<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
AMERICAN INTERNATIONAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-25223
NEVADA 88-0326480
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
601 HANSON ROAD 77565-2701
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(Address of Principal Executive Office) (Zip Code)
281-334-4764
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of May 13, 1999 registrant had 118,059,522 shares of Common Stock
outstanding.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INTERNATIONAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS UNAUDITED Audited
March 31, and December 31, 1999 1998
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<S> <C> <C>
ASSETS
CURRENT
Cash $ 2,389,014 $ 2,149,916
Trading securities 834,082 418,770
Marketable securities available-for-sale 1,220,625 115,884
Accounts receivable, net of allowance
for doubtful accounts. 1,298,449 1,641,469
Accounts receivable, related party 105,249
Notes receivable 190,390 116,190
Inventories, net of reserve. 1,089,133 1,055,091
Other 194,141 141,996
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Total current assets 7,321,083 5,639,316
REAL ESTATE HELD FOR SALE 4,910,140 4,910,140
PROPERTY AND EQUIPMENT, net of accumulated
depreciation. 5,015,297 5,060,372
NATURAL GAS AND MINERALS INTEREST, net of
amortization. 240,000 240,000
GOODWILL, net of amortization. 1,748,527 1,085,616
NON-COMPETE AGREEMENTS, net of amortization. 385,000 417,500
OTHER 117,114 125,793
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$19,737,161 $17,478,737
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS UNAUDITED Audited
March 31, and December 31, 1999 1998
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,262,835 $ 1,451,717
Accrued expenses 450,982 481,227
Margin loan from a financial institution 367,685 195,645
Accrued property taxes 469,463 444,119
Notes payable, current portion 363,801 116,144
Notes payable to related parties, current portion 326,997 459,972
Capital lease obligations, current portion 622,082 584,552
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Total current liabilities 3,863,845 3,733,376
NOTES PAYABLE, less current portion 1,586,237 1,599,909
NOTES PAYABLE TO RELATED PARTIES, less current portion. 389,182 320,324
CAPITAL LEASE OBLIGATIONS, less current portion. 597,350 776,388
OTHER 122,740 -
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TOTAL LIABILITIES 6,559,354 6,429,997
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STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value;
10,000,000 shares authorized, none issue - -
Common stock, $.001 par value; 200,000,000 shares authorized 124,916 121,116
Additional paid-in capital 16,402,999 15,726,799
Deficit (4,151,685) (4,192,960)
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12,376,230 11,654,955
Less: Common stock subscriptions receivable (130,000) (550,000)
Treasury stock, at cost - 238,000 shares in 1998 (37,251) (37,251)
Accumulated other comprehensive gain (loss) 968,828 (18,964)
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Total stockholders' equity 13,177,807 11,048,740
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$19,737,161 $17,478,737
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED Audited
For the three months ended March 31, 1999 1998
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<S> <C> <C>
Net Sales $ 4,214,020 $ 517,756
Cost of sales 2,934,465 363,086
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Gross Profit 1,279,555 154,670
Operating Expenses 1,191,505 332,281
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Operating Income (Loss) 88,050 (177,611)
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Other Income (Expense):
Interest income 16,785 15
Investment income (42,493) -
Interest expense (87,273) (11,422)
Other income 66,206 13,091
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Total other income (expense), net (46,775) 1,684
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Net Income (Loss) $ 41,275 $ (175,927)
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Income (loss) per share - basic and diluted $ 0.00 $ (0.01)
Weighted average shares outstanding 94,813,708 15,760,344
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Consolidated Statements of Comprehensive
Income (Loss)
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Net Income $ 41,275 $ (175,927)
Other Comprehensive Items
Unrealized gain on shares available for sale 987,792 -
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Comprehensive Income (Loss) $ 1,029,067 $ (175,927)
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, Increase (Decrease) in Cash 1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 41,275 $ (175,927)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 249,747 68,358
Bad debt reserve (73,445)
Inventory reserve (8,468) -
Realized gain on sale of securities (48,905) -
Increase in market value of equity securities 91,398 -
Changes in assets and liabilities, net of acquired assets and liabilities:
Accounts receivable 396,639 (4,951)
Inventories 10,883 (19,285)
Other current assets (50,084) -
Purchase of trading securities, net (482,953) -
Other assets 48,768 -
Accounts payable and accruals (243,299) 81,662
Deferred revenue 122,766 -
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Net cash provided by (used) in operating activities 54,322 (50,143)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale investment securities (116,949) (6,983)
Capital expenditures (99,174) (1,023)
Purchase of real estate properties - -
Notes receivable (5,500) (36,102)
Proceeds from disposition of assets - -
Cash received in acquisitions - -
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Net cash provided by (used in) investing activities (221,623) (44,108)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscriptions 420,000
Proceeds from issuance of stock 6,000 -
Proceeds from notes payable 607,900 94,000
Repayments of notes receivable 31,000
Repayments of notes payable (515,148) (44,878)
Principal payments on capital lease obligations (143,308) (1,626)
Proceeds from common stock sales - 122,000
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Net cash provided by financing activities 406,444 169,496
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the three months ended March 31, Increase (Decrease) in Cash 1999 1998
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<S> <C> <C>
Net increase in cash 239,143 75,245
Cash at beginning of period 2,149,871 62,991
Cash at end of period $ 2,389,014 $ 138,236
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 87,273 $ 11,422
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NON-CASH TRANSACTIONS:
Acquisition of land for common stock $ - $ -
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Acquisition of property and equipment for note payable $ - $ -
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Acquisition of mineral interest for common stock $ - $ -
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Exchange of common stock for securities $ - $ -
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Assumption of property taxes on purchase of land $ - $ -
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Purchase of securities on margin $ 2,233,425 $ -
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Issuance of note payable in acquisition $ - $ -
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Subscriptions of common stock $ - $ -
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Purchase of subsidiary assets and liabilities through the issuance of common
stock and options:
Accounts receivable $ 87,215 $ -
Inventory 36,496 -
Other current assets - -
Property and equipment 43,000 -
Other assets 1,885 -
Non-compete agreements - -
Goodwill 674,764 -
Accounts payable 76,498 -
Accrued expenses - -
Notes payable 30,500
Capital lease obligations -
Notes payable to related parties 30,000
Other liabilities 220
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1
PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of
American International Industries, Inc. and its wholly owned subsidiaries
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation. The consolidated balance
sheet as of December 31, 1998 has been audited. The consolidated balance
sheet as of March 31, 1999, the consolidated statements of operations for the
three months ended March 31, 1999 and March 31, 1998, and the consolidated
statements of cash flows for the three months ended March 31, 1999 and March
31, 1998, have been prepared by the Company, without audit. In the opinion of
management, all adjustments, which consists of normal recurring adjustments,
necessary to present fairly the financial condition, results of operations
and cash flows have been reflected in the accompanying financial statements.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted. These financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1998. The results of
operations for the three-month period ended March 31, 1999 are not
necessarily indicative of the operating results that may be expected for the
full year ending December 31, 1999.
NOTE 2
ACQUISITION
Effective January 1, 1999, the Company acquired 100% of the shares of Marald,
Inc., dba Unlimited Coatings, ("Marald") in exchange for 3,500,000 shares of
common stock of American International Industries, Inc. valued at fair market
value of $652,000. In addition, a finders fee of $45,000 was payable, in part
to a party related to the CEO. The acquisition was treated as a purchase. The
closing of that transaction occurred in March, 1999 although the agreement of
the parties was effective as of January 1, 1999. Accordingly, the financial
position and results from operations of Marald for the three month period
ended March 31, 1999 are included in the Company's financial statements from
the effective date of the acquisition.
NOTE 3
INVESTMENT IN SIGNAL PRODUCTS, INC.
In March 1999, the Company committed to acquire a minority interest in Signal
Products, Inc. ("Signal"), a California corporation, which owns the exclusive
license to market handbags and leather accessories bearing the "Guess"
trademark.. The shares related to that transaction were placed in escrow
pending a business evaluation of Signal. Release of the shares from escrow
will be made upon satisfactory determination of Signal's value. Such
evaluation has not been completed at this time.
NOTE 4
SALES OF TEXAS REAL ESTATE ENTERPRISES, INC. ("TREE")
In November, 1998, the Company deposited $100,000 as earnest money on a
contract with a third party for the purchase of an office building in
downtown Houston, Texas. In February, 1999, the Company sold its rights under
the contract to unrelated third parties for $600,000, realizing a gross
profit on the sale of $500,000.
NOTE 5
UNREALIZED GAIN ON AVAILABLE-FOR-SALE EQUITY SECURITIES
During the three months ended March 31, 1999, the increase in the value of
investments in securities resulted in unrealized gains being reflected as
"Accumulated other comprehensive gains," an increase in stockholders equity,
amounting to $968,828 at March 31, 1999. There were no tax effects on this
gain due to the availability of net operating loss carryforwards. The
unrealized gain during the three months ended March 31, 1999 of $987,792
results in comprehensive income for the quarter of $1,029,067.
<PAGE>
NOTE 6
SEGMENT INFORMATION
Consolidated net sales and net operating income (loss) for the three months
ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three months ended:
March 31
<S> <C> <C>
Net sales: 1999 1998
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Industrial/Commercial 2,456,703 517,756
Media/Entertainment 1,157,317 -
Real Estate 600,000 -
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Consolidated net sales 4,214,020 517,756
Income (loss) from operations:
Industrial/Commercial 72,407 (47,999)
Media/Entertainment (218,415) -
Real Estate 485,101 (6,581)
Oil & Gas (5,014) (19,283)
Corporate (246,029) (103,748)
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Consolidated operating income (loss) 88,050 (177,611)
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</TABLE>
SUBSEQUENT EVENTS
In April, 1999, the Company acquired 100% of the outstanding shares of Tough
Truck and Accessories, Inc. dba Armor Linings ("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. Customers include many of the Houston area auto and truck
dealerships. Armor has established commercial applications of the coatings,
which are applied for corrosion resistance and noise suppression in diverse
uses. A manufacturing company has Armor apply the lining to the inside of
housings for large turbine engines. Other 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 Marald, which was acquired
by the Company in January 1999. 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's investment in securities which had been
classified as securities available for sale, were sold 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained herein and other information contained in this
report may be based, in part, on management's estimates, projections, plans and
judgments. As such, these are forward looking statements and involve a number of
risks and uncertainties. A number of factors, which could cause actual results
to differ materially include: general economic conditions, competitive market
influences, technology changes, and other influences beyond the control of
management.
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 Northeastern
Plastics, Inc. ("NPI"), Modern Film Effects, Inc. dba Cinema Research Company
("CRC"), Marald, 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 Marald 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. TREE 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 Oil & Gas, Inc. ("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
TREE 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. Marald incurred $81,815 in
operating expenses during the three months ended March 31, 1999. TREE
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
<PAGE>
professional fees and $25,000 amortization of goodwill.
Other income (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 (expense) 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.
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, TREE 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. Unrealized gains,
amounting to $968,828, on available-for-sale investments in equity securities
are included as a component of stockholders equity. Such unrealized
investment gains are included as a component of comprehensive income, which
totals $1,029,067 for the three months ended March 31, 1999. 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 Marald.
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
<PAGE>
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.
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.
Management believes CRC has achieved significant economies and savings by
relocating the operations of CRC's digital operations into the building
occupied by the optical operations. These changes reduced rent expenditures
and eliminated some duplicate functions such as administrative support,
equipment costs, and supplies. Management believes that better co-ordination
of projects involving both optical and digital work has also resulted. CRC
management identified the need to invest in improvements to its building
related to the relocation as well as in earthquake related work. Expenditures
for upgrading equipment may be made to maintain the ability to provide
quality services.
The Company has an option to acquire its building and is currently
negotiating to obtain a $2 million financing through the city of Los Angeles,
such financing to have favorable interest rates and to be used to acquire and
renovate the building, perform necessary earthquake related improvements,
upgrade computer systems, and other production equipment. There is no
assurance that such financing will be granted, and if such financing is not
available, CRC will be required to seek alternative financing. At the present
time, CRC has no commitments for such financing, and there is no assurance
that it will be able to arrange any other financing at favorable 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 rate,
which matures in May, 2000. That borrowing was used to retire bank and other
indebtedness which existed prior to the acquisition by AIII. AIII has
committed to funding the operations of CRC until December 31, 1999.
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.
NPI has an outstanding note payable to a former stockholder of
Acqueren of $293,381 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
Har-Whit sales for the three months ended March 31, 1999 amounted to
$438,447, a decrease of 15.3 %
<PAGE>
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. Little marketing and
advertising has been done to promote sales of barbecue pits as "word of
mouth" advertising has been the principal marketing approach. Management
believes an opportunity exists to create significantly greater demand through
expanded marketing and promotion, although at this time Har-Whit has not
developed a formal marketing plan.
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.
LIQUIDITY AND CAPITAL RESOURCES - HAR-WHIT
Har-Whit has arranged a $150,000 line of credit with a financial
institution secured by its accounts receivable and parent guarantee. The
interest rate for the line of credit is at prime and the note matures in May,
2000.
RESULTS OF OPERATIONS - MARALD
During the three-month period ended March 31, 1999, Marald 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.
Marald 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 - MARALD
Marald 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.
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 will establish a formal Year 2000 task force to develop and implement
a Year 2000 readiness program.
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.
<PAGE>
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.
<PAGE>
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1 and 3-5
are omitted.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of May 13,
1999, for all securities the Company sold since December 31, 1998, without
registration under the Act, excluding any information "previously reported" as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. There were no
underwriters in any of these transactions, nor were any sales commissions paid
thereon.
In January 1999, the Company issued options to purchase 15,000 shares of
Company common stock at an exercise price of $0.02 per share to an employee of
the Company for services rendered. In March 1999, the Company sold 2,500,000
shares of Company common stock to a director of the Company for $250,000. The
Company believes these transactions were exempt from registration pursuant to
Section 4(2) of the Act.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
<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(2) 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
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 on Form 10-KSB SEC File
No. 000-25223.
(3) Filed herewith
(b) There have been no reports filed on Form 8-K.
<PAGE>
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the undersigned, thereunto duly authorized.
American International Industries, Inc.
Date: May 17, 1999 /s/ Daniel Dror
------------------------------------
Daniel Dror, Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,389,014
<SECURITIES> 2,054,707
<RECEIVABLES> 1,298,449
<ALLOWANCES> 0
<INVENTORY> 1,089,133
<CURRENT-ASSETS> 7,321,083
<PP&E> 5,015,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,737,161
<CURRENT-LIABILITIES> 3,863,845
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,177,807
<TOTAL-LIABILITY-AND-EQUITY> 19,737,161
<SALES> 4,214,020
<TOTAL-REVENUES> 4,214,020
<CGS> 2,934,465
<TOTAL-COSTS> 1,191,505
<OTHER-EXPENSES> (46,775)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,275
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,275
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
