shown below:

CAPITALIZED COSTS
<TABLE>
<CAPTION>
                                                Colombia                                Kazakhstan
                                ---------------------------------------   ---------------------------------------
                                    1999          1998         1997         1999(1)      1998(1)        1997(2)
                                -----------   -----------   -----------   -----------   -----------   -----------
<S>                             <C>           <C>           <C>           <C>           <C>           <C>
Unevaluated property not
   subject to amortization      $        --   $        --   $        --   $31,556,376   $23,438,886   $11,724,477
Proved and unproved
   properties                            --            --            --            --            --            --
Accumulated deprecia-
   tion, depletion and
   amortization                          --            --            --            --            --            --
                                -----------   -----------   -----------   -----------   -----------   -----------
Net Capitalized costs           $        --   $        --   $        --   $31,556,376   $23,438,886   $11,724,477
                                ===========   ===========   ===========   ===========   ===========   ===========
Costs incurred in oil and gas
 property acquisition,
exploration and
development activities

Property acquisition            $        --   $        --   $        --   $31,556,376   $23,438,886   $11,724,477
   costs - proved and
   unproved properties
Exploration Costs                        --            --            --            --            --            --
Development costs                        --            --            --            --            --            --
Results of operations for oil
and gas producing activities

Oil and gas sales               $        --   $        --   $   292,947   $        --   $        --   $        --
                                -----------   -----------   -----------   -----------   -----------   -----------
Lease operating costs                    --            --        98,766            --            --            --
Depreciation, depletion
   and amortization                      --            --        70,216            --            --            --
Provision for reduction
   of oil and gas properties             --            --            --            --            --            --
                                -----------   -----------   -----------   -----------   -----------   -----------
                                         --            --       168,982            --            --            --
                                -----------   -----------   -----------   -----------   -----------   -----------
Income (loss) before
   tax provision                         --            --       123,965            --            --            --
Provision (benefit) for
   income tax                            --            --            --            --            --            --
                                -----------   -----------   -----------   -----------   -----------   -----------
Results of operations           $        --   $        --   $   123,965            --            --            --
                                ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                   Total
                                   ---------------------------------------
                                       1999         1998           1997
                                   -----------   -----------   -----------
<S>                                <C>           <C>           <C>
Unevaluated property not
   subject to amortization         $31,556,376   $23,438,886   $11,724,477
Proved and unproved
   properties                               --            --            --
Accumulated deprecia-
   tion, depletion and
   amortization                             --            --            --
                                   -----------   -----------   -----------
Net Capitalized costs              $31,556,376   $23,438,886   $11,724,477
                                   ===========   ===========   ===========
Costs incurred in oil and gas
 property acquisition,
exploration and
development activities

Property acquisition               $31,556,376   $23,438,886   $11,724,477
   costs - proved and
   unproved properties
Exploration Costs                           --            --            --
Development costs                           --            --            --
Results of operations for oil
and gas producing activities

Oil and gas sales                  $        --   $        --   $   292,947
                                   -----------   -----------   -----------
Lease operating costs                       --            --        98,766
Depreciation, depletion
   and amortization                         --            --        70,216
Provision for reduction
   of oil and gas properties                --            --            --
                                   -----------   -----------   -----------
                                            --            --       168,982
                                   -----------   -----------   -----------
Income (loss) before
   tax provision                            --            --       123,965
Provision (benefit) for
   income tax                               --            --            --
                                   -----------   -----------   -----------
Results of operations                       --            --   $   123,965
                                   ===========   ===========   ===========
</TABLE>

(1) Unevaluated property not subject to amortization  reflected in 1999 and 1998
includes  Kazakhstan  properties and non-Kazakhstan oil and gas properties.

     (2)  Unevaluated  property  not subject to  amortization  reflected in 1997
     includes Kazakhstan properties only.

                                      F-28
<PAGE>
OIL AND GAS RESERVES:

Oil and gas proved reserves cannot be measured  exactly.  Reserve  estimates are
based on many factors related to reservoir  performance which require evaluation
by the engineers  interpreting  the  available  data, as well as price and other
economic  factors.  The  reliability  of these  estimates  at any  point in time
depends on both the quality and quantity of the technical and economic data, the
production  performance  of the  reservoirs  as  well as  extensive  engineering
judgment. Consequently,  reserve estimates are subject to revision as additional
data  become  available  during  the  producing  life  of a  reservoir.  When  a
commercial  reservoir is discovered,  proved  reserves are initially  determined
based on limited data from the first well or wells.  Subsequent  data may better
define the extent of the reservoir and additional production  performance,  well
tests and engineering studies will likely improve the reliability of the reserve
estimate.  The evolution of  technology  may also result in the  application  of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both,  which have the potential to increase  reserves beyond those envisioned
during the early years of a reservoir's producing life.

The  following  table   represents  the  Company's  net  interest  in  estimated
quantities  of  proved   developed  and  undeveloped   reserves  of  crude  oil,
condensate,  natural gas liquids and natural gas and changes in such  quantities
at December  31, 1999,  1998 and 1997.  Net proved  reserves  are the  estimated
quantities of crude oil and natural gas which  geological and  engineering  data
demonstrate  with  reasonable  certainty to be  recoverable in future years from
known  reservoirs  under  existing  economic and  operating  conditions.  Proved
developed  reserves  are  proved  reserve  volumes  that can be  expected  to be
recovered through existing wells with existing  equipment and operating methods.
Proved  undeveloped  reserves are proved reserve volumes that are expected to be
recovered  from new wells on undrilled  acreage or from  existing  wells where a
significant expenditure is required for recompletion.

<TABLE>
<CAPTION>
                                        United States                      Colombia                             Total
                                 -------------------------      -----------------------------       -----------------------------
                                      Oil          Gas               Oil              Gas               Oil               Gas
                                     BBLS          MCF              BBLS              MCF               BBLS              MCF
                                 -----------   -----------      -----------       -----------       -----------       -----------
<S>                                <C>           <C>              <C>              <C>                <C>              <C>
January 1, 1997                           --            --        4,010,419        14,679,400         4,010,419        14,679,400
       Revisions of
       previous estimates                 --            --               --                --                --                --
       Extensions, discoveries
       and other additions                --            --               --                --                --                --
       Sales of reserves                  --            --       (3,892,146)      (14,679,400)       (3,892,146)      (14,679,400)
       Production                         --            --         (118,273)               --          (118,273)               --
                                 -----------   -----------      -----------       -----------       -----------       -----------
December 31, 1997                         --            --               --                --                --                --
       Revisions of
       previous estimates                 --            --               --                --                --                --
       Extensions, discoveries
       and other additions                --            --               --                --                --                --
       Sales of reserves                  --            --               --                --                --                --
       Production                         --            --               --                --                --                --
                                 -----------   -----------      -----------       -----------       -----------       -----------
December 31, 1998                         --            --               --                --                --                --

       Revisions of
       previous estimates                 --            --               --                --                --                --
       Extensions, discoveries
       and other additions                --            --               --                --                --                --
       Sales of reserves                  --            --               --                --                --                --
       Production                         --            --               --                --                --                --
                                 -----------   -----------      -----------       -----------       -----------       -----------
December 31, 1999                         --            --               --                --                --                --
                                 ===========   ===========      ===========       ===========       ===========       ===========
</TABLE>

<TABLE>
<CAPTION>
                                         United States                      Colombia                             Total
                                        ----------------                    --------                             -----
                                        Oil          Gas             Oil                Gas            Oil                  Gas
                                        BBLS         MCF            BBLS                MCF            BBLS                 MCF
                                        ----         ---            ----                ---            ----                 ---
<S>                                     <C>          <C>          <C>                <C>              <C>                <C>
Net proved developed reserves
January 1, 1997                          --           --          948,721            6,321,100        948,721            6,321,000
December 31, 1997                        --           --               --                   --             --                   --
December 31, 1998                        --           --               --                   --             --                   --
December 31, 1999                        --           --               --                   --             --                   --
</TABLE>

Changes to reserves in 1997  reflect the sale of the Colombia  subsidiary  as of
February 25, 1997.

                                      F-29
<PAGE>

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:

The aggregate change in the standardized  measure of discounted  future net cash
flows  was $0 in 1999  and 1998  and a  decrease  of  $21,902,016  in 1997.  The
principal sources of change were as follows:

<TABLE>
<CAPTION>
                                                                  For the years ended December 31,
                                                      --------------------------------------------------------
                                                           1999                 1998                  1997
                                                      -------------        -------------          ------------
<S>                                                   <C>                  <C>                    <C>
Beginning of year                                     $          --        $          --          $ 21,902,016
Sales and transfer of oil and gas produced,
     net of production costs                                     --                   --              (161,813)
Net changes in prices and production costs                       --                   --                    --
Extensions, discoveries, additions and
     improved recovery, less related costs                       --                   --                    --
Net change due to sales of minerals in place                     --                   --           (21,740,203)
Previously estimated development costs
     incurred during the year                                    --                   --                    --
Changes in estimated future
     development costs                                           --                   --                    --
Revisions of previous reserve
     quantity estimates                                          --                   --                    --
Changes in timing and other                                      --                   --                    --
Accretion of discount                                            --                   --                    --
                                                      -------------        -------------          ------------
End of year                                           $          --        $          --          $         --
                                                      =============        =============          ============
</TABLE>





                                      F-30

<PAGE>


INDEPENDENT AUDITOR'S REPORT ON SCHEDULE


Stockholders and Board of Directors
American International Petroleum Corporation
New York, New York

We have audited the consolidated  financial statements of American International
Petroleum Corporation and its subsidiaries as of December 31, 1999 and 1998, and
for each of the years in the  three-year  period ended  December  31, 1999.  Our
audits for such years also included the financial statement schedule of American
International  Petroleum Corporation and its subsidiaries,  listed in Item 14-2,
for each of the years in the  three-year  period ended  December 31, 1999.  This
financial statement schedule is the responsibility of the Company's  management.
Our  responsibility  is to report on this schedule  based on our audits.  In our
opinion,  such financial statement schedule,  when considered in relation to the
basic  financial  statements  taken as a whole,  presents fairly in all material
respects the information set forth therein.



HEIN + ASSOCIATES
Houston, Texas
March 30, 2000


                                      F-31


<PAGE>

          AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
                 SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                       Balance at         Additions Charged            Deductions:
                                      Beginning of           to Costs and         Accounts Written off
Description                               Year                Expenses             Against Allowance         Balance at End of Year
<S>                                      <C>                    <C>                       <C>                         <C>

December 31, 1997
Allowance for Doubtful Accounts          $1,921                 $ --                      $ --                        $1,921

December 31, 1998
Allowance for Doubtful Accounts          $1,921                 $1,494                    $ --                        $3,415

December 31, 1999
Allowance for Doubtful Accounts          $3,415                 $ --                      $1,921                      $1,494
</TABLE>


                                      F-32

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant has duly caused this amendment to the report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                   AMERICAN INTERNATIONAL PETROLEUM CORPORATION

Dated:  April 14, 2000

                                      By: /s/ Denis J. Fitzpatrick
                                         -----------------------------------
                                          Denis J. Fitzpatrick
                                          Chief Financial Officer

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this
amendment  to the report has been signed below by the  following  persons in the
capacities and on the dates indicated:


By:  /s/ George N. Faris                                 Date: April 14, 2000
     George N. Faris, Chairman
     of the Board of Directors

By: /s/ Joe Michael McKinney                             Date: April 14, 2000
     Chief Executive Officer

By:  /s/ Denis J. Fitzpatrick                            Date: April 14, 2000
     Denis J. Fitzpatrick
     Vice President, Secretary,
     Principal Financial and
     Accounting Officer

By:  /s/ Donald G. Rynne                                 Date: April 14, 2000
     Donald G. Rynne, Director

By:  /s/ Daniel Y. Kim                                   Date: April 14, 2000
     Daniel Y. Kim, Director

By:  /s/ William R. Smart                                Date: April 14, 2000
     William R. Smart, Director

By:  /s/ John H. Kelly                                   Date: April 14, 2000
     John H. Kelly,  Director





                                      F-33
<PAGE>

                                 Exhibit Index



Exhibit
Number                Description
------                -----------

 21.1            Subsidiaries of the Registrant

 27.1            Financial Data Schedule


















                                      F-34