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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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AMERICAN INTERNATIONAL INDUSTRIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 88-0326480
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
601 CIEN ROAD, SUITE 235
KEMAH, TEXAS 77565
(Address of principal executive offices) (Zip Code)
(281) 334-9479
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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All references to American International Industries, Inc. common stock
reflect a three for one common stock split in July 1996.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Some of the statements contained in this Form 10-SB/A for American
International Industries, Inc. ("AIII" or "Company"), discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. The term "AIII" or the
"Company" refers to American International Industries, Inc. or to American
International Industries, Inc. and its consolidated subsidiaries, as applicable.
These statements are subject to known and unknown risks, uncertainties, and
other factors that could cause the actual results to differ materially from
those contemplated by the statements. The forward-looking information is based
on various factors and is derived using numerous assumptions. Important factors
that may cause actual results to differ from projections include, for example:
- the success or failure of management's efforts to implement their
business strategy;
- the ability of the Company to raise sufficient capital to meet
operating requirements;
- the ability of the Company to protect its intellectual property
rights;
- the ability of the Company to compete with major established
companies;
- the effect of changing economic conditions;
- the ability of the Company to attract and retain quality
employees; and
- other risks which may be described in future filings with the SEC.
GENERAL
American International Industries, Inc. is a Nevada corporation
which began conducting its current operations in September 1996, when it made
its first acquisition. The Company is a holding company currently operating
six subsidiaries:
- Acqueren, Inc. (whose sole business operating entity is
Northeastern Plastics Inc. which is a supplier of automotive
after-market products and consumer durables),
- Brenham Oil & Gas, Inc. (an owner of an oil and gas royalty
interest),
- Har-Whit/Pitt's & Spitt's, Inc. (a manufacturer and distributor
of barbeque pits and a custom sheet metal fabricator),
- Modern Film Effects, Inc., doing business as, Cinema Research
Corporation, (a provider of optical title and credits services
and digital special effects for the motion picture industry),
- Texas Real Estate Enterprises, Inc. (which owns certain
undeveloped real estate in Harris, Galveston, and Chambers counties
in Texas, some of which is held by its wholly-owned subsidiary
Midtowne Properties, Inc.), and
- Marald, Inc., doing business as, Unlimited Coatings, and Tough
Truck and Accessories, Inc., doing business as, Armor linings
(which provide spray-on bed liners as well as other related
products).
The Company's long-term strategy is to expand the operations of each of its
subsidiaries in their respective fields.
The Company encounters substantial competition, in each of its product
and service areas, with businesses producing the same or similar products or
services, or with businesses producing different products designed for the same
uses. Such competition is expected to continue. Depending on the particular
market involved, the Company's
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businesses compete on a variety of factors, such as price, quality, delivery,
customer service, performance, product innovation and product recognition.
Other competitive factors for certain products include breadth of product
line, research and development efforts and technical and managerial
capability.
AMERICAN INTERNATIONAL INDUSTRIES, INC.
In September 1994, the Company was incorporated in Nevada under the
name Black Tie Affair, Inc. for the purposes of engaging in catering
services. In July 1996, an unaffiliated group of investors purchased shares
of Company common stock constituting 90% of the outstanding shares of Black
Tie Affair, Inc. This group changed the name of the Company to Pitts and
Spitts of Texas, Inc., and acquired Pitt's & Spitts, Inc. and Har-Whit, Inc.
in September 1996. In September and October 1997, a new investor group ("1997
Group") including Mr. Daniel Dror, Sr., gained control of the Company through
the following arms-length negotiated transactions with the Company and
unaffiliated third parties: (i) Elk International Corporation, Ltd., an
entity controlled by Mr. Dror's brother, purchased 5,000,000 shares of
Company common stock at a purchase price of $0.03 per share from the Company,
received an option to purchase 2,000,000 shares of Company common stock at an
exercise price of $0.02 per share from the Company, and purchased 1,200,000
shares of Company common stock at a purchase price of $0.03 per share from an
individual (Mr. Dror has never owned any shares of Elk International
Corporation, Ltd., nor has he ever served as an officer or director of such
entity), (ii) Jack Talan, currently a director of the Company, purchased
500,000 shares of Company common stock from the Company at a purchase price
of $0.10 per share, and (iii) Daniel Dror & Company, Inc., controlled by Mr.
Dror, purchased 200,000 shares of Company common stock at a purchase price of
$0.03 per share from an individual. At the closing of this transaction, the
sole operating entities of the Company were its two subsidiaries Pitt's &
Spitt's, Inc. and Har-Whit, Inc. This group elected a new board of directors,
appointed current management, and appointed Mr. Dror chairman of the board
and chief executive officer. In December 1997, the name of the Company was
changed to Energy Drilling Industries, Inc., and in June 1998, the Company
changed its name to American International Industries, Inc.
In January 1998, the Company amended its Articles of Incorporation to
increase its authorized common shares to 100,000,000 and to authorize 10,000,000
preferred shares. In September 1998, the Company amended its Articles of
Incorporation to increase its authorized common shares to 200,000,000 ("Common
Stock"). The Company is located at 601 Hanson Road in Kemah, Texas 77565. Its
telephone number is (281) 334-4764.
As of July 15, 1999, the Company, excluding its subsidiaries, employed
seven persons, on a full-time basis, none of which are covered by a collective
bargaining agreement.
HAR-WHIT/PITT'S & SPITT'S, INC.
In September 1996, prior to the 1997 Group gaining control of AIII, the
Company purchased all of the capital stock of Pitt's & Spitt's, Inc., a Texas
corporation, incorporated in December 1989, and Har-Whit, Inc., a Texas
corporation, incorporated in January 1975, for 2,527,000 shares of Common Stock
and $500,000 in exchange for non-compete agreements with the previous owners.
Messrs. Hartis and Whitworth, two of the prior owners of the above corporations
who served as directors for fiscal year 1998, each received 631,750 shares of
Common Stock and $250,000 in connection with the acquisitions. In August 1998,
Pitt's & Spitt's, Inc. was merged into Har-Whit, Inc., which subsequently
changed its name to Har-Whit/Pitt's & Spitt's, Inc. ("Har-Whit"). Har-Whit is
located at 14221 Eastex Freeway in Houston, Texas 77032. Its telephone number is
(281) 442-5013.
BRENHAM OIL & GAS, INC.
In December 1997, the Company purchased all of the capital stock of
Brenham Oil and Gas, Inc., a Texas corporation, incorporated in November 1997
("Brenham"), for 6,000,000 shares of Common Stock from Daniel Dror II 1976
Trust. Mr. Dror is the trustee of the Daniel Dror II 1976 Trust, but he has no
financial interest in such trust, the sole beneficiary being Mr. Dror's son.
Brenham's sole asset is an oil and gas royalty interest which was purchased by
the Daniel Dror II 1976 Trust prior to December 1995. The purchase price was
based on the discounted estimated cash flows from the royalty interest over a
five-year period. While no independent valuation appraisal was conducted,
management believes the terms of the purchase were fair and reasonable based on
such cash flows. Brenham is located at 601 Cien Road in Kemah, Texas 77565. Its
telephone number is (281) 334-9479.
TEXAS REAL ESTATE ENTERPRISES, INC.
In December 1997, the Company purchased all of the capital stock of Texas Real
Estate Enterprises, Inc. a
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Texas corporation, incorporated in March 1996 ("TRE"), for 10,000,000 shares
of Common Stock from Elk International Corporation, Ltd., which is controlled
by Mr. Dror's brother. The Company also purchased G.C.A. Incorporated ("GCA")
for a total consideration of 6,000,000 shares of AIII Common Stock. TRE and
GCA are collectively referred to as TRE. In May 1998, the Company through TRE
issued 8,000,000 shares of AIII Common Stock to Daniel Dror & Company, Inc.,
which is controlled by Mr. Dror, in exchange for additional property.
Subsequently, Daniel Dror & Company, Inc. transferred 5,000,000 of such AIII
Common Stock to Elk International Corporation, Ltd. in extinguishment of debt
on this property. In June 1998, the Company through TRE purchased all of the
capital stock of Midtowne Properties, Inc. for 1,100,000 shares of AIII
Common Stock, from two parties, one of which was the Daniel Dror II 1976 Trust,
which received 660,000 shares of AIII Common Stock. In December 1998, because
the appraisals on the properties exceeded the preliminary values of the
properties as estimated by both parties to the transaction, the Company
authorized the issuance of an additional 1,000,000 shares of AIII Common
Stock, of which the party with which Mr. Dror is affiliated is to receive
600,000 shares. The purchase price of TRE, GCA, Midtowne Properties, Inc.,
and the additional property was established based on the fair market value of
the assets acquired as determined by independent, certified appraisals.
Management believes the terms of the purchases were fair and reasonable based
on such appraisals. TRE is located at 601 Cien Road in Kemah, Texas 77565.
Its telephone number is (281) 334-9479.
ACQUEREN, INC.
In June 1998, the Company entered into a purchase agreement to acquire
all of the capital stock of Acqueren, Inc., a Delaware corporation, incorporated
in December 1995 ("Acqueren"), which operates through its wholly-owned
subsidiary Northeastern Plastics, Inc., a New York corporation, incorporated in
January 1986 ("NPI"). The purchase agreement provided for the issuance of
6,750,000 shares of Common Stock to the two largest shareholders of Acqueren in
exchange for approximately 55% of the outstanding capital stock of Acqueren, and
provided for the remaining shareholders of Acqueren to receive approximately
25.02 shares of Common Stock for each share of Acqueren common stock exchanged
(these remaining shares of Acqueren common stock had been issued pursuant to a
private placement and included a warrant to purchase one share of Acqueren
common stock, which is included in the above exchange). The transaction was
closed effective July 1, 1998, and through July 1, 1999, the Company had
exchanged shares representing a total of approximately 99% of the outstanding
shares of Acqueren. Based upon the estimated fair value of the restricted common
stock of AIII ($.08 per share at date of acquisition), the total purchase
consideration for Acqueren was approximately $2,140,000. Management believes the
terms of the acquisition were fair and reasonable being based on arms-length
negotiations. NPI is located at 11601 Highway 32 in Nicholls, Georgia 31554. Its
telephone number is (912) 345-2030.
MODERN FILM EFFECTS, INC.
In September 1998, the Company purchased all of the capital stock of
Electronic Pictures California, Inc., a California corporation, incorporated in
August 1997, in exchange for 1,900,000 shares of Common Stock. Electronic
Pictures California, Inc. owned an option to purchase all of the capital stock
of Modern Film Effects, Inc., a California corporation, incorporated in June
1962, doing business as Cinema Research Corporation, and Digital Research
Corporation, a California corporation, incorporated in June 1993. In September
1998, the Company exercised such option and purchased all of the capital stock
of Modern Film Effects, Inc. and Digital Research Corporation (referred to
collectively as "CRC"), for 4,400,000 shares of Common Stock and options to
purchase 400,000 shares of Common Stock over five years at $0.20 per share to
Jordan Friedberg. In November 1998, Digital Research Corporation became a
wholly-owned subsidiary of Modern Film Effects, Inc. Based upon the estimated
fair value of the restricted common stock at the date of closing of $1,260,000
($.20 per share), stock options valued at $32,000, and the discounted present
value of the note payable to a selling stockholder ($303,300), the total
purchase consideration was $1,595,300. Management believes the terms of the
acquisitions were fair and reasonable being based on arms-length negotiations.
CRC is located at 6860 Lexington Avenue in Hollywood, California 90038. Its
telephone number is (323) 460-4111.
RECENT DEVELOPMENTS
In July 1999, the Company entered into a letter of intent with World
Wide Collectibles, Inc., which has subsequently changed its name to World Wide
Net, Inc. ("WWN"), to purchase all of the outstanding shares of CRC for common
stock of WWN. The letter of intent contemplates that the Company will receive a
majority of the outstanding shares of WWN common stock, and would continue to
operate the combined business. To date, the parties have not entered into a
definitive agreement, and there is no assurance that a definitive agreement will
be
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executed.
In June 1999, the Company entered into an agreement to acquire all
of the optical title, special effects and the scan and record operations of
Pacific Title/Mirage Studios. To date, the Company has not closed the
transaction.
In March 1999 (effective January 1999), the Company purchased all
of the capital stock of Marald, Inc., doing business as Unlimited Coatings
("UC"), a Texas corporation, incorporated in July 1996, in exchange for
3,500,000 restricted shares of Common Stock of AIII valued at fair market
value of approximately $652,000 at $.19 per share plus a finders fee of
$45,000 paid in part to a party related to Mr. Dror. In addition, under the
terms of the acquisition agreement, the Company has agreed to provide
chemicals at a discount to Toro Spray-On Liners, Inc. an entity partially
owned by the above related party. UC, headquartered in Houston, Texas,
distributes specialty chemicals to the automotive after-market and is best
known for its spray-on bed-liners for trucks. UC's products, are marketed
under the "Toro Liner" name. UC also markets specialty chemicals, including
rustproofing, undercoating, fabric protectants, fuel additives, and
performance enhancement chemicals related to the automotive after-market. The
UC acquisition has been accounted for as a purchase.
In April 1999, the Company acquired all of the outstanding shares of
Tough Truck and Accessories, Inc., doing business as Armor Linings ("Armor"),
a Texas corporation, incorporated in March 1996. Armor operates a facility in
Houston, Texas for the application of spray-on liners for truck beds,
undercoating and rust-proofing of vehicles, and wholesale and retail sales of
truck accessories. Armor has established commercial applications of the
coatings, which are applied for corrosion resistance and noise suppression in
diverse uses. Applications include surfaces exposed to corrosive materials in
chemical and refining plants, lining the interior of refuse containers
(dumpsters), spraying floors and decks, and other applications where a tough
surface, resistant to corrosion, moisture and wear is needed. The chemicals
are supplied by UC. The Company paid cash in the amount of $132,500 plus
approximately $8,000 reimbursement of certain refundable deposits and assumed
approximately $91,000 related to certain equipment lease obligations. The
acquisition will be accounted for as a purchase.
In March 1999, the Company acquired a minority interest
(approximately 20%) in Signal Products, Inc. (Signal), a California
corporation, which owns the exclusive license to market handbags and leather
accessories bearing the "Guess" trademark. Signal develops, manufactures and
markets its products throughout the United States. The investment in Signal
was accomplished through the issuance of 10,000,000 restricted shares of
common stock of AIII, valued at fair market value of approximately
$2,000,000. The shares are placed in escrow pending the completion of a
business valuation of Signal. The shares will be released from escrow upon
satisfactory determination of Signal's value; 5,000,000 shares to Hardee
Capital Partners and 5,000,000 shares to Elk International, a related party,
both of which had claims against the shares of Signal. Should the
determination of the value of the Signal shares, after valuation of Signal,
yield a value less than $2,000,000, the number of shares to be released from
escrow shall be reduced accordingly; however, no additional shares shall be
issuable should the valuation indicate a greater value. To date, the
valuation of the Signal shares has not been completed.
In November 1998, Acqueren deposited $100,000 on behalf of TRE as
earnest money on a contract with a third party for the option to buy a
building in downtown Houston, Texas. The earnest money deposit is included in
other assets in the accompanying consolidated balance sheet at December 31,
1998. TRE exercised its option to buy the building and, in February 1999,
sold such option to unrelated third parties for $600,000, realizing a gain on
sale of $500,000.
BUSINESS OPERATIONS OF HAR-WHIT/PITT'S & SPITT'S, INC.
Har-Whit is (i) a manufacturer and seller of barbeque pits and
accessories, and (ii) a custom sheet metal and light structural fabrication
company specializing in stainless steel and aluminum. Har-Whit began selling
barbeque pits in 1983, and began its fabrication business in 1973.
PRODUCTS AND SERVICES
Har-Whit manufacturers ten standard styles of high quality barbeque
pits that it sells at retail at prices ranging from $625 to $4,395. In
addition, Har-Whit manufacturers custom barbeque pits which have been sold at
prices as high as approximately $35,000. Har-Whit's barbeque pits are sold
under the name "Pitt's & Spitt's," which management believes has established
a reputation for quality in the industry. In addition, Har-Whit offers a
number
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of related spices, sauces, accessories, cooking tools, and cookbooks in its
retail showroom and, on a very limited basis, through catalogs.
Har-Whit's custom fabrication business specializes in fabrication
for commercial and industrial customers predominantly in the energy and
environmental fields. Har-Whit also builds custom products for other
manufacturers under sub-contract agreements, on an as needed basis, from
specifications and drawings provided by the customer.
Har-Whit's primary raw material for both its barbeque pits and custom
fabrication business is steel, and its principal suppliers are Triple S-Steel
Supply, Vincent Metal Goods, and White Star Steel, which are all located in
Houston, Texas. To date, Har-Whit has been able to receive shipments of raw
materials within 48 hours of order.
SALES AND MARKETING
Har-Whit distributes its barbeque pits primarily through its retail
outlet in Houston, Texas, as well as through individual mail orders. Har-Whit
has over the years, advertised in various publications, in addition to
television and radio. Har-Whit does little advertising and primarily markets
its barbeque products and custom fabrication business through limited
advertising, the Internet, and word of mouth.
Currently, Har-Whit has no contracts with distributors, no retail
agreements, and no marketing plan. Management believes its ability to
increase production is dependent, among other items, on its ability to
increase its facilities. In addition, even if Har-Whit is able to increase
production, there can be no assurance that there will be sufficient demand
for its products.
In December 1998, Har-Whit entered into an agreement with Shabang!
Shopping Service ("Shabang"). Shabang hosts an online shopping service on the
Internet and provides merchants with the ability to create a "virtual" store
where customers can order products directly from the Internet. Har-Whit's
agreement expires in December 1999 and the monthly fee paid to Shabang is
approximately $300.
COMPETITION
Har-Whit competes against other manufacturers of barbeque pits, some of
which have far greater financial, marketing, and other resources than Har-Whit.
Har-Whit competes primarily on the basis of customer service and quality.
Management believes its primary and most recognizable competitors in its primary
sales markets are Klose Custom Barbeque Pits of Houston and Oklahoma Joe's of
Oklahoma. There can be no assurance that Har-Whit will be able to successfully
compete in this highly competitive marketplace.
Har-Whit competes in its custom fabrication business primarily on
the basis of quality and service. Har-Whit competes against other custom
fabricators for a limited amount of fabrication business. The recent downturn
in oilfield activity has increased competitive pressures, and Har-Whit
intends to increase its marketing emphasis on other industries, although
currently no marketing plan has been developed. Due to Har-Whit's narrow
specialization in stainless and aluminum products, it competes with a
relatively small number of entities. Management believes its primary and most
recognizable competitors in the custom fabrication field in the Houston area
are Walkup Company, Robertson Metal Fabrication, Campo Sheet Metal Works,
Inc., Maudlin & Son, and Precision Metal Fab Co. There can be no assurance
that Har-Whit will be able to successfully compete in this marketplace.
EMPLOYEES
As of July 15, 1999, Har-Whit employed thirty persons, on a
full-time basis, including management, sales, office, and manufacturing
employees. No employees are covered by a collective bargaining agreement.
Management considers relations with its employees to be satisfactory.
FACILITIES
Har-Whit currently operates from one office in Houston, Texas, that it
owns. In addition, Har-Whit has acquired land for expansion adjoining its
current facility consisting of approximately 26,000 square feet for $28,000 and
a five year note of $30,000 for future expansion. Har-Whit is planning to add an
additional 9,000 square feet to the existing manufacturing facilities on this
land at a cost of approximately $250,000 if sufficient funding can be obtained,
to effect its business strategy of increased sales as management believes a
greater demand exists for its
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products. One of AIII's primary functions is to assist its subsidiaries to
raise the necessary capital to support such growth, however, there is no
assurance that Har-Whit will be able to raise adequate proceeds to effectuate
any expansion plans. If Har-Whit is unable to raise sufficient proceeds to
fund such expansion, it will continue to operate out of its current
facilities and with its current equipment. If Har-Whit is unable to fund
plant expansion and purchase new production equipment, it may not be able to
effectuate its business strategy of increased sales.
BUSINESS OPERATIONS OF BRENHAM OIL & GAS, INC.
Brenham's sole asset is an oil, gas, and mineral royalty interest
covering a twenty-four acre tract of land located in Washington County, Texas.
The royalty interest is currently leased by Union Pacific Resources Company
("Union Pacific") for a term continuing until the covered minerals are no longer
produced in paying quantities from the leased premises. Royalties on the covered
minerals produced are paid to Brenham as follows: (i) for oil and other liquid
hydrocarbons, the royalty is one-sixth of such production, (ii) for gas
(including casinghead gas) the royalty is one-sixth of the net proceeds realized
by Union Pacific on the sale thereof, less a proportionate part of ad valorem
taxes and production, severance, or other excise taxes. In addition, Brenham is
entitled to shut-in royalties of $1 per acre of land for every ninety-day period
within which one or more of the wells on the leased premises, or lands pooled
therewith, are capable of producing in paying quantities, but such wells are
either shut-in or production is not being sold. Currently, Brenham is not
actively seeking further royalty agreements. Brenham is operated from AIII's
office in Kemah, Texas.
COMPETITION
Brenham's profitability is dependent on Union Pacific's ability to
generate profits from the tract of land on which Brenham owns its royalty
interest. The oil and gas industry is highly competitive, and Union Pacific
competes against companies with substantially larger financial and other
resources. Union Pacific's competitors include major integrated oil and gas
companies and numerous other independent oil and gas companies and individual
producers and operators. Competitive factors include price, contract terms,
and types and quality of service, including pipeline distribution logistics
and efficiencies, all of which may reduce any royalty payments made to
Brenham.
GOVERNMENT REGULATION
As stated previously, Brenham's profitability is dependent on Union
Pacific's profitability. As Union Pacific is regulated by various state and
federal authorities, there is no assurance that Union Pacific's profitability,
and therefore Brenham's profitability, will not be adversely affected. As
Brenham only owns a royalty interest on the subject land it is not directly
responsible for any costs in connection with environmental laws, nor is it
subject to penalties for non-compliance with any such laws. Union Pacific is
subject to the following governmental regulations:
STATE REGULATION OF OIL AND GAS PRODUCTION. The State of Texas
regulates the production and sale of oil and natural gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. In addition, Texas regulates the rate of production and
may establish maximum daily production allowable from both oil and gas wells
on a market demand or conservation basis.
ENVIRONMENTAL REGULATIONS. Union Pacific's activities are also
subject to existing federal and state laws and regulations governing
environmental quality and pollution control. As of March 15, 1999, Union
Pacific is in compliance, in all material respects, with applicable
environmental requirements. There can be no assurance that future
developments, such as increasingly stringent environmental laws or
enforcement thereof, will not cause Union Pacific to incur material
environmental liabilities or costs, which may adversely effect its business.
OIL PRICE REGULATION. Historically, regulatory policy affecting
crude oil pricing was derived from the Emergency Petroleum Allocation Act of
1973, as amended, which provided for mandatory crude oil price controls until
June 1, 1979, and discretionary controls through September 30, 1981. On April
5, 1979, President Carter directed the Department of Energy to complete
administrative procedures designed to phase out, commencing June 1, 1979,
price controls on all domestically produced crude oil by October 1, 1981.
However, on January 28, 1981, President Reagan ordered the elimination of
remaining federal controls on domestic oil production, effective immediately.
Consequently, oil may currently be sold at unregulated prices.
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GAS PRICE REGULATION. The Natural Gas Act of 1938 regulates the
interstate transportation and certain sales for resale of natural gas. The
Natural Gas Policy Act of 1978 ("NGPA") regulates the maximum selling prices of
certain categories of natural gas and provided for graduated deregulation of
price controls for first sales of several categories of natural gas. With
certain exceptions, all price deregulation contemplated under the NGPA as
originally enacted in 1978 has already taken place. Under current market
conditions, deregulated gas prices under new contracts tend to be substantially
lower than most regulated price ceilings prescribed by the NGPA.
BUSINESS OPERATIONS OF TEXAS REAL ESTATE ENTERPRISES, INC.
TRE and its wholly-owned subsidiary Midtowne Properties, Inc. own nine
tracts of land in Harris, Chambers, and Galveston counties in Texas. See "Item
2. Description of Property." TRE is operated from AIII's office in Kemah, Texas.
All the properties owned by TRE are undeveloped commercial properties
free of any mortgage obligations, however certain properties are subject to
property taxes in the amount of approximately $357,000 in the aggregate. Such
properties are available for sale, however, management will explore development
possibilities of its properties if such possibilities are presented. At this
time no development plans are being considered.
COMPETITION
There is intense competition among companies in the real estate
investment and development business. Sales and payments on real estate sales
obligations depend, in part, on available financing and disposable income
and, therefore, are affected by changes in general economic conditions and
other factors.
The real estate development business and commercial real estate
business are subject to other risks such as shifts in population,
fluctuations in the real estate market, and unpredictable changes in the
desirability of residential, commercial and industrial areas. There is no
assurance that TRE will be able to compete in this market.
EMPLOYEES
As of July 15, 1999, TRE employed one person, its president, on a
full-time basis, all other operating functions are handled by the Company's
personnel.
REGULATION
TRE's real estate operations are subject to comprehensive federal,
state, and local regulation. Applicable statutes and regulations may require
disclosure of certain information concerning real estate developments and
credit policies. In the future, if TRE decides to develop its properties,
periodic approval is required from various agencies in connection with the
design of developments, the nature and extent of improvements, construction
activity, land use, zoning, and numerous other matters. Failure to obtain
such approval, or periodic renewal thereof, could adversely affect the real
estate development and marketing operations of TRE. Various jurisdictions
also require inspection of properties by appropriate authorities, approval of
sales literature, disclosure to purchasers of specific information, bonding
for property improvements, approval of real estate contract forms and
delivery to purchasers of a report describing the property.
A number of states and localities have adopted laws and regulations
imposing environmental controls, disclosure rules and zoning restrictions
which have impacted the management, development, use, and/or sale of real
estate. Such laws and regulations tend to discourage sales and leasing
activities and mortgage lending with respect to some properties, and may
therefore adversely affect TRE. Failure of TRE to disclose environmental
issues in connection with a real estate transaction may subject it to
liability to a buyer or lessee of property. Property management services also
could subject TRE to environmental liabilities pursuant to applicable laws
and contractual obligations to property owners. Insurance for such matters
may not be available. Additionally, new or modified environmental regulations
could develop in a manner which have not, but could adversely affect TRE.
TRE's financial results for the fiscal year 1998 have not been materially
impacted by its compliance with environmental laws or regulations, and no
material capital expenditures relating to such compliance are planned.
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BUSINESS OPERATIONS OF ACQUEREN, INC.
Acqueren through its wholly-owned subsidiary NPI, is a supplier of
products to retailers and wholesalers (i) in the automotive after-market, and
(ii) in the consumer durable electrical products markets.
PRODUCTS AND SERVICES
NPI's products in the automotive after-market include a variety of
booster cables sold under the brand name "Mechanix Choice" and "Bitty Booster
Cable." Also supplied under the brand name "Mechanix Choice," NPI markets
portable hand lamps, cord sets, and a variety of battery testers, battery repair
kits, and miscellaneous battery accessories.
The "Mechanix Choice" brand of booster cables was introduced in
1995, and its products are currently available at CSK Automotive, Family
Dollar, Victor Automotive Products, Sam's Club, Caldor, and Bradlees, among
others. NPI's "Bitty Booster Cable" brand of booster cables are currently
distributed in the automotive aftermarket and through well established food
and drug retail channels.
NPI's consumer durable electrical products include flood light kits,
clamp on lamps, household extension cords, tri-tap extension cords, heavy
duty extension cords, night lights, and surge protection devices. All of
NPI's consumer durable electrical products are UL Listed.
Beginning in late 1996, management changed its business strategy,
and began to target what it believed to be the less competitive food and drug
and variety retail industry. By adding more food and drug related items such
as power strips, multiple outlet devices, cord sets, and night lights, NPI
has been able to enter the consumer durables market at such locations as
Family Dollar Stores, Bills Dollar Stores, and Dollar Tree Stores.
Currently, virtually all of NPI's products are manufactured
overseas. NPI's products are manufactured based on NPI's specifications and
design. Since 1995, NPI has changed all but one of its overseas suppliers,
and as a result management believes it has been able to reduce purchasing
costs and increase product quality. Currently, NPI has no long-term
agreements with any overseas or domestic manufacturers for its products, but
relies on management's personal contacts with such manufacturers in renewing
its present agreements. There is no assurance that NPI will be able to renew
its present agreements with manufacturers on terms economically favorable to
NPI, if at all. The inability of NPI to renew its agreements on economically
favorable terms will have a material adverse effect on NPI.
NPI orders the materials for its principal products from the following
manufacturers: Apollo Wire and Cable supplies NPI's electrical cord sets;
Longqou Dongli Wire and Cable supplies NPI's booster cables; Rite Tech supplies
NPI's surge strips; and Dashing Electric supplies NPI's night lights. To date,
NPI has typically received shipments from the above suppliers within 8-10 weeks
of order. Management believes that if NPI should be unable to utilize any of the
above suppliers, it would be able to find alternative suppliers on comparable
terms.
SALES AND MARKETING
Currently, NPI has no agreements with distributors, wholesalers, or
retailers, but sells its products from its warehouse through the use of
independent sales agents and through its in-house personnel. NPI contracts
with agents, which are responsible for contacting potential customers and
clients in a pre-determined sales area. NPI provides these agents with
manuals, brochures, and other promotional materials which are used in the
selling process. After sales are completed through the use of an agent, NPI
directly bills the customer, and all payments are made directly to NPI.
Agents are compensated solely on a commission basis, calculated on the net
sales price of products which are invoiced to customers. No commissions are
paid until NPI receives payment from customers.
NPI also sells a substantial portion of its products under a
customer friendly direct import program ("D/I program"). The D/I program
offers NPI customers the additional services of arranging for overseas
manufacturing and delivery to overseas freight forwarders. NPI can also
arrange for the complete turn key deliveries of its products to its customers
place of business in the United States. Under a turn key D/I program, NPI
arranges, at an additional cost to its customers, on site factory inspections
of the goods prior to the container loading, ocean and domestic freight
services, customs and brokerage services, as well as container unloading at
the customer's facility. NPI's direct import sales are primarily guaranteed
through a customer irrevocable bank letter of credit issued by the customer.
Currently, management estimates that over one half of sales are made through
the use of its D/I program.
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Management believes the D/I program provides to its customers the most cost
effective means of obtaining large volumes of products. The average volume of
NPI's direct import shipments are substantially larger than its warehouse
shipments (management estimates that D/I program orders average a minimum of
$40,000 to a high of $1,200,000, as compared to warehouse shipments which
average $1,200), however, NPI is unable to realize the same gross profit
margins on D/I program orders, as compared to warehouse shipments. Management
estimates that D/I program gross profit margins range from a low of 8% to a
high of 19%, while the gross profit margins on its warehouse sales range from
a low of 19% to a high of 40%.
NPI has chosen not to target several of the larger retailers in the
consumer market such as Home Depot, Lowes, Builders Square, Wal-Mart, K-Mart,
and Ace Hardware due to its capital limitations and due to the extreme
competitive market conditions for such accounts. While there is no assurance,
management believes it will be able to increase margins by focusing solely on
smaller and mid-market retailers which management believes have been ignored
by larger producers.
In fiscal year 1998, Family Dollar Stores, West Coast Liquidations, and
Consolidated Stores accounted for a large amount of NPI's revenues. There is no
assurance that NPI will be able to retain these customers, and the loss of any
of these customers may have an adverse effect on NPI.
In December 1998, NPI entered into an agreement with Shabang!
Shopping Service. Shabang hosts an online shopping service on the Internet
and provides merchants with the ability to create a "virtual" store where
customers can order products directly from the Internet. NPI's agreement
expires in December 1999 and the monthly fee paid to Shabang is approximately
$350.
COMPETITION
In the safety products category of the automotive after-market, of
which a substantial portion of NPI's products fall, NPI competes against a large
number of suppliers many of which have far greater financial resources than NPI.
In addition, management has seen little movement between suppliers at major
national retailers, and as such, NPI's ability to increase market share will be
limited. Management believes its primary competitors in the safety products
market include General Cable, Coleman Cable, East Penn, Champion, and many other
producers and importers. Based on current sales, management believes its market
share of this safety products category to be approximately 4%. There can be no
assurance that NPI will be able to successfully compete in this marketplace.
In the consumer durables electrical products market, NPI competes
against a large number of suppliers many of which have far greater financial
resources than NPI. Management believes its primary competitors in the consumer
durables market include Pacific Electricord Company, Woods Wire, General Cable,
Coleman Cable, and various other producers. Based on current sales, management
believes its market share of the consumer durables electrical product market to
be approximately 1.4%. There can be no assurance that NPI will be able to
successfully compete in this marketplace.
Price is a highly significant factor in the safety products market and
the consumer durables electrical products markets. Many of NPI's products are
made to industry specifications, and are therefore essentially functionally
interchangeable with those of competitors. However, NPI believes that
significant opportunities exist to differentiate all of its products on the
basis of quality, reliability, and customer service.
INTELLECTUAL PROPERTY
NPI has been issued the following trademarks: "Northeastern"-TM-,
expiring December 2006, "Jumpower"-TM-, expiring February 2009, "The Bitty
Booster Cable"-TM, expiring August 2008, "connections with quality"-TM-,
expiring October 2006, and "small enough to fit in your glove box strong enough
to start your car"-TM-, expiring October 2007.
EMPLOYEES
As of July 15, 1999, NPI employed seven persons, on a full-time basis,
including management, customer service, and warehouse employees. No employees
are covered by a collective bargaining agreement. Management considers relations
with its employees to be satisfactory.
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FACILITIES
NPI currently operates from one facility in Nicholls, Georgia. Its
facility is 30,000 square feet and is leased for $3,275 per month. The lease
expires in October 1999 and NPI has the option to renew such lease for an
additional two-year period with the monthly lease payments increased based on
the consumer price index.
BUSINESS OPERATIONS OF MODERN FILM EFFECTS, INC.
Modern Film Effects, Inc. consists of two divisions, Cinema Research
Optical and Title and Cinema Research Digital, which together provide full
technical, optical, and digital services for motion pictures, television,
commercial, and industrial producers, directors, editors, special effects
supervisors, and title designers. CRC's two divisions are distinct California
corporations, Modern Film Effects, Inc., d/b/a Cinema Research Corporation
and its wholly-owned subsidiary Digital Research Corporation, which are
collectively referred to as CRC.
Management estimates that it completed more than 250 optical services
projects in its last fiscal year, and its client list consists of many of the
major studios in Hollywood, including Sony Film's Tri-Star Pictures, Columbia
Pictures, Paramount Studios, Universal Studios, and Disney Studios.
In addition, CRC is conducting initial investigations as to the
feasibility of offering high-definition television ("HDTV") production to the
marketplace through Electronic Pictures California, Inc., a wholly-owned
subsidiary of AIII. CRC has engaged the services of a person, on an at-will
employment basis, with prior experience in HDTV in Japan. CRC has no agreements
with any manufacturers, distributors, or retailers of HDTV. CRC has no
agreements with any customers for the sale or marketing of HDTV. This possible
venture is in the preliminary stages and there can be no assurance that the
production of HDTV will ever become viable within CRC.
PRODUCTS AND SERVICES
CRC's services include both optical and digital services. Its optical
services, which encompass all items that can be performed on a 35mm camera
printing system, include the following:
- Photographic creation of titles and credits - The artistic
creation of the main or opening titles and end credits, and
composting them on film.
- Correcting optical defects - The correction of defects found
on the original film that can be corrected optically.
- Wire removal - The removal of an object that is not wanted in
the viewing frame.
- Blue screen composites - The process of adding the background
scene behind a person or object that has been shot first with
a blue screen behind it, or the ability to add a person or
object into the scene that was not present in the scene when
it was shot.
- Optical special effects - The creation of special effects by
optical cameras.
CRC's digital services consist of the production of digital special
effects, or special effects that are created on a computer system and then
transferred to film or videotape. CRC's digital services are provided by
digitizing film, creating special effects in the digitized format, and
subsequently transferring the digitized images back to film. Digitizing film
involves the process of transferring and storing film frame by frame into a
computerized storage system. Once this process is complete, the film in this
digitized format may be manipulated, corrected, changed, or altered from its
original created in film or video. After this process, the digitized images are
converted back to film or video.
SALES AND MARKETING
CRC believes it can exploit its market share in the optical services
industry to promote its digital services. Previously, CRC had marketed its
digital services to large scale special effect projects involving significant
labor and technological costs. CRC no longer intends to pursue these large
scale projects, and instead will only market its digital services at the
post-production stage along with its optical services to smaller projects
with fewer special effects. The larger projects required CRC to competitively
bid for services, which often times produced losses when
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unexpected costs occurred. These smaller projects are priced by the special
effect, thereby allowing CRC to better estimate its costs. While management
believes CRC's business strategy may reduce gross revenues attributable to
digital services, it believes that it will be better able to control costs.
CRC's primary marketing method is through David R. Miller's
relationships with studios in the industry. Mr. Miller, CRC's vice-president
of marketing, has been involved in the industry for over twenty years, and
has cultivated relationships with such studios as Tri-Star Pictures and
Columbia Pictures. Management estimates that Mr. Miller's contacts have
accounted for over 65% of CRC's optical business, with 60% derived solely
from business conducted with Tri-Star Pictures and Columbia Pictures. The
loss of Mr. Miller for any reason would severely limit CRC's ability to
compete in the industry. In September 1998, CRC entered into a six-year
employment agreement with Mr. Miller. CRC does not maintain life insurance on
Mr. Miller.
If adequate funding is obtained, CRC intends to update its digital
software and film equipment. If CRC is unable to raise sufficient proceeds to
fund such upgrades, it will continue to operate with its current equipment. CRC
competes in a high technology industry which is characterized by rapid
technological changes. Development by others of new or improved products,
processes, or technologies may make CRC's equipment obsolete or less
competitive. One of AIII's primary functions is to assist its subsidiaries to
raise the necessary capital to support such growth, however, there is no
assurance that CRC will be able to raise adequate proceeds to fund any updates
to its equipment. In addition, even if it is able to update its equipment, there
can be no assurance that its new equipment will not be obsolete in the near
future. While management believes that its optical services business is based on
more established technology, its digital services business is more susceptible
to rapid technological change.
Assuming adequate funding is obtained, CRC intends to market its
services through the use of brochures, videos, and personal contact with
studios. CRC currently employs three sales persons, including Mr. Miller, and
intends to hire one additional sales person in the future. CRC relies on its
ability to package both its optical and digital services for its clients. The
digital services industry is highly competitive and CRC's ability to compete
will depend on its maintaining current technology. There is no assurance that
its market position in the optical industry will enable CRC to compete in the
digital industry. Currently, CRC has no contracts or commitments with any
studios for its services.
COMPETITION
CRC competes primarily against two corporations in the optical services
industry, Pacific Title/Mirage Studio ("PTM") and Howard Anderson Optical. The
Company has entered into an agreement to acquire all of the optical title,
special effects and the scan and record operations of PTM. To date, the Company
has not closed the transaction. CRC believes it competes for business through
quality production, personal relationships with studios, long-standing
reputation in the industry, and timely delivery of products. There can be no
assurance that CRC will be able to successfully compete in this marketplace.
CRC is a relatively new entrant in the digital market and is currently
competing on the basis of technology. The cost of digital services machinery and
computers are extensive and are increasing. Therefore, the ability of CRC to
compete in the digital services industry is directly related to its ability to
update its technology. CRC competes against a large number of corporations in
the digital services industry, many with greater financial resources than CRC.
Assuming CRC is able to execute its business strategy, it will begin to focus
solely on the post-production, digital special effects market. Although CRC
believes there will be fewer participants in this market, the market will be
smaller than the current digital market and CRC will be competing for fewer
projects. In addition, CRC believes that its market share in the optical
industry will allow it to more effectively compete in the post-production,
digital special effects market. There can be no assurance that CRC will be able
to successfully compete in this marketplace.
INTELLECTUAL PROPERTY
CRC has not filed for any patent protection with the United States
Government. There is no assurance that employees of CRC, consultants, advisors
or others will maintain the confidentiality of its technology, or that its
technology will not otherwise become known, or be independently developed, by
competitors. Additionally, there is no assurance that CRC's technology does not
violate patent protections of other companies. The inability of CRC to utilize
its technology or obtain patents may have a material adverse effect on CRC.
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EMPLOYEES
As of July 15, 1999, CRC employed thirty-five persons on a full-time
basis and ten persons on a part-time basis, including management, sales, office,
and manufacturing employees of which twenty persons are covered by various
industry-wide collective bargaining agreements. A strike, job action, or labor
disturbance by the members of any of these organizations may have a material
adverse effect on the Company. Management considers relations with its employees
to be satisfactory.
FACILITIES
In December 1998, CRC consolidated its optical and digital facilities
in order to eliminate duplicate administrative costs and reduce personnel. The
consolidation was completed and CRC currently operates out of one facility.
CRC's consolidated facility is located in Hollywood, California. The facility is
20,000 square feet and is leased for $13,000 per month. The lease on the
facility expires on November 30, 1999. CRC had acquired for $50,000 an option on
the facility, expiring on July 31, 1999, which allows it to purchase the
facility for $1,170,000. CRC is currently in negotiations with its lessor to
extend the option, but no definitive agreement has been reached, and CRC
continues to occupy the premises pursuant to its lease.
Management has determined that its current facility is in need of
renovations, including interior redecoration and earthquake preparedness
repairs. If CRC is required to exercise the option on its facility, it will be
required to borrow additional funds. One of AIII's primary functions is to
assist its subsidiaries raise the necessary capital to support such
transactions, however, there is no assurance that CRC will be able to obtain
such funds to complete the renovations or to exercise the option. In addition,
if CRC is unable to exercise the option, there is no assurance that it will be
able to extend its current lease on a long term basis, or on terms economically
favorable to CRC, if at all.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company is a holding company, which currently has six operating
subsidiaries. Har-Whit is a manufacturer and distributor of barbeque pits and a
custom sheet metal fabricator. TRE which owns certain undeveloped real estate in
Harris, Galveston and Chambers counties in Texas, some of which is held by its
wholly-owned subsidiary, Midtowne Properties, Inc. TRE has no operating
activities other than acquiring and holding real estate for investment purposes.
Brenham has a non-operating royalty interest in a producing gas well. Acqueren
which has no separate operations other than its investment in NPI and
investments in marketable securities. NPI is a supplier of automotive
after-market products and consumer durable goods. CRC and its subsidiary,
Digital Research Corporation, is a provider of optical title and credits
services and digital special effects for the motion picture industry. UC which,
along with Armor, provide spray-on bed liners as well as other related products.
All of the acquisitions were accounted for using the purchase method of
accounting whereby the purchase price of the acquisition was allocated based
upon the fair value of the assets acquired and liabilities assumed. If the
purchase price exceeded the net fair market value of the assets acquired, any
remaining purchase price was allocated to goodwill.
The historical financial statements of AIII include the acquisitions of
acquired companies (Acqueren and CRC) as of the effective date of the purchase
and the results of these companies subsequent to closing, as both the Acqueren
and CRC transactions were accounted for under the purchase method of accounting.
Accordingly, Acqueren has been included in AIII's results of operations since
July 1, 1998, and CRC was included in the results of operations beginning
October 1, 1998.
The Company intends to grow through the acquisition of additional and
complimentary businesses and to expand its holdings in its various businesses.
The Company expects to face competition for acquisition candidates, which may
limit the number of acquisition opportunities and may lead to higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or manage profitably additional businesses or to integrate any acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Further, acquisitions involve a number of
risks, including possible adverse effects on the Company's operating results,
diversion of management's attention, failure to retain key personnel of the
acquired
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business and risks associated with unanticipated events or liabilities, some
or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The timing, size and
success of the Company's acquisition efforts and the associated capital
commitments cannot be readily predicted. The Company currently intends to
finance future acquisitions by using shares of its Common Stock and other
forms of financing as the consideration to be paid. In the event that the
Common Stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part
of the consideration for the sale of their businesses, the Company may be
required to seek other forms of financing in order to maintain its
acquisition program. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional equity or
debt financing.
As the Company's business strategy has been to acquire various
companies, it has collected excess cash to effect such acquisitions. The Company
has invested, at various times, a portion of its excess cash in investment
securities. The Company chooses stocks that it believes are undervalued, with
the expectation that they will rise in value. There is a risk that the value of
these investments will not rise as high as the Company expects, or will fall.
The Company only invests in liquid securities, in order to have immediate access
to its cash reserves.
RECENT DEVELOPMENTS
In July 1999, the Company entered into a letter of intent with World
Wide Collectibles, Inc., which has subsequently changed its name to World Wide
Net, Inc., to purchase all of the outstanding shares of CRC for common stock of
WWN. The letter of intent contemplates that the Company will receive a majority
of the outstanding shares of WWN common stock, and would continue to operate the
combined business. To date, the parties have not entered into a definitive
agreement, and there is no assurance that a definitive agreement will be
executed.
In March 1999 (effective January 1999), the Company completed the
acquisition of UC. This transaction was accomplished through the issuance of
3,500,000 restricted shares of AIII valued at fair market value of
approximately $652,000 plus a finders fee of $45,000 paid in part to a party
related to Mr. Dror. UC is a distributor of specialty chemicals to the
automotive after-market. Best known for its spray-on bed-liners for truck
beds, UC products are marketed under the "TORO LINER" name through a network
of independent distributors. Distributors buy equipment, training and
chemicals from UC and are granted exclusive territories. In addition, other
specialty chemicals, including rustproofing, undercoating, fabric
protectants, fuel additives and performance enhancement chemicals related to
the automotive after-market are sold through the distributors. The
acquisition has been accounted for as a purchase.
In April, 1999, the Company acquired all of the outstanding shares of
Armor. Armor operates a facility in Houston, for the application of spray-on
liners for truck beds, undercoating and rust-proofing of vehicles, and wholesale
and retail sales of truck accessories. Armor has established commercial
applications of the coatings, which are applied for corrosion resistance and
noise suppression in diverse uses. Applications include surfaces exposed to
corrosive materials in chemical and refining plants, lining the interior of
refuse containers (dumpsters), spraying floors and decks, and other applications
where a tough surface, resistant to corrosion, moisture and wear is needed. The
chemicals are supplied by UC. The Company paid cash in the amount of $132,500
plus approximately $8,000 reimbursement of certain refundable deposits and
assumed approximately $91,000 related to certain equipment lease obligations.
The acquisition will be accounted for as a purchase.
In April and May, 1999 the Company sold its investment in Hertz
Technology Group, which had been classified as securities available for sale,
in a series of transactions. The total proceeds of those sales amounted to
$1,272,327, the total cost of the shares was $258,326 and the total realized
gain amounted to $1,014,001.
In March 1999, the Company committed to acquire a minority interest
(approximately 20%) in Signal which owns the exclusive license to market
handbags and leather accessories bearing the "Guess" trademark. Signal
develops, manufactures and markets its products throughout the United States.
The investment in Signal was accomplished through the issuance of 10,000,000
restricted shares of common stock of AIII, valued at fair market value of
approximately $2,000,000. The shares have been placed in escrow pending the
completion of a business valuation of Signal. The shares will be released
from escrow upon satisfactory determination of Signal's value; 5,000,000
shares to Hardee Capital Partners and 5,000,000 shares to Elk International,
an affiliate of the Company, both of which had claims against the shares of
Signal. Should the determination of value of the Signal shares, after
valuation of Signal, yield a value less than $2,000,000, the number of shares
to be released from escrow will be reduced accordingly; however, no
additional shares shall be issuable should the valuation indicate a greater
value. To date the valuation of the Signal shares has not been completed.
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In November 1998, Acqueren deposited $100,000 on behalf of TRE as
earnest money on a contract with a third party for an option to buy a
downtown Houston, Texas, office building. Subsequent to December 31, 1998,
TRE realized a profit of $500,000 related to its earnest money contract sold
to unrelated third parties.
RESULTS OF OPERATIONS - CONSOLIDATED AIII
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER
31, 1997. Net loss for the year ended December 31, 1998, was $705,973, as
compared to $870,027 for the year ended December 31, 1997. The factors
contributing to the decrease in the loss are discussed below:
The net sales for the year ended December 31, 1998, were $10,213,039 as
compared to $2,501,860 for December 31, 1997, such 308% increase being primarily
attributable to the inclusion of Acqueren's sales since its acquisition as of
July 1, 1998 and CRC's sales since acquisition as of October 1, 1998. NPI, a
wholly-owned subsidiary of Acqueren, had sales for the six-month period of
$6,211,170. CRC's revenues for the three-month period ended December 31, 1998
were $1,305,422. Har-Whit's sales for the year ended December 31, 1998 were
$2,696,447, an eight percent increase over the $2,501,860 reported in the prior
year. Brenham reported royalty income of $72,048 in the current year, while no
royalties were included in 1997, as Brenham was acquired in late December 1997.
The only activity of Acqueren consisted of investments in various trading and
available for sale equity securities. TRE and its subsidiary Midtowne Properties
Inc. had no sales of properties during the year 1998 and the operating expenses
consisted of property tax accruals.
Cost of sales as a percentage of net sales for the year ended December
31, 1998, was approximately 79.5%, with gross margins of 20.5%, as compared to
approximately 65.4% cost of sales and 34.6% gross margins during the year ended
December 31, 1997. The change is the result of the inclusion of NPI which
sustained gross margins averaging 13.9%. CRC posted margins averaging 34.5% and
Har-Whit sustained 28.9% margins in 1998 as compared to 34.6% margins in 1997.
The decreased margins at Har-Whit in 1998 are attributable to increased
competitive pressures in bidding for fabrication jobs due to the slowing of oil
and gas related work.
Operating expenses for the year ended December 31, 1998, were
$3,173,504, as compared to $1,674,172 for 1997. This increase is primarily the
result of the acquisition of NPI, which had operating expenses of $504,755 since
July 1, 1998; CRC incurred operating expenses of $642,743 between October and
December 1998, including certain costs of relocating its digital operations to
its optical facility. TRE incurred operating expenses, primarily property taxes,
of $115,291. AIII incurred expenses at the corporate level of $892,265,
including $150,000 in compensation expense to Mr. Dror. Corporate expenses also
included the following unusual expenses: $145,900 of professional fees related
to the Company becoming a reporting entity, $55,700 non-cash compensation
expense related to shares of stock granted to key employees, $80,100 of travel
expenses, much of which related to the acquisition activity of management
personnel. Management believes fiscal 1998 was a particularly active year for
acquisitions, therefore related expenses were higher than would otherwise have
been incurred.
Other income amounted to $76,203 for the year 1998, including interest
income of $45,936, investment income of $129,034, other income of $5,277, and
$104,044 of interest expense. This compares to total other expense for 1997 of
$61,860 which consisted of interest expense of $63,908 and other income of
$2,048. The increased interest expense for 1998 results from the bank debt
attributable to acquired companies and the financing cost associated with
equipment leases of CRC. Investment income in 1998 was generated through
investment in trading and available-for-sale equity securities.
NET LOSS AND COMPREHENSIVE LOSS
Consolidated net loss for the year ended December 31, 1998 was
$705,973 as compared to the net loss sustained in 1997 of $870,027. Of the
1998 loss, $219,533 was incurred by CRC, $97,791 by TRE, and $1,098,978 by
AIII. NPI realized net income of $394,581, Har-Whit had net income of
$13,181, and Brenham had net income of $3,763. Tax benefits of $298,804
offset the consolidated losses. Unrealized losses on available-for-sale
investments in equity securities of $18,964 are included as a component of
stockholders' equity. Such unrealized investment losses are included as a
component of comprehensive loss which totaled $724,937 for the year ended
December 31, 1998.
The prior year loss was attributable to the Har-Whit's operations as
no other subsidiaries were owned at that time.
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LIQUIDITY AND CAPITAL RESOURCES - AIII
Total assets at December 31, 1998, were $17,478,737, as compared to
$4,558,081 at December 31, 1997, an increase of 283%. The increase is primarily
attributable to AIII's acquisition of Acqueren and CRC.
Total liabilities at December 31, 1998, were $6,429,997, as compared to
$1,069,353 at December 31, 1997, an increase of 501%. The increase is the result
of 1998 acquisitions of Acqueren and CRC.
At December 31, 1998, AIII's current working capital was $1,905,940 as
compared to $344,093 at December 31, 1997. Cash flows during 1998 increased the
beginning cash balance of $62,991 at December 31, 1997 to $2,149,916 at December
31, 1998.
Cash flows used by operating activities were $625,576 in 1998
compared to $678,282 in 1997. The cash flows used in the operating activities
was primarily the result of net loss from operations of $705,973 offset by
non-cash items of $257,126 resulting in net cash flows used in operating
activities of $448,847. Accounts receivable, inventory and other current
assets decreased by $1,431,007, net of amounts acquired, due primarily to
NPI's lower seasonal activity in the fourth quarter. Other assets increased
$125,793 primarily due to a deposit for an option to purchase a building in
downtown Houston, Texas. Accounts payable and accruals decreased due to the
timing of payments of payables. Accrued property taxes increased due to the
acquisition of additional land.
Cash flows provided by investing activities were $471,973 in 1998
compared to $26,262 used in 1997 for capital expenditures. The cash flows
provided by investing activities were primarily due to cash received in
acquisitions of $1,036,242 from Acqueren. Investments available for sale, net
of unrealized losses, increased by $134,848 due to the Company's wish to
invest excess funds. Also, CRC and TRE used funds for capital expenditures
and the purchase of real estate of $338,231. Net notes receivable of $91,190
were issued during the year including a note to the CEO.
Cash flows provided by financing activities were $2,240,528 in 1998
compared to $708,276 provided in 1997. This is primarily due to the issuance
of stock during 1998 which provided cash flows of $2,377,500 offset by CRC's
principal payments on lease obligations, net of amounts acquired, of $137,661.
To date, the Company has no commitments 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. At December 31, 1998, the Company was in violation of certain
financial ratios on its capital leases and has received a waiver for those
violations from the lessor.
MEDIA/ENTERTAINMENT SEGMENT:
RESULTS OF OPERATIONS -- CRC
For the three months ended December 31, 1998, CRC had net sales of
$1,305,422, operating expenses of $642,743 and sustained an operating loss of
$192,215.
For the three months ended December 31, 1998, CRC cost of sales were
$854,894 or 65.5% of net sales and margins of $450,528 averaged 34.5%.
Operating expenses of $642,743 comprised 49.2% of net sales. Net loss for the
period was $219,533.
LIQUIDITY AND CAPITAL RESOURCES -- CRC
Total assets of CRC at December 31, 1998, were $4,391,898, total
liabilities were $3,319,431, and CRC had negative current working capital of
$1,531,235. CRC had $154,502 net cash provided from operations, $42,088 net
cash provided by investing activities, and $99,335 net cash provided by
financing activities for the three months ended December 31, 1998.
CRC has arranged a line of credit, guaranteed by the parent, AIII to
provide the financing necessary to support its operations and to meet its
ongoing cash requirements. Management believes CRC has achieved significant
economies and savings by relocating the operations of its digital operations
into the building occupied by
-15-
<PAGE>
its optical operations. These changes reduced rent expenditures and
eliminated some duplicate functions such as administrative support, equipment
costs and supplies. Management believes that the consolidation has resulted
in better co-ordination of projects involving both optical and digital work.
CRC management identified the need to invest in improvements to the building
it is leasing related to the relocation including improvements to comply with
the California earthquake code. The Company estimates these costs to be
approximately $150,000 and were agreed to in connection with a modification
in the lease to extend the term and to obtain an option to buy the building
which expired in July 1999.
CRC is currently in the process of renegotiating such option,
although there is no assurance that it will be successful. In connection with
CRC's option to acquire its building, it is currently negotiating to obtain
$2 million in financing through the city of Los Angeles. Such financing is at
favorable interest rates and is to be used to acquire and renovate the
building, perform necessary earthquake compliance related improvements, and
upgrade computer systems and other production equipment. There is no
assurance that such financing will be granted, and if such financing is not
granted, CRC will be required to obtain alternative financing. At the present
time, CRC has no commitments for such financing, and there is no assurance
that it will be able to obtain any other financing at favorable interest
rates, if at all.
In September 1998, CRC borrowed $1,000,000 in the form of a promissory
note from a financial institution at the institution's prime interest rate,
which matures in May 2000. That borrowing was used to retire bank and other
indebtedness which existed prior to the acquisition by AIII. Beginning in
February 1999, CRC will make quarterly payments of accrued interest. CRC has (i)
an outstanding note payable to a former stockholder of CRC of $196,224, due in
monthly payments of $6,325 through September 2003, and (ii) an outstanding note
payable to an officer and director of CRC payable on demand of $284,072 at an
interest rate of 8% per annum. AIII has committed to funding the operations of
CRC until December 31, 1999.
INDUSTRIAL/ COMMERCIAL SEGMENT:
RESULTS OF OPERATIONS -- NPI
For the six months ended December 31, 1998 NPI had net sales of
$6,211,170, operating expenses of $504,755, and operating income of $359,283.
Other expense of $57,598, includes net interest expense of $9,355 and loss on
disposition of equipment of $21,994. Net income for the six months ended
December 31, 1998 was $301,685.
LIQUIDITY AND CAPITAL RESOURCES NPI
NPI has financed its operations to date primarily through advances
from its parent company, Acqueren, which had raised equity financing through
sales of its equity securities prior to the acquisition of Acqueren by AIII.
Total assets of NPI at December 31, 1998, were $2,357,916, total liabilities
were $1,477,542 and current working capital of $1,043,135 existed at December
31, 1998.
NPI and Acqueren had $112,648 combined net cash provided from
operations, $480,016 combined net cash provided by investing activities, and
$10,626 combined net cash used in financing activities for the six months
ended December 31, 1998.
NPI has an outstanding note payable to a former stockholder of
Acqueren of $300,000 at an interest rate of 6% per annum, with a payment of
$100,000 due in August 1999 and 2000 and the remainder due in August 2001.
The Company is involved in litigation through the suit filed against the
former principal stockholder of Acqueren. The substance of that suit related
to representations made prior to the acquisition and the outcome of such
litigation could reduce the amount payable on the note to such former
stockholder; although there is no assurance that the Company will prevail in
its litigation.
RESULTS OF OPERATIONS - HAR-WHIT
Net sales of Har-Whit for the year ended December 31, 1998 totaled
$2,696,447, an increase of eight percent over the $2,501,860 sustained in
1997. Little marketing and advertising has been done to promote sales of
barbeque pits as "word of mouth" advertising has been the principal marketing
approach.
For 1998, Har-Whit had cost of sales of $1,918,489 or 71.1% of sales
as compared to $1,635,835 or 65.4%
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<PAGE>
during 1997. Reduced margins result from competitive pressures in fabrication
work. In 1998, Har-Whit had operating expenses of $887,832 or 32.9% of sales
compared to $1,027,255 or 41.1% of sales for 1997. The reduction of operating
expenses is primarily attributable to reduced insurance costs resulting from
renegotiations of all insurance policies. Har-Whit also had decreases in its
freight and supplies expenses in 1998 compared to 1997. Har-Whit had an
operating loss for 1998 of $109,874 as compared to an operating loss of
$161,230 for 1997.
LIQUIDITY AND CAPITAL RESOURCES - HAR-WHIT
Har-Whit has arranged for a $150,000 line of credit with a financial
institution secured by its accounts receivables. The interest rate for the line
of credit is 10.50% and matured on March 18, 1999. Minimum monthly payments of
accrued unpaid interest began on April 18, 1998. As the borrowing is secured by
Har-Whit's accounts receivable, the amount actually available under the line of
credit will fluctuate, and based on accounts receivables at December 31, 1998,
approximately $50,000 additional borrowing is currently available. Har-Whit has
an outstanding note payable to another financial institution of $574,276 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 1998 Har-Whit had $170,623 provided by operations, used $146,341
in investing activities, used $23,527 in financing activities and had resulting
net cash flows of $755 for the year ended December 31, 1998. This compares to
$397,351 used by operations, $26,262 used in investing activities and $404,820
provided by financing activities, resulting in an decrease in cash of $18,793
during 1997.
RESULTS OF OPERATIONS - CONSOLIDATED AIII
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998. Consolidated net income for the three-month period ended
March 31, 1999 was $41,275 as compared to a loss during the three months
ended March 31, 1998 of $175,927. The factors contributing to the
consolidated net income for the period are discussed below:
The net sales for the three months ended March 31, 1999, were
$4,214,020 as compared to $517,756 for March 31, 1998, such 714% increase
being primarily attributable to the inclusion of the sales of NPI, CRC, UC,
and TRE. NPI had sales for the three-month period of $1,545,390. CRC revenues
for the three month period ended March 31,1999 were $1,157,317 and UC had
revenues of $472,866. Har-Whit sales for the three months ended March 31,
1999 were $438,447 as compared to $517,756 for the three months ended March
31, 1998. TRE had sales of $600,000 for the three-month period ended March
31, 1999, while it had no sales activity for the comparable three months of
1998. Brenham reported royalty income of $4,308 in the current quarter
compared to $9,686 during the first three months of 1998. The activity of
Acqueren during the three months ended March 31, 1999, consisted of
investments and trading in various investment and available for sale equity
securities; such activity resulting in unrealized investment losses of
$42,493. Cost of sales as a percentage of net sales for the three months
ended March 31, 1999 was approximately 69.6%,with gross margins of 30.4%, as
compared to approximately 70.1% cost of sales and 29.9% gross margins during
the three-month period ended March 31, 1998. The change is the result of the
inclusion of NPI, which sustained gross margins averaging 16.9% during this
quarter. CRC posted margins averaging 20.3% during the three months ended
March 31, 1999, while Har-Whit sustained 30.4% margins in 1999 as compared to
29.9% margins in 1998 TRE experienced margin of 83.3% on its sale of real
estate rights, as the $100,000 cost associated with the contract constitutes
16.7% of sales.
Operating expenses for the three months ended March 31, 1999 were
$1,191,505 as compared to $332,281 for the three months ended March 31, 1998.
This increase is primarily the result of the acquisitions of NPI, which had
operating expenses of $238,392 during the current quarter and CRC, which
incurred operating expenses of $453,377, including certain costs of
relocating the digital operations to the optical facility. UC incurred
$81,815 in operating expenses during the three months ended March 31, 1999.
TRE incurred operating expenses, primarily property taxes, of $14,899. AIII
incurred expenses at the corporate level of $246,029, including $72,604 of
legal and professional fees and $25,000 amortization of goodwill.
Other expense amounted to $46,775 for the three-month period ended
March 31, 1999 including interest income of $16,785, Acqueren's unrealized
investment losses of $42,493, other income of $66,206, and $87,273 of
interest expense. This compares to total other income for the three-month
period ended March 31, 1998 of $1,684, which consisted of interest expense of
$11,422 and other income of $13,091. The increased interest expense for 1999
results from the bank debt attributable to acquired companies and the
financing cost associated with equipment leases of CRC.
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<PAGE>
NET INCOME AND COMPREHENSIVE INCOME
Consolidated net income for the three-month period ended March 31,
1999 was $41,275 as compared to the net loss of $175,927 sustained in the
three months ended March 31, 1998. During the three months ended March 31,
1999, TRE had net income of $489,669, NPI posted net income of $23,286,
Har-Whit had a net loss of $15,978, CRC posted a loss of $238,582, and
Brenham had a net loss of $153. AIII sustained a loss of $246,067 at the
corporate level. Acqueren experienced a loss of $37,984. Of the prior year
loss, $103,748 was incurred by AIII at the corporate level, with the
remainder attributable to the Har-Whit operations during the first three
months of 1998.
Unrealized gains on available for sale investments in equity
securities of $968,828 are included as a component of stockholders equity.
Such unrealized investment gains are included as a component of comprehensive
income, which totaled $1,029,067 for the three-month period ended March 31,
1999. No investment activities gave rise to unrealized gains or losses in the
comparable quarter in 1998.
LIQUIDITY AND CAPITAL RESOURCES - AIII
Total assets at March 31, 1999, were $19,737,161, as compared to
$17,478,737 at December 31, 1998, an increase of 13%. The increase is
primarily attributable to increase in the value of trading securities and
securities available for sale and the acquisition of UC.
Total liabilities at March 31, 1999, were $6,559,354, as compared to
$6,429,997 at December 31, 1998. The increase is primarily the result of the
acquisition of Marald.
At March 31, 1999, AIII's current working capital was $3,457,238 as
compared to $1,905,940 at December 31, 1998. The improvement in working
capital is primarily attributable to the increase in value of investments in
equity securities. AIII's consolidated cash position at March 31, 1999, was
$2,389,014 as compared to $ 2,149,916 at December 31, 1998. Accounts
receivable, at March 31, 1999 were $1,298,449 compared to $1,641,469 at
December 31 1998. Inventories increased to $1,089,133 at March 31, 1999 as
compared to $1,055,091 at December 31, 1998. Investments in trading
securities increased to $834,082 at March 31, 1999 from $418,770 at December
31, 1998. and the value of available for sale securities at March 31, 1999
increase to $1,220,625 from the $115,884 value at December 31, 1998.
For the three months ended March 31, 1999, AIII had $54,322 of net
cash provided by operations, $221,623 of net cash used in investing
activities, and $406,444 of net cash provided from financing activities. For
the three-month-period ended March 31, 1998, the Company used $50,143 in
operations, used $44,108 for investing activities, and provided $169,496
through financing activities. The change reflects increased activities of the
Company as compared to the first quarter of 1998.
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:
RESULTS OF OPERATIONS -- CRC
For the three months ended March 31, 1999, CRC had net sales of
$1,157,317, operating expenses of $453,377 and sustained an operating loss of
$218,415. Sales for the period were adversely affected by the relocation
during January of the digital operations into the optical facilities. That
transition required that operations of both divisions be interrupted during
the physical relocation of the production equipment.
LIQUIDITY AND CAPITAL RESOURCES -- CRC
Total assets of CRC at March 31, 1999, were $4,483,456, total
liabilities were $3,649,572 and CRC had negative current working capital of
$977,819. CRC had $127,168 net cash provided from operations, $74,000 net
cash used in investing activities, and $48,375 net cash provided by financing
activities.
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<PAGE>
CRC has arranged a line of credit, guaranteed by the parent, AIII,
to provide the financing necessary to support its operations and provide the
investment necessary to implement the consolidation of digital operations
into the optical facility and to meet the ongoing cash requirements of CRC.
INDUSTRIAL/COMMERCIAL SEGMENT
RESULTS OF OPERATIONS - NPI
For the three months ended March 31, 1999 NPI had net sales of
$1,545,390, operating expenses were $238,392, and operating income of
$22,931. Other income of $355 includes net interest expense of $4,563 and
other income of $4,918. Net income for the three months was $23,286.
LIQUIDITY AND CAPITAL RESOURCES - NPI
NPI financed its operations during the three months ended March 31,
1999 through internally generated cash flows. For the three months ended
March 31, 1999, NPI used $143,171 in operating activities, and used $4,105 in
investing activities. Total assets of NPI at March 31, 1999, were $1,775,839,
total liabilities were $872,177, and current working capital was $1,063,518.
RESULTS OF OPERATIONS - HAR-WHIT
Har-Whit sales for the three months ended March 31, 1999 amounted to
$438,447, a decrease of 15.3 % compared to the $517,756 sustained in 1998.
The decrease in sales is attributable to increased competitive pressures in
bidding for fabrication work due to the downturn in oil and gas related work.
Har-Whit cost of sales amounted to $305,047, 69.6% of sales. Margins
of $133,400 represent 30.4% of sales during the three months ended March 31,
1999. During the three-month period ended March 31, 1998, Har-Whit cost of
sales of $363,086 constituted 70.1%, and margins of $154,670 were 29.9% of
sales. Operating expenses of $135,517, comprised 30.9% of sales during the
three-month period ended March 31, 1999 as compared to $202,669, 39.1%, in
the comparable period in 1998. The operating loss of $2,117 for the three
months ended March 31, 1999 compares to an operating loss of $47,999 during
the three-month period ended March 31, 1998. Interest expense in the three
months ended March 31, 1999 of $16,111 compares to $11,422 in the comparable
period in 1998.
RESULTS OF OPERATIONS -- UC
During the three-month period ended March 31, 1999, UC had sales of
$472,866, cost of sales of $322,996, comprising 68.3% of sales, and margins
of $149,870 represent 31.7% of sales. Operating expenses of $81,815 were
17.3% of sales. Net income of $67,084 represented 14.2% of sales. UC has
launched an enhanced marketing and dealer support program to capture market
share and introduce additional products through the dealer network.
LIQUIDITY AND CAPITAL RESOURCES -UC
UC has arranged a $75,000 working capital line of credit, with
interest at prime, secured by its inventory and accounts receivable and
parent guarantee. Increasing sales levels may require additional working
capital financing.
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.
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<PAGE>
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 majority of the subsidiaries'
operations do not rely on computer operations for conducting the significant
parts of its business, and accordingly, the Company does not believe that its
products and services involve any material Year 2000 risks. CRC's optical
operations do not involve the use of computerized equipment for the material
portion of its operations, and its digital equipment has been updated with year
2000 compliant software.
In the second quarter of 1999, the Company established a formal Year
2000 task force to develop and implement a Year 2000 readiness program. The
Company completed the implementation of Year 2000 compliant accounting
systems, policies, and procedures throughout all of the subsidiaries. The
Business Works Accounting software has been installed at the Company and in
all its subsidiaries, and conversion to the new system is complete.
In addition to reviewing its internal systems, the Company plans to
have 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 Company does not presently anticipate that the costs to address
the Year 2000 issue will have a material adverse effect on the Company's
financial condition, results of operations or liquidity due to the
aforementioned factors. However, management has not performed a formal
estimate of the costs for conversion of systems necessitated by the Year 2000
issue.
The Company presently anticipates that it will complete its Year
2000 assessment and any necessary remediations by December 31, 1999. However,
there can be no assurance that the Company will be successful in implementing
its Year 2000 remediation plan according to the anticipated schedule. In
addition, the Company may 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 its internal systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency
plan that will specify what it plans to do if it or important external
companies are not Year 2000 compliant in a timely manner. The Company expects
to prepare its contingency plan during 1999.
NEW ACCOUNTING PRONOUNCEMENTS
Derivative and Hedging Activities - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to measure
them at fair value. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect adoption of
the new standard on January 1, 2001 to affect its financial statements.
ITEM 3. DESCRIPTION OF PROPERTY
The Company operates Brenham and TRE from its office in Kemah,
Texas. In June 1999, the Company entered into a five-year lease agreement for
the Company's office in Kemah, Texas at a monthly rental rate of $1,335. See
Item 1. Description of Business: "Business Operations of Har-Whit/Pitt's &
Spitt's, Inc.," "Business Operations of Acqueren, Inc." and "Business
Operations of Modern Film Effects, Inc.," for a description of properties for
Har-Whit, NPI, and CRC. The Company believes its various facilities are
adequate to meet current business needs, except as discussed in Item 1, and
that its properties are adequately covered by insurance.
The following table sets forth the properties owned by TRE, including
all properties owned by its wholly-owned subsidiary Midtowne Properties, Inc.
All properties listed are owned free of any mortgage obligations, however
certain properties are subject to property taxes in the amount of approximately
$357,000, as designated below, in the aggregate. TRE holds undeveloped
commercial properties for sale, although management may pursue, without a vote
of shareholders, development opportunities it believes to be economically
favorable. At the present
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time TRE has no plans to develop any of its properties.
PROPERTY DESCRIPTION AND LOCATION
<TABLE>
<S> <C>
286 acres, State Highway 146, 736 acres, Anahuac,
Galveston County, Texas Chambers County, Texas
23 acres, North U.S. 59, Houston, 15 acres, North U.S. 59, Houston,
Harris County, Texas Harris County, Texas
1 acre, Greens Road, Houston, 43 acres, Airport Blvd., Houston,
Harris County, Texas Harris County, Texas ($193,000 of property tax)
17,346 sq. ft., S.E. Corner of South 4,410 sq. ft., N.E. Corner of Fannin
Main St. and Ruth St., Houston, Harris and Blodgett, Houston, Harris County,
County, Texas ($71,000 property tax) Texas ($56,000 property tax)
22,248 sq. ft., N.E. Corner Almeda and
Riverside Dr., Houston, Harris County,
Texas ($37,000 of property tax)
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 2, 1999, the number and
percentage of outstanding shares of Company Common Stock owned by (i) each
person known to the Company to beneficially own more than 5% of its outstanding
Common Stock, (ii) each director, (iii) each named executive officer, and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OF
BENEFICIAL OWNER (1) STOCK BENEFICIALLY OWNED OWNERSHIP
<S> <C> <C>
Daniel Dror Sr. 9,326,000(3) 7.7%
Elk International Corporation, Ltd. 25,697,000(2) 21.2%
William Dartmouth 110,000 *
Marc Fields -- --
Jordan Friedberg 1,866,000(4) 1.6%
Erick Friedman 3,200,000 2.6%
John W. Stump III 220,000(5) *
Rebekah Laird-Ruthstrom 100,000(6) *
All executive officers and directors as a 14,822,000 12.2%
group (6 persons)
</TABLE>
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(*) Indicates ownership of less than one percent.
(1) The business address of each principal stockholder is the same as the
address of the Company's principal executive offices except Mr. Fields
whose business address is 11601 Highway 32 in Nicholls, Georgia 31554.
(2) The principal of Elk International Corporation, Ltd. is Elkana
Faiwuszewicz, Mr. Dror's brother. Mr. Dror has no
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<PAGE>
interest nor has he ever been an officer or director of Elk
International Corporation, Ltd.
(3) Includes (a) an option to purchase 2,000,000 shares of Common Stock at
an exercise price of $0.12 per share and (b) 7,326,000 shares of Common
Stock owned by Daniel Dror II 1976 Trust of which Mr. Dror is trustee.
(4) Includes a five year option, which is exercisable immediately, to
purchase 400,000 shares of Common Stock at an exercise price of $0.20
per share.
(5) Consists of (a) an option to purchase 20,000 shares of Common Stock at
an exercise price of $0.34 per share; (b) an option to purchase 100,000
shares of Common Stock at an exercise price of $0.02 per share, and (c)
an option to purchase 100,000 shares of Common Stock at an exercise
price of $0.19 per share.
(6) Includes an option to purchase 45,000 shares of Common Stock at an
exercise price of $0.02 per share.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Pursuant to the Company's Certificate of Incorporation and its By-Laws,
the members of the Board of Directors serve for one-year terms. The Company's
directors and executive officers are:
<TABLE>
Name Age Position
<S> <C> <C>
Daniel Dror, Senior 57 Chairman of the Board, Chief
Executive Officer
William Dartmouth 49 Director
Jordan Friedberg 44 Director
Erick Friedman 59 Director
John W. Stump III 54 Chief Financial Officer
Rebekah Laird-Ruthstrom 44 Secretary and Treasurer
</TABLE>
DANIEL DROR has served as chairman of the board and chief executive
officer of the Company since September 1997. Since September 1993, Mr. Dror
has served as chairman of the board and chief executive officer of Daniel
Dror and Company, Inc. an investment and business management company. From
April 1994 to November 1996, Mr. Dror served as chairman of the board and
chief executive officer of Microtel International, Inc., a public company in
the telecommunication business. From 1982 until 1993, Mr. Dror served as
chairman of the board and chief executive officer of Kleer-Vu Industries,
Inc., a public company.
WILLIAM DARTMOUTH has served as director of the Company since
September 1997 and as a director of Brenham since January 1998. From 1985
until 1990, Mr. Dartmouth was a director of Carricke Communications, a
distributor of satellite dishes. In 1989 he was a founder of Kirklees Cable,
a cable franchise company which was acquired by International Cable Tel in
1993. In 1990 he was a founder of White Rose Television Ltd., a regional
television franchisee. Mr. Dartmouth served as a director of Kleer-Vu
Industries, Inc. from 1983 until 1993. Since 1994, Mr. Dartmouth has been a
director of Microtel International, Inc., a public company in the
telecommunication business.
JORDAN FRIEDBERG has served as director of the Company since
November 1998. Mr. Friedberg has served as chief executive officer and
president of CRC since May 1998. From September 1997 until May 1998, Mr.
Friedberg served as consultant to CRC. From May 1994 until September 1997,
Mr. Friedberg served as the chief financial officer and associate producer of
FilmRoos, Inc. Mr. Friedberg earned a Masters of Business Administration
from Pepperdine University and a Bachelors of Science from California State
University at Northridge.
ERICK FRIEDMAN has served as director of the Company since May 1998.
Since 1989, Mr. Friedman has been employed by Yale University School of
Music as a professor of music. Since 1968, Mr. Friedman has invested
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<PAGE>
in various companies.
JOHN W. STUMP III has served as chief financial officer of the Company
since August 1998. From December 1996 to October 1997, Mr. Stump served as chief
executive officer of Changes International. From April 1996 to December 1996,
Mr. Stump served as chief operating officer and chief financial officer of
Nutrition Resources, Inc. From February 1993 to April 1996, Mr. Stump served as
Acquisitions Analyst for Movie Gallery, Inc. Mr. Stump is a Certified Public
Accountant and has over twenty years of financial and accounting management
experience including public reporting and investor relations.
REBEKAH LAIRD-RUTHSTROM has served as secretary, treasurer, and
executive assistant secretary of the Company since February 1998. Since
September 1993, Ms. Laird-Ruthstrom has served as assistant secretary,
treasurer, and executive assistant of Daniel Dror and Company, Inc. From July
1994 to April 1997, Ms. Laird- Ruthstrom served as executive assistant of
Microtel International, Inc.
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<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following tables contain compensation data for the Chief Executive
Officer and other named executive officers of the Company for the fiscal year
ended December 31, 1998; with respect to this information for Mr. Fields,
compensation is reported for the Company's fiscal year (NPI's fiscal year end is
June 30):
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------- ---------------------------
Bonus/ Securities
Other Underlying All Other
Name and Principal Fiscal Annual Stock Options/ Compen-
Position Year Salary Compen- Award(1) SARs sation
sation
<S> <C> <C> <C> <C> <C> <C>
Daniel Dror, Sr.(2), 1998 $3,000 $5,750(3) $23,640(4) 2,000,000(5) (6)
CEO
1997 -- -- -- -- --
Marc Fields, 1998 $124,000 -- -- -- --
President NPI
1997 $127,483 -- -- -- --
1996 $117,616 -- -- -- --
</TABLE>
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(1) The issuance of Common Stock was awarded for services rendered.
(2) Mr. Dror began serving as CEO of the Company in September 1997.
(3) Represents total payments made by the Company for automobile owned
by the Company which Mr. Dror utilizes for the fiscal year.
(4) Consists of: (a) 100,000 shares of Common Stock granted in
January 1998, and (b) 100,000 shares of Common Stock
granted in May 1998, pursuant to an employment agreement.
(5) In May 1998, Mr. Dror was granted an option to purchase 2,000,000
shares of Common Stock at an exercise price of $0.12 per share
expiring in May 2001.
(6) In fiscal 1998, the Company made advances to Mr. Dror in the amount of
$91,294. In November 1998, Mr. Dror executed a promissory note payable
to the Company for $91,294, payable on demand at prime interest rate.
EMPLOYMENT AGREEMENTS
In May 1998, Mr. Dror entered into a three-year employment agreement
with the Company which provided for compensation of 100,000 shares of Common
Stock and options to purchase 2,000,000 shares of Common Stock at $0.12 per
share expiring in May 2001. In October 1998, Mr. Dror terminated the employment
agreement dated May 1998, and entered into a new three-year employment agreement
with the Company, which provides for a monthly salary of $1,000. The employment
agreement provides for a bonus to be determined by the Board of Directors. The
employment agreement may be terminated by the Company, upon death or disability
of Mr. Dror, or with cause, which includes, without limitation, gross
negligence, the failure to perform essential duties, and the willful engaging in
misconduct injurious to the Company.
In September 1994, Mr. Fields entered into an employment agreement with
NPI to serve as president and chief operating officer of NPI on an at-will
basis, which provided for an annual salary of $110,000, which was raised to
$124,000 in 1998. The employment agreement provides for a bonus of 10% of the
amount equal to NPI's operating income, less rent and interest expense, which
exceeds $500,000. The employment agreement grants Mr. Fields an option to
purchase NPI common stock equal to 5% of NPI's equity at an exercise price of 5%
of the total shareholder's equity, if NPI conducts an initial public offering of
its common stock during Mr. Field's employment. The employment agreement
provides for a disability insurance policy as well as a life insurance policy in
the name of Mr. Fields' spouse in the amount of approximately three times Mr.
Fields salary. The employment agreement provides that upon termination NPI has
the option to have Mr. Fields sign a one-year non-compete agreement in
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<PAGE>
exchange for one year's base salary.
In September 1998, Mr. Jordan Friedberg entered into a five-year
employment agreement with Modern Film Effects and Digital Research Corporation
collectively, which provides that Mr. Friedberg serve as chief executive officer
and president to the companies at an annual salary of $65,000 for the initial
year to be increased annually thereafter at a rate of 10% per annum. The
agreement provides for reimbursement for an automobile lease with lease payments
not to exceed $1,000 per month. The employment agreement may be terminated only
upon the permanent disability of Mr. Friedberg or with cause.
In April 1999, Mr. Stump entered into a three-year employment agreement
with the Company, which provides for a monthly salary of $8,500. The employment
agreement provides for a bonus to be determined by the Board of Directors. The
employment agreement may be terminated by the Company, upon death or disability
of Mr. Stump, or with cause, which includes, without limitation, gross
negligence, the failure to perform essential duties, and the willful engaging in
misconduct injurious to the Company.
In March 1999, Juan Carlos Martinez, president of UC, entered into a
two-year employment agreement with the Company, which provides for a monthly
salary of $7,500. The employment agreement provides for a bonus to be determined
by the Board of Directors. The employment agreement may be terminated by the
Company, upon death or disability of Mr. Martinez, or with cause, which
includes, without limitation, gross negligence, the failure to perform essential
duties, and the willful engaging in misconduct injurious to the Company.
In September 1998, David R. Miller entered into a six-year employment
agreement with Modern Film Effects, Inc. and Digital Research Corporation
collectively, which provides that Mr. Miller serve as a consultant to the
companies for the initial year at a monthly salary of $6,000 and subsequently to
serve as an employee for the remaining five years at a to be determined salary.
The employment agreement provides for reimbursement for an automobile lease with
lease payments not to exceed $1,200 per month. The employment agreement may be
terminated only upon the permanent disability of Mr. Miller or with cause.
The Company or its subsidiaries do not maintain life insurance on any of
its directors or employees. The directors serve without cash compensation, but
can be granted stock as discussed in "Certain Relationships and Transactions."
-25-
<PAGE>
STOCK OPTIONS AND WARRANTS
The following table provides information on the warrants and options
granted to the indicated officer and director during the fiscal year ended
December 31, 1998:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NAME SHARES UNDERLYING PERCENT OF TOTAL GRANTS EXERCISE EXPIRATION
OPTIONS GRANTED TO EMPLOYEES PRICE DATE
<S> <C> <C> <C> <C>
Daniel Dror, Sr.(1) 2,000,000(1) 99% $0.12 5/14/01
Marc Fields(1) -- -- -- --
</TABLE>
- --------------
(1) As of December 31, 1998, options to purchase 7,720,000 additional
shares of Common Stock were outstanding at prices between $0.02 and
$0.34 per share, which expire no later than December 2002.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF
NAME ACQUIRED VALUE UNDERLYING UNEXERCISED UNEXERCISED
ON REALIZED OPTIONS IN-THE-MONEY
EXERCISE OPTIONS(1)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Daniel Dror, Sr. -- -- 2,000,000 -- $260,000 $ -0-
Marc Fields -- -- -- -- -- --
</TABLE>
- ---------------
(1) Computed based on the differences between the fair market value on
December 31, 1998 and aggregate exercise prices.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1998, Mr. Dror was issued 100,000 shares of Common Stock
in exchange for services rendered. In May 1998, Mr. Dror was granted 100,000
shares of Common Stock, pursuant to an employment agreement. In May 1998, Mr.
Dror was issued an option to purchase 2,000,000 shares of Common Stock at an
exercise price of $0.12 per share, which expires in May 2001, pursuant to an
employment agreement. During fiscal year 1998, the Company advanced Mr. Dror
a total of $74,404, and in November 1998 Mr. Dror executed a promissory note
payable to the Company in the amount of $74,404 payable on demand at prime
interest rate. In September 1997, Elk International Corporation, Ltd., which
is controlled by Mr. Dror's brother, was issued an option to purchase
2,000,000 shares of Common Stock at a purchase price of $0.02 per share,
which was exercised in June 1998. In September 1997, Elk International
Corporation, Ltd., which is controlled by Mr. Dror's brother, was issued
5,000,000 shares of Common Stock at a purchase price of $0.03 per share. In
May 1998, Elk International Corporation, Ltd., which is controlled by Mr.
Dror's brother, was issued 3,500,000 shares of Common Stock for an aggregate
purchase price of $300,000. In December 1998, Daniel Dror II was employed by
the Company at a monthly salary of $750. In November 1998, Mr. Dror purchased
GCA, Inc., a Texas corporation from the Company for $100. GCA, Inc. was
purchased by the Company in December 1997 from a former director of the
Company for 6,000,000 shares of Common Stock. Prior to Mr. Dror's acquisition
of GCA, Inc., and as of November 1998, all assets of GCA, Inc. had been
transferred to TRE and GCA, Inc. was not in good standing with the State of
Texas. See "Item 1. Description of Business -- General" for further
discussion.
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<PAGE>
In September 1998, Mr. Friedberg was issued an option to purchase
400,000 shares of Common Stock at an exercise price of $0.20 per share, which
expires in September 2003. See "Item 1. Description of Business -- General"
for further discussion.
In September 1997, Mr. Hartis, a director of the Company at that
time, was issued an option to purchase 500,000 shares of Common Stock at an
exercise price of $0.02 per share, which expires in December 2002. In January
1998, Mr. Hartis was issued 100,000 shares of Common Stock in exchange for
management services rendered. Based upon the market value of the restricted
Common Stock ($.05 per share), $5,000 of compensation expense was recorded.
In May 1998, Mr. Hartis was issued 250,000 shares of Common Stock at an
aggregate purchase price of $25,000. As of November 9, 1998, the Company had
not received payment. See "Item 1. Description of Business -- General" for
further discussion.
In September 1997, Mr. Whitworth, a director of the Company at that
time, was issued an option to purchase 500,000 shares of Common Stock at an
exercise price of $0.02 per share, which expires in December 2002. In January
1998, Mr. Whitworth was issued 100,000 shares of Common Stock in exchange for
management services rendered. Based upon the market value of the restricted
Common Stock ($.05 per share), $5,000 of compensation expense was recorded.
In May 1998, Mr. Whitworth was issued 250,000 shares of Common Stock at an
aggregate purchase price of $25,000. As of November 9, 1998, the Company had
not received payment. See "Item 1. Description of Business -- General" for
further discussion.
In January 1998, Mr. Talan, a director of the Company at that time,
was issued 100,000 shares of Common Stock in exchange for services rendered.
In March 1999, Mr. Talan purchased 2,500,000 shares of Common Stock from the
Company at an aggregate purchase price of $250,000.
In January 1998, Mr. Dartmouth was issued 100,000 shares of Common
Stock in exchange for services rendered.
In May 1998, Ms. Laird-Ruthstrom was issued 50,000 shares of Common
Stock in exchange for services rendered. In January 1999, Ms. Laird-Ruthstrom
was issued an option to purchase 45,000 shares of Common Stock at an exercise
price of $0.02 per share for services rendered.
In January 1999, the Company issued Mr. Stump an option to purchase
100,000 shares of Common Stock at an exercise price of $0.02 per share and in
March 1999, the Company issued an option to purchase 100,000 shares of Common
Stock at an exercise price of $0.19 per share for services rendered.
In May 1998, the Company entered into a one-year renewable lease
agreement with a corporation affiliated with Mr. Dror, for the Company's
office in Kemah, Texas at a monthly rental rate of $750. The Company did not
renew the lease.
In May 1998, the Company entered into a one-year renewable lease
agreement with Elk International Corporation, Ltd., which is controlled by
Mr. Dror's brother, for Mr. Dror's home office in Houston, Texas at a monthly
rental rate of $800. The Company has renewed the lease.
In March 1999, the Company purchased Marald, Inc. in exchange for
3,500,000 shares of Common Stock, and a finders fee of $45,000 paid in part
to a party related to Mr. Dror. In addition, under the terms of the
acquisition agreement, the Company has agreed to provide chemicals at a
discount to Toro Spray-On Liners, Inc. an entity partially owned by the above
related party.
The Company obtains approval from its entire Board of Directors
prior to any acquisitions. If any transactions are executed or contemplated
with a related party or affiliate of the Company, such relationship is
disclosed prior to a vote of the Board of Directors. Prior to entering into
any real estate transaction with affiliated parties, the Company obtains
appraisals from MAI Appraisers for Board of Director consideration. The
Company believes that the terms of each transaction made with related parties
or affiliates are as fair as those obtainable from independent third parties.
As of April 1999, any advances or loans made by the Company to any related
parties or affiliates will be made at an interest rate no lower than the
current prime rate plus 2%.
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<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 200,000,000 shares of
Common Stock, of which 118,059,522 shares are issued and outstanding as of
March 31, 1999 and 7,720,000 shares are reserved for issuance pursuant to the
exercise of outstanding options.
The holders of shares of Common Stock are entitled to one vote per
share on each matter submitted to a vote of stockholders. In the event of
liquidation, holders of Common Stock are entitled to share ratably in the
distribution of assets remaining after payment of liabilities. Holders of
Common Stock have no cumulative voting rights, and, accordingly, the holders
of a majority of the outstanding shares have the ability to elect all of the
directors. Holders of Common Stock have no preemptive or other rights to
subscribe for shares. Holders of Common Stock are entitled to such dividends
as may be declared by the Board of Directors out of funds legally available
therefor.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of
Preferred Stock, $.001 par value per share of which none are presently
outstanding. The Preferred Stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion, redemption rights
and sinking fund provisions. The Company has no present plans for the
issuance of Preferred Stock. The issuance of Preferred Stock could adversely
affect the rights of the holders of Common Stock and, therefore, reduce the
value of the Common Stock.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock trades under the symbol "EDII" on the OTC
Electronic Bulletin Board. The market for the Common Stock on the OTC
Electronic Bulletin Board is limited, sporadic and highly volatile. The
following table sets forth the high and low bid prices per share of the
Common Stock for the last two fiscal years as reported by the OTC Electronic
Bulletin Board. These prices reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL 1997
First Quarter 1.3636 .5545
Second Quarter .7955 .0455
Third Quarter .1364 .0273
Fourth Quarter .1455 .0727
FISCAL 1998
First Quarter .2091 .0909
Second Quarter .6364 .1091
Third Quarter .4818 .20
Fourth Quarter .27 .16
FISCAL 1999
First Quarter .33 .18
Second Quarter .34 .19
</TABLE>
On August 10, 1999, the last bid price of the Common Stock as reported
by the OTC Electronic Bulletin Board was $0.145. The Company believes that as of
August 12, 1999, there were approximately 221 record owners of its Common Stock.
It is the present policy of the Company not to pay cash dividends
and to retain future earnings to support the Company's growth. Any payment of
cash dividends in the future will be dependent upon the amount of funds
legally available therefor, the Company's earnings, financial condition,
capital requirements and other factors that the Board of Directors may deem
relevant. The Company does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 2. 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. At the present time, it is too early to determine the outcome of
the case.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
Current management gained control of the Company in October 1997.
Management believes that all prior issuances of Common Stock aggregating
7,028,060 for a total purchase price of $178,456 were made in reliance on
Section 4(2) of the Act.
The following information sets forth certain information, as of May
13, 1999, for all securities the Company sold since the Company began current
operations in September 1996, without registration under the Act. There were
no underwriters in any of these transactions, nor were any sales commissions
paid thereon.
SECURITIES ISSUED FOR CASH
(1) In September 1997, the Company issued 500,000 shares of Common Stock to
a current director of the Company at a purchase price of $0.10 per
share. In September 1997 and May 1998, the Company issued 5,000,000
shares of Common Stock at a purchase price of $0.03 per share and
3,500,000 shares of Common Stock at an aggregate purchase price of
$300,000 ($0.086 per share) to the brother of the CEO of the Company.
(2) In December 1997, the Company issued 200,000 shares of Common Stock in
exchange for shares of another corporation valued at $40,000. In August
1998, the Company returned such shares to their previous owner for
$40,000 cash.
(3) In May 1998, the Company issued 1,500,000 shares of Common Stock to
directors and to a party associated with the Company at a purchase
price of $0.10 per share. As of December 31, 1998, the Company had not
received the purchase price for 500,000 of these shares.
The Company believes transactions in (1) through (3) were exempt from
registration pursuant to Section 4(2) of the Act as privately negotiated,
isolated, non-recurring transactions not involving any public solicitation. The
purchasers in each case represented their intention to acquire the securities
for investment only and not with a view to the distribution thereof. Appropriate
restrictive legends are affixed to the stock certificates issued in such
transactions. All recipients either received adequate information about the
Company or had access, through employment or other relationships, to such
information. In addition, the purchasers described above were "accredited
investors" (as that term is defined in Rule 501(a)(3) promulgated under the
Act).
(4) In October 1997, the Company issued 250,000 shares of Common Stock to
two accredited investors at a purchase price of $0.10 per share. In
February 1998, the Company issued 50,000 shares of Common Stock to an
accredited investor at a purchase price of $0.20 per share. In May
1998, the Company issued 100,000 shares of Common Stock to one
accredited investor at a purchase price of $0.25 per share. In June
1998, the Company issued 110,000 shares of Common Stock to one
accredited investor at a purchase price of $0.35 per share. In June
1998, the Company agreed to issue 4,500,000 shares of Common Stock to
one accredited investor at an aggregate purchase price of $1,000,000 of
which 2,000,000 shares had been paid for as of December 31, 1998, and
of which $350,000 was still to be paid to the Company. Subsequent to
year end, the subscription right was canceled and accordingly, the
amount was eliminated against the related equity balance. In June 1998,
the Company issued 500,000 shares of Common Stock to one accredited
investor at a purchase price of $0.40 per share. In June 1998, the
Company agreed to issue 1,000,000 shares of Common Stock to one
accredited investor at a purchase price of $0.15 per share. The Company
received the purchase price of $150,000 subsequent to year end.
The Company believes the transactions in (4) were exempt from
registration pursuant to Section 4(2) and Regulation D of the Act as privately
negotiated, isolated, non-recurring transactions not involving any public
solicitation. The purchasers in each case represented their intention to acquire
the securities for investment only and not with a view to the distribution
thereof. Appropriate restrictive legends are affixed to the stock certificates
issued in such transactions. All recipients either received adequate information
about the Company or had access to such information. In addition, the purchasers
described above were "accredited investors" (as that term is defined in Rule
501(a)(3) promulgated under the Act).
-30-
<PAGE>
(5) From January 1998 to February 1998, the Company issued 5,000,000 shares
of Common Stock to one accredited investor at an aggregate purchase
price of $500,000 ($0.10 per share). From February 1998 to April 1998,
the Company issued 1,400,000 shares of Common Stock to one accredited
investor at an aggregate purchase price of $200,000 ($0.143 per share).
From May 1998 to June 1998, the Company issued 1,500,000 shares of
Common Stock to one accredited investor at an aggregate purchase price
of $300,000 ($0.20 per share).
The Company believes the transactions in (5) were exempt from
registration pursuant to Rule 504 of Regulation D of the Act.
SECURITIES ISSUED FOR SERVICES RENDERED
(6) In July 1996, the Company issued 550,000 shares of Common Stock to
former directors for management advisory services rendered. The value
of these shares were deemed to be immaterial by prior management. In
October 1996, the Company issued 10,000 shares of Common Stock to a
former officer for management services rendered. The value of these
shares were deemed to be immaterial by prior management. In September
1996, the Company issued 10,000 shares of Common Stock to an employee
for receptionist services rendered.
(7) The value of these shares were deemed to be immaterial by prior
management. In December 1997, the Company issued 1,400,000 shares of
restricted common stock to a consulting firm for strategic planning
assistance rendered to the Company. Such shares were valued at the
market price of $.05 per share resulting in a $70,000 charge to general
and administrative expense in 1997. In May 1997, the Company issued
40,000 shares of Common Stock to an advertising consultant for services
rendered. The value of these shares were deemed to be immaterial by
prior management.
(8) In September 1997, the Company issued options to purchase 3,300,000
shares of Common Stock at an exercise price of $0.02 per share to
current and former directors of the Company and to a party related to
a director of the Company. In addition, 600,000 options to purchase
shares were issued in September 1997 to a former officer and director.
In October 1998, options to purchase 500,000 of these options were
repurchased by the Company for $20,000. The remaining options to
purchase 100,000 shares were transferred to an unrelated party who
exercised these options in August 1998. In June 1998, options to
purchase 2,000,000 shares of Common Stock were exercised by the
brother of the CEO of the Company.
(9) In October 1997, the Company issued 100,000 shares of Common Stock to a
consultant of the Company for management advisory services rendered.
Such shares were valued at the market value of $.05 per share.
Accordingly, a $5,000 compensation expense was recorded. In October
1997, the Company issued six options each to purchase 200,000 shares of
Common Stock to a party pursuant to a finders fee agreement in
connection with equity raising transactions at exercise prices of
$0.02, $0.04, $0.06, $0.08, $0.10, and $0.20 per share. In February
1998, the options to purchase 200,000 shares of Common Stock at $0.02
and $0.04 were exercised, and as of December 1998 all remaining options
were canceled.
(10) In January 1998, the Company issued 610,000 shares of Common Stock to
officers, directors, and employees for management advisory services
rendered. These shares were valued at the market value of $.05 per
share resulting in a $30,500 compensation expense.
(11) In January 1998, the Company issued 100,000 shares of Common Stock to a
former employee in exchange for the surrender of a previously issued
option to purchase 100,000 shares of Common Stock at an exercise price
of $0.02 per share. The issuance was recorded as $5,000 of compensation
expense ($.05 per share). In January 1998, the Company issued 100,000
shares of Common Stock to a former director as part of a severance
payment. This issuance was recorded as $5,000 compensation expense
($.05 per share).
(12) In May 1998, the Company issued 190,000 shares of Common Stock to key
employees of one of its subsidiaries, to an officer of the Company, and
to a director of the Company for management advisory services rendered.
The issuance of such shares was recorded at the market value ($.08 per
share) at the date of grant as $15,200 of compensation expense. In May
1998, the Company issued an option to purchase 2,000,000 shares of
Common Stock to the CEO of the Company at an exercise price of $0.12
per share.
-31-
<PAGE>
(13) In May 1998, the Company issued an option to purchase 4,000,000 of
Common Stock to a party in connection with an exempt offering at an
exercise price of $0.25 per share.
(14) In August 1998, the Company issued an option to purchase 20,000 shares
of Common Stock at an exercise price of $0.34 per share to an officer
of the Company as part of an employment agreement.
(15) In January 1999, the Company issued an option to purchase 160,000
shares of Common Stock at an exercise price of $0.02 per share for
services rendered, and in March 1999 the Company issued an option to
purchase 100,000 shares of Common Stock at an exercise price of $0.19
per share to an officer for services rendered.
(16) In June 1999, the Company issued 10,000 shares of Common Stock to the
child of a former director, as a gift.
The Company believes transactions in (6) through (16) were exempt from
registration pursuant to Section 4(2) of the Act as privately negotiated,
isolated, non-recurring transactions not involving any public solicitation.
Appropriate restrictive legends are affixed to the stock certificates issued in
such transactions. All recipients either received adequate information about the
Company or had access, through employment or other relationships, to such
information.
SECURITIES ISSUED IN ACQUISITIONS
See Item 1 "Description of Business" for detailed discussion of these
transactions and related values and values per share.
(17) In October 1996, the Company issued 2,527,000 of Common Stock, one-half
of which was issued to current directors of the Company, in exchange
for the outstanding shares of Pitt's & Spitt's, Inc. and Har-Whit,
Inc.
(18) In December 1997, the Company issued 22,000,000 shares of Common Stock
in exchange for the outstanding shares of Brenham Oil & Gas, Inc.,
Texas Real Estate Enterprises, Inc., and GCA, Inc. to the Daniel
Dror II 1976 Trust, Elk International Corporation, Ltd., and a former
director of the Company. In May 1998, the Company on behalf of one of
its subsidiaries issued 8,000,000 shares of Common Stock to Daniel
Dror & Company, Inc. in exchange for a piece of property. In June 1998
and in December 1998, the Company on behalf of one of its subsidiaries
issued a total of 2,100,000 shares of Common Stock to party associated
with the Company and to the Daniel Dror II 1976 Trust in exchange for
the outstanding shares of Midtowne Properties, Inc.
(19) Effective July 1, the Company entered into a purchase agreement to
acquire Acqueren Inc. which provided for the issuance of 6,750,000
shares of Common Stock to the two primary shareholders of Acqueren,
Inc, and provided for the remaining shareholders of Acqueren, Inc. to
receive approximately 25.02 shares of common stock for each share of
Acqueren, Inc. common stock exchanged for a total of 26,750,000 shares
of AIII Common Stock. As of December 31, 1998, the Company had
exchanged approximately 19,577,000 shares of Common Stock pursuant to
the purchase agreement with the remaining shares held by the Company
until the Acqueren shares are exchanged.
(20) In September 1998, the Company issued 6,300,000 shares of Common Stock,
and an option to purchase 400,000 shares of Common Stock at an exercise
price of $0.20 per share to a current director in exchange for the
outstanding shares of Modern Film Effects, Inc., Digital Research
Corporation, and Electronic Pictures California, Inc.
(21) In January 1999, the Company purchased all of the capital stock of
Marald, Inc., doing business as Unlimited Coatings, in exchange for
3,500,000 restricted shares of Common Stock of AIII valued at fair
market value of approximately $652,000 at $.19 per share plus a finders
fee of $45,000 paid in part to a party related to Mr. Dror.
(22) In March 1999, the Company committed to acquire a minority interest
(approximately 20%) in Signal Products, Inc. (Signal), a California
corporation, which owns the exclusive license to market handbags and
leather accessories bearing the "Guess" trademark. Signal develops,
manufactures and markets its products
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<PAGE>
throughout the United States. The investment in Signal was accomplished
through the issuance of 10,000,000 restricted shares of common stock of
AIII, valued at fair market value of approximately $2,000,000. The
shares are placed in escrow pending the completion of a business
valuation of Signal. The shares will be released from escrow upon
satisfactory determination of Signal's value; 5,000,000 shares to
Hardee Capital Partners and 5,000,000 shares to Elk International, a
related party, both of which had claims against the shares of Signal.
The Company believes transactions in (17) through (22) were exempt from
registration pursuant to Section 4(2) of the Act as privately negotiated,
isolated, non-recurring transactions not involving any public solicitation. The
recipients in each case represented their intention to acquire the securities
for investment only and not with a view to the distribution thereof. Appropriate
restrictive legends are affixed to the stock certificates issued in such
transactions. In addition, the recipients described above were "accredited
investors" (as that term is defined in Rule 501(a)(3) promulgated under the
Act).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Nevada General Corporation Law allows the
Company to indemnify any person who was or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of any corporation, partnership, joint venture, trust
or other enterprise. The Company may advance expenses in connection with
defending any such proceeding, provided the indemnitee undertakes to pay any
such amounts if it is later determined that such person was not entitled to be
indemnified by the Company. In addition, the Company's Certificate of
Incorporation and Bylaws provide for indemnification of all directors, officers,
and control persons.
Insofar as indemnification by the Company for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Company pursuant to provisions of the Certificate of Incorporation and Bylaws,
or otherwise, the Company has been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
PART F/S
The Company is incorporating by reference the Company's financial
statements for the year ending December 31, 1998 included in its annual
report filed for the fiscal year ending December 31, 1998 (SEC File No.
000-25223), and its financial statements for the quarter ending March 31,
1999 included in its quarterly report filed for the fiscal quarter ending
March 31, 1999 (SEC File No. 000-25223).
-33-
<PAGE>
PART III
ITEM 1. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
<S> <C>
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) Raymond C. Hartis Employment Agreement
10.4(1) D. Wayne Whitworth Employment Agreement
10.5(1) Marc Fields Employment Agreement
10.6(1) Jordan Friedberg Employment Agreement
10.7(2) Shabang! Merchant Service Agreement
10.8(3) American International Industries, Inc. Lease
10.9(2) Brenham Oil and Gas, Inc. Royalty Interest
10.10(2) Brenham Oil and Gas Interest Lease
10.11(2) Modern Film Effects, Inc. Lease
10.12(2) Northeastern Plastics, Inc. Lease
21.1(2) List of Subsidiaries
27(3) Financial Data Schedule
</TABLE>
- --------------------
(1) Filed previously on registration statement Form 10-SB SEC File
No. 000-25223.
(2) Filed previously on the Company's annual report for the fiscal
year ended December 31, 1998 on Form 10-KSB SEC File No.
000-25223.
(3) Filed herewith.
-34-
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Dated: August 13, 1999 By:/s/ Daniel Dror, Sr.
------------------------------------------
DANIEL DROR, SR., Chief Executive Officer
-35-
<PAGE>
LEASE AGREEMENT
TERMS AND DEFINITIONS
Date: April 30, 1999
Landlord: Evergreen Offices, Inc.
Landlord's Address: 601 Cien St., Suite 220
Kemah, TX 77565
Tenant: American International Industries, Inc.
Tenant's Address: 601 Cien St., Suite 235
Kemah, TX 77565
Premises
Approximate Square Feet: 1380
Storage Building: 0
Name of Building: Evergreen
Street Address/Suite: 601 Cien St., Suite 235
City, State, Zip: Kemah, TX 77565
Term: Five (5) years
Commencement Date: June 1, 1999
Security Deposit: $1,335.00
Use: Professional Office
Tenant's Required Amount of Liability Insurance
Death/Bodily Injury: $500,000
Property: $500,000
Rent (Monthly - Negotiated): $1,335.
"Rent" means based rent plus any other sums of money due Landlord by Tenant.
"Landlord" means Landlord and its agents, employees, invitees, licensees, or
visitors.
"Tenant" means Tenant and its agents, employees, invitees, licensees, or
visitors.
"Essential Services" means heating, ventilating, air conditioning, water, and
utility connections reasonably necessary for occupancy of the premises for
the use stated above.
"Common Areas" means all facilities and areas of the building that are
intended and designated by Landlord from time to time for the common,
general, and nonexclusive use of all tenants of
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the building. Landlord shall have the exclusive control over and right to
manage the common areas.
"Building Operating Hours" means 8:00 a.m. to 6:00 p.m. Monday through
Friday, except holidays.
LEASE CLAUSES AND COVENANTS
A. Tenant agrees to:
1. Lease the premises for the entire term beginning on the
commencement date and ending on the termination date.
2. Accept the premises in their present condition "as is," the
premises being currently suitable for Tenant's intended use.
3. Obey all laws, ordinances, orders, and rules and regulations
applicable to the use, condition, and occupancy of the premises, including
the rules and regulations of the building, and parking facility, if any,
adopted by Landlord.
4. Pay monthly, in advance, on the first day of the month, the base
rent to Landlord at Landlord's address.
5. Pay, as additional rent, all other sums due under this Lease.
6. Pay a late charge of 5 percent of any rent not received by Landlord
by the fifth day of the month in which it is due.
7. Pay for all utility services used by Tenant and not provided by
Landlord.
8. Allow Landlord, upon reasonable notice to Tenant, to enter the
premises to perform Landlord's obligations, inspect the premises, and show
the premises to prospective purchasers or tenants, such allowance not to be
unreasonably withheld by Tenant. Landlord may enter premises without tenant
notice for emergencies, and required "after hours" maintenance.
9. Repair, replace and maintain any part of the premises that Landlord
is not obligated to repair, replace, or maintain, normal wear excepted.
10. Repair any damage to the premises or the parking facility, if any,
caused by Tenant.
11. Submit in writing to Landlord any request for repairs, replacement,
and maintenance that are the obligations of the Landlord.
12. Maintain public liability insurance for the premises and the
conduct of the Tenant's business, naming Landlord as additional insured, in
the amounts stated in the basic base terms and definitions.
13. Maintain insurance on Tenant's personal property or provide a
waiver holding Landlord harmless on the loss or damage to such
property.
14. Deliver certificates of insurance to Landlord before the
commencement date and thereafter when requested.
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15. Indemnify, defend, and hold Landlord harmless from any
loss, attorney's fees, expenses, or claims arising out of use of the premises.
16. Vacate the premises and return all keys to the premises on
termination of this lease.
17. Arrange with Landlord in advance for any heating, air
conditioning, or electrical needs in excess of the services provided by
Landlord and pay for such additional services as billed by Landlord.
B. TENANT AGREES NOT TO:
1. Use the premises for any purpose other than stated in the
basic lease terms and definitions.
2. (a) Create a nuisance, (b) interfere with any other
tenant's normal business operations or Landlord's management of the building,
(c) permit any waste, or (d) use the premises in any way that is extra
hazardous, would increase insurance premiums, or would void insurance on the
building.
3. Change Landlord's lock system.
4. Alter the premises without Landlords written consent.
5. Allow a lien to be placed on the premises.
6. Assign this lease or sublease any portion of the premises
without the Landlord's written consent.
C. LANDLORD AGREES TO:
1. Lease to tenant the premises for the entire term beginning
on the commencement date and ending on the termination date.
2. Obey all laws, ordinances, orders, and rules and
regulations applicable to the use, condition, and occupancy of the building,
and the parking facility, if any.
3. Provide normal utility-service connections to the building.
4. Repair, replace, and maintain the (a) roof, (b) foundation,
(c) parking facility (if any) and common areas, (d) structural soundness of
the exterior walls, doors, corridors, and windows, and (e) other structures
or equipment serving the premises.
5. Insure the building and any parking facility against all
risks of direct physical loss in any amount equal to at least 90 percent of
the full replacement cost of the same as of the date of the loss and
liability; Tenant will have no claim to any proceeds of Landlord's insurance
policy.
6. Return the security deposit to the Tenant, less itemized
deductions, if any, within thirty days after the termination of this lease.
7. Provide the following services: (a) air conditioning and
heating to the premises reasonable for Tenant's use (exclusive of air
conditioning or heating for electronic data)
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<PAGE>
processing or other specialized equipment) during building operating hours
and at such other times at such additional cost as Landlord and Tenant may
agree on; (b) cold water for lavatory and drinking purposes; (c) electric
current for normal office machines and building's standard lighting
reasonable for Tenant's use; (d) lighting in common areas and fluorescent
lights in building's standard light fixtures on the premises; (e) and common
area cleaning at least once per week.
D. LANDLORD AGREES NOT TO:
1. Interfere with Tenant's possession of the premises as long as Tenant
is not in default.
2. Unreasonably withhold consent to a proposed assignment or sublease.
E. LANDLORD AND TENANT AGREE TO THE FOLLOWING:
1. ALTERATIONS. Any physical additions or improvements to the premises
made by Tenant will become the property of Landlord. Landlord may require
that Tenant, at termination of this lease and at Tenant's expense, remove any
physical addition and improvements, repair any alterations, and restore the
premises to the condition existing at the commencement date, normal wear
excepted.
2. ABATEMENT. Tenant's covenant to pay rent and Landlord's covenants
are independent of each other. Except as otherwise provided, Tenant shall
not be entitled to abate rent for any reason.
3. RELEASE OF CLAIMS/SUBROGATION. Landlord and Tenant release each
other from any claim, by subrogation or otherwise, for any damage to the
premises, the building, the parking facility, if any, or personal property
within the building, by reason of fire or the elements, regardless of cause,
including negligence of Landlord or Tenant. This release applies only to the
extent that is permitted by law, the damage is covered by insurance proceeds,
and the release does not adversely affect any insurance coverage.
4. NOTICE TO INSURANCE COMPANIES. Landlord and Tenant will notify the
issuing insurance companies of the release set forth in the preceding
paragraph and will have the insurance policies endorsed, if necessary, to
prevent invalidation of insurance coverage.
5. CASUALTY/TOTAL OR PARTIAL DESTRUCTION. (a) If the premises are
damaged by casualty and can be restored within ninety days, Landlord
will, at its expense, restore the premises to substantially the same
condition as they existed before the casualty. If Landlord fails to
complete restoration within ninety days from the date of written
notification be Tenant to Landlord of the casualty, Tenant may
terminate this lease by written notice to Landlord. (b) If the
premises cannot be restored within ninety days, Landlord has an
option to restore or not to restore the premises. Landlord chooses
not to restore, this lease will terminate. If the Landlord chooses
to restore, it will notify Tenant of the estimated time to restore
and give the Tenant an option to terminate this lease by notifying
Landlord within ten days. If tenant does not terminate this lease,
it shall continue and Landlord shall restore the premises as
provided in (a) above. (c) To the extent the premises are
untenantable after the casualty and the damage was not caused by
Tenant, the rent will be adjusted as may be fair and reasonable.
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<PAGE>
6. CONDEMNATION/SUBSTANTIAL OR PARTIAL TAKING. (a) If the premises
cannot be used for the purposes contemplated by this lease because of
condemnation or purchase in lieu of condemnation, this lease will terminate.
(b) If there is a condemnation or purchase in lieu of condemnation and this
lease is not terminated, Landlord will, at Landlord's expense restore the
premises, and the rent payable during the unexpired portion of the term will
be adjusted as may be fair and reasonable. (c) Tenant will have no claim to
the condemnation award or proceeds in lieu of condemnation.
7. UNIFORM COMMERCIAL CODE. This lease is a security agreement under
the Uniform Commercial Code. Landlord may file a copy of this lease as a
financing statement.
8. DEFAULT BY LANDLORD/EVENTS. Defaults by Landlord are (a) failing to
comply with any provision of this lease within thirty days after written
notice or (b) failing to provide essential services to Tenant within ten days
after written notice.
9. DEFAULT BY LANDLORD/TENANT'S REMEDIES. Tenant's remedies for
Landlord's default are to (a) sue for damages, and (b) if Landlord does not
provide an essential service for thirty days after default, terminate this
lease.
10. DEFAULT BY TENANT/EVENTS. Defaults be Tenant are (a) failing to
pay timely rent, (b) abandoning or vacating a substantial part of the
premises, or (c) failing to comply within ten days after written notice with
any provision of this lease other than the defaults set forth in (a) and (b)
above.
11. DEFAULT BY TENANT/LANDLORD'S REMEDIES. Landlord's remedies for
Tenant's default are to (a) enter and take possession of the premises, after
which Landlord may relet the premises on behalf of Tenant and receive the
rent directly be reason of the reletting, and Tenant agrees to reimburse
Landlord for any expenditures made in order to relet; (b) enter the premises
and perform Tenant's obligations; or (c) terminate this lease by written
notice and such or damages. Landlord may enter and take possession of the
premises by self-help, by picking or changing locks if necessary, and may
lock out Tenant or any other person who may be occupying the premises, until
the default is cured, without being liable for damages.
12. DEFAULT/WAVER/MITIGATION. It is not a waiver of default if the
non-defaulting party fails to declare immediately a default or delays in
taking any action. Pursuit of any remedies set forth in this lease does not
preclude pursuit of other remedies in this lease or provided by law. Landlord
and Tenant have a duty to mitigate damages. Landlord's responsibility to
mitigate Tenant damages for default or early termination is limited to the
advertising of office space for lease on a sign located on the Landlord's
property only.
13. SECURITY DEPOSIT. If Tenant defaults, Landlord may use the security
deposit to pay arrears of rent, to repair any damage or injury, or to pay any
expense or liability incurred by Landlord as a result of the default.
14. HOLDOVER. If Tenant does not vacate the premises following
termination of this lease, Tenant shall be a Tenant at will and shall vacate
the premises on receipt of notice from Landlord. No holding over by Tenant,
whether with or without the consent of Landlord will extend the term.
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<PAGE>
15. BUILD OUT REIMBURSEMENT. Landlord has agreed to provide the cost of
custom build out, as agreed by the parties, in consideration of Tenant's
execution of a five (5) year lease. As an express condition of this build out
agreement, Tenant agrees that in the event of early termination of this lease
by Tenant for any reason, Tenant shall reimburse Landlord in full for the
entire cost of the build out. This reimbursement shall be in addition to any
and all other claims or remedies that the Landlord may have against Tenant
for said early termination.
16. ALTERNATIVE DISPUTE RESOLUTION. Landlord and Tenant shall submit in
good faith to mediation before filing a suit for damages.
17. ATTORNEY'S FEES. If either party retains an attorney to enforce
this lease, the prevailing party is entitled to recover reasonable attorney's
fee.
18. VENUE. Venue is in the county in which the premises are located.
19. ENTIRE AGREEMENT. This lease, together with the attached exhibits
and riders, is the entire agreement of the parties, and there are no oral
representations, warranties, agreements, or promises pertaining to this lease
or to the expressly mentioned exhibits and riders not incorporated in writing
in this lease.
20. AMENDMENT OF LEASE. This lease may be amended only by an instrument
in writing signed by Landlord and Tenant.
21. LIMITATION OF WARRANTIES. There are no implied warranties of
merchantability, of fitness for a particular purpose, or of any other kind
arising out of this lease, and there are no warranties that extend beyond
those expressly stated in this lease.
22. NOTICES. Any notice required by this lease shall be deemed to be
delivered (whether or not actually received) when deposited with the United
States Postal Service, postage prepaid, certified mail, return receipt
requested, and addressed to Landlord or Tenant at their addresses.
23. ABANDONED PROPERTY. Landlord may retain, destroy, or dispose of any
property left on the premises at the end of the term.
AMERICAN INTERNATIONAL INDUSTRIES, INC. THE EVERGREEN OFFICES, INC.
Rebekah S. Laird-Ruthstrom
- --------------------------------------- ---------------------------
By: Rebekah S. Laird-Ruthstrom
Secretary/Treasurer
Date 4/30/99 Date 4/30/99
---------------------------------- ---------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 2,389 2,150
<SECURITIES> 2,055 535
<RECEIVABLES> 1,298 1,820
<ALLOWANCES> 0 179
<INVENTORY> 1,089 1,055
<CURRENT-ASSETS> 7,321 5,639
<PP&E> 5,015 5,060
<DEPRECIATION> 0 1,845
<TOTAL-ASSETS> 19,737 17,479
<CURRENT-LIABILITIES> 3,864 3,733
<BONDS> 0 0
0 0
0 0
<COMMON> 125 121
<OTHER-SE> 13,052 10,928
<TOTAL-LIABILITY-AND-EQUITY> 19,737 17,479
<SALES> 4,214 10,213
<TOTAL-REVENUES> 4,214 10,213
<CGS> 2,934 8,121
<TOTAL-COSTS> 2,934 8,121
<OTHER-EXPENSES> 1,192 3,174
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 87 104
<INCOME-PRETAX> 41 (1,005)
<INCOME-TAX> 0 (299)
<INCOME-CONTINUING> 41 (706)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 41 (706)
<EPS-BASIC> .000 (.01)
<EPS-DILUTED> .00 (.01)
</TABLE>
