<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
________________________________________________________________________________
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1999
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
AMERICAN INTERNATIONAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-25223
Nevada 88-0326480
------ ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
601 Cien Street, Suite 235, Kemah, Texas 77565-3065
---------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
281-334-9479
------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
As of November 30, 1999 registrant had 124,182,018 shares of Common Stock
outstanding.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Balance Sheets
- ------------------------------------------------------------------------
Audited
1998
Unaudited (Restated-
September 30, and December 31, 1999 Note 7)
- ------------------------------------------------------------------------
Assets
Current
Cash $ 705,755 $ 2,149,916
Trading securities 919,750 418,770
Marketable securities available-for-sale - 115,884
Restricted certificate of deposit 150,000 -
Accounts receivable, net of allowance
for doubtful accounts 1,847,975 1,641,469
Accounts receivable, related party 261,131 -
Notes receivable 87,190 116,190
Inventories, net of reserve 1,272,973 1,055,091
Other 108,290 141,996
- ------------------------------------------------------------------------
Total current assets 5,353,064 5,639,316
Real estate held for sale 1,239,584 1,239,584
Property and equipment, net of
accumulated depreciation 4,912,234 5,060,372
Goodwill, net of amortization 1,797,842 1,085,616
Non-compete agreements, net of amortization 320,000 417,500
Restricted certificate of deposit 1,000,000 -
Other 48,327 125,793
- ------------------------------------------------------------------------
Total assets $ 14,671,051 $ 13,568,181
- ------------------------------------------------------------------------
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Balance Sheets
- ------------------------------------------------------------------------
Audited
1998
Unaudited (Restated-
September 30, and December 31, 1999 Note 7)
- ------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 2,394,851 $ 1,451,717
Accrued expenses 632,662 481,227
Margin loan from a financial institution 454,208 195,645
Accrued property taxes 370,729 386,601
Notes payable, current portion 666,461 116,144
Notes payable to related parties,
current portion 621,912 459,972
Capital lease obligations, current portion 1,029,984 584,552
- ------------------------------------------------------------------------
Total current liabilities 6,170,807 3,675,858
Notes payable, less current portion 1,732,459 1,599,909
Notes payable to related parties, less
current portion 175,828 320,324
Capital lease obligations, less current portion 188,286 776,388
Other 21,674 -
- ------------------------------------------------------------------------
Total Liabilities 8,289,054 6,372,479
- ------------------------------------------------------------------------
Minority interest (47,320) -
Stockholders' equity:
Preferred stock, $.001 par value:
10,000,000 shares authorized, none issued - -
Common stock, $.001 par value; 200,000,000
shares authorized 124,971 121,116
Additional paid-in capital 14,747,541 15,726,799
Deficit (8,310,695) (8,045,998)
- ------------------------------------------------------------------------
6,561,817 7,801,917
Less: Common stock subscriptions receivable (100,000) (550,000)
Treasury stock, at cost (32,500) (37,251)
Accumulated other comprehensive gain (loss) - (18,964)
- ------------------------------------------------------------------------
Total stockholders' equity 6,429,317 7,195,702
- ------------------------------------------------------------------------
Total liabilities and stockholders equity $ 14,671,051 $13,568,181
========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Operations
- ------------------------------------------------------------------------
Unaudited Unaudited
For the three months ended September 30, 1999 1998
Net Sales $ 3,011,305 $ 4,606,533
Cost of sales 2,497,548 3,746,820
- ------------------------------------------------------------------------
Gross Profit 513,757 859,713
Operating Expenses 983,979 617,124
- ------------------------------------------------------------------------
Operating Income (Loss) (470,222) 242,589
- ------------------------------------------------------------------------
Other Income (Expense):
Interest and dividend income 20,915 19,791
Investment losses (322,761) -
Interest expense (42,503) (20,202)
Other expenses (311,785) (22,950)
Other income 8,151 36,016
Increase in market value of trading securities - 37,845
- ------------------------------------------------------------------------
Total other income (expense), net (647,983) 50,500
Income (Loss) before deemed dividends (1,118,205) 293,089
Deemed dividends - (2,038,038)
- ------------------------------------------------------------------------
Loss applicable to common stockholders $ (1,118,205) $ (1,744,949)
Loss From Discontinued Operations (532,370) -
- ------------------------------------------------------------------------
Net loss (1,650,575) (1,744,949)
- ------------------------------------------------------------------------
Loss per common share - basic and diluted (0.01) (0.03)
Weighted average shares outstanding 124,947,982 110,540,835
========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Operations
- ------------------------------------------------------------------------
Audited
1998
Unaudited (Restated-
For the nine months ended September 30, 1999 Note 7)
- ------------------------------------------------------------------------
Net Sales $ 10,913,870 $ 5,756,615
Cost of sales 8,647,569 4,523,919
- ------------------------------------------------------------------------
Gross Profit 2,266,301 1,232,696
Operating Expenses 3,012,502 1,388,411
- ------------------------------------------------------------------------
Operating Loss (746,201) (155,715)
- ------------------------------------------------------------------------
Other Income (Expense):
Interest and dividend income 58,588 22,935
Investment income 579,668 -
Interest expense (140,251) (47,301)
Other expenses (311,785) (22,950)
Other income 76,312 72,278
Increase in market value of trading securities - 37,845
- ------------------------------------------------------------------------
Total other income (expense), net 262,532 62,807
Loss before deemed dividends (483,669) (92,908)
Deemed dividends - (2,038,038)
- ------------------------------------------------------------------------
Loss applicable to common stockholders $ (483,669) $ (2,130,946)
Loss from discontinued operations (1,331,554) -
- ------------------------------------------------------------------------
Net loss (1,815,223) $ (2,130,946)
- ------------------------------------------------------------------------
Loss per common share - basic and diluted (0.01) (0.03)
Weighted average shares outstanding 124,883,901 82,124,429
========================================================================
Consolidated Statements of Comprehensive Loss
Net loss (1,815,223) (2,130,946)
Unrealized gain on securities available
for sale
Unrealized holding gain arising during
the period 1,051,720 -
Less: reclassification adjustment for gains
included in net income (1,032,756) -
- ------------------------------------------------------------------------
Comprehensive Loss $ (1,796,259) $ (2,130,946)
========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Unaudited Unaudited
For the nine months ended September 30, Increase (Decrease) in Cash 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (1,815,223) $ (92,908)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 783,203 162,141
Bad debt reserve (50,779) -
Inventory reserve (8,468) -
Realized gain on sale of securities (1,252,039) -
Loss on disposal of equipment 210
Common stock issued for services - 55,700
Decrease in market value of equity securities 672,370 (37,845)
Changes in assets and liabilities, net of acquired assets and liabilities:
Accounts receivable (361,865) 24,490
Inventories (142,957) (111,699)
Other current assets (17,073) -
Purchase of trading securities, net (996,496) (176,945)
Other assets 125,143 (11,233)
Accounts payable and accruals 1,070,279 (450,241)
Deferred revenue 20,539 -
Accrued property taxes (15,870) -
Cash received from sale of options - 49,785
Cash received from broker - 40,000
- -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,989,236) (548,545)
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds (purchase) of available-for sale securities, net 1,167,605 (54,540)
Capital expenditures (290,269) (143,131)
Notes receivable 143,000 -
Cash paid in acquisitions (141,306) -
Cash paid for acquisition of subsidiary (378,177) -
Purchase of restricted certificates of deposit (1,150,000) -
Cash received in acquisition 570 1,036,242
Disposition of assets 130,155 -
Purchase of real estate properties (164,800)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (518,422) 673,771
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of stock 456,900 2,217,500
Proceeds from notes payable 3,309,357 1,105,909
Repayments of notes payable (2,415,608) (979,477)
Principal payments on capital lease obligations (296,342) (5,006)
Purchase of treasury stock 4,190 -
Repayment on note receivable 5,000
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 1,063,497 $ 2,338,926
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Unaudited Unaudited
For the nine months ended September 30, Increase (Decrease) in Cash 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net increase (decrease) in cash $ (1,444,161) $ 2,464,152
Cash at beginning of period 2,149,916 62,991
Cash at end of period 705,755 2,527,143
- -----------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information:
Interest paid $ 288,366 $ 49,500
- -----------------------------------------------------------------------------------------------------------
Non-Cash Transactions:
Acquisition of land for common stock - 2,401,000
- -----------------------------------------------------------------------------------------------------------
Deemed dividend - 2,038,838
- -----------------------------------------------------------------------------------------------------------
Assumption of property taxes on purchase of land - 300,000
- -----------------------------------------------------------------------------------------------------------
Issuance of securities on margin - (303,300)
- -----------------------------------------------------------------------------------------------------------
Stockholder debt forgiveness 365,158 -
- -----------------------------------------------------------------------------------------------------------
Subscriptions of common stock - 710,000
- -----------------------------------------------------------------------------------------------------------
Purchase of subsidiary assets and liabilities through
the issuance of common stock and options:
Accounts receivable $ - $ 2,632,551
Inventory - 1,096,528
Other current assets - 112,664
Property, plant and equipment - 3,800,000
Other assets - 80,227
Non-compete agreements - 150,000
Goodwill - 1,057,970
Accounts payable - (2,681,466)
Accrued expenses - (514,434)
Notes payable - (975,000)
Capital lease obligations - (1,498,601)
Long-term debt to related parties - (466,381)
Other liabilities - (95,000)
===========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
American International Industries, Inc.
Notes to Consolidated
Financial Statements (Unaudited)
Note 1
Presentation of Interim Financial Statements
The accompanying consolidated financial statements include the accounts of
American International Industries, Inc. and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation. The consolidated balance sheet as of December 31, 1998 has been
audited. The consolidated balance sheet as of September 30, 1999, the
consolidated statements of operations for the three months and nine months ended
September 30, 1999 and September 30, 1998, and the consolidated statements of
cash flows for the three months and nine months ended September 30, 1999 and
September 30, 1998, have been prepared by the Company, without audit. In the
opinion of management, all adjustments necessary to present fairly the financial
condition, results of operations and cash flows have been reflected in the
accompanying financial statements.
In November, 1999 the Company entered into an agreement to sell Modern Film
Effects, Inc. d/b/a Cinema Research Corporation ("CRC"). Accordingly, the
Consolidated Statements of Operations have been revised to present the results
of operations from continuing operations separate from those of discontinued
operations.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's amendment to Form 10-KSB for the year ended December 31, 1998. The
results of operations for the three-month and nine-month periods ended September
30, 1999 are not necessarily indicative of the operating results for the full
year.
Note 2
Acquisition World Wide Net, Inc.
In May, 1999, the Company purchased for investment purposes, 400,000 freely
tradable shares (giving effect to a 1 for 5 reverse split), representing 20% of
the total outstanding common shares of Worldwide Net, Inc. ("WWN"), for a total
of $300,000 WWN is an inactive public company, traded as an over-the-counter-
bulletin-board company with nominal assets. Of the total of 400,000 freely
tradable shares, approximately 49,300 have been sold in several transactions for
total proceeds of $43,518. The remaining shares are categorized as Investment in
Subsidiary with remaining cost attributed to them of $265,302 at September 30,
1999.
On June 28, 1999, the Company entered into a definitive agreement to acquire
100% of the optical and digital title, special effects and the scan and record
operations of Pacific Title/ Mirage Studios (Pac Title).
On September 12, 1999, the Company acquired 3,100,000 newly issued, restricted,
common shares of World Wide Net, Inc. (OTCBB), constituting approximately
60.8% of the then outstanding total of 5,100,000 common shares of WWN. The
shares of WWN were received by AIII in exchange for 100% of the shares of CRC.
Prior to the merger with CRC, WWN had only nominal assets and no operations
during the three preceding years.
On September 29, 1999 the Company announced that it has discontinued
negotiations regarding the acquisition of the assets and operations of Pac
Title. Due to unforeseen circumstances the company decided not to proceed with
the acquisition.
Note 3
Discontinued Operations - Sale of CRC
On November 15, 1999 WWN reached an agreement to sell its 100% ownership of CRC
to Cinema Investment Group, Inc. Pursuant to the terms of that agreement, WWN
will exchange its ownership in CRC for:
$250,000 cash at closing; and the transfer to WWN of 2,238,000 shares of AIII
common stock, which had been issued as part of the original purchase of CRC by
AIII. Those shares were valued at $179,111 at the date of the agreement.
The purchaser will assume liability for the notes of CRC, approximately
$1,200,000, although those notes remain guaranteed by the pledge of certificates
of deposit owned by AII. The closing of the transaction is expected to occur in
December 1999. It is anticipated that the total consideration received in the
transaction will exceed the book value of CRC and such excess will be treated as
a contribution of capital, rather than as a gain.
<PAGE>
CRC comprises the Media/Entertainment Segment. It was acquired in the fourth
quarter of 1998. Certain components of amounts reflected in its results of
operations, balance sheet and cash flows for the nine months ended September 30,
1999 and 1998 are summarized as follows:
1999 1998
---------- ----------
Income statement data:
Revenues $2,685,251 $ N/A
Costs and expenses 3,869,026 N/A
Operating loss 1,183,775 N/A
Loss from discontinued operations 1,331,554 N/A
- --------------------------------------------------------------------------------
Balance sheet data:
(at September 30, 1999 and December 31, 1998)
Current assets 381,860 592,044
Property and equipment - net 3,274,026 3,564,036
Total assets 3,766,131 4,391,898
Current liabilities 2,353,539 2,123,279
Other liabilities 1,306,520 1,196,152
Net assets of discontinued operations 106,072 1,072,467
Cash flow data:
Cash flows from operations 221,250 N/A
Cash flows from investing activities (126,013) N/A
Cash flows from financing activities (80,735) N/A
Net cash flows from discontinued operations 14,502 N/A
- --------------------------------------------------------------------------------
Note 4
In March, 1999, the Company acquired a minority interest in Signal Products,
Inc. (Signal), a California corporation, which owns the exclusive license to
market handbags and leather accessories bearing the "Guess" trademark. The
shares related to that transaction were placed in escrow pending a business
evaluation of Signal. Release of the shares from escrow was contingent upon
satisfactory determination of Signal's value. Such evaluation has not been
completed and the Company has rescinded the transaction.
Note 5
Litigation
The Company has been involved in litigation through the suit it filed against
the former principal stockholder of Acqueren. That action, filed in Galveston
County, Texas, related to representations made by those selling shareholders of
Acqueren, prior to the acquisition. On August 17, 1999, those selling
shareholders filed an action in New York, alleging misrepresentations by AIII.
Management expects the outcome of such litigation will not have a material
adverse effect on the Company.
Note 6
Segment Information
Three Months Ended Nine Months Ended
September 30 September 30
Net sales: 1999 1998 1999 1998
---- ---- ---- ----
Industrial/Commercial 3,003,948 4,562,203 10,306,513 5,712,285
Media/Entertainment 673,930 - 2,685,251 -
Real Estate 7,357 - 607,357 -
- -----------------------------------------------------------------------------
Consolidated net sales 3,685,235 4,562,203 13,599,121 5,712,285
- -----------------------------------------------------------------------------
<PAGE>
Income (loss) from operations:
Industrial/Commercial (98,797) 347,189 69,419 269,941
Media/Entertainment (490,261) - (1,183,775) -
Real Estate (5,661) (4,882) 445,941 (27,025)
Oil & Gas (12) 44,330 (5,026) 36,048
Corporate (365,752) (144,048) (1,256,535) (434,678)
- -----------------------------------------------------------------------------
Consolidated operating
income (loss) (960,483) (242,589) (1,929,976) (155,714)
- -----------------------------------------------------------------------------
A summary of identifiable assets
Industrial/Commercial 8,278,779 1,924,311
Media/Entertainment 3,916,701 0
Real Estate 1,296,631 906,306
Oil & Gas 67,528 9,863
Corporate 1,111,982 1,335,822
- -----------------------------------------------------------------------------
Consolidated assets 14,671,621 4,176,302
- -----------------------------------------------------------------------------
NOTE 7 - RESTATEMENT OF PRIOR PERIODS
The Company's financial statement for the period ended December 31, 1998, has
been restated to reflect the acquisitions of TRE, Brenham, Midtowne and real
estate held for sale at the Seller's historical cost plus assumed liabilities.
The acquisitions were previously recorded at fair value. The transactions have
been recorded at carry-over cost since the shareholders of the entities of all
these acquisiton transactions are under common control. Accordingly, the company
restated its financial statements to reflect the real estate held for sale and
natural gas and minerals interests at the seller's carry-over cost. The company
recorded a deemed dividend which represents the fair value of the asset
acquired in excess of the predecessor carry-over historical cost.
The effects of the restatements are as follows:
<TABLE>
<CAPTION>
As Previously Reported As Restated
December 31, 1998 December 31, 1998
---------------------- -----------------
<S> <C> <C>
Consolidated Balance Sheets:
Real estate held for sale........ $ 4,910,140 $ 1,239,584
Natural gas and mineral interests
net of amortization of $105,000. 240,000 -
Deficit.......................... (4,192,960) (8,045,998)
Nine Months ended Nine Months ended
September 30, 1998 September 30, 1998
------------------ ------------------
Consolidated Statements of Loss:
Operating expenses............... $ 1,433,411 $ 1,338,411
Operating loss................... (176,085) (155,715)
Net loss applicable to common
stockholder..................... (137,908) (2,130,946)
Loss per share - basic and
diluted......................... $ (.00) $ (.03)
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements contained herein and other information contained in this report
may be based, in part, on management's estimates, projections, plans and
judgments. As such, these are forward looking statements and involve a number of
risks and uncertainties. A number of factors, which could cause actual results
to differ significantly, include general economic conditions, competitive market
influences, technology changes, and other influences beyond the control of
management.
In order to make this document easier to read, the following defined terms are
used: Northeastern Plastics, Inc. ("NPI"), Modern Film Effects, Inc., d/b/a
Cinema Research Corporation ("CRC"), Marald, Inc. ("Marald"), Tough Truck and
Accessories, Inc., d/b/a Armor Linings ("Armor Linings"), Har-Whit / Pitt's &
Spitt's, Inc. ("Har-Whit"), Texas Real Estate Enterprises, Inc. ("TREE"),
Brenham Oil & Gas, Inc. ("Brenham"), and Acqueren, Inc. ("Acqueren").
Results of Operations - Consolidated AIII - Continuing Operations
Three months ended September 30, 1999 compared to three months ended September
30, 1998. Consolidated net loss for the three-month period ended September 30,
1999 from continuing operations was $1,118,205 and the loss from discontinued
operations of $532,370 brought the consolidated loss to $1,650,575, as compared
to a loss during the three months ended September 30, 1998 of $1,744,949. The
factors contributing to the consolidated net loss for the periods are discussed
below:
The net sales from continuing operations for the three months ended September
30, 1999, were $3,011,305 as compared to $4,606,533 for September 30, 1998. NPI
sales for the three-month period ended September 30, 1999 were $1,888,653, as
compared to $3,935,820 during the comparable quarter in 1998. CRC revenues for
the three month period ended September 30,1999 were $673,930. During the
quarter, CRC experienced a decline in revenues due to a general downturn in
movie production and unfavorable effects of the attempted merger with Pac Title.
Marald had revenues of $471,182, Armor Linings sales were $177,168. Har-Whit
sales for the three months ended September 30, 1999 were $516,205 as compared
to $626,383 for the three months ended September 30, 1998. TREE had no sales
during the three-month period ended September 30, 1999, and had no sales
activity for the comparable three months of 1998. Brenham reported $1,651
royalty income in the current quarter, as compared to $44,330 during the
comparable three months of 1998. The activity of Acqueren during the three
months ended September 30, 1999, consisted of investments and trading in various
investment and available for sale equity securities; such activity resulting in
unrealized investment losses of $429.768 and realized investment income of
$99,120. Cost of sales as a percentage of net sales for the three months ended
September 30, 1999 was approximately 83%, with gross margins of 17%, as compared
to approximately 81.4% cost of sales and 18.6% gross margins during the three-
month period ended September 30, 1998. The change is the result of the inclusion
of NPI, which sustained gross margins averaging 13.6% during this quarter. CRC
posted negative margins averaging 33% during the three months ended September
30, 1999. Har-Whit sustained 11.8% margins in 1999 as compared to 35.5% margins
in 1998. Marald sustained margins during the current quarter of 29.1%, while
Armor Lining's margin was 28.6% of sales.
<PAGE>
Operating expenses for the three months ended September 30, 1999 were $983,979
as compared to $617,124 for the three months ended September 30, 1998. This
increase is primarily the result of acquisitions. NPI had operating expenses of
$270,690 during the current quarter. CRC incurred operating expenses of
$267,556. Marald incurred $137,325 in operating expenses during the three months
ended September 30, 1999. Armor Linings operating expenses during the quarter
were $39,742. TREE incurred operating expenses, primarily property taxes, of
$13,018. Har-Whit sustained operating expenses of $143,978 during the three-
months ended September 30, 1999 as compared to $192,827 during the comparable
period last year. AIII incurred operating expenses at the corporate level of
$365,752 for the three months ended September 30, 1999, including $58,376 of
legal & professional fees and $25,000 amortization of goodwill. During the
comparable period of 1998, AIII sustained operating expenses of $144,048.
Other expense amounted to $647,983 for the three-month period ended September
30, 1999 including interest income of $20,675 and dividend income of $240.
Acqueren reported unrealized investment losses of $429,768 and realized
investment income of $107,007. Interest expense during the current quarter
amounted to $42,503. A $311,785 loss was recorded related to the Company's
investment in the attempted acquisition of Pacific Title/Mirage Studios. During
the comparable three months last year, other income of $50,500 and $22,950 of
interest expense were incurred.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
Consolidated net loss from continuing operations for the nine-month period ended
September 30, 1999 was $483,669 and the loss from discontinued operations of
$1,331,554 results in a consolidated loss of $1,815,223, as compared to a loss
during the nine months ended September 30, 1998 of $2,130,946. The factors
contributing to the consolidated net income for the period are discussed below:
The net sales for the nine months ended September 30, 1999, were $10,963,870 as
compared to $4,606,533 for September 30, 1998, such 138% increase being
primarily attributable to the inclusion of the sales of NPI, Marald, Armor
Linings and TREE. NPI had sales for the nine month period of $7,164,720. Marald
had revenues of $1,445,741, while Armor Linings revenues amounted to $308,575.
Har-Whit sales for the nine months ended September 30, 1999 were $1,476,151 as
compared to $1,776,465 for the nine months ended September 30, 1998. TREE had
sales of $607,357 for the nine-month period ended September 30, 1999, while it
had no sales activity for the comparable nine months of 1998. Brenham reported
royalty income of $7,473 in the current nine months compared to $44,330 during
the first nine months of 1998. The activity of Acqueren during the nine months
ended September 30, 1999, consisted of investments and trading in various
investment and available for sale equity securities; such activity resulting in
unrealized investment losses of $672,371 and realized investment earnings of
$1,244,152. Cost of sales as a percentage of net sales for the nine months ended
September 30, 1999 was approximately 79.3%, with gross margins of 20.7%, as
compared to approximately 78.6% cost of sales and 21.4% gross margins during the
nine-month period ended September 30, 1998. The change is the result of the
inclusion of NPI, which sustained gross margins averaging 11.9 % during the nine
months. Har-Whit sustained 24.1% margins in 1999, as compared to 33.5% margins
in 1998. During the first nine months of 1999, TREE experienced margins of 83.5%
on its sale of real estate rights, as the $100,000 cost associated with the
contract constituted 16.7% of sales.
Operating expenses for the nine months ended September 30, 1999 were $3,012,502
as compared to $1,388,141 for the nine months ended September 30, 1998. NPI had
operating expenses of $781,047 during the nine months ended September 30, 1999.
Marald incurred $330,722 in operating expenses during the nine months ended
September 30, 1999. Armor Linings operating expenses during the nine months were
$77,939. TREE incurred operating expenses, primarily property taxes, of $61,415.
Har-Whit sustained operating expenses of $454,304 during the nine months ended
September 30, 1999 as compared to $643,057 during the comparable period last
year. During the nine months ended September 30, 1999 operating expenses of
Brenham totaled $5,026. During the nine months ended September 30, 1999, AIII
incurred expenses at the corporate level of $1,256,537, including $464,899 of
legal & professional fees and $75,000 amortization of goodwill, as compared to
$434,678 during the comparable period last year.
Other income amounted to $262,532 for the nine-month period ended September 30,
1999 including interest and dividend income of $58,588. Other expenses for the
period ended September 30, 1999 include the write-off of costs amounting to
$311,785 in connection with the attempted acquisition of Pacific Title. Acqueren
reported unrealized investment losses of $672,371 and realized investment income
of $1,252,039 during the nine months. Interest expense of $140,251 during the
first nine months of 1999 compares to $22,935 of interest expense in the
comparable period last year. Other income (expense) for the nine-month period
ended September 30, 1998 was $62,807.
Net Income and Comprehensive Income
The consolidated net loss from continuing operations for the three-month period
ended September 30, 1999 was $1,118,478 and the loss from discontinued
operations of $532,370 brings the consolidated net loss to $1,650,575, as
<PAGE>
compared to the net loss of $1,744,949 sustained in the three months ended
September 30, 1998. During the three months ended September 30, 1999, TREE had
net income of $95, as compared to a loss of $1,882 in the prior year. NPI
posted a net loss of $16,643, Har-Whit had a net loss of $99,232, and Brenham
had net income of $1,956. Marald posted a loss of $5,634 and Armor Linings
reported income of $8,267. AIII sustained a loss of $657,237 at the corporate
level. Acqueren reported losses of $349,777, primarily attributable to its
unrealized losses on marketable securities. Of the prior period's loss, $124,257
was incurred by AIII at the corporate level, Brenham had income of $44,330, TREE
had losses of $1,882, NPI posted income of $311,205, and income of $22,474 was
attributable to the Har-Whit operations.
Consolidated net losses from continuing operations, for the nine-month period
ended September 30, 1999 were $483,669, and losses from discontinued operations
of $1,331,554 brings the consolidated loss to $1,815,223. This compares to the
net loss of $2,130,946 sustained in the nine months ended September 30, 1998
after giving effect to the deemed dividend of $2,038,038. During the nine months
ended September 30, 1999, TREE had net income of $458,117, NPI posted net income
of $78,806, Har-Whit had a net loss of $143,266 and Brenham had net income of
$3,765. Marald earned $97,937 and Armor Linings earned $21,390. AIII sustained a
loss of $1,542,752 at the corporate level. Acqueren reported income of $542,334.
Of the prior period's loss, $411,772 was incurred by AIII at the corporate
level in addition to the deemed dividend of $2,038,038, $60,693 income by
Brenham, $14,025 loss by TREE, offset by earnings of $311,205 by NPI while Har-
Whit experienced a loss of $80,242.
Liquidity and Capital Resources - Consolidated AIII
Total assets at September 30, 1999, were $14,671,051, as compared to $13,568,181
at December 31, 1998. The increase is primarily attributable to increased
inventories and accounts receivable at NPI and Har-Whit, and the acquisition of
Marald, Inc. and Armor Linings.
Total liabilities at September 30, 1999, were $8,241,734, as compared to
$6,372,479 at December 31, 1998. The increase is primarily attributable to
increased activity by NPI and the acquisitions of Marald and Armor Linings.
At September 30, 1999, AIII had negative working capital of $817,743 as
compared to $1,963,458 at December 31, 1998. The decrease in working capital is
primarily attributable to the purchase of restricted certificates of deposit
securing indebtedness of CRC and Har-Whit and increased debt by CRC . AIII's
consolidated cash position at September 30, 1999, was $705,755 as compared to
$2,149,916 at December 31, 1998. The value of investments in marketable
securities at September 30, 1999 was $919,750 compared to $534,654 at December
31, 1998. Accounts receivable at September 30, 1999 were $1,847,975 compared to
$1,641,469 at December 31 1998, the increase being attributable to the seasonal
increase in sales of NPI and the acquisition of Marald and Armor. Inventories
were $1,272,973 at September 30, 1999 as compared to $1,055,091 at December 31,
1998.
In July, 1999 an advance from a related party in the amount of $250,000 was used
to fund the deposit regarding the proposed acquisition of certain assets and
operations of Pacific Title/ Miraage Studios. As the negotiations have been
discontinued, such deposit has been written off as other expense in the period
ended September 30, 1999.
To date, the Company has no commitment for any additional financing and there
can be no assurance that any such financing will be available or, if it is
available, that it will be available on acceptable terms. If adequate funds are
not available to satisfy either short or long-term capital requirements, the
Company may be required to limit its operations significantly.
Media/Entertainment Segment: Discontinued Operations
Results of Operations - Modern Film Effects, Inc., dba Cinema Research
Corporation
For the three months ended September 30, 1999, CRC had net sales of $673,930,
operating expenses of $267,556 and sustained an operating loss of $490,261.
Sales for the period were adversely affected by general downturn affecting the
movie industry and seasonal influences as well as the anticipation by the
studios, of the merger with Pac Title. Expecting that the new work would be
performed at the Pac Title facilities, several of the studios began booking
their work at Pac Title. Those influences continue to be reflected in operating
results. In anticipation of the merger, staff reductions resulted in additional
payroll expense due to payment of severance and accrued vacation time. The net
loss for the September, 1999 quarter was $532,370.
<PAGE>
For the nine-month period ended September 30, 1999, CRC recorded sales of
$2,685,251, operating expenses of $1,115,743 and sustained an operating loss of
$1,183,775. Interest expense of $147,779 brings the year-to-date losses to
$1,331,554. In November, 1999 a decision was made to sell the CRC operations to
David Miller, a former owner of CRC. That transaction is expected to close
in December 1999. Accordingly, the results of operations of CRC are presented
separately as discontinued operations.
Liquidity and Capital Resources - CRC
Total assets of CRC at September 30, 1999, were $ 3,766,131, total liabilities
were $3,660,059 and CRC had negative current working capital of $ 1,971,679. For
nine months ended September 30, 1999, CRC had $221,250 net cash provided from
operations, $126,013 net cash used in investing activities, and $80,735 net cash
used by financing activities. Losses and costs associated with the attempted
merger with Pac Title added to the financing requirements of CRC. The contract
regarding the sale of CRC calls for a cash payment of $250,000 at closing and
transfer to WWNT of 2,239,999 freely tradable shares of AIII common stock valued
at $179,111 and assumption by the purchaser of all liabilities of CRC.
Industrial/ Commercial Segment
Results of Operations - Northeastern Plastics, Inc.
For the three months ended September 30, 1999 NPI had net sales of $1,888,653,
operating expenses were $270,690, and operating loss was $13,828. Other expense
of $2,814 includes net interest expense. Net loss for the three months was
$16,642.
For the nine months ended September 30, 1999 NPI had net sales of $7,164,720,
operating expenses were $781,047, and operating income was $83,530. Other
expense of $4,724 includes net interest expense. Net income for the nine months
was $78,806.
Liquidity and Capital Resources NPI
Total assets of NPI at September 30, 1999, were $2,245,532, total liabilities
were $1,286,351 and current working capital was $1,024,551. For the nine months
ended September 30, 1999 NPI had $240,459 used by operations, used $10,507 in
investing activities and had $135,000 used in financing activities.
At September 30, 1999, NPI had retired an outstanding note payable to a former
stockholder of Acqueren of $300,000 at an interest rate of 6% per annum, with
payments of $100,000 due in August 1999 and 2000 and the remainder due in August
2001. The Company had been involved in litigation through the suit filed against
the former principal stockholder of Acqueren. That action, filed in Galveston
County, Texas, related to representations made by certain selling shareholders
of Acqueren, prior to the acquisition. On August 17, 1999, those selling
shareholders filed an action in New York alleging misrepresentations by AIII.
Related to that litigation, the Company was required to pay through the court,
the outstanding balance of the note and accrued interest. Funding for a portion
of that payment was provided through an advance from AIII.
Results of Operations - Har-Whit / Pitt's & Spitt's, Inc.
Har-Whit sales for the three months ended September 30, 1999 amounted to
$516,205, a decrease of 18% compared to the $626,383 sustained in 1998. The
decrease in sales is attributable to increased competitive pressures in bidding
for fabrication work, due to the downturn in oil & gas related work.
Har-Whit cost of sales amounted to $455,038 or 88% of sales and margins of
$61,166 represent 12.0% of sales during the three months ended September 30,
1999. During the three-month period ended September 30, 1998, Har-Whit cost of
sales of $404,167 constituted 64.5%, and margins of $222,216 were 35.5% of
sales. Operating expenses of $143,978 comprised 27.9% of sales during the three-
month period ended September 30, 1999 as compared to $192,827 in the comparable
period in 1998. The operating loss of $82,811 for the three months ended
September 30, 1999 compares to operating income of $29,389 during the three-
month period ended September 30, 1998. Interest
<PAGE>
expense in the three months ended September 30, 1999 of $17,159 compares to
$16,502 in the comparable period in 1998.
For the nine months ended September 30, 1999 sales amounted to $1,476,151, a
decrease of 17% compared to the $1,776,465 sustained in 1998. The decrease in
sales is attributable to increased competitive pressures in bidding for
fabrication work, due to the downturn in oil & gas related work.
Har-Whit cost of sales amounted to $1,119,919 or 75.8% of sales and margins of
$356,232 represent 24.2% of sales during the nine months ended September 30,
1999. During the nine-month period ended September 30, 1998, Har-Whit cost of
sales of $1,181,267 constituted 66.5%, and margins of $595,198 were 33.5% of
sales. Operating expenses of $454,304 comprised 30.8 % of sales during the nine-
month period ended September 30, 1999 as compared to $643,057 in the comparable
period in 1998. The operating loss of $143,266 for the nine months ended
September 30, 1999 compares to an operating loss of $47,859 during the nine-
month period ended September 30, 1998. Interest expense in the nine months ended
September 30, 1999 of $48,922 compares to $43,602 in the comparable period in
1998.
Liquidity and Capital Resources - Har-Whit
Har-Whit has arranged a $150,000 line of credit with a financial institution
secured by its accounts receivable and pledge of the parent company's
certificate of deposit. The interest rate for the line of credit is at 7.75%
and the note matures in January 2001. At September 30, 1999, Har-Whit had an
outstanding note payable to a financial institution of $542,280 at an interest
rate of 9.75% per annum due in monthly payments of $7,895 through February 2003
with the remaining amount due in March 2003. During the nine months ended
September 30, 1999, Har-Whit had $14,713 used by operating activities, $7,608
used in investing activities, and provided $37,874 through financing activities.
Results of Operations - Marald, Inc. dba Unlimited Coatings
During the three-month period ended September 30, 1999, Marald had sales of
$471,182, cost of sales of $333,637, comprising 70.8% of sales, and margins of
$137,545 represent 29.2% of sales. Operating expenses of $137,325 were 29.1% of
sales. Interest expense was $5,854 and net loss was $5,634.
During the nine-month period ended September 30, 1999, Marald had sales of
$1,445,741, cost of sales of $1,008,895 comprising 69.8% of sales, and margins
of $436,845 represent 30.2% of sales. Operating expenses of $330,722 were 22.9%
of sales. Interest expense was $8,189 and net income of $97,937 represented
6.8% of sales.
Liquidity and Capital Resources - Marald
Marald has arranged a $100,000 working capital line of credit, with interest at
prime plus two percent, secured by its inventory and accounts receivable and
parent guarantee, and a $125,000 line of credit secured by the parent, at prime
plus two percent. Increasing sales levels may require additional working
capital financing. Although there is no assurance, Marald expects to be able to
secure such financing on favorable terms. During the nine months ended
September 30, 1999, Marald had $71,320 used by operating activities, $91,767
used in investing activities, and provided $252,992 through financing
activities.
Results of Operations - Armor Linings, dba Tough Trucks & Accessories, Inc.
For the three months ended September 30, 1999, Armor Linings sales amounted to
$177,168, cost of sales of $126,342 were 71.3 % of sales, operating expenses
were $39,742 and net income was $8,267. For the period from its acquisition in
April, 1999 until September 30, 1999 Armor Linings sales were $308,575, cost of
sales were $207,286, margins were $101,289, 32.8 % of sales. Operating expenses
were $77,939 and operating income was $23,350.
Liquidity and Capital Resources - Armor
At September 30, 1999 Armor had no financing requirements as its operations have
been financed through its internal cash flows. Although there is no assurance,
it is expected that working capital financing will be available at
<PAGE>
favorable terms when the growth of the company requires such arrangements. For
the period from acquisition through September 30, 1999, Armor generated $29,132
from operations, used $7,218 in investing activities, and used $12,962 in
financing activities.
Year 2000 Compliance
The Year 2000 issue is the result of computer systems that use two digits rather
than four to define the applicable year, which may prevent such systems from
accurately processing dates ending in the year 2000 and after. This could result
in system failures or in miscalculations causing disruption of operations,
including, but not limited to, an inability to process transactions, to send and
receive electronic data, or to engage in routine business activities and
operations.
Management has spoken to all management personnel at each of its subsidiaries
regarding their company's reliance on computer systems. Based upon these
discussions, management believes that the Company does not have significant
exposure to the Year 2000 issue. The subsidiaries operations do not rely on
computer operations for conducting the significant parts of their business, and
accordingly, the Company does not believe that its products and services involve
any material Year 2000 risks. In the first quarter of 1999, the Company
established a formal Year 2000 task force to develop and implement a Year 2000
readiness program.
The Company has implemented Year 2000 compliant accounting systems, policies and
procedures throughout all of the subsidiaries. The implementation of
standardized systems and procedures should facilitate improved and more
efficient reporting and analysis of data.
In addition to reviewing its internal systems, the Company is in communications
with its significant customers and vendors concerning Year 2000 compliance,
including electronic commerce. There can be no assurance that the systems of
other companies that interact with the Company will be sufficiently Year 2000
compliant so as to avoid an adverse impact on the Company's operations,
financial condition and results of operations.
The costs to address the Year 2000 issue did not have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
The Company has substantially completed its Year 2000 remediations. However;
there can be no assurance that the Company will not be adversely affected by the
inability of other companies whose systems interact with the Company to become
Year 2000 compliant and by potential interruptions of utility, communication or
transportation systems as a result of Year 2000 issues.
Although the Company expects that its internal systems are Year 2000 compliant
as described above, the Company has prepared a contingency plan that specifies
what it plans to do if it or important external companies are not Year 2000
compliant in a timely manner.
PART II
Item 1. Legal Proceedings
On December 10, 1998, the Company filed an Original Petition and Request for
Temporary Injunction for breach of contract and common law and stock fraud in
connection with the Company's acquisition of Acqueren, Inc. against TDA
Industries, Inc. and Fred Friedman in the 56th Judicial District Court of
Galveston, Texas. The Company has claimed the defendants misrepresented the
amount of equity in Acqueren as represented in the acquisition agreement. The
Company is seeking actual damages in the amount of not less than $1,100,000, in
addition to further relief, which it may be entitled to. On August 17, 1999,
TDA Industries, Inc. filed an action in the United District Court in the
Southern District of New York, alleging violations of various securities laws,
common law fraud, and breach of contract. TDA Industries, Inc. has requested
monetary damages, and has requested a receiver be appointed for Acqueren, Inc.
pending litigation. The Company was required to pay to the Court the $300,000
note payable to TDA and accrued interest
Item 2. Changes in Securities
The following information sets forth-certain information, as of November 30,
1999, for all securities the Company sold without registration under the Act,
excluding any information "previously reported" as defined in Rule 12b-2
<PAGE>
of the Securities Exchange Act of 1934. There were no underwriters in any of
these transactions, nor were any sales commissions paid thereon.
In August, 1999 the Company issued 45,000 shares to an employee related to the
exercise of an option to purchase such shares at an exercise price of $ 0.02.
The Company believes that such issuance was exempt pursuant to Section 4(2) of
the Act.
Item 3. Default upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
Exhibit No. Identification of Exhibit
3(i)(1) Certificate of Incorporation of the Company, and Amendments
thereto.
3(ii)(1) Amended and Restated By-laws of the Company
4.1(1) Common Stock Certificate, American International
Industries, Inc.
4.2(1) Common Stock Certificate, Acqueren, Inc.
4.3(1) Common Stock Certificate, Har-Whit/Pitt's & Spitt's, Inc.
10.1(1) Daniel Dror, Sr. Employment Agreement dated May 14, 1998
10.2(1) Daniel Dror, Sr. Employment Agreement dated October 16, 1998
10.3(1) Marc Fields Employment Agreement
10.4(1) Jordan Friedberg Employment Agreement
10.5(2) Shabang! Merchant Service Agreement
10.6(3) American International Industries, Inc. Lease
10.7(2) Brenham Oil and Gas, Inc. Royalty Interest
10.8(2) Brenham Oil and Gas Interest Lease
10.9(2) Modern Film Effects, Inc. Lease
10.10(2) Northeastern Plastics, Inc. Lease
27(4) Financial Data Schedule
____________________
(1) Filed previously on registration statement Form 10-SB SEC File
No. 000-25223.
(2) Filed previously on the Company's annual report on Form 10-KSB SEC File
No. 000-25223.
(3) Filed previously on registration statement Form 10-SB/A SEC File
No. 000-25223.
(4) Filed herewith
(b) There have been no reports filed on Form 8-K.
SIGNATURES
----------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the undersigned, thereunto duly authorized.
American International Industries, Inc.
Date: November 11, 1999 By: /s/ Daniel Dror
----------------------------
Daniel Dror
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 705,755
<SECURITIES> 919,750
<RECEIVABLES> 2,196,296
<ALLOWANCES> 128,357
<INVENTORY> 1,272,973
<CURRENT-ASSETS> 5,353,064
<PP&E> 4,912,234
<DEPRECIATION> 2,499,025
<TOTAL-ASSETS> 14,671,051
<CURRENT-LIABILITIES> 6,170,807
<BONDS> 0
0
0
<COMMON> 124,971
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,671,051
<SALES> 10,913,870
<TOTAL-REVENUES> 10,913,870
<CGS> 8,647,569
<TOTAL-COSTS> 8,647,569
<OTHER-EXPENSES> 3,012,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,251
<INCOME-PRETAX> (483,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (483,669)
<DISCONTINUED> (1,331,554)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,815,223)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
