|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2001



Commission file number



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

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

| | 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 February 28,
2002 was approximately $1,042,000 (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 February 28, 2002 was
185,495,750.



1
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|Forward
Looking Statements


Some of the information in
this document may contain forward-looking statements within the meaning of the
safe harbor provisions of Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934. 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 our financial condition or state other
forward-looking information. When considering such forward-looking
statements, you should keep in mind the risks and uncertainties discussed under
the captions Risk Factors, Management Discussion and Analysis
of Financial Condition and Results of Operations  Liquidity, and
Business, which could cause our actual results to differ materially
from those contained in any forward-looking statement.



PART I



Item 1.  BUSINESS



General


We are a holding company
that operates two major business divisions, a Refining Division and an Oil and
Gas Exploration and Production, or E&P Division. Through our wholly owned
subsidiaries we:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | refine crude oil feedstocks to produce jet fuel, diesel, naphtha, gas oils and fuel oil.
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | produce, process, and market conventional and technologically advanced polymerized
asphalt, vacuum gas oil and other products at our refinery in Lake Charles, Louisiana
utilizing low-cost, low-gravity, high sulfur crudes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | engage in oil and gas exploration and development in western Kazakhstan, where we own a
70% working interest in a 4.7 million acre exploration block and a 100% working interest
in a 264,000 acre gas field.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We also are seeking other
domestic and international oil and gas projects.


We were organized on April
1, 1929 under the laws of the State of Nevada under the name Pioneer Mines
Operating Company. Our name was changed to American International Petroleum
Corporation in 1982.





American International
Refinery, Inc.


Our American International
Refinery Inc. subsidiary, owns a 30,000 barrel per day refinery in Lake Charles,
Louisiana it acquired in July 1988, 25 acres of vacant waterfront property
adjacent to the refinery and another 45 acres of vacant land across the highway
from the refinery. Most of the refinerys feedstock and refined products
are handled through the refinerys barge dock at the river. The refinery is
located on 30 acres of land bordering the Calcasieu River, which connects with
the Port of Lake Charles, the Lake Charles Ship Channel and the Intercoastal
Waterway. The main unit of the refinery is the crude distillation tower, or
crude unit, which is capable of producing light and heavy naphtha, kerosene for
jet fuel, #2 diesel, vacuum gas oil and reduced crude oil sold as special #5
fuel oil. The crude unit also is suitable for adaptation to process sour crude
oil. Total petroleum storage capacity at the refinery is 750,000 barrels, which
includes 275,000 barrels of crude storage, 395,000 barrels of storage for
finished product sales and 80,000 barrels of product rundown storage.


We leased our crude unit to
Gold Line Refining Ltd., an independent refiner, from 1990 to March 20, 1997 and
terminated the lease in March 1997 as a result of default by Gold Line. Since
the termination of the lease, our employees have staffed the refinery and all
operations have been conducted under the direct control of our management.





Gulf Coast Petroleum
Trading Inc.


Our Gulf Coast Petroleum Trading
Inc. subsidiary, was organized in 2000 to purchase and market refined crude oil products
throughout the U.S.



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|St. Marks Refinery


Our St. Marks Refinery
subsidiary, owns a refinery in St. Marks, Florida, located on the St. Marks
River near Tallahassee, Florida. We acquired the refinery in November 1998 for
1,500,000 shares of our common stock. We have utilized the refinery only as a
distribution center for asphalt products, but have not conducted operations at
the refinery since 1998 due to the high cost of crude oil feedstock and lack of
capital resources.





American International
Marine, Inc.


Our American International
Marine, Inc. subsidiary, was organized in July 1998 to acquire a 1,750-ton
asphalt barge. The barge has a capacity of 27,000 barrels and has been used to
transport our own asphalt and to transport refined products for third parties.





American International
Petroleum Kazakhstan


Our American International
Petroleum Kazakhstan subsidiary, owns a 100% working interest in a 264,000
acre gas concession in Kazakhstan called Shagryly-Shomyshty, also known as
License 1551, and a 70% working interest in a 4.7 million acre exploration block
in western Kazakhstan, known as License 953.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | License 1551
| | ------------

|In February 1999, we were
officially notified by the Kazakhstan governments State Investment
Committee that we had won the tender for the Shagyrly-Shomyshty gas field in
western Kazakhstan and entered into a license agreement with the Kazakhstan
government for 100% ownership of the Shagyrly, a 30-year agreement with effect
from August 31, 1999. Fifty-eight of the sixty-nine gas wells drilled by the
Soviet Union in the 1960s to delineate the 264,000-acre gas field were tested
and found to have commercial gas by the regional development authorities. In
1994, the field was declared to have commercial gas reserves by the Kazakhstan
Ministry of Oil and Gas Industry, who recommended the field for development. Our
drilling and production development plan involves developing and maintaining
daily gas production at 200 to 250 million cubic feet per day from the most
productive part of the field.


The development plan
provides for the initial drilling of approximately 100 horizontal wells, each
with a horizontal extension of 1500 feet. Analysis of wells tested to date
indicates that individual horizontally drilled wells could achieve an average
production rate exceeding 6 million cubic feet per day. The ultimate field
development proposal involves use of modular, movable production
process/compression centers designed to filter, dehydrate, compress, and deliver
a total of up to approximately 250 million cubic feet of gas per day.


Ryder Scott Company, L.P.,
a Houston-based petroleum consulting firm, reviewed our 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 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 scheduled to be implemented to verify the horizontal drilling application
pending the consummation of a related gas sales contract. We are working to
conclude a gas sales contract with one or more gas purchasers for the sale of
Shagyrly gas, as well as the sale or transport of other gas we may want to
market, although we cannot assume that we will be successful in this endeavor.


Our strategy includes
developing shallow gas reserves in Shagyrly, purchasing and transporting third
party natural gas pursuant to our gas sales contracts, and diversified pursuit
of field development opportunities in other selected countries and basins where
perceived geological and political risks are acceptable.


3
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|
|

| | License 953
| | -----------

|In May 1997, our American
International Petroleum Kazakhstan subsidiary entered into an agreement with MED
Shipping and Trading S.A., a Liberian corporation with offices in Frankfurt,
Germany, to acquire 70% of the stock of MED Shipping Usturt Petroleum Ltd., a
Kazakhstan corporation which owns 100% of the working interest in a Kazakhstan
oil and gas concession called License 953. The concession is located
approximately 125 kilometers from the Chevron Corporations
multi-billion-barrel Tengiz Oil field near the Caspian Sea in the North Usturt
Basin.


The definitive agreement
under which we 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 us 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, which was subsequently amended, called for us
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 program 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. We have completed the acquisition of 805 kilometers of new 2D seismic
data and reprocessed about 1,300 kilometers of vintage 2D seismic data over the
license area. We 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 prior assessment of reserve potential of the evaluated
structures was significantly reduced. However, we believe it continues to be a
viable prospect because License 953 is known to contain other geological
structures with unevaluated geological potential and we currently intend to have
the required minimum work program completed in accordance with the contract.


In March 2001, we completed
the re-entry and testing of the Begesh No. 1 oil well on License 953 in
Kazakhstan and concluded that the wells upper Jurassic zones were not
capable of producing economic quantities of crude oil. At this time, we believe
we have sufficiently tested the Jurassic and Eocene structures present in
License 953, which were the most likely candidates for recoverable oil reserves
from reasonably shallow levels. After extensive testing and geological and
geophysical research and study, we believe that any significant volumes of
economically recoverable oil and gas may be found in the deep, untested,
carboniferous age rocks. The carboniferous is present over approximately 40% of
the total unevaluated acreage remaining on License 953.


The Company sought and
received a one-year extension on the block to further evaluate the carboniferous
prospectively and to identify a drillable prospect.





American International
Petroleum Corporation Holding, Inc.


Our American International
Petroleum Corporation Holding, Inc. subsidiary was formed in August 1998 to hold
25% of the outstanding shares of Zao Nafta, a Russian closed-stock company,
which we received as a default payment in 1999. 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. In March 1998, we signed
an agreement with Zao Nafta that granted us a 90-day option to acquire a 75%
working interest in a joint venture for the development of 17 oil and gas
licenses in the Samara and Saratov regions of European Russia, covering
approximately 877,000 acres. During the course of our due diligence
investigation, we were unable to reach an agreement with the owner of Zao Nafta
over who would control and manage development of the acquired fields. As a
result, we informed the owner that we would not pursue the purchase and
requested a refund of the $300,000 deposit called for in the option. When the
owner did not pay the refund, we exercised our right under the option to demand
25% of the outstanding shares of Zao Nafta from the owner. The Zao Nafta shares
may be sold or traded in private commercial transactions, as they are not listed
or traded on any organized exchange. The shares have been delivered to us and we
will hold them until a decision is made on how or if to proceed. We continue to
consider various alternatives including the sale or barter of the Zao Nafta
shares to acquire petroleum interests in the Samara region of Russia.


4
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|Competition





Refining and Asphalt
Divisions



The State Departments of
Transportation throughout the southeastern part of the United States, including
all the states that we consider our marketplace, continue to expand the
percentage of polymer modified asphalts in the total mix of road grade asphalts
laid on their various highways. This continuing development has been very good
for us as the major oil companies continue their withdrawal from this complex
business. Our Lake Charles asphalt blending facility currently has the
capability to furnish the majority of these polymer modified products. The
facility is now gearing up to produce several new specialty products that are
high margin with potential significant growth possibilities.


In addition to the
construction of the Exxon coker in Houston, which eliminated Exxon Mobil from
the asphalt business, Marathon Ashland Petroleum has recently commissioned a
large coker in New Orleans that we expect will bring drastic supply changes to
the entire marketplace. Marathon will move from a net seller in the wholesale
asphalt market to a net buyer to supply their vast downstream retail rack
business. We plan to fill a portion of this void upon resumption of crude
processing.


Most of our competition in
our 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 our refinery to the nearest
competing truck rack asphalt-producing refinery is over 150 miles away. We have
been successful over the past year developing the East Texas market. Our current
volume in East Texas approaches fifty percent of our business. We have
transportation advantages over all competitors in the gulf coast area except one
whose overall cost basis is higher than ours.





E &P Division



The oil and gas industry,
including oil refining, is highly competitive. We are 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 do we. Revenues
generated by our oil and gas operations and the carrying value of our oil and
gas properties are highly dependent on the prices of oil and natural gas. The
price that we receive for the oil or natural gas we may produce is dependent
upon numerous factors beyond our control, the exact effect of which cannot be
predicted. These factors include (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 our ability or inability to engage in
effective marketing strategies, may affect the supply or demand for our oil, gas
and other products and, thus, the price attainable for those products.


The Shagyrly 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 Shagyrly will have to be transferred to markets in Western Europe via
Kaztransgaz and Gazprom pipelines. Therefore the project bears political risks
of both Kazakhstan and Russia, 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 activities escalate.



Employees


As of December 31, 2001,
we, together with our subsidiaries, employed 61 persons on a full-time basis,
including 13 persons who are engaged in management, accounting and
administrative functions for American International Petroleum Corporation and 41
who are employed by American International Refinery, Inc. on a full-time basis,
including 16 persons who are engaged in management and administrative functions,
and 4 persons who are employed by American International Petroleum Kazakhstan in
management and administrative positions. Three persons are employed by St. Marks
Refinery, Inc., one of which is in management and administration. We frequently
engage 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. We have no collective bargaining agreements and believe that
relations with our employees are satisfactory.


5
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-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Financial
Information Relating to Foreign and Domestic Operations and Export Sales


The table below sets forth,
for each of the previous three fiscal years, the amounts of revenue, operating
profit or loss and assets attributable to each of our geographical areas, and
the amount of our export sales.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | 2001 | 2000         | 1999
|-------------------------------------------- | ---- | ------------ | ----
|Sales to unaffiliated customers:             |      |              |     
|United States                                |      | $ 18,312,000 |     
|Kazakhstan                                   |      |             |     
|Sales or transfers between geographic areas: |     
|United States                                |      |             |     
|Kazakhstan                                   |      |             |     
|Operating profit or (loss):                  |     
|United States                                |      | $(12,391,000 | )   
|Kazakhstan                                   |      | (10,671,000  | )   
|Identifiable assets:                         |     
|United States                                |      | $ 21,655,000 |     
|Kazakhstan                                   |      | $ 12,445,000 |     
|Export sales:                                |     
|None                                         |     

|Insurance;
Environmental Regulations


Our 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. We maintain 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 our interest in specific
property. We are not fully covered for damages incurred as a consequence of
environmental mishaps. We believe it is presently in compliance with government
regulations and follows safety procedures that 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 our operations. 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. We cannot assure you that
we will not incur substantial financial obligations in connection with
environmental compliance.


We are occasionally subject
to nonrecurring environmental costs. The annual cost incurred in connection with
these assessments varies from year to year, depending upon our activities in
that year. The costs of such environmental impact assessments were not material
in 2001, and are not expected to be material in future years, however, we cannot
assure you that these costs will not be material. We are not aware of any other
anticipated nonrecurring environmental costs.


6
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|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. Our operations require a comprehensive environmental permit for
all drilling and exploration activities.


We currently have no
outstanding or anticipated material reclamation issues in the United State or
abroad.



Marketing





Refining Division



We have received full
accreditation in the State of Louisiana and the State of Texas Departments of
Transportation. Both states have certified us as a self certifying asphalt
provider which gives us a great advantage over some of our competitors. This has
enabled us to bid on state and federal highway projects in Louisiana and Texas
and has provided us with an asphalt quality assurance endorsement for non-state
and federal projects as well. We continued to maintain an aggressive marketing
posture throughout 2001. We have secured a substantial number of asphalt sales
agreements with Louisiana and Texas highway construction companies, both at
highway bid lettings and through private conventional paving projects.


Our St. Marks facility
remained closed during the year 2001 because of a lack of capital. We
continually monitor the market conditions in the region and should general
industry conditions change in future months, we will reconsider asphalt
operations at St. Marks. In addition, we continue 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
our expansion into new profitable retail sales outlets at greater netback
margins than can be achieved in the wholesale barge markets.


The Transportation and
Equity Act for the 21st Century authorizes $173 billion over six years
(1998-2003) for construction and maintenance of federal highways. The six-state
Gulf Coast market where we sell our conventional and polymerized asphalt
products has been allocated more than $32 billion in federal funding under this
Act, a 61% increase over the previous highway spending program. This Act
provides a significant increase in the overall demand for asphalt in our
markets. In addition, matching state Department of Transportation highway funds
could increase the total spending for highway construction by another 10% 
50%. We are committed to continue to expand retail markets across the Gulf Coast
and into other various profitable geographic areas.


Trigeant LTD and Sargeant
Bulktainers, Inc. accounted for 13% and 12% of our sales during 2001, respectively, and
R. E. Heidt Construction, Diamond B Construction, Davison Petroleum and Gilchrist
Construction accounted for 25%, 16%, 16%, and 13% of our sales during 2000, respectively.




E &P Division



We have had no oil and gas
sales since we sold our South American assets in February 1997. We are currently
attempting to obtain a gas sales contract for our License 1551 gas field in
Kazakhstan. We have been negotiating a sales contract with Gazprom, the Russian
gas monopoly, although we have contacted other parties who could purchase our
gas under certain circumstances. However, export of our gas from Kazakhstan
through Russia is the most likely alternative and therefore we would need to
have either a sales or transportation contract with Gazprom to achieve our goal.


We are currently engaged in
negotiations and discussions with various potential purchasers and transporters
for the transportation and/or purchase of our anticipated Shagryly gas
production and other gas we may have available for sale under a U.S. Dollar or
Eurodollar backed contract.



Sources and
Availability of Raw Materials


Our Lake Charles refinery requires
sour asphaltic crudes as a feedstock to produce performance grade asphalts which are
generally in available supply within the western hemisphere. Primary sources of asphaltic
crude oil feedstock include Mexico, Venezuela, Colombia, Ecuador, and Canada. Crude oil
feedstocks for roofing asphalt can be obtained from Saudi Arabia, Oman, U.S. Gulf
offshore, Texas and Louisiana sweet lights. Many crudes can be blended into the primary
base crudes. As an alternative to purchasing and processing crude oil, we purchase
wholesale asphalt as a blendstock to process and service our asphalt customers in the
Gulf Coast. These blendstocks may be purchased from numerous sources, however, their
availability varies at certain times of the year when demand is at its peak, principally
during the warmer months when shortages can occur. However, availability is usually
dependent, to a large extent, on the price a buyer is willing to pay.


7
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|Item 2.  PROPERTIES



Oil and Gas
Acreage and Wells


Gross acreage presented
below represents the total acreage in which we owned a working interest on
December 31, 2001 and net acreage represents the sum of the fractional working
interests we owned in such acreage.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             | GrossDevelopedAcreage | GrossUndevelopedAcreage | NetDevelopedAcreage | NetUndevelopedAcreage
|------------ | --------------------- | ----------------------- | ------------------- | ---------------------
|Kazakhstan   |                       |                         |                     |                      
|License 953  |                       |                        |                     | 4,734,097            
|License 1551 |                       |                        |                     | 263,853              
|             |                       |                         |                     |                      
|Total        |                       |                        |                     | 4,997,950            

|The table below indicates
our gross and net oil and gas wells as of December 31, 2001. Gross wells
represents the total wells in which we owned a working interest, and net wells
represents the sum of the fractional working interests we own in such wells.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           | Productive Wells
|---------- | ----------------
|
|
|Kazakhstan |                 

|Oil and Gas
Production


We have had no oil and gas
production or oil and gas sales since February 1997 when we sold our South
American subsidiaries.



Reserves


We have had no proved
reserves and future net revenues from oil and gas interests we own since
February 1997, when we sold these assets. Consequently, we have not filed any
reports of estimated total proved net oil or gas reserves since that date.



Drilling
Activity


We sold all of our oil and
gas producing properties in February 1997 and have not yet implemented
production operations in Kazakhstan. The following table sets forth the gross
and net exploratory and development wells that were completed, capped or
abandoned in which we participated during the years indicated.



8
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|
|

|                   | 2001 | 2000 | 1999
|------------------ | ---- | ---- | ----
|
|Exploratory Wells: |      |      |     
|Kazakhstan         |     
|Oil                |      |     |     
|Gas                |      |     |     
|Dry                |      |     |     
|                   |      |      |     
|Total              |      |     |     
|Development Wells: |     
|Kazakhstan         |      |     |     
|South America      |      |     |     
|                   |      |      |     
|Total              |      |     |     
|                   |      |      |     
|Total              |      |     |     
|                   |      |      |     

|Facilities


We have leased
approximately 10,500 square feet of office space in Houston, Texas at a monthly
rental of $17,929, which lease expires on December 12, 2003. This space
comprises our principal executive office. We also have a lease for approximately
4,800 square feet of office space at 444 Madison Avenue, New York, N.Y. 10022.
The space was leased for a period of seven years at a monthly rental rate of
$19,600 and expires on December 31, 2005. Two-thirds of this space is sublet for
$152,448 per year through the end of our lease in New York.


In addition, we own 100
acres of land in Lake Charles, Louisiana where our refinery is located. In
addition to the structures and equipment comprising our refining facility, our
refinery assets include an office building with approximately 4,400 square feet, a
new 2,200 square foot asphalt plant office, a 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. We also own
approximately 68 acres of vacant land adjacent to the St. Marks Refinery in
Florida.



Item 3.  LEGAL
PROCEEDINGS


In 1998, Neste Trifinery filed suit
in a Harris County District Court against us and our wholly owned subsidiary, American
International Refinery, Inc. (Neste Trifinery v. American International Refinery, Inc.,
et al, Case No. 98-11453; in the 269th Judicial District; in and For Harris County,
Texas). In the fourth quarter of 2001, Neste withdrew the lawsuit.



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



None



9
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|PART II


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


Our common stock is traded
in the over-the-counter market and quoted on the OTC Bulletin Board under the
symbol AIPN. The following table sets forth, for the periods
indicated, the range of high and low sale prices of the common stock as reported
by Bloomberg LLP.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  | Common Stock  
|---- |  | --------------
|
|2000 |  | First Quarter 
|     |  | Second Quarter
|     |  | Third Quarter 
|     |  | Fourth Quarter
|    
|2001 |  | First Quarter 
|     |  | Second Quarter
|     |  | Third Quarter 
|     |  | Fourth Quarter

|At February 15, 2002, our
common stock was owned by approximately 1,890 shareholders of record and we
estimate there were approximately 26,800 beneficial owners of our common stock.
During the fourth quarter of 2001, we issued 4,782,437 shares of our common
stock upon conversion of our Series A Convertible Preferred Stock. The issuance
of these shares was exempt from the registration requirements of the Securities
Act under Section 3(a)(9) of the Securities Act.



Dividend Policy


We have never paid cash
dividends on our common stock and do not contemplate paying any cash dividends
in the foreseeable future. Our Board of Directors intends to retain earnings to
finance the operations and development of our business.



Item 6.  SELECTED FINANCIAL INFORMATION


The following table sets
forth selected consolidated financial data for each of the five years ended
December 31, 2001, which were derived from our audited consolidated financial
statements. Our consolidated balance sheets as of December 31, 2001 and 2000 and
our consolidated statements of operations for the years ended December 31, 2001,
2000, and 1999 and the accountants report thereon are included in this
report under the heading Consolidated Financial Statements.
Historical results are not necessarily indicative of the results to be expected
in the future. The selected consolidated financial data presented below is
qualified in its entirety by, and should be read together with, our consolidated
financial statements and related notes included in this report under the heading
Consolidated Financial Statements.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | (000's)December 31
|---------------------------- | ------------------
|
|Statement of operations data |                   
|Revenues                     |                   
|Net loss applicable to       |                   
|common shareholders (1)(2)   |                   
|Net loss per share -         |                   
|basic and diluted            |                   

|(1) |  | Net loss included a provision for the impairment of carrying costs of oil and
gas properties and plant assets of $10,670,675 and $9,236,280, respectively, in
2001 and oil and gas properties of $12,546,295 in 2000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Net loss applicable to common shareholders in 2001 and 2000 reflects imputed
dividend on preferred stock of $217,000 and $543,000, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|10
|--

|
|

|                          | (000's)December 31
|------------------------- | ------------------
|
|Balance sheet data        |                   
|Working capital (deficit) |                   
|Total assets              |                   
|Total current liabilities |                   
|Long-term debt            |                   
|Accumulated deficit       |                   
|Stockholders equity      |                   
|Cash dividends declared   |                   

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



Results of
Operations


The Company has two
reportable geographical segments which are primarily in the business of
exploration, development, production of oil and natural gas, and the refining,
petroleum product trading and asphalt products and services area. In
mid-February of 2001, the refinery commenced processing crude oil for Sargeant
Bulktainers, Inc., a division of Sargeant Marine, Inc., an asphalt
transportation and storage company, on a fixed throughput fee basis plus
adjustments for fluctuating energy costs associated with the processing. The
refinery also derived revenues by leasing out some of its storage tank facility
to third parties. Also during the current year our products trading segment
commenced buying and selling the petroleum products derived from the processing
agreement with Sargeant. On July 1, 2001, we commenced operating our asphalt
segment for our own account after having operated this segment within a joint
venture structure that was accounted for on the equity method from July 1, 2000
through June 30, 2001. We have had no oil and gas production operations since
the first quarter of 1997 when we sold our South American wholly-owned oil and
gas subsidiaries. Since this sale, our oil and gas activities have included, but
were not limited to, geological and geophysical acquisition, reprocessing and/or
analysis of data, acquisition of additional licenses or projects, drilling, and
marketing analysis and negotiation. We have yet to implement oil and/or gas
production operations in Kazakhstan.


For the year ended December
31, 2001, our refining segment had sales of $3,009,000 and costs of goods sold
and operating expenses of $3,501,000. The petroleum product trading segment had
sales of $9,337,000 for the year 2001 with costs of goods sold and operating
expenses of $9,084,000. The asphalt products segment had sales of $5,435,000,
excluding income from joint venture operations of $529,000, and costs of goods
sold and operating costs of $4,852,000 for the year 2001. The oil and gas
segment had an impairment of oil and gas properties of $10,671,000 and the
refinery property and equipment had an impairment of $9,236,000. Interest income
and other corporate revenues totaled $327,000 with general corporate expense,
interest expense and depreciation, depletion and amortization being $4,825,000,
$2,174,000, and $1,965,000, respectively. Our identifiable assets at December
31, 2001 total $21,655,000 of operating assets in the United States, $12,445,000
in Kazakhstan, and $2,954,00 of corporate assets.


The following table
highlights the results of operations for the years ended December 31, 2001,
2000, and 1999.



11
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|
|

|                                    | Years Ended December 31,
|----------------------------------- | ------------------------
|
|Trading Operations:                 |                         
|Trading revenues (000's)            |                         
|Product and operating costs (000's) |                         
|Asphalt Operations:                 |                         
|Asphalt revenues (000's)            |                         
|Product and operating costs (000's) |                         
|Refinery Operations:                |                         
|Refinery revenues (000's)           |                         
|Product and operating costs (000's) |                         

|Year Ended December 31,
2001 compared to the Year Ended December 31, 2000





Trading Operations:



The product trading and
marketing segment includes the purchasing and sales of various petroleum
products derived from the processing agreement with Sargeant. The petroleum
product revenues approximated $9,337,000 during the first nine months of 2001
with costs of products approximating $9,084,000. This segment sells and buys
crude oil products to and from third parties. It commenced operations during the
latter part of the first quarter of 2001 and had sales of over 390,000 barrels
of various products during the current period. We did not have
any petroleum product sales during 2000.





Asphalt Operations:


Since 1998, for the most
part, we have operated our asphalt business for our own account. However, during
the period July 1, 2000 through June 30,2001, the asphalt segment
operated under a joint venture structure with Sargeant and we accounted for our
interest on the equity method. Consequently, only profits from the joint venture
are reflected on our financial statements for that period, not the related
revenues and expenses.


Consequently, the year
ended December 31, 2001 reflects only the revenue and expense from July 1, 2001
through the end of the year. During this period, our asphalt and related
revenues approximated $5,435,000 with related costs of $4,852,000 compared to
revenues of $2,764, 000 and related costs of $2,319,000 for the period ended
December 31, 2000, which reflected only the six months of operation from January
1, 2000 through June 30, 2000, the period preceding the joint venture. Asphalt
volumes were greater for the six month period this year compared to the same
period last year by 38% due primarily to the exceptionally good weather our
market area experienced during the latter part of 2001 compared to the rainy
winter/spring weather experienced during the same period in 2000. At December
31, 2001, we had a backlog of asphalt sales orders of approximately 43,000 tons
valued at approximately $6.7 million.


Our St. Marks, Florida
refinery facility has not been in operation since the last quarter of 1998 due
to the high cost of asphalt products since early 1999, the higher demand for the
higher margin PG-grade polymerized products in the Louisiana and Texas markets,
the lack of such products in the St. Marks markets, and the additional cost
which would be incurred to transport products to St. Marks from Lake Charles.
Operating the St. Marks facility will depend on the future price and
availability of petroleum products. The State of Florida Department of
Environmental Protection is in the process of investigating the St. Marks
facility for possible site contamination which we believe occurred prior to our
purchase of the facility. At this time, we do not believe any material liability
will result from the investigation and, consequently, have made no provision for
same in our financial statements. However, the investigation may hinder our
ability to reopen the facility during 2002.




Refinery Operations:


During 2001, the refinery had
revenues of approximately $3,009,000 from processing and rental fees with related
operating costs of $3,501,000 compared to approximately $170,000 of revenues and related
costs of $1,924,000 for the year 2000. The refinery was inactive during 2000 compared to
having been operational for approximately five months during 2001. During 2001 we
processed approximately 1,113,000 barrels of crude oil feedstock for third parties
compared to approximately 100,000 barrels during 2000. During the third quarter of 2000
we entered into a processing agreement with Sargeant to process their crude oil for a
processing fee plus any incremental increases in energy costs. Sargeant did not provide
the necessary feedstocks to start processing until the first quarter of 2001 and
processed much less crude oil than they agreed to process, so the processing agreement
was mutually terminated in July 2001. The high costs to maintain the refining unit while
it is not being 100% utilized significantly contributed to the high operating costs we
experienced in 2001 and 2000. We are currently negotiating a new agreement with a
different party, under which we would maximize the utilization of the refining and asphalt
facilities in Lake Charles during the second quarter of 2002. However, we cannot assure
you that we will enter into an agreement with that or any other party.


12
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|Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


Trading Operations:


We had no trading
operations prior to February 2001.


Asphalt Operations:


During 2000, we had asphalt revenues
of $2,586,000, exclusive of any joint venture revenues, compared to revenues of
approximately $7,621,000 during 1999. Costs of sales related to these revenues were
approximately $3,000,000 and $8,486,000, respectively. Other asphalt related revenues in
2000 were $179,000 with related costs of $206,000 compared to $4,000 of other asphalt
revenues and costs of $59,000 for 1999. These revenues and costs are primarily related to
providing asphalt transportation and services for third parties. The decrease in asphalt
revenues is due to our accounting for the joint venture on the equity method. Joint
venture asphalt revenues were approximately $3,972,000 with related costs of $3,857,000.
The joint venture provided feedstocks to fulfill our backlog contractual obligations with
a reasonably priced product. During the first two quarters of 2000 we had been fulfilling
certain of our 1999 asphalt contracts with asphalt inventory that had been purchased at
higher 2000 asphalt spot market prices than asphalt market prices had been at the time
the contracts were entered into. As a result, we were committed to selling low-priced
conventional asphalt at a loss or at break-even throughout most of 1999 and early 2000.
With this supply of asphalt, we were able to supply these 1999 contracts with lower
cost asphalt and mitigate some of the effects of the market variances. We mitigated some
of the effects of these market variances by use of escalation provisions in our asphalt
sales contracts, which now enable us to increase our contracted sales price by 5% per
quarter if our feedstock prices rise to certain levels.


Refinery Operations


The refinery had only
$21,000 of light end sales in 2000 compared to approximately $513,000 in 1999.
Except for a 50,000 barrel test run in November related to our processing
agreement with Sargeant, the refinery did not process any crude oil in 2000 due
to the shortage of crude oil and our capital constraints during the year. In
connection with the processing agreement with Sargeant, the refinery processed a
test batch of product for Sargeant and recorded revenues of $149,500 related to
the processing. Initial processing was to commence in November but was delayed
by Sargeant in procuring its feedstock until February of 2001, at which time the
refinery began processing at initial rates of 10,500 to 12,000 barrels per day.


We have not operated our
terminal in St. Marks Florida since 1998, but incurred approximately $65,000 of
maintenance and security costs during the year 2000 compared to $96,000 in 1999.
Due to the increased costs and the subsequent decrease in supply of product
brought on by the increase in world oil prices, we determined that it would be
more economically feasible to direct our 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.



Oil and Gas
Production Activity


We have had no oil and gas
production activity since February 1997.


13
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other Income


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


Other income increased in
2001 compare to 2000 by approximately $162,000. The increase was primarily
attributable to an increase in interest income for the year of $125,000 due to
having more funds on deposit during 2001 compared to 2000. Sub-lease income
increase by $39,000 in 2001 compared to 2000. Sub-lease income in 2001 reflected
revenues for twelve months compared to nine months for the year 2000.


Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


Other income decreased in
2000 by approximately $49,000 compared to 1999. The decrease is a result of less
interest income derived from fewer funds on deposit during 2000 compared to
1999. During 2000 we entered into a partial sub-lease of space at our New York
office and recognized rental income of $114,000 during the year which we did not
have in 1999. The sub-lease is a result of our continued efforts to reduce its
general and administrative costs during the year 2000. A decrease in 2000 of
approximately $56,000 is attributable to recognition of a forgiveness of debt
recorded in 1999 and none for 2000.


General and
Administrative


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


Total general and
administrative expenses decreased by approximately $1,953,000, or 29%, in 2001
compared to 2000. Several items contributed to this years significant decrease.
During 2001 we were able to negotiate an adjustment related to property taxes
assessed on the refinery plant and equipment for the year 2001 and 2000, which
amounted to a $682,000 decrease in the total tax assessment. Also, in 1998 we
reserved and recorded a provision for bad debt expense of approximately
$1,500,000 related to the default of MIP on the note related to the sale of the
Colombian and Peru oil and gas properties, as previously discussed. Due to
subsequent payments made by MIP, the reserve was reduced by approximately
$708,000 at the end of this year. The majority of the bond cost related to
financing during 2000 were written off in the year 2000 and bond costs related
to financing in 2001 decreased $245,000 compared to 2000. Another area
contributing to the large decrease in 2001 was the decrease in public relations
and trading costs of approximately $223,000 under 2000 costs. Certain other
expenses decreased during 2001 compared to 2000: travel expenses, professional
fees and sales commissions decreased approximately $131,000, $77,000, and
$58,000, respectively. Certain other expenses increased during 2001 compared to
2000: General insurance expenses, general office expenses, and environmental
cleanup and assessments increased approximately $40,000, $19,000, and $117,000,
respectively. The Company continually strives to reduce its general and
administrative expenses.


Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


Total general and
administrative expenses increased by approximately $409,000 or 6%, in 2000
compared to 1999. The Company has made a significant effort to decrease our
general and administrative expenses. Payroll and certain other employee related
expenses during 2000 have been reduced by $129,000 compared to 1999. Public
relations costs, dues and subscriptions, sales commissions were reduced,
compared to 1999, by $234,000, $21,000, and $102,000, respectively. Certain
expenses have increased during 2000 compared to 1999 because of our increased
activities, such as travel expenses, and professional fees, having increased
$139,000 and $26,000, respectively. Certain other costs, which we have limited
control over have increased, such as corporate franchise and property taxes,
having increased $346,000 over the same costs in 1999.



Depreciation,
Depletion and Amortization


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


Depreciation, depletion and
amortization increased approximately $120,000 in 2001 compared to 2000 due to
adjustments in depreciation rates and values throughout the year.



14
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|Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


Depreciation, depletion,
amortization and provision for impairment increased approximately $12,661,000 in
2000 compared to the same period in 1999. Depreciation in 2000 reflects the
increased depreciation of our $18.6 million dollar asphalt and related equipment
construction project at the Lake Charles refinery that commenced in 1996 and was
completed in December of 1998. This new addition doubled the carrying value of
the Lake Charles refinery and accounted for the 100% increase in these
expenditures.



Provision for
Impairment of Oil and Gas Properties


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


The net total costs
recorded for License 953 equal $14.7 million before impairment, through the end
of 2001, including approximately $6 million in identifiable seismic costs which
we believe has a market value which could exceed its cost. However, since we
have utilized a portion of this seismic data to evaluate certain acreage within
the License and have completed the evaluation of a majority of the License
acreage without identifying any related proven oil and/or gas reserves, we
believe it is appropriate to impair the related seismic data costs and the
non-seismic property costs associated with these unsuccessful evaluations.
Therefore, we have recorded an impairment to the net total costs recorded for
License 953 of $10.7 million for the year ended 2001. At December 31, 2000 we
recorded an impairment of $12.5 million for License 953.


Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


In March 2001, we completed
the re-entry and testing of the Begesh No. 1 oil well on License 953 in
Kazakhstan and concluded that the wells upper Jurassic zones were not
capable of producing economic quantities of crude oil. At this time, we believe
we have sufficiently tested the Jurassic and Eocene structures present in
License 953, which were the most likely candidates for recoverable oil reserves
from reasonably shallow levels. After extensive testing and geological and
geophysical research and study, we believe that any significant volumes of
economically recoverable oil and gas may be found in the deep, untested,
carboniferous structures, which are estimated to equate to approximately 40% of
the total unevaluated acreage remaining on License 953. Therefore an impairment
provision of $12,546,000 was recognized on our Kazakhstan oil and gas properties
held on License # 953. We evaluated the costs recorded on this License and
calculated that approximately 60% of the costs of the project had been impaired.
There was no impairment recorded against License 953 for the year ended 1999 or
any year prior to that.



Provision for
Impairment of Plant Assets


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


Because of the inconsistent pattern
in which we have utilized the Lake Charles facilities since the termination of the lease
with Gold Line, primarily caused by the short-term nature of the contracts we have
entered into during that period, it is difficult to determine with any certainty if we
can fully recover the existing carrying value of the facilities. Although we are
currently having discussions that could result in multi-year contracts which would
maximize the utilization of these assets which could result in sufficient undiscounted
future cash flows to fully recover these carrying costs, at this time, we cannot assure
you that we will consummate agreements that will achieve that result. In addition,
although the continuation and growth of our asphalt business may justify retaining a good
portion of the existing carrying value of approximately $29 million, at this time, we
cannot assure the full recovery of these costs. Consequently, we have decided to record
an impairment of approximately $9.2 million of the plant assets at the Lake Charles
facilities for the year ended 2001. There was no impairment recorded for the year ended
2000.


Year Ended December 31,
2000 compared to the Year Ended December 31, 1999



There was no provision for
impairment of plant assets in the years prior to 2001.




15
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|Interest


Imputed interest of
approximately $1,248,000, $705,000 and $3,044,000 was incurred in the years
ended December 31, 2001, 2000 and 1999, respectively, and was related to the
presumed incremental yield our investors may derive from the discounted
conversion rate of debt instruments issued by us during these years. Management
believes that the related amount of interest recorded by us is not necessarily
the true cost to us of the instruments we 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 some cases was as long as
six months, large block factors, lack of a sufficiently active market into which
the stock can be quickly sold, and time value). However, generally accepted
accounting principles require 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.


We expense and also
capitalize 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


Year Ended December 31,
2001 compared to the Year Ended December 31, 2000


Interest expense decreased
approximately $1,116,000 for the year 2001 compared to 2000. During 2001 we
incurred approximately $747,000 of interest on debentures and short-term and
trade notes outstanding during 2001 compared to $1,872,000 of interest incurred
in 2000. We incurred approximately $1,248,000 of non-cash imputed interest and
approximately $179,000 of non-cash interest related to warrants and stock issued
in connection with debentures.


Year Ended December 31,
2000 compared to the Year Ended December 31, 1999


Interest expense for 2000
decreased by $3,211,000 to $3,290,000, compared to $6,501,000 in 1999. During
2000 we incurred approximately $1,872,000 of interest on debentures and
short-term and trade notes outstanding during 2000. We incurred $705,000 of
non-cash imputed interest, and approximately $713,000 of non-cash interest, both
related to warrants and stock issued in connection with debentures.



Liquidity and
Capital Resources


During the year ended
December 31, 2001, we used a net amount of approximately $4,121,000 for
operations, which reflects approximately $22,315,000 of non-cash provisions,
including impairment of oil and gas properties in Kazakhstan of $10,671,000 and
plant assets in Louisiana of $9,236,000. Approximately $589,000 was used to
increase asphalt blendstock inventory and current assets other than cash and
$1,605,000 was provided from an increase in accounts payable and accrued
liabilities. Additional uses of cash during the period included additions to oil
and gas properties and refinery property and equipment of $2,226,000. Cash for
operations was provided by proceeds from the sale of preferred stock,
debentures, and notes payable of $5,893,000 and from an increase in short-term
debt of $1,278,000. This cash was offset by cash used to decrease notes payable
of $586,000 and to increase other long-term assets of $466,000.


In February 1999,
Mercantile International Petroleum, Inc. failed to pay us the $1.6 million
outstanding balance of the 5% convertible debenture it issued to us as partial
payment for the purchase of our oil and gas properties in Columbia and Peru,
South America in February 1997. In January 2000, we reached an agreement with
Mercantile, under which Mercantile acknowledged its indebtedness to us in the
amount of $1,581,000 for the outstanding balance of the debenture and an
additional amount of $1,306,000 in connection with our earnout provision of the
original purchase agreement. Mercantile agreed to repay this aggregate debt of
$2,887,000 by issuing a new 11.5% convertible debenture to us. Beginning in
February 2000, Mercantile began to make the scheduled monthly payments to us
amounting to the greater of $70,000 or 80% of its Colombian subsidiarys
net income during the calendar year 2000. During 2000, each payment was in the
amount of $70,000 and was generally paid in a timely manner. Beginning in
January 2001, Mercantile began to pay monthly the greater of $80,000 or 80% of
the subsidiarys net income until the debt is retired. In March 2001 we
received notice from Mercantile that Ecopetrol, the Columbian government oil
company that purchases the majority of Mercantiles oil production in
Columbia, was withholding payment of the proceeds from the purchase of
Mercantiles oil sales to Ecopetrol in Columbia, pending resolution of a
legal dispute between Mercantile and another entity in Columbia. Mercantile
originally informed us they expected the payments to resume upon resolution of
this dispute in July 2001. In November 2001, Mercantile indicated they expected
an imminent settlement of this dispute, which would allow them to release the
accrued, unpaid portion of the amounts due through mid-November of $640,000.
However, shortly thereafter, Mercantile was informed they had lost the dispute
and were not able to release these funds in lump sum, but would need to begin
paying again at $80,000 per month until all amounts due were fully paid.


16
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------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In an effort to minimize
our exposure to the potential future risks of receiving full payment of the
debenture from Mercantile, we agreed to reduce the principal and interest
balances due on the debenture of approximately $2.6 million to $1.5 million, if
Mercantile would pay us $1.1 million immediately, $100,000 on or before March
15, 2002, and $300,000 on or before December 31, 2003. Mercantile agreed and
paid the first installment of $1.2 million. In the event either the second or
third payments are not made on or before the respective due date, the required
payments will double, respectively, as applicable. Interest accrues on the
$300,000 final payment at 11.5% per month and is to be paid to us in cash each
month beginning March 15, 2002.


In addition to reducing the
principal and interest balances due, we also gave up any rights we had in
connection to any net operating loss benefits which would accrue to Mercantile,
which benefits, we believe, were not likely to accrue in any event. We utilized
the proceeds primarily to service our asphalt contract backlog which, at
December 31, 2001 was worth approximately $6 million. The unpaid portion of the
debt is convertible into Mercantile common stock at our option, at any time, at
$1.50 per share. Mercantile also agreed to issue warrants, upon the signing of
the definitive agreement, entitling us to purchase an aggregate of 2,347,000
Mercantile common shares at any time prior to December 31, 2002. The exercise
price of the warrants was $1.00 per share during 2001 and is $1.50 during 2002.
These provisions of the debenture remain unchanged.


We continue to have
discussions with potential partners regarding a farmout of some of our 100%
working interest in License 1551 Shagyrly gas field in Kazakhstan. Any proceeds
that may be derived from the possible sale or farm-out of a portion of our oil
and gas concessions in Kazakhstan will be utilized to repay debt, fund the
development of our License 1551 gas field, the minimum work program at our
License 953, and for general corporate uses. The majority of the development
funding for License 1551 is expected to be derived from project financing.


In August 2000, our
American International Petroleum Kazakhstan subsidiary sold an aggregate of
$450,000 principal amount of its 12% promissory notes, payable upon demand, to
certain of our officers and directors and to an individual investor. Each lender
was given a warrant or option to purchase one share of our common stock for each
dollar invested, with an exercise price of 105% of the closing market price of
the common stock on the date preceding the closing of each transaction. We used
these proceeds to initiate the preliminary reentry work at our Begesh oil well
in License 953 in Kazakhstan, which reentry was completed in the first quarter
of 2001 and resulted in no economically recoverable oil. As of December 31,
2001, we had an aggregate outstanding principal balance remaining on these notes
of $100,000. The drilling effort at Begesh satisfied our minimum work and
monetary obligations on License 953 in Kazakhstan through 2000. We received
formal approval of our request for an extension of the exploration contract and
the remaining $2.8 million minimum work program from the Kazakhstan Government
for an additional year through November 2002, however, at this time, we plan to
apply for a three year extension of the License and related minimum work program
which would be directed at evaluating the gas potential in the eastern portion
of the License near Shagyrly Shomyshty.


We have decided to delay
the initial phase of development drilling at Shagyrly Shomyshty, estimated to
cost approximately $3.8 million, until a gas sales contract is obtained to sell
the related natural gas production. We continue to have discussions with
potential purchasers and marketers regarding the purchase of our gas, however,
political and organizational changes within Kazakhstan and Russia have resulted
in substantial delays and uncertainty relative to our ability to consummate such
a contract. We cannot assure you that a gas contract will be signed or that we
will be successful with the initial phase of the drilling program, both of which
are prerequisites to the initiation of full field development of Shagyrly
Shomyshty. We have had discussions with various financing entities, suppliers
and export credit agencies regarding project financing to complete the full
development of this project.


In September 2000, we
entered into a one-year processing agreement with Sargeant Bulktainers Inc., a
division of Sargeant Marine, Inc., in which Sargeant agreed to process a minimum
of 300,000 barrels of crude oil per month through our Lake Charles, Louisiana
refinerys atmospheric distillation unit. However, through July 2001
Sargeant had only processed an aggregate of approximately one-third of the total
volumes of crude oil they agreed to process through our facility. Since both we
and Sargeant desired early termination, by mutual agreement, the processing
agreement and the related agreement to purchase Sargeants refined products
were both terminated on July 31, 2001. The original term of these agreements was
scheduled to end on September 21, 2001.


In July 2000, we entered
into an annually renewable one-year joint venture with Sargeant to service our
then-existing asphalt supply obligations and expand our asphalt business. The
joint venture agreement provided for Sargeant to supply and finance the
feedstocks required and Sargeant reimbursed us for the majority of our direct
operating costs. Each party generally received 50% of the profits generated from
the joint ventures asphalt operations. The joint venture purchased
asphaltic by-products produced from the processing agreement, mentioned above,
and also purchased wholesale asphalt from third parties to utilize as feedstock
for blending and polymer enhancement. It sold primarily higher-margin
polymerized asphalt products, which asphalts approximated 61% of its asphalt
sales.


17
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We had various discussions
with Sargeant in an attempt to negotiate an extension of the joint venture under
more favorable terms. However, the parties could not agree on new terms and
mutually agreed not to renew the joint venture beyond its original term of June
30, 2001. The parties also agreed that, except for approximately 3,600 tons, all
deliveries of asphalt from the asphalt backlog existing on June 30, 2001 of
69,000 tons would be our responsibility to service and that we would bear the
entire risk of profit and loss on these contracts. There remain some areas of
disagreement with Sargeant related to the winding up of the Joint Venture and,
consequently, the final accounting is not yet complete. Between July 1, 2000 and
June 30, 2001, the Joint Venture sold approximately $8 million worth of asphalt
at an estimated profit of approximately $1.3 million.


We have operated our
asphalt business on our own since June 30, 2001 and will continue to do so in
the foreseeable future. However, this requires us to bear the entire risk of the
resultant profit or loss and to purchase and self-finance our feedstock
supplies, which may result in higher cost of goods sold than we experienced in
the joint venture.


We have maintained our Lake
Charles refinery in a state of readiness since the termination of the Sargeant
processing agreement because we have been having discussions with a number of
companies regarding the full utilization of the processing and asphalt
facilities. However, in order to conserve cash, we have reduced our refining
staff to a minimum pending a new processing agreement or the attainment of
sufficient financing to support our own refining operations. We hope to have
such agreements in place in the near future, however, at this time we cannot
assure you that they will be consummated.


In order to provide
additional working capital to supplement the cash flow derived from our asphalt
operations, on December 19, 2001, we sold a one-year, $1.25 million principal
amount, 14% note to GCA Strategic Investment Fund Limited, secured by a mortgage
on our St. Marks, Florida refinery.


In addition, we reached an
agreement with GCA to extend the outstanding aggregate principal balance of all
our outstanding debentures to GCA, totaling $8.6 million, due in full in April
2002, to February 1, 2007. This agreement enabled us to approach sources of
capital to fund our operations without the immediate burden of having to repay
these debentures in the near future.


We also recently sold an
aggregate of $240,000 of 14% notes to our Chairman and Chief Executive Officer
George Faris, which are payable upon demand. We believe the terms of the loans
were as favorable to us as we could have obtained from an unaffiliated party.
The proceeds were used primarily to service our asphalt contract backlog.


We have been in discussions
with various financial entities regarding a line of credit to support our
refining and asphalt businesses. Because we were able to extend the due date of
the debentures issued to GCA and our asphalt business has a profitable operating
history, we have generated some interest in this regard. However, to date, we do
not have a firm commitment for the amount of financing we would require for
minimal operations during 2002, which would approximate $2 million to $3
million. Ideally, approximately $7 million would be required to support an
aggressive asphalt operation during 2002, which would provide sufficient capital
to support all of our cash requirements during the next year.


If we are successful in
securing the necessary working capital, we plan to initiate an aggressive
business plan to increase our asphalt sales volumes in 2002 over 2001, which
could include a reopening of our St. Marks, Florida distribution facility. If we
are unable to secure adequate financing to accomplish this goal, we may need to
curtail our operations which, although profitable, probably would not be
adequate to fully support all of our cash requirements next year.


We plan to utilize any
proceeds we may receive from the sale, if any, of a portion of our Kazakhstan
concessions to repay our outstanding convertible debt and/or to supplement any
cash flow shortfall from our operations. If such a sale is not consummated or,
if we are unable to secure contracts to fully utilize our refining and asphalt
facilities, we will need to obtain additional financing or sell assets to
adequately supplement any operating cash shortfall we may incur.


18
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|New Accounting
Pronouncement


In June 2001, the Financial
Accounting Standards Board (FASB) issued Statements of Financial
Accounting Standards No. 141, Business Combinations (SFAS
141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase method. For
all business combinations for which the date of acquisition is after June 30,
2001, SFAS 141 also establishes specific criteria for the recognition of
intangible assets separately from goodwill and requires unallocated negative
goodwill to be written off immediately as an extraordinary gain, rather than
deferred and amortized. SFAS 142 changes the accounting for goodwill and other
intangible assets after an acquisition. The most significant changes made by
SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no
longer be amortized; 2) goodwill and intangible assets with indefinite
lives must be tested for impairment at least annually; and 3) the amortization
period for intangible assets with finite lives will no longer be limited to 40
years. SFAS 142 is effective for fiscal years beginning after December 15, 2001.


In June 2001, the FASB also
approved for issuance SFAS 143, Asset Retirement Obligations. SFAS 143
establishes accounting requirements for retirement obligations associated with
tangible long-lived assets, including (1) the timing of the liability
recognition, (2) initial measurement of the liability, (3) allocation of asset
retirement cost to expense, (4) subsequent measurement of the liability and (5)
financial statement disclosures. SFAS 143 requires that an asset retirement cost
should be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. The
Company will adopt the statement effective no later than January 1, 2003, as
required. The transition adjustment resulting from the adoption of SFAS 143 will
be reported as a cumulative effect of a change in accounting principle. At this
time, the Company cannot reasonably estimate the effect of the adoption of this
statement on its financial position, results of operations, or cash flows.


In October 2001, the FASB
also approved SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The new accounting model for long-lived assets to be disposed of by sale applies
to all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. Statement 144 also broadens the reporting of discontinued operations
to include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The provisions of Statement
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, are to be applied prospectively. At this
time, the Company cannot estimate the effect of this statement on its financial
position, results of operations, or cash flows.



Market Risk


We are 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. We do not
employ risk management strategies, such as derivatives or various interest rate
and currency swaps, to mitigate these risks.



Foreign Exchange Risk


We are subject to risk from
changes in foreign exchange rates for our international operations which use a
foreign currency as their functional currency and are translated to U.S.
dollars. We have not experienced any significant gains or losses from such
events.



Interest Rate Risk


We are exposed to interest
rate risk from our various financing activities. The following table provides
information, by maturity date, about our 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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      | 2002 | 2001       | 2004 | TotalRecorded Amount | FairValue
|----- | ---- | ---------- | ---- | -------------------- | ---------
|Debt: |      | $1,218,749 |      | $5,923,128           |          
|      |      | 14.0%      |      | 14.1%                |          

|A 10% increase in interest
rates would decrease our cash flow by approximately $253,000 and would decrease
the fair value of our debt instruments.


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


None.



19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART III.



Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


Our executive officers and
directors are:
|---------------------------------------------------------------------------------------------------------------------

|Name                 | Age | Position(s)                                  | Year FirstBecame a Director or Officer
|-------------------- | --- | -------------------------------------------- | --------------------------------------
|
|George N. Faris      | 61  | Chairman of the Board and                    | 1981                                  
|                     |     | Acting Chief Executive Officer              
|William R. Smart     | 81  | Director                                     | 1987                                  
|Daniel Y. Kim        | 77  | Director                                     | 1987                                  
|Donald G. Rynne      | 79  | Director                                     | 1992                                  
|John H. Kelly        | 62  | Director                                     | 1999                                  
|J. E. Knight         | 56  | Director, President, Chief Operating Officer | 2001                                  
|Denis J. Fitzpatrick | 57  | Director, Executive Vice President,          | 1994                                  
|                     |     | Secretary and Chief Financial Officer       
|William L. Tracy     | 54  | Treasurer and Controller                     | 1992                                  

|Dr. George N. Faris has served as
Chairman of our Board of Directors 1981. He has served as Acting Chief Executive Officer
since July 7, 2000. 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.


William R. Smart has served as a
member of our 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 our 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 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.


Donald G. Rynne has served as a
member of our 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 our 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.


20
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|J. E. Knight has served as
a member of our Board of Directors and as President and Chief Operating Officer
since September 2001. Mr. Knight was a Director, President and CEO of First
International Oil Corporation; a privately-held company involved in exploration
& production activities internationally, primarily in Kazakhstan, for two
years prior to joining our company . He was Regional Vice President of Union
Texas Petroleum Holdings Corporation (UTP) ,acquired by ARCO in
1998, and President of one of the three business areas, EMAC, where he directed
all of UTPs business activities in Europe, the Middle East, Africa, Russia
and Central Asia. During his 18 years with UTP he served in numerous
international assignments including, Vice President of International Operations,
Vice President Technical Services and Vice President ,Drilling. Prior to joining
UTP, he worked for twelve years in various management and technical positions
with Arabian American Oil Company (ARAMCO) and Ingersoll Rand Co. (now
Dresser-Rand). He is a member of the Society of Petroleum Engineers and the
Association of International Petroleum Negotiators. Mr. Knight received a B.S.
Degree in Mechanical Engineering in 1968 from the University of Kentucky and an
MBA from the University of Houston in 1988.


Denis J. Fitzpatrick has
served as Vice President, Secretary and Chief Financial Officer since August
1994 and as a Director since July 2001. He served as our Acting President from
July 2000 through September 2001. Mr. Fitzpatrick has held various accounting
and financial management positions during his 25 years in the oil and gas
industry. He has also served as a Director or Officer of the Council of
Petroleum Accountants Society; Director of the Kern County California Economic
Development Corporation; Director of Junior Achievement; 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.


William L. Tracy has served
as our Treasurer and Controller since August 1993. He served as our Assistant
Controller from February 1992 through July 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 degree in Accounting from Bellarmine College in
Louisville, Kentucky in 1974.


Our executive officers are
appointed annually by the Board to serve until their successors are duly elected
and qualified.



Committees of
the Board of Directors


Our Board of Directors has three
standing committees: an Executive Committee, a Compensation Committee, and an Audit
Committee.


The Executive committee is composed
Dr. Faris (Chairman), Messrs. Rynne and Smart.


The Compensation committee is
composed of Dr. Kim (Chairman), Messrs. Rynne and Kelly.


The Audit Committee is composed of
Messrs. Smart (Chairman), Rynne and Dr. Kim.



Compensation
Committee Interlocks


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



Director
Compensation


During 2001, we reimbursed
outside Directors for their actual company-related expenses, including the costs
of attending Directors meetings. We accrued, for each outside Director,
$1,000 per month for serving in such capacity; $500 for participation in each
Committee meeting, if such Director served on a Standing Committee of the Board
of Directors; and $500 for each Board meeting attended.



21
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|Item 11.  EXECUTIVE COMPENSATION


The following table
discloses compensation for services rendered by our Chief Executive Officer and
all of our other executive officers whose compensation exceeded $100,000 in
2001, 2000, and 1999.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Annual Compensation | Long Term Compensation
|----------------------- | ------------------- | ----------------------
|
|George N. Faris         |                     | 2001                  
|Chairman of the Board   |                     | 2000                  
|Chief Executive Officer |                     | 1999                  
|                       
|J. E. Knight            |                     | 2001                  
|President and Chief     |                     | 2000                  
|Operating Officer       |                     | 1999                  
|                       
|Denis J. Fitzpatrick    |                     | 2001                  
|Executive Vice          |                     | 2000                  
|President, Secretary,   |                     | 1999                  
|Chief Financial Officer |                    
|                       
|William L. Tracy        |                     | 2001                  
|Treasurer and           |                     | 2000                  
|Controller              |                     | 1999                  

|(1) |  | Incentive
bonus paid in shares of our common stock.
|--- |  | ---------------------------------------------------

|(2) |  | Mr. Knight was hired in September 2000. He was granted 400,000 options as a
signing bonus, which fully vest during his first three years with our company.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Car
allowance
|--- |  | -------------

|(4) |  | Includes
$11,976 moving allowance and $5,000 car allowance.
|--- |  | -----------------------------------------------------------

|Incentive and
Stock Option Plans


We have reserved and
registered 5,000,000 shares of our common stock for awards under our 2001 Long
Term Performance Plan. This plan has been approved by our Board of
Directors and is administered by a committee designated by our Board of
Directors. Under the plan, employees or any individual or entity providing
services on our behalf are eligible to receive awards. The designated committee
determines the type or types of awards to be made to each participant and the
related terms. Awards include but are not limited to stock options, stock
appreciation rights, stock, or cash. The performance criteria for such awards
consist of objective tests based on various criteria, which may be measured
solely on a corporate, subsidiary, or business unit basis. Payment of awards may
be deferred, either in the form of installments or as a future lump sum payment,
in accordance with such procedures as may be established from time to time by
the designated committee. As of December 31, 2001, an aggregate of 955,000
shares of our common stock was issued and no stock options or stock appreciation
rights had been granted under this plan.


We also have a 2000 Stock
Option Plan, which has been approved by our Board of Directors and by our
shareholders. The plan is administered by our Board of Directors or a committee
designated by them. Under the plan employees, including officers and managerial
or supervising personnel, are eligible to receive incentive stock options in
tandem with stock appreciation rights and employees, Directors, contractors and
consultants are eligible to receive non-qualified stock options in tandem with
stock appreciation rights. Options may be granted to purchase an aggregate of
5,000,000 shares of our common stock under the plan. If an option granted under
the plan terminates or expires without having been exercised in full, the
unexercised shares subject to the option will be available for a further grant
of options under the 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.


22
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Options may not be granted
under the plan after July 10, 2010. The exercise price of the options granted
under the plan cannot be less than the fair market value of the shares of common
stock on the date the option is granted. Incentive stock options granted to
shareholders owning 10% or more of the outstanding voting power of our 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
incentive stock options are exercisable for the first time by any employee
during any calendar year, may 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 non qualified stock options. As of December 31, 2001, 525,000
options had been granted under this plan.



Option Grants
In Last Fiscal Year


The table below includes
the number of stock options granted to the executive officers named in the
Summary Compensation Table as of December 31, 2001, exercise information and
potential realizable value.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  | Individual Grants |         |  | Potential Realizable
|----------------- | ----------------- | ------- |  | --------------------
|
|
|George Faris      |                   | 798,750 |  | 33                  
|J. E. Knight      |                   | 200,000 |  | 8                   
|                  |                   | 100,000 |  | 4                   
|                  |                   | 100,000 |  | 4                   
|Denis Fitzpatrick |                   | 101,500 |  | 4                   
|William L. Tracy  |                   | 40,500  |  | 2                   

|Aggregate Option
Exercises in 2001 And Option Values at December 31, 2001


The table below includes
the number of shares covered by both exercisable and non-exercisable stock
options owned by the executive officers named in the Summary Compensation Table
as of December 31, 2001. Also reported are the values for
in-the-money options that represent the positive spread between
exercise price of any such existing stock options and the year-end price.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | Shares | Number ofUnexercised Options | Value ofUnexercised
|-------------------- | ------ | ---------------------------- | -------------------
|
|
|
|George N. Faris      |        |                             |                    
|J. E. Knight         |        |                             |                    
|Denis J. Fitzpatrick |        |                             |                    
|William L. Tracy     |        |                             |                    

|23
|--

|Employment
Contracts


Dr. George N. Faris is
employed as Chairman of the Board and Chief Executive Officer until July 31,
2002 at an annual salary of $367,500 and as the part time Chairman of the Board
until July 31, 2003. The agreement provides that if the initial term is not
extended, we will retain Dr. Faris, at his discretion, as a consultant for a
period of two calendar years ending July 31, 2005 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.


Mr. James E. Knight was
hired as President and Chief Operating Officer on September 4, 2001 at an annual
salary of $325,000 for a period of eighteen months. The term shall be
automatically renewed and extended for successive periods of one year commencing
on his eighteen month anniversary date and on each successive one year
anniversary thereafter unless either Mr. Knight or we give the other notice of
termination at least ninety days prior to the end of the initial term or any
renewal term. In such event, his employment will terminate at the end of the
initial term on the end of the renewal term during which such notice was given.
If, after the initial eighteen month term, his employment is terminated without
cause, he will be entitled to one month of severance pay for each full year of
employment, prorated for each full month of employment. The agreement also
provides for a change of control payment equal to 2.99 times his annual base
salary that is in effect immediately prior to his termination as a result of a
change in control.



Item 12.  
SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS


The following table sets
forth certain information, as of February 19, 2002, regarding the beneficial
ownership of our common stock by (i) each person known by us 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; and (iv) all
Directors and executive officers as a group.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name and Addressof Beneficial Holder (1) | Amount and Nature ofBeneficial Ownership | Percentof Class
|---------------------------------------- | ---------------------------------------- | ---------------
|
|The Palladin Group, L.P.                 |                                          | 18,364,079     
|195 Maplewood Avenue                     |                                         
|Maplewood, NJ 07040                      |                                          |                
|                                        
|GCA Strategic Investment Fund Limited    |                                          | 18,364,079     
|106 Colony Drive, Suite 900              |                                         
|Cumming, GA 30040                        |                                          |                
|                                        
|George N. Faris                          |                                          | 6,476,975      
|                                        
|Daniel Y. Kim                            |                                          | 624,557        
|                                        
|Donald G. Rynne                          |                                          | 1,425,521      
|                                        
|William R. Smart                         |                                          | 683,941        
|                                        
|John Kelly                               |                                          | 302,000        
|                                        
|J. E. Knight                             |                                          | 377,587        
|                                        
|Denis J. Fitzpatrick                     |                                          | 1,133,408      
|                                        
|William L. Tracy                         |                                          | 555,543        
|                                        
|All officers and Directors as a group    |                                         
|(consisting of 8 persons)                |                                          | 11,579,532     

|____________________*Less than 1% of class


24
|-----------------------------------------------

|
|

|(1) |  | All
officers and Directors have an address c/o American International Petroleum Corporation
at 2950 North Loop West, Houston, Texas, 77092.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
Palladin Group, L.P. serves as investment advisor to Halifax Fund, L.P., the registered
owners of our 5% convertible secured debenture and warrants to purchase common stock, and
has been granted investment discretion over our securities 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 Halifax Fund, L.P. the beneficial owner of more than 9.99% of the then
outstanding shares of our common stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | GCA is the ultimate beneficial owner of the shares owned by GCA and, through its
board of directors, has the sole voting power to vote the shares. Prime
Management Limited, a Bermuda corporation located in Bermuda has sole voting
power with respect to the shares owned by GCA. Joe Kelly, a Bermuda resident,
has the sole voting power over Prime Management. Global Capital Advisors Ltd.,
GCAs investment advisor located in Georgia, together with GCAs board
of directors, has the sole investment decision authority over the shares owned
by GCA. The terms of the series A convertible preferred stock and related
warrants provide that the number of shares that GCA may acquire upon conversions
or exercise may not exceed that number that would render GCA the beneficial
owner of more than 9.99% of the then outstanding shares of our common stock.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
2,646,250 shares that he may acquire upon the exercise of stock options.
|--- |  | ---------------------------------------------------------------------------------

|(5) |  | Includes
554,679 shares that he may acquire upon the exercise of stock options.
|--- |  | -------------------------------------------------------------------------------

|(6) |  | Includes
696,429 shares that he may acquire upon the exercise of stock options.
|--- |  | -------------------------------------------------------------------------------

|(7) |  | Includes
433,929 shares that he may acquire upon the exercise of stock options.
|--- |  | -------------------------------------------------------------------------------

|(8) |  | Includes
300,000 shares that he may acquire upon the exercise of stock options.
|--- |  | -------------------------------------------------------------------------------

|(9) |  | Excludes 100,000 shares that he may acquire upon the exercise of stock options
commencing September 4, 2002, 100,000 shares that he may acquire upon the
exercise of stock options commencing March 4, 2003, and 200,000 shares that he
may acquire upon the exercise of stock options commencing March 4, 2004.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Includes
334,500 shares that he may acquire upon the exercise of stock options.
|---- |  | -------------------------------------------------------------------------------

|(11) |  | Includes
121,500 shares that he may acquire upon the exercise of stock options.
|---- |  | -------------------------------------------------------------------------------

|(12) |  | Includes all of the shares that may be acquired upon the exercise of stock
options included in the table for the named individuals described in Notes (4)
through (11) above.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the
Securities Exchange Act of 1934 requires our officers and Directors, and persons
who own more than 10 percent of a registered class of our 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 us with copies of all Section 16(a) reports that they file.

Based solely on our 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, we
believe that, during the period from January 1, 2001 through December 31, 2001,
all filing requirements applicable to our officers, Directors and greater than
10 percent beneficial owners were complied with.

|Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


During 2001, we borrowed an
aggregate of $320,000 from George N. Faris, our Chairman of the Board. These
loans were payable upon demand together with accrued interest at 14% per annum.
We repaid these loans in full during 2001.


25
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During February 2002, we
borrowed an aggregate of $240,000 from Dr. Faris. The loans are payable on
demand and bear interest at 14% per annum. On August 24, 2000, we borrowed
$100,000 from Mr. Donald Rynne, one of our directors. This loan is repayable on
demand and bears interest at 12% per annum. In connection with this loan, we
issued an option to Mr. Rynne to purchase one share of common stock for each
dollar borrowed. The option may be exercised prior to August 23, 2010 and has an
exercise price of $0.43 per share, representing 105% of the market price of a
share of our common stock on the date immediately preceding the loan. We also
issue him an additional 20,000 shares for each month the loan remains
outstanding beyond December 2000 at exercise prices based on the average closing
market price of our common stock during each particular month. As of February
28, 2002, the entire amount of these loans remained outstanding. We believe that
the terms of these loans were as favorable to us as we could have obtained from
an unaffiliated party.


26
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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            |         
|Consolidated Balance Sheets                   |         
|December 31, 2001 and 2000                    |         
|Consolidated Statement of Operations          |         
|Years Ended December 31, 2001, 2000, and 1999 |         
|Consolidated Statement of Cash Flows          |         
|Years Ended December 31, 2001, 2000, and 1999 |         
|Consolidated Statement of Changes in          |         
|Stockholders Equity - Years Ended            |         
|December 31, 2001, 2000, and 1999             |         
|Notes to Consolidated Financial Statements    |         
|Supplementary Oil and Gas Information         |         

|(2) Financial Statement Schedules.



None.


(3) Exhibits.
|-----------------------------------------------------------

|2.1 |  | Share
Purchase Agreement dated February 25, 1997, among Registrant and AIPCC, PAIPC and MIP. (3)
|--- |  | ------------------------------------------------------------------------------------------------

|3.1 |  | Restated
Articles of Incorporation (2)
|--- |  | --------------------------------------

|3.2 |  | By-laws,
as amended (3)
|--- |  | -----------------------

|4.1 |  | 1998
Stock Option Plan of the Registrant.(6)
|--- |  | --------------------------------------------

|4.2 |  | 1998
Stock Award Plan of the Registrant.(6)
|--- |  | -------------------------------------------

|4.3 |  | Convertible
Debenture Purchase Agreement dated February 18, 1999. (4)
|--- |  | ---------------------------------------------------------------------

|4.4 |  | Form
of 5% Convertible Secured Debenture dated February 18, 1999. (4)
|--- |  | ---------------------------------------------------------------------

|4.5 |  | Form
of Warrant issued pursuant to the Convertible Secured Debentures dated February 18, 1999.
(4)
|--- |  | --------------------------------------------------------------------------------------------------

|4.6 |  | Form
of Registration Rights Agreement dated February 18, 1999. (4)
|--- |  | ------------------------------------------------------------------

|4.7 |  | Form
of Mortgage and Security Agreement issued pursuant to the Convertible Secured Debentures
dated February 11, 1999 (4)
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|4.8 |  | Form
of Securities Purchase Agreement dated December 1, 1999 by and among Registrant and GCA
Investment Fund Ltd. (8)
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|4.9 |  | Form
of Mortgage and Security Agreement between St. Marks Refinery, Inc. and GCA Strategic
Investment Fund, Ltd. (8)
|--- |  | --------------------------------------------------------------------------------------------------------------------

|4.10 |  | Form
of Warrant issued in connection with the Securities Purchase Agreement referenced in
Exhibit 4.33.(8)
|---- |  | ----------------------------------------------------------------------------------------------------------

|27
|--

|
|

|4.11 |  | Form
of Securities Purchase Agreement and related Schedules dated April 24, 2001. (9)
|---- |  | -------------------------------------------------------------------------------------

|4.12 |  | Form
of Exchange Agreement and related Schedules dated April 28, 2001. (9)
|---- |  | --------------------------------------------------------------------------

|4.13 |  | Form
of Securities Purchase Agreement and related Schedules dated December 19, 2001
|---- |  | -----------------------------------------------------------------------------------

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

|10.2 |  | $3
million Exchangeable Debenture, granted by AIPCC to the Registrant due February 25, 1999.
(5)
|---- |  | ------------------------------------------------------------------------------------------------

|10.3 |  | Amendment
#2 to Employment Agreement dated May 1, 1989 by and between Registrant and George N.
Faris.(7)
|---- |  | --------------------------------------------------------------------------------------------------------

|10.4 |  | Employment
Agreement dated August 9, 2001 by and between J. E. Knight and the Registrant.
|---- |  | -----------------------------------------------------------------------------------------

|10.5 |  | Letter
Agreement dated January 10, 2002 by and between Mercantile International Petroleum, Inc.
and the Registrant.
|---- |  | -------------------------------------------------------------------------------------------------------------------

|21.1 |  | Subsidiaries
of the Registrant.
|---- |  | -------------------------------

|
|

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

|(2) |  | Incorporated herein by reference to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.
|--- |  | -----------------------------------------------------------------------------------------------------------------------

|(3) |  | Incorporated herein by reference to the Registrants Annual Report on Form
10-KA for the year ended December 31, 1997.
|--- |  | ----------------------------------------------------------------------------------------------------------------------

|(4) |  | Incorporated herein by reference to the Registrants form 8-K, dated March
1, 1999, as amended April 26, 1999.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(5) |  | Incorporated
herein by reference to the Registrants Form 8-K dated March 12, 1997.
|--- |  | -----------------------------------------------------------------------------------

|(6) |  | Incorporated
by reference to the Registrants Report on Form S-8 dated January 4, 1999.
|--- |  | ---------------------------------------------------------------------------------------

|(7) |  | Incorporated by reference to Registrants Annual Report on Form 10-K for
the year ended December 31, 2000.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(8) |  | Incorporated
by reference to the Registrants Registration Statement on Form S-1 dated March 2, 2001.
|--- |  | -----------------------------------------------------------------------------------------------------

|(9) |  | Incorporated
by reference to the Registrants Registration Statement on Form S-1 dated August 13, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------

|(b) |  | Reports
on Form 8-K
|--- |  | -------------------

| |  | None.
| |  | -----

|28
|--

|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, 2001 and 2000, and the related
consolidated statements of operations, stockholders equity and cash flows
for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States of America.
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 also 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, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.


The Company reported a net
loss of approximately $27.5 million in 2001 and $24.9 million during 2000, has
commitments to fund the operations of its Kazakhstan subsidiary (see Note 10)
and has a working capital deficit of approximately $3.1 million at December 31,
2001. 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, 2001,
the Company has costs capitalized in the accompanying balance sheet of
approximately $13,100,000 relating to unevaluated oil and properties in
Kazakhstan and approximately $29,000,000 relating to its refineries. 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 and does
not have the financial resources to develop these properties. Should the Company
be unable to obtain the capital necessary to develop the Kazakhstan properties
or be unable to develop a commercially feasible means of transporting the oil
and gas production the Company may develop, the carrying value of these
properties will likely become further impaired. Should the Company be unable to
initiate profitable operations at the refinery, the carrying value of the
refinery properties will also likely become further impaired.



HEIN + ASSOCIATES LLP
Houston, TexasMarch 1, 2002


F-1
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL
PETROLEUM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
|----------------------------------------------------------------------------------------

|                                                             | December 31,2001 | December 31,2000
|------------------------------------------------------------ | ---------------- | ----------------
|Assets                                                       |                  |                 
|Current assets:                                              |                 
|Cash and cash equivalents                                    |                  | $        456,343
|Accounts and notes receivable, net                           |                  | 2,097,126       
|Inventory                                                    |                  | 199,811         
|Deferred financing costs                                     |                  |                
|Prepaid expenses                                             |                  | 668,923         
|                                                             |                  |                 
|Total current assets                                         |                  | 3,422,203       
|                                                             |                  |                 
|Property, plant and equipment:                               |                 
|Unevaluated oil and gas properties                           |                  | 13,168,200      
|Evaluated oil and gas properties                             |                  | 23,216,970      
|Refinery property and equipment                              |                  | 28,877,932      
|Other                                                        |                  | 1,079,502       
|                                                             |                  |                 
|                                                             |                  | 66,342,604      
|Less - accumulated depreciation, depletion,                  |                 
|amortization and provision for impairment                    |                  | (33,586,034     
|                                                             |                  |                 
|Net property, plant and equipment                            |                  | 32,756,570      
|Notes receivable, less current portion                       |                  |                
|Other long-term assets, net                                  |                  | 875,467         
|                                                             |                  |                 
|Total assets                                                 |                  | $   37,054,240  
|                                                             |                  |                 
|Liabilities and Stockholders Equity                         |                 
|Current liabilities:                                         |                 
|Short-term debentures                                        |                  | $     1,246,492 
|Notes payable - officers and directors                       |                  | 420,000         
|Notes payable - trade                                        |                  | 319,873         
|Accounts payable                                             |                  | 2,904,188       
|Accrued liabilities                                          |                  | 1,675,543       
|                                                             |                  |                 
|Total current liabilities                                    |                  | 6,566,096       
|Long-term debt                                               |                  | 13,919,968      
|                                                             |                  |                 
|Total liabilities                                            |                  | 20,486,064      
|                                                             |                  |                 
|Commitments and contingent liabilities (Note 10)             |                  |                
|Minority Interest Liability                                  |                  | 305,956         
|Redeemable preferred stock, par value $0.01, 7,000,000       |                 
|shares authorized, 0 and 1,250 shares issued and outstanding |                 
|at December 31, 2001 and December 31, 2000, respectively     |                  |                
|Stockholders Equity:                                        |                 
|Common stock, par value $.08, 300,000,000 shares             |                 
|authorized, 181,602,484 and 132,524,318 shares issued and    |                 
|outstanding at December 31, 2001 and December 31, 2000,      |                 
|respectively                                                 |                  | 14,528,199      
|Additional paid-in capital, common stock                     |                  | 158,352,018     
|Common stock issued as collateral, held in escrow            |                  | (141,700        
|Accumulated deficit                                          |                  | (156,476,297    
|                                                             |                  |                 
|Total stockholders equity                                   |                  | 16,262,220      
|                                                             |                  |                 
|Total liabilities and stockholders equity                   |                  | $   37,054,240  
|                                                             |                  |                 

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



F-2
|----------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL
PETROLEUM CORPORATION AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF OPERATIONS
|--------------------------------------------------------------------------------------------------

|                                                      | For the years ended December 31,
|----------------------------------------------------- | --------------------------------
|
|Revenues:                                             |                                 
|Trading revenues                                      |                                 
|Asphalt revenues                                      |                                 
|Refinery revenues                                     |                                 
|Joint Venture income                                  |                                 
|Other                                                 |                                 
|                                                      |                                 
|Total revenues                                        |                                 
|Expenses:                                             |                                 
|Trading costs                                         |                                 
|Asphalt costs                                         |                                 
|Refinery costs                                        |                                 
|General and administrative                            |                                 
|Depreciation, depletion and amortization              |                                 
|Interest                                              |                                 
|Provision for impairment of oil and gas properties    |                                 
|Provision for impairment of plant assets              |                                 
|                                                      |                                 
|Total expenses                                        |                                 
|                                                      |                                 
|Net loss                                              |                                 
|Incremental yield on preferred stock                  |                                 
|                                                      |                                 
|Net loss applicable to common stockholders            |                                 
|                                                      |                                 
|Net loss per share applicable to common stockholders- |                                 
|basic and diluted                                     |                                 
|                                                      |                                 
|Weighted-average number of shares                     |                                 
|of common stock outstanding                           |                                 
|                                                      |                                 

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




F-3
|-----------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL
PETROLEUM CORPORATION AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF CASH FLOWS
|--------------------------------------------------------------------------------------------------

|                                                          | For the years ended December 31,
|--------------------------------------------------------- | --------------------------------
|
|Cash flows from operating activities:                     |                                 
|Net loss                                                  |                                 
|Adjustments to reconcile net loss to net                  |                                 
|cash provided (used) by operating activities:             |                                 
|Incremental yield on preferred stock                      |                                 
|Depreciation, depletion, amortization, accretion of       |                                 
|discount on debt and provision for impairment             |                                 
|Accretion of premium on notes receivable                  |                                 
|Revaluation of provision for bad debts                    |                                 
|Non-cash provision for services                           |                                 
|Issuance of stock for compensation expense                |                                 
|Changes in assets and liabilities:                        |                                 
|Accounts and notes receivable                             |                                 
|Inventory                                                 |                                 
|Prepaid and other                                         |                                 
|Accounts payable and accrued liabilities                  |                                 
|                                                          |                                 
|Net cash used in operating activities                     |                                 
|                                                          |                                 
|Cash flows from investing activities:                     |                                 
|Additions to oil and gas properties                       |                                 
|Additions to refinery property and equipment              |                                 
|(Increase) decrease to other long term assets             |                                 
|                                                          |                                 
|Net cash used in investing activities                     |                                 
|                                                          |                                 
|Cash flows from financing activities:                     |                                 
|Net increase in short-term debt                           |                                 
|Net increase (decrease) in notes payable                  |                                 
|Net increase (decrease) in notes payable - officers       |                                 
|Repayments of long-term debt                              |                                 
|Proceeds from exercise of stock options and warrants, net |                                 
|Proceeds from sale of preferred stock                     |                                 
|Proceeds from issuance of debentures, net                 |                                 
|                                                          |                                 
|Net cash provided by financing activities                 |                                 
|                                                          |                                 
|Net increase (decrease) in cash and cash equivalents      |                                 
|Cash and cash equivalents at beginning of year            |                                 
|                                                          |                                 
|Cash and cash equivalents at end of year                  |                                 
|                                                          |                                 

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



F-4
|----------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERSEQUITY
|----------------------------------------------------------------------------------------------------------------------

|                                                 | Common stock | Additionalpaid-in | CommonStockHeld In | Accumulated | 
|------------------------------------------------ | ------------ | ----------------- | ------------------ | ----------- | 
|
|Balance, January 1, 2001                         |              | 132,524,318       |                    | $10,601,945 | 
|Conversions of debentures                        |              | 11,137,575        |                    | 891,006     | 
|Issuance of stock for                            |             
|compensation and services                        |              | 960,000           |                    | 76,800      | 
|Issuance of stock in lieu of current liabilities |              | 407,664           |                    | 32,613      | 
|Options and warrants exercised                   |              | 29,375            |                    | 2,350       | 
|Stock issued and adjustment                      |             
|to value of stock                                |             
|previously issued for     collateral on     debt |              |                  |                    |            | 
|Preferred stock converted into common stock      |              | 36,543,552        |                    | 2,923,485   | 
|Imputed interest on convertible debentures       |              |                  |                    |            | 
|Stock warrants on convertible debentures         |              |                  |                    |            | 
|                                                
|Stock warrants on non-convertible debentures     |              |                  |                    |            | 
|Imputed dividend on convertible preferred stock  |              |                  |                    |            | 
|Net loss for the period                          |              |                  |                    |            | 
|                                                 |              |                   |                    |             | 
|Balance, December 31, 2001                       |              | 181,602,484       |                    | $14,528,199 | 
|                                                 |              |                   |                    |             | 

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



F-5
|----------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL
PETROLEUM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERSEQUITY
|---------------------------------------------------------------------------------------------------------------------

|                                                                                                   | Common stock | Additionalpaid-in | CommonStockHeld In | Accumulated  | 
|-------------------------------------------------------------------------------------------------- | ------------ | ----------------- | ------------------ | ------------ | 
|
|Balance, January 1, 2000                                                                           |              | 91,282,773        |                    | $  7,302,621 | 
|Conversions of debentures                                                                          |              | 14,941,073        |                    | 1,195,286    | 
|Issuance of stock in lieu of   current liabilities                                                 |              | 2,402,253         |                    | 192,180      | 
|Issuance of stock for   compensation and services                                                  |              | 536,013           |                    | 42,881       | 
|Issuance of stock   options and warrants                                                           |             
|                                                                                                   |              |                  |                    |             | 
|Options and warrants exercised                                                                     |              | 1,558,340         |                    | 124,667      | 
|Stock issued and adjustment
        to value of stock previously   issued for collateral on   debt |              | 300,000           |                    | 24,000       | 
|Preferred stock converted   into common stock                                                      |              | 21,503,866        |                    | 1,720,310    | 
|Imputed dividend on convertible   preferred stock                                                  |              |                  |                    |             | 
|Net loss for the period                                                                            |              |                  |                    |             | 
|                                                                                                   |              |                   |                    |              | 
|Balance, December 31, 2000                                                                         |              | 132,524,318       |                    | $10,601,945  | 
|                                                                                                   |              |                   |                    |              | 

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


F-6
|---------------------------------------------------------------------------------------------

|AMERICAN INTERNATIONAL
PETROLEUM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERSEQUITY
|---------------------------------------------------------------------------------------------------------------------

|                                                                       | Common stock | Additionalpaid-in | Common Stock | Accumulated | 
|---------------------------------------------------------------------- | ------------ | ----------------- | ------------ | ----------- | 
|
|Balance, January 1, 1999                                               |              | 65,992,328        |              | $5,279,385  | 
|Conversions of debentures                                              |              | 17,574,305        |              | 1,405,944   | 
|Issuance of stock in lieu   of current liabilities                     |              | 1,798,968         |              | 143,917     | 
|Issuance of stock   for compensation                                   |              | 223,919           |              | 17,914      | 
|Issuance of stock and   options for services                           |              | 425,000           |              | 34,000      | 
|Issuance of stock for   property and equipment                         |              | 2,090,000         |              | 167,200     | 
|Issuance of stock   options and warrants                               |              |                  |              |            | 
|Options and warrants   exercised                                       |              | 1,283,253         |              | 102,661     | 
|Imputed interest on   debentures convertible at   a discount to market |              |                  |              |            | 
|Issuance of stock for   collateral on debt                             |              | 1,895,000         |              | 151,600     | 
|Net loss for the year                                                  |              |                  |              |            | 
|                                                                       |              |                   |              |             | 
|Balance, December 31, 1999                                             |              | 91,282,773        |              | $7,302,621  | 
|                                                                       |              |                   |              |             | 

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




F-7
|----------------------------------------------------------------------------------------------

|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 capability to refine other crude oil products, such as
vacuum gas oil, naphtha 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, respectively. 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).


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 AIPC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. (See Note 15  Subsequent
Events).


Joint Venture


In July 2000, the refinery
formed a joint venture with Sargeant Bulktainers, Inc. Their role in the joint
venture was to provide it with asphaltic crude oil feedstocks and bulk asphalt
supply. The refinerys role was to provide asphalt blending, storage,
marketing services and retail rack facilities. After product and operating costs
the joint venture partners generally share profits on a 50-50 basis. The joint
venture terminated on June 30, 2001. The refinery accounted for the joint
venture on the equity method of accounting.


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, PAIPC, and
Gulf Coast Petroleum Trading, Inc. (GCPT). American International Petroleum Kazakhstan
owns 70% of the stock of MED Shipping Usturt Petroleum Ltd. (MSUP), a Kazakhstan
corporation and includes MSUP in its consolidated financial statements.


F-8
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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


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
properties, 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. We identified an impairment of oil and gas properties of $10,670,675
and $12,546,295 during 2001 and 2000, respectively.



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
|---------------- | -----------
|
|Kazakhstan:      |            
|Acquisition Cost |            
|Exploration Cost |            
|Less Impairment  |            
|Other:           |            
|Acquisition cost |            
|                 |            
|                 |            
|                 |            

|Acquisition costs of
unproved properties not subject to amortization at December 31, 2001, 2000, and
1999, 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 $2,157,532, $2,671,262, and
$8,117,490, for 2001, 2000, and 1999, respectively.



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.


F-9
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Property and equipment other
than oil and gas properties


Property and equipment are
carried at cost and include interest on funds borrowed to finance construction.
Capitalized interest was $547,786 in 1999. No interest was capitalized in 2001
or 2000. 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 $1,965,213, $1,844,942, and $1,730,710 for the
years ended December 31, 2001, 2000, and 1999, respectively. We identified and
recorded an impairment of property and equipment of $9,236,280 during 2001.


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 and warrants to purchase 20,315,142, 14,616,161, and 14,885,840 shares
of common stock at various prices were outstanding at December 31, 2001, 2000,
and 1999, respectively, but were not included in the computation of diluted EPS
because the options and warrants exercise prices were greater than
the average grant date market price of the common shares.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | For the Year Ended December 31, 2001
|----------------------------- | ------------------------------------
|
|Basic EPS:                    |                                     
|Loss available to             |                                     
|Common Shareholders           |                                     
|Effect of Dilutive Securities |                                     
|Warrants and Options (1)(2)   |                                     
|                              |                                     
|Diluted EPS:                  |                                     
|Loss available to             |                                     
|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 20,315,142 shares of common stock at various
prices were outstanding at December 31, 2001, but were not included in the
computation of diluted EPS because the exercise price was greater than the
average grant date market price of the common shares.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


F-10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|New Accounting
Pronouncement


In June 2001, the Financial
Accounting Standards Board (FASB) issued Statements of Financial
Accounting Standards No. 141, Business Combinations (SFAS
141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase method. For
all business combinations for which the date of acquisition is after June 30,
2001, SFAS 141 also establishes specific criteria for the recognition of
intangible assets separately from goodwill and requires unallocated negative
goodwill to be written off immediately as an extraordinary gain, rather than
deferred and amortized. SFAS 142 changes the accounting for goodwill and other
intangible assets after an acquisition. The most significant changes made by
SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no
longer be amortized; 2) goodwill and intangible assets with indefinite
lives must be tested for impairment at least annually; and 3) the amortization
period for intangible assets with finite lives will no longer be limited to 40
years. SFAS 142 is effective for fiscal years beginning after December 15, 2001.


In June 2001, the FASB also
approved for issuance SFAS 143, Asset Retirement Obligations. SFAS 143
establishes accounting requirements for retirement obligations associated with
tangible long-lived assets, including (1) the timing of the liability
recognition, (2) initial measurement of the liability, (3) allocation of asset
retirement cost to expense, (4) subsequent measurement of the liability and (5)
financial statement disclosures. SFAS 143 requires that an asset retirement cost
should be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. The
Company will adopt the statement effective no later than January 1, 2003, as
required. The transition adjustment resulting from the adoption of SFAS 143 will
be reported as a cumulative effect of a change in accounting principle. At this
time, the Company cannot reasonably estimate the effect of the adoption of this
statement on its financial position, results of operations, or cash flows.


In October 2001, the FASB
also approved SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The new accounting model for long-lived assets to be disposed of by sale applies
to all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. Statement 144 also broadens the reporting of discontinued operations
to include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The provisions of Statement
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, are to be applied prospectively. At this
time, the Company cannot estimate the effect of this statement on its financial
position, results of operations, or cash flows.


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. Debenture costs of $594,171,
$1,998,732, and $1,618,415 were amortized in the years 2001, 2000, and 1999,
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,
debentures, and preferred stock, closely approximate the carrying values of the
instruments due to the short-term maturities or recent issuance of such
instruments.


F-11
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


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 unproven reserves are inherently
imprecise, it is reasonably probable that the estimates of fair value associated
with the concessions 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 $27.4 million during 2001, of which approximately $22.2 million represented
non-cash items. It has commitments to fund the operations of its Kazakhstan subsidiary of
$2.8 million by November of this year (see Note 10), convertible debentures totaling an
aggregate of approximately $14 million (see Note 7), which may or may not be converted to
common stock, $5.4 million that mature in 2004 and $8.6 million that mature in February
2007. As of December 31, 2001, the Company had $3.1 million of negative working capital
including, as of March 15, 2002, approximately $1.2 million in bridge notes due on
December 19, 2002. The Company intends to be very conservative with its spending overseas
during 2002. As of March 2002, the Companys existing working capital was
insufficient to provide all the funds it requires to complete its minimum work program in
Kazakhstan during 2002. 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 plans to negotiate a three-year extension of the Exploration
Contract which is due to expire in November 2002. 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 has been
negotiating with several foreign and domestic oil and gas companies regarding a sale of
up to 75% of its ownership interest in License 1551. Most have indicated an interest in
pursuing a purchase if the Company can conclude a gas sales agreement. The Company hopes
to sign a gas sales and/or transportation agreement in 2002, which will enhance its
ability to classify its gas reserves as proved, thereby providing it with a
borrowing base for development, which includes the construction of a gas transportation
pipeline system, 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 existing obligations during 2002 and beyond in Kazakhstan.


The Company is currently
negotiating a long-term transaction with a large oil company which would fully
utilize the entire Lake Charles refining and asphalt facilities and provide it
with the working capital necessary to support all of its domestic overhead and
operations. If this transaction is not consummated, the Company has other
companies interested in doing business with its refining and asphalt
subsidiaries, however, these agreements may not provide the Company with
sufficient cash flow to support its needs.


F-12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As operations at the
Refinery expand during 2002, 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 its refining and asphalt
business, the sale of a portion of its License 1551 properties, a joint venture
partner in Kazakhstan to support its operations during 2002, 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 and there would be substantial doubt about the ability of the Company
to continue as a going concern.


NOTE 3 ACCOUNTS
AND SHORT-TERM NOTES RECEIVABLE:


Accounts and notes
receivable are shown below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | December 31,
|--------------------------------------------- | ------------
|
|Accounts receivable  trade and joint venture |             
|Current portion - Note receivable             |             
|                                              |             
|                                              |             
|Less - allowance for doubtful accounts        |             
|                                              |             
|                                              |             
|                                              |             

|NOTE 4 OTHER
LONG-TERM ASSETS:


Other long-term assets consist of the following:
|----------------------------------------------------------------------------------

|                                           | December 31,
|------------------------------------------ | ------------
|
|Note receivable  MIP (See Note 1), net of |             
|discount of $-0- and $18,651, respectively |             

|NOTE 5 ACCRUED
LIABILITIES:


Accrued liabilities consist
of the following:
|----------------------------------------------------------------------------

|                 | December 31,
|---------------- | ------------
|
|Accrued payroll  |             
|Accrued interest |             
|Corporate taxes  |             
|Property taxes   |             
|Sales Taxes      |             
|Other            |             
|                 |             
|                 |             
|                 |             

|F-13
|----

|NOTE 6 SHORT TERM
DEBT
|-----------------------

|                                                                          | December 31,
|------------------------------------------------------------------------- | ------------
|
|13%  $2,500,000 secured Bridge Note  due April 28, 2001,                |             
|collateralized by the shares of the St. Marks subsidiary and certain      |             
|St. Marks real estate, effective interest rate  13%                      |             
|                                                                         
|12%  $350,000 unsecured demand notes due to officers                     |             
|Trade notes payable  various notes due from one                          |             
|month to twelve months  interest ranges from 6.5%                        |             
|to 14.5%, includes $42,857 and $150,059 of interest at                    |             
|December 31, 2001 and 2000, respectively  collateralized                 |             
|by accounts receivable, inventory, and certain fixed assets               |             
|                                                                         
|Trade notes  current portion of long term debt                           |             
|                                                                          |             
|                                                                         
|10%  $3,000,000 secured Bridge Note, due April 28, 2001,                 |             
|collateralized by shares of the St. Marks subsidiary and certain          |             
|St. Marks real estate, effective interest rate 13%                        |             
|                                                                         
|13%  $1,850,000 secured Bridge Note, due April 28, 2001,                 |             
|collateralized by shares of the St. Marks subsidiary and certain          |             
|St. Marks real estate, effective interest rate 13%                        |             
|                                                                         
|14%  $1,250,000 secured Bridge Note, due December 19, 2002,              |             
|net of unamortized financing cost of $31,251, collateralized by shares of |             
|the St. Marks subsidiary and certain St. Marks real estate                |             
|                                                                          |             
|                                                                          |             
|                                                                          |             

|NOTE 7 LONG-TERM
DEBT:
|-----------------------

|                                                              | December 31,
|------------------------------------------------------------- | ------------
|
|3%  $5,936,128 secured convertible debenture, due            |             
|February 1, 2007, collateralized by the fixed assets at the   |             
|St. Marks facility, effective interest rate  14.11% (1)(2)   |             
|                                                             
|3%  $3,340,000 secured convertible debenture, due            |             
|February 1, 2007, net of unamortized financing cost           |             
|of $57,750, collateralized by the fixed assets at the         |             
|St. Marks facility and a 10% ownership interest in AIPK,      |             
|effective interest rate  27.3% (1)(2)                        |             
|                                                             
|Trade notes, unsecured, due through August 4, 2004, effective |             
|Interest rate  5%                                            |             
|                                                             
|5%  $10,000,000 secured convertible debenture, due           |             
|February 18, 2004, net of unamortized financing cost          |             
|of $125,108 at December 31, 2001, collateralized by the       |             
|Lake Charles facility, effective interest rate  28% (1)(2)   |             
|                                                              |             
|                                                              |             
|                                                              |             

|F-14
|----

|(1) Convertible into the
Companys common stock at the average of the lowest three (3) consecutive
daily weighted average sales prices of the common stock as reported by
Bloomberg, LP for the twenty (20) trading days ending on the day prior to the
date of conversion.


(2) 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.


NOTE 8 REDEEMABLE
PREFERRED STOCK
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | December 31,
|-------------------------------------------------------------- | ------------
|
|$1,250,000 of the Companys preferred stock redeemable         |             
|into shares of the Companys common stock, upon notice of      |             
|redemption, at 92% of the average of the three lowest weighted |             
|average sales price of the common stock for the twenty (20)    |             
|trading days immediately preceding the date of the related     |             
|notice of redemption, net of costs                             |             
|                                                               |             

|NOTE 9 STOCK
OPTIONS AND WARRANTS:


Outstanding warrants and options


At December 31, 2001, 2000,
and 1999, 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 UnderlyingOptions and Warrantsat December 31, |  |           
|-------------------------------------------------------------- |  | ----------
|
|
|                                                              |  |          
|105,500                                                        |  | 105,500   
|50,000                                                         |  | 50,000    
|                                                              |  | 16,667    
|                                                              |  | 8,420     
|200,000                                                        |  | 200,000   
|                                                              |  |          
|1,500,000                                                      |  | 1,500,000 
|100,000                                                        |  | 100,000   
|862,500                                                        |  | 862,500   
|1,400,000                                                      |  | 1,400,000 
|1,595,978                                                      |  | 1,595,978 
|                                                              |  |          
|669,000                                                        |  | 684,000   
|                                                              |  |          
|2,000,000                                                      |  | 2,000,000 
|520,058                                                        |  | 540,058   
|                                                              |  |          
|                                                              |  |          
|712,500                                                        |  | 712,500   
|100,000                                                        |  | 100,000   
|50,000                                                         |  | 50,000    
|50,000                                                         |  | 50,000    
|375,000                                                        |  | 375,000   
|                                                              |  |          
|                                                              |  |          
|                                                              |  |          
|                                                              |  |          
|                                                              |  |          
|                                                              |  | 2,997,681 
|                                                              |  | 75,000    
|100,000                                                        |  | 100,000   
|100,000                                                        |  | 100,000   
|350,000                                                        |  | 350,000   
|300,000                                                        |  | 300,000   
|200,000                                                        |  | 200,000   
|142,857                                                        |  | 142,857   
|1,579,068                                                      |  |          
|10,000                                                         |  |          
|10,000                                                         |  |          
|10,000                                                         |  |          
|400,000                                                        |  |          
|200,000                                                        |  |          
|100,000                                                        |  |          
|100,000                                                        |  |          
|1,255,050                                                      |  |          
|1,892,631                                                      |  |          
|1,500,000                                                      |  |          
|1,000,000                                                      |  |          
|75,000                                                         |  |          
|700,000                                                        |  |          
|                                                               |  |           
|20,315,142                                                     |  | 14,616,161
|                                                               |  |           

| |  | (1) |  | Represents
options held by employees and directors of the Company.
| |  | --- |  | ------------------------------------------------------------------

| |  | (2) |  | These
options and warrants were canceled or expired, as applicable, in 1999, 2000, or 2001 as
indicated in the table.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------

| |  | (3) |  | Other
non-employee warrants.
| |  | --- |  | ----------------------------

|F-15
|----

|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 tandem
with 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, 2001 was 3,190,000.


F-16
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. The total number of
shares granted under the 1998 Plan, as of December 31, 2001, was 4,992,908.


2000 Plan


Under the Companys
2000 Stock Option Plan (the 2000 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 2000 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 2000 Plan was submitted to and approved by the
Companys stockholders at its annual meeting in 2000. There were 525,000
shares granted under the 2000 Plan, as of December 31, 2001.


2001 Plan


We have reserved and registered 5,000,000
shares of our common stock for awards under our 2001 Long Term Performance Plan. This plan has been approved by our Board of Directors and is
administered by a committee designated by our Board of Directors. Under the
plan, employees or any individual or entity providing services on our behalf are
eligible to receive awards. The designated committee determines the type or
types of awards to be made to each participant and the related terms. Awards
include but are not limited to stock options, stock appreciation rights, stock,
or cash. The performance criteria for such awards consist of objective tests
based on various criteria, which may be measured solely on a corporate,
subsidiary, or business unit basis. Payment of awards may be deferred, either in
the form of installments or as a future lump sum payment, in accordance with
such procedures as may be established from time to time by the designated
committee. As of December 31, 2001, an aggregate of 955,000 shares of our common
stock was issued and no stock options or stock appreciation rights had been
granted under this plan.



F-17
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Activity in the 1995 and
1998 Stock Option Plans for the years ended December 31, 1999, 2000, and 2001
was as follows:
|----------------------------------------------------------------------------------------------------------------------

|                              | Number ofShares | Weighted AverageExercise PricePer Share
|----------------------------- | --------------- | ---------------------------------------
|Outstanding December 31, 1998 |                 | 5,438,000                              
|Granted                       |                 | 2,242,275                              
|Exercised                     |                 | (523,000                               
|Expired                       |                 | (1,410,000                             
|                              |                 |                                        
|Outstanding December 31, 1999 |                 | 5,747,275                              
|Granted                       |                 | 1,092,857                              
|Exercised                     |                 | (2,267,550                             
|Expired                       |                 | (1,137,667                             
|                              |                 |                                        
|Outstanding December 31, 2000 |                 | 3,434,915                              
|Granted                       |                 | 2,455,943                              
|Exercised                     |                 | (29,375                                
|Expired                       |                 | (52,500                                
|                              |                 |                                        
|Outstanding December 31, 2001 |                 | 5,808,983                              
|                              |                 |                                        

|                              | Number ofShares | Weighted AverageExercise Price
|----------------------------- | --------------- | ------------------------------
|Price range $0.10 - $0.25     |                 |                               
|(weighted-average contractual |                
|life of 9 years)              |                 | 2,298,068                     
|Price range $0.43 - $0.91     |                
|(weighted-average contractual |                
|life of 7.3 years)            |                 | 1,745,558                     
|Price range $1.05 - $2.00     |                
|(weighted-average contractual |                
|life of 5.6 years)            |                 | 1,774,357                     

|As of December 31, 2001,
options to acquire 5,408,983 shares of the Companys common stock with
exercise prices ranging from $0.13 to $2.00, were fully vested and exercisable
at a weighted average exercise price of $0.73 per share. The remaining 400,000
options, with exercise prices ranging from $0.10 to $0.50, having a weighted
average exercise price of $0.24 per share, will vest through 2004.


If not previously
exercised, options outstanding at December 31, 2001, will expire as follows:
105,500 options expire on July 31,2005; 50,000 options expire on November 1,
2005; 100,000 expire on December 1, 2007; 862,500 options expire on December 31,
2007; 669,000 options expire on June 29, 2008; 520,058 options expire on March
30, 2009; 200,000 options expire on April 27, 2010; 300,000 options expire on
July 10, 2010; 142,857 options expire on July 11, 2010; 350,000 options expire
on August 24, 2010; 100,000 options expire on December 14, 2010; 1,579,068
options expire on January 12, 2011; 10,000 options expire on December 26, 2010;
10,000 options expire on January 25, 2011; 10,000 options expire on February 25,
2011; 400,000 options expire on June 20, 2011; and 400,000 options expire on
September 2, 2011. 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 weighted average grant date fair
value of the options issued during 2000 and the weighted averaged exercise price
of those options amounted to $0.22 and $0.65 respectively. The weighted average
grant date fair value of the options issued during 2001 and the weighted average
exercise price of those options amounted to $0.12 and $0.15, respectively.


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.


F-18
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          |  | 2001        | 2000 | 1999                
|------------------------- |  | ----------- | ---- | --------------------
|Net loss applicable to    |  | As reported |      | $    (27,669,975    
|common stockholders       |  | Pro forma   |      | (27,878,975         
|Net loss per common share |  | As reported |      | $              (0.17
|                          |  | Pro forma   |      | $              (0.17

|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 rate of 5.75% to 6.1%;
volatility ranging from 119.32% to 122.23%, no assumed dividend yield; and
expected life of one year.


NOTE 10 COMMITMENTS
AND CONTINGENT LIABILITIES:



Employment
Contracts


Dr. George N. Faris is
employed as Chairman of the Board until December 31, 2002 at an annual salary of
$367,500. The agreement provides that if the initial term is not extended, we
will 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. Following the resignation of Joe Michael McKinney on July
7, 2000, Dr. Faris assumed the title and responsibilities of Acting Chief
Executive Officer and his salary was increased to $367,500 per year until such
time as a permanent Chief Executive Officer is hired.


Mr. James E. Knight was
hired as President and Chief Operating Officer on September 4, 2002 at an annual
salary of $325,000 for a period of eighteen months. The term shall be
automatically renewed and extended for successive periods of one year commencing
on his eighteen month anniversary date and on each successive one year
anniversary thereafter unless either Mr. Knight or we give the other notice of
termination at least ninety days prior to the end of the initial term or any
renewal term. In such event, his employment will terminate at the end of the
initial term or the end of the renewal term during which such notice was given.
If, after the initial eighteen month term, his employment is terminated without
cause, he will be entitled to one month of severance pay for each full year of
employment, prorated for each full month of employment. The agreement also
provides for a change of control payment equal to 2.99 times his annual base
salary that is in effect immediately prior to his termination as a result of a
change in control.



Contingencies


The Company is involved in
various claims and legal actions arising in the ordinary course of business. The
Company is defendant in several actions related to employee matters. The Company
does not believe at this time that plaintiffs will prevail, or if they do, that
the results would have a material adverse effect on the Companys financial
condition or results of operations. In the opinion of management, the ultimate
disposition of matters, other than those discussed above, will not have a
material adverse effect on the Companys financial condition or results of
operations.


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.


F-19
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 $474,000, $474,000, $244,000,
$244,000 and $244,000 for 2002, 2003, 2004, 2005, and 2006, respectively.
Non-cancelable subleases total $152,448, $158,500, $161,728, $165,000 and
$168,300 for 2002, 2003, 2004, 2005, and 2006, respectively.


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

|                        | 2001 | 2000      | 1999
|----------------------- | ---- | --------- | ----
|Minimum rentals         |      | $ 496,723 |     
|Less  sublease rentals |      | (153,035  | )   
|                        |      |           |     
|Total rent expense      |      | $ 343,688 |     
|                        |      |           |     

|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 the next five years 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.


NOTE 11 INCOME
TAXES:


The Company reported a loss
from operations during 1999, 2000, and 2001 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 $73,400,000 which expire in years 2002 through 2020. Due to a
change in control, as defined in Section 382 of the Internal Revenue Code
(382), from 1994 through the current year, 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
net operating loss carryforwards.


The components of the
Companys deferred tax assets and liabilities are as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | December 31
|---------------------------------------------------- | -----------
|
|Deferred taxes:                                      |            
|Net operating loss carryforwards                     |            
|Allowance for doubtful accounts                      |            
|Accrued expenses                                     |            
|Depreciation, depletion, amortization and impairment |            
|                                                     |            
|Net deferred tax asset                               |            
|Valuation allowance                                  |            
|                                                     |            
|Net deferral tax assessment                          |            
|                                                     |            

|The valuation allowance
relates to the uncertainty as to the future utilization of net operating loss
carryforwards. The increase in the valuation allowance during 2001 of
approximately $13,069,000 primarily reflects the increase in the Companys
net operating loss carryforwards during the year.


F-20
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                               | For the Year Ended December 31,
|---------------------------------------------- | -------------------------------
|
|Federal tax benefit computed at statutory rate |                                
|Other, net                                     |                                
|Increase in valuation allowance                |                                
|                                               |                                
|Actual provision                               |                                
|                                               |                                

|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. Trade accounts
receivable outstanding at December 31, 2001 have been collected in the normal
course of business. A note receivable of $1,493,750 received in the sale of the
Colombia and Peru properties, was due during 1998 and in default and was fully
reserved at December 31, 2000. At the end of 2001 the reserve was reduced by
approximately $865,000 based on payments made against that amount. 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, 2001 and the Company has been receiving
monthly payments on this note and has no reason to believe that it will not
collect this receivable (See Note 15). At December 31, 2001, the note had been
reduced to $335,113. This amount, along with the reserve mentioned above are
reflected in Note 3. Fair value of fixed-rate long-term debt and notes
receivable are determined by reference to rates currently available for debt
with similar terms and remaining maturities. As of December 31, 2001, $35,000 of
long-term debt is due in 2003 and 2004, $5,322,000 of long-term debt is due in
2004, and $8,563,000 of the Companys long-term debt is due in 2007. As a
result, the Company believes the carrying value of its receivables 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 note approximates market rates at December 31, 2001.


The estimated fair value of
the Companys financial instruments is as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 2001 | 2000            
|------------------------------- | ---- | ----------------
|
|MIP Notes Receivable net of     |      |                 
|allowance for doubtful accounts |      | $  1,200,000    
|Short-term debt                 |      | $  1,986,365    
|Long-term debt                  |      | $13,919,968     
|Redeemable preferred stock      |      | $              

|Four of the Companys
asphalt customers account for an aggregate of 71% of the Companys sales in
2001. The Company has the ability to draw on its customers posted
performance bonds and personal guarantees to collect any past due accounts.


NOTE 13 GEOGRAPHICAL
SEGMENT INFORMATION:


The Company has two
reportable geographical segments which are primarily in the business of
exploration, development, production of oil and natural gas 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 statements are managed separately because of their geographic
locations. Financial information by operating segment is presented below:


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



F-21
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|                                             | Geographic Segment
|-------------------------------------------- | ------------------
|
|Sales and other operating revenue            |                   
|Interest income and other corporate revenues |                   
|                                             |                   
|Total revenue                                |                   
|Costs and operating expense                  |                   
|                                             |                   
|Operating loss                               |                   
|                                             |                   
|General corporate expense                    |                   
|Interest expense and incremental yield on    |                   
|preferred stock                              |                   
|                                             |                   
|Net loss applicable to common stockholders   |                   
|                                             |                   
|Identifiable assets at December 31, 2001     |                   
|                                             |                   
|Corporate assets                             |                   
|                                             |                   
|Total assets at December 31, 2001            |                   
|                                             |                   
|Depreciation, depletion, amortization        |                   
|and provision for impairment                 |                   
|                                             |                   
|Capital Expenditures, net of cost recoveries |                   
|                                             |                   

|F-22
|----

|
|

|                                             | Geographic Segment
|-------------------------------------------- | ------------------
|
|Sales and other operating revenue            |                   
|Interest income and other corporate revenues |                   
|                                             |                   
|Total revenue                                |                   
|Costs and operating expense                  |                   
|                                             |                   
|Operating profit (loss)                      |                   
|                                             |                   
|General corporate expense                    |                   
|Interest expense and incremental yield on    |                   
|preferred stock                              |                   
|                                             |                   
|Net loss applicable to common stockholders   |                   
|                                             |                   
|Identifiable assets at December 31, 2000     |                   
|                                             |                   
|Corporate assets                             |                   
|                                             |                   
|Total assets at December 31, 2000            |                   
|                                             |                   
|Depreciation, depletion, amortization        |                   
|and provision for impairment                 |                   
|                                             |                   
|Capital Expenditures, net of cost recoveries |                   
|                                             |                   

|F-23
|----

|
|

|                                             | Geographic Segment
|-------------------------------------------- | ------------------
|
|Sales and other operating revenue            |                   
|Interest income and other corporate revenues |                   
|                                             |                   
|Total revenue                                |                   
|Costs and operating expense                  |                   
|                                             |                   
|Operating profit (loss)                      |                   
|                                             |                   
|General corporate expense                    |                   
|Interest expense                             |                   
|                                             |                   
|Net loss                                     |                   
|                                             |                   
|Identifiable assets at December 31, 1999     |                   
|                                             |                   
|Corporate assets                             |                   
|Total assets at December 31, 1999            |                   
|                                             |                   
|Depreciation, depletion and amortization     |                   
|                                             |                   
|Capital Expenditures, net of cost recoveries |                   
|                                             |                   

|F-24
|----

|NOTE 14    SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIESAND 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 non-cash transactions:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | 2001 | 2000        | 1999
|----------------------------------------------------------- | ---- | ----------- | ----
|Conversion of debentures                                    |      | $   977,200 |     
|Stock issued in lieu of current liabilities                 |      | 42,522      |     
|Issuance of warrants related to convertible debentures      |      | 106,729     |     
|Issuance of stock - compensation                            |      | 98,461      |     
|Issuance of stock - services                                |      |            |     
|Issuance of stock and warrants - for oil and gas properties |      |            |     
|Issuance of stock for collateral on debt                    |      |            |     
|Preferred stock converted into common stock                 |      | $3,776,142  |     

|Cash paid for interest, net
of amounts capitalized, was $389,566, $799,051, and $1,943,124 during 2001,
2000, and 1999, respectively. Cash paid for corporate franchise taxes was
$80,289, $111,577, and $94,506 during 2001, 2000, and 1999, respectively.


Interest capitalized was
$547,786 during the year 1999. No interest was capitalized during 2000 or 2001.



NOTE 15 
SUBSEQUENT EVENTS:



Mercantile
International Petroleum Notes


In February 1999,
Mercantile International Petroleum, Inc. failed to pay us the $1.6 million
outstanding balance of the 5% convertible debenture it issued to us as partial
payment for the purchase of our oil and gas properties in Columbia and Peru,
South America in February 1997. The $1.6 million was fully reserved for in 1998.
In January 2000, we reached an agreement with Mercantile, under which Mercantile
acknowledged its indebtedness to us in the amount of $1,581,000 for the
outstanding balance of the debenture and an additional amount of $1,306,000 in
connection with our earnout provision of the original purchase agreement.
Mercantile agreed to repay this aggregate debt of $2,887,000 by issuing a new
11.5% convertible debenture to us. Beginning in February 2000, Mercantile began
to make the scheduled monthly payments to us amounting to the greater of $70,000
or 80% of its Colombian subsidiarys net income during the calendar year
2000. During 2000, each payment was in the amount of $70,000 and was generally
paid in a timely manner. Beginning in January 2001, Mercantile began to pay
monthly the greater of $80,000 or 80% of the subsidiarys net income until
the debt is retired. In March 2001 we received notice from Mercantile that
Ecopetrol, the Columbian government oil company that purchases the majority of
Mercantiles oil production in Columbia, was withholding payment of the
proceeds from the purchase of Mercantiles oil sales to Ecopetrol in
Columbia, pending resolution of a legal dispute between Mercantile and another
entity in Columbia. Mercantile originally informed us they expected the payments
to resume upon resolution of this dispute in July 2001. In November 2001,
Mercantile indicated they expected an imminent settlement of this dispute, which
would allow them to release the accrued, unpaid portion of the amounts due
through mid-November of $640,000. However, shortly thereafter, Mercantile was
informed they had lost the dispute and were not able to release these funds in
lump sum, but would need to begin paying again at $80,000 per month until all
amounts due were fully paid.


In an effort to minimize
our exposure to the potential future risks of receiving full payment of the
debenture from Mercantile, we agreed to reduce the principal and interest
balances due on the debenture of approximately $2.6 million to $1.5 million, if
Mercantile would pay us $1.1 million immediately, $100,000 on or before March
15, 2002, and $300,000 on or before December 31, 2003. Mercantile agreed and
paid the first installments totaling $1.2 million during February and March
2002. The allowance for doubtful accounts was reduced at December 31, 2001 by
$865,000 to reflect the subsequent payments received. In the event either the
second or third payments are not made on or before the respective due date, the
required payments will double, respectively, as applicable. Interest accrues on
the $300,000 final payment at 11.5% per month and is to be paid to us in cash
each month beginning March 15, 2002.


In addition to reducing the
principal and interest balances due, we also gave up any rights we had in
connection to any net operating loss benefits which would accrue to Mercantile,
which benefits, we believe, were not likely to accrue in any event. We utilized
the proceeds primarily to service our asphalt contract backlog which, at
December 31, 2001 amounted to approximately $6 million. The unpaid portion of
the debt is convertible into Mercantile common stock at our option, at any time,
at $1.50 per share. Mercantile also agreed to issue warrants, entitling us to
purchase an aggregate of 2,347,000 Mercantile common shares at any time prior to
December 31, 2002. The exercise price of the warrants was $1.00 per share during
2001 and is $1.50 during 2002. These provisions of the debenture remain unchanged.

F-25
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 2001, 2000,
and 1999 totaling approximately $53,700, $43,300, and $61,500, respectively.



NOTE 17 
UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS:


Unaudited Selected Quarterly Results of Operations (in thousands, except per share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Quarters Ended
|------------------------------------------ | --------------
|
|Revenues                                   |               
|                                           |               
|Loss from operations                       |               
|Net loss                                   |               
|Net loss applicable to common stockholders |               
|                                          
|Earnings Per Share - Basic and Diluted     |               
|Net loss applicable to common stockholders |               
|Weighted average shares                    |               
|                                          
|                                          
|
|
|Revenues                                   |               
|Loss from operations                       |               
|Net loss                                   |               
|Net loss applicable to common stockholders |               
|                                          
|Earnings Per Share - Basic and Diluted     |               
|Net loss applicable to common stockholders |               
|Weighted average shares                    |               

|NOTE 18 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


During 2001, we borrowed an
aggregate of $320,000 from George N. Faris, our Chairman of the Board. These
loans were payable upon demand and accrued interest at 14% per annum. We repaid
these loans in full during 2001.


F-26
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During February 2002, we
borrowed an aggregate of $240,000 from Dr. Faris. The loans are payable on
demand and bear interest at 14% per annum. On August 24, 2000, we borrowed
$100,000 from Mr. Donald Rynne, one of our directors. This loan is repayable on
demand and bears interest at 12% per annum. In connection with this loan, we
issued an option to Mr. Rynne to purchase one share of common stock for each
dollar borrowed. The option may be exercised prior to August 23, 2010 and has an
exercise price of $0.43 per share, representing 105% of the market price of a
share of our common stock on the date immediately preceding the loan. We also
issue him an additional 20,000 shares for each month the loan remains
outstanding beyond December 2000 at exercise prices based on the average closing
market price of our common stock during each particular month. As of February
28, 2002, the entire amount of these loans remained outstanding. We believe that
the terms of these loans were as favorable to us as we could have obtained from
an unaffiliated party.



SUPPLEMENTARY
OIL AND GAS INFORMATION FOR THE
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999


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

|AMERICAN INTERNATIONAL
PETROLEUM AND SUBSIDIARIESSUPPLEMENTARY
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
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                           | Total Kazakhstan
|---------------------------------------------------------- | ----------------
|
|Unevaluated property not subject to amortization           |                 
|Evaluated properties                                       |                 
|Accumulated depreciation, depletion and amortization       |                 
|and provision for impairment                               |                 
|                                                           |                 
|Net Capitalized costs                                      |                 
|                                                           |                 
|Costs incurred in oil and gas property acquisition,        |                 
|exploration and development activities                     |                 
|                                                           |                 
|Property acquisition costs - proved and                    |                 
|unproved properties                                        |                 
|Exploration Costs                                          |                 
|Development costs                                          |                 
|Results of operations for oil and gas producing activities |                 
|Oil and gas sales                                          |                 
|                                                           |                 
|Lease operating costs                                      |                 
|Depreciation, depletion and amortization                   |                 
|Provision for impairment of oil and gas properties         |                 
|                                                           |                 
|                                                           |                 
|                                                           |                 
|Income (loss) before tax provision                         |                 
|                                                           |                 
|Provision (benefit) for income tax                         |                 
|Results of operations                                      |                 
|                                                           |                 

|(1) Unevaluated property
not subject to amortization includes Kazakhstan properties and non-Kazakhstan
oil and gas properties.



F-28
|--------------------------------------------------------------------------------------------------------------------------------------

|INDEPENDENT
AUDITORS REPORT ON SCHEDULE



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


We have audited the
consolidated financial statements American International Petroleum Corporation
and its subsidiaries as of December 31, 2001 and 2000, and for each of the years
in the three-year period ended December 31, 2001. 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, 2001. 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 a 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 LLP
Houston, TexasMarch 1, 2002
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Description                     | Balance atBeginning of Year | Additions Chargedto Costs andExpenses | Deductions:Accounts Written offAgainst Allowance | Balance at End of Year
|------------------------------- | --------------------------- | ------------------------------------- | ------------------------------------------------ | ----------------------
|
|December 31, 1999               |                             |                                       |                                                  |                       
|Allowance for Doubtful Accounts |                             | $3,415                                |                                                  | $                    
|                               
|December 31, 2000               |                            
|Allowance for Doubtful Accounts |                             | $1,494                                |                                                  | $                    
|                               
|December 31, 2001               |                            
|Allowance for Doubtful Accounts |                             | $1,494                                |                                                  | $                    

|F-30
|----

|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: March 15, 2001
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Denis J. Fitzpatrick
Denis J. FitzpatrickChief 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
George N. Faris, Chairman of the Board of Directors Chief Executive Officer |  | Date: March 15, 2001
|--- | --------------------------------------------------------------------------------------------------------- |  | --------------------

|By: | /s/ J. E. Knight
J. E. Knight, Director, PresidentChief Operating Officer |  | Date: March 15, 2001
|--- | ----------------------------------------------------------------------------------- |  | --------------------

|By: | /s/ Denis J. Fitzpatrick
Denis J. Fitzpatrick, Director, Executive Vice President, Secretary, Principal
Financial and Accounting Officer |  | Date: March 15, 2001
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------

|By: | /s/ Donald G. Rynne
Donald G. Rynne, Director |  | Date: March 15, 2001
|--- | ------------------------------------------------------- |  | --------------------

|By: | /s/ Daniel Y. Kim
Daniel Y. Kim, Director |  | Date: March 15, 2001
|--- | --------------------------------------------------- |  | --------------------

|By: | /s/ William R. Smart
William R. Smart, Director |  | Date: March 15, 2001
|--- | --------------------------------------------------------- |  | --------------------

|By: | /s/ John H. Kelly
John H. Kelly,  Director |  | Date: March 15, 2001
|--- | ---------------------------------------------------- |  | --------------------

|F-31
|----

|Exhibit Index
|-------------

|ExhibitNumber |  | Description
|------------- |  | -----------

|2.1 |  | Share
Purchase Agreement dated February 25, 1997, among Registrant and AIPCC, PAIPC and MIP. (3)
|--- |  | ------------------------------------------------------------------------------------------------

|4.1 |  | 1998
Stock Option Plan of the Registrant.(4)
|--- |  | --------------------------------------------

|4.2 |  | 1998
Stock Award Plan of the Registrant.(4)
|--- |  | -------------------------------------------

|4.3 |  | Convertible
Debenture Purchase Agreement dated February 18, 1999. (2)
|--- |  | ---------------------------------------------------------------------

|4.14 |  | Form
of 5% Convertible Secured Debenture dated February 18, 1999. (2)
|---- |  | ---------------------------------------------------------------------

|4.15 |  | Form
of Warrant issued pursuant to the Convertible Secured Debentures dated February 18, 1999. (2)
|---- |  | --------------------------------------------------------------------------------------------------

|4.16 |  | Form
of Registration Rights Agreement dated February 18, 1999. (2)
|---- |  | ------------------------------------------------------------------

|4.17 |  | Form
of Mortgage and Security Agreement issued pursuant to the Convertible Secured Debentures
dated February 11, 1999 (2)
|---- |  | -------------------------------------------------------------------------------------------------------------------------

|4.18 |  | Form
of Securities Purchase Agreement dated December 1, 1999 by and among Registrant and GCA
Investment Fund Ltd. (6)
|---- |  | ---------------------------------------------------------------------------------------------------------------------

|4.19 |  | Form
of Mortgage and Security Agreement between St. Marks Refinery, Inc. and GCA Strategic
Investment Fund, Ltd. (6)
|---- |  | --------------------------------------------------------------------------------------------------------------------

|4.20 |  | Form
of Warrant issued in connection with the Securities Purchase Agreement referenced in
Exhibit 4.33.(6)
|---- |  | ----------------------------------------------------------------------------------------------------------

|4.21 |  | Form
of Securities Purchase Agreement and related Schedules dated April 24, 2001. (7)
|---- |  | -------------------------------------------------------------------------------------

|4.22 |  | Form
of Exchange Agreement and related Schedules dated April 28, 2001. (7)
|---- |  | --------------------------------------------------------------------------

|4.23 |  | Form
of Securities Purchase Agreement and related Schedules dated December 19, 2001
|---- |  | -----------------------------------------------------------------------------------

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

|10.2 |  | $3
million Exchangeable Debenture, granted by AIPCC to the Registrant due February 25, 1999.
(8)
|---- |  | ------------------------------------------------------------------------------------------------

|10.6 |  | Amendment
#2 to Employment Agreement dated May 1, 1989 by and between Registrant and George N.
Faris.(16)
|---- |  | ---------------------------------------------------------------------------------------------------------

|10.7 |  | Employment
Agreement dated August 9, 2001 by and between J. E. Knight and the Registrant.
|---- |  | -----------------------------------------------------------------------------------------

|10.8 |  | Letter
Agreement dated January 10, 2002 by and between Mercantile International Petroleum, Inc.
and the Registrant.
|---- |  | -------------------------------------------------------------------------------------------------------------------

|21.1 |  | Subsidiaries
of the Registrant
|---- |  | ------------------------------