ITEM 1. DESCRIPTION OF BUSINESS
Some of the statements contained in this Form 10-K of American International Industries, Inc. (hereinafter “American”, the "Company" or the "Registrant") for its year ended December 31, 2013 discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information. 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 strategies for each subsidiary;
· the ability of the Company to raise sufficient capital to meet operating requirements of our subsidiaries;
· the ability of the Company to hire and retain quality management for our subsidiaries;
· the ability of the Company to compete with other established companies that operate in the same markets and segments;
· the effect of changing economic conditions impacting operations of our subsidiaries;
· the ability of the Company to successfully manage its subsidiaries and from time to time sell certain assets and subsidiaries to maximize value; and
· the ability of the Company to meet the other risks as may be described in future filings with the SEC.
American International Industries, Inc. - General
American International Industries, Inc., organized under the laws of the State of Nevada in September 1994, is a diversified corporation with interests in industrial companies, oil and gas interests, oilfield supply and service companies, and interests in undeveloped real estate in the Houston, TX area. The Company’s business strategy is to acquire controlling equity interests in undervalued companies and take an active role in its new subsidiaries to improve their growth, by providing its subsidiaries with access to capital, leveraging synergies and providing its subsidiaries with the Company's management expertise. The Company is sometimes referred to as "we", "us", "our", and other such phrases as provided in Regulation F-D (Fair Disclosure).
American International Industries, Inc. is a holding company and has three reporting segments and corporate overhead:
Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets.
American International Holdings Corp. (“AMIH”) formerly Delta Seaboard International ("Delta") - a 93.2% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry. Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation was a wholly-owned subsidiary of AMIH. On April 3, 2012, AMIH sold the operating assets and liabilities of DSWSI.
Brenham Oil & Gas ("BOG") - a 53.3% owned subsidiary that currently owns oil and gas properties. Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.
American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.
We intend to continue our efforts to grow through the acquisition of additional and complementary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complementary businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples and which present opportunity for growth and profitability. These efforts will include the application of improved access to financing and management expertise afforded by synergistic relationships between the Company and its subsidiaries. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with our expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity. Periodically as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to the holding company and our shareholders and to enable the Company to acquire larger companies.
The Company’s real estate investment policy historically has been to acquire real estate for resale based upon our view of market conditions. Such properties are listed on the balance sheet as real estate acquired for resale. Real estate is not a segment of the Company's business.
We expect 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 we will be able to identify, acquire or manage profitably of 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 our operating results, diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities. Some or all of which could have a material adverse effect on our business, financial condition and results of operations. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. It is our current intention to finance future acquisitions by using shares of our common stock and other forms of financing as the consideration to be paid. In the event that the common stock does not have and 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, we may be required to seek other forms of financing in order to proceed with our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional equity or debt financing at terms acceptable to the Company.
Corporate overhead includes our investment activities for financing current operations and expansion of our current holdings, as well as evaluating the feasibility of acquiring additional businesses.
The Company's executive offices are located at 601 Cien Street, Suite 235, Kemah, Texas 77565 and its telephone number is (281) 334-9479. As of December 31, 2013, the Company had 4 employees at the executive offices.
Recent Transactions
On October 1, 2013, American entered into a stock purchase agreement with Scott Wolinsky, a former director of American, whereby American purchased Mr. Wolinsky’s 89,540 shares of American’s common stock for cash of $130,000 and a non-interest bearing note payable of $200,000, due on September 30, 2014, which was secured by 63,540 shares which were not delivered as of December 31, 2013. In the event that American is unwilling or not able to make the $200,000 payment when the note becomes due, at American’s option, it may instruct Wolinsky to sell the shares in the open market and apply the proceeds from such sales to any balance owed. In the event that Wolinsky sells the shares for more than $200,000, Wolinsky shall return any portion of the unsold shares back to American and any proceeds over $200,000.
Northeastern Plastics, Inc.
Northeastern Plastics, Inc. (NPI), a Texas corporation, is a wholly-owned subsidiary of the Company. NPI is a supplier of products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets. NPI is located at 14221 Eastex Freeway, Houston, TX 77032.
Products and Services
NPI's diversified products are sold in the automotive and consumer retail and after-market channels. NPI currently markets its diversified product assortment under the Good Choice® and MOTOR TREND® brand names.
The NPI MOTOR TREND® branded products include a variety of booster cables, portable and rechargeable hand lamps, lighting products, cord sets, and miscellaneous battery and other consumer automotive accessories. The NPI MOTOR TREND® program is supported through a national advertising campaign in MOTOR TREND® magazine and additional brand advertising through MOTOR TREND® Radio and MOTOR TREND® TV.
The NPI Good Choice® branded product assortment not only matches in depth but exceeds the NPI MOTOR TREND® branded product assortment. In addition, the vast majority of the Good Choice® product line has been tested at the Good Housekeeping Institute and prominently carries the Good Housekeeping "Seal" on many of its products. The NPI Good Choice® product assortment includes avariety of portable lighting products, cord sets, residential household light bulbs, night lights, multiple outlet devices and other consumer products.
The NPI Good Choice® program is supported through a national advertising campaign in the newsstand issues of Good Housekeeping magazine and plans are being negotiated for additional brand advertising. The 2013 expected pass through readership rate for the upcoming Good Choice® 2013 ads are expected to exceed 21,000,000 potential viewings.
NPI products are available at stores such as Family Dollar, Dollar Tree, Ocean State Jobbers, Auto Zone, Bi-Mart, and Straus Auto, among others.
Virtually all of NPI's products are manufactured overseas. NPI's products are manufactured to meet or exceed NPI, UL, ETL, and CSA specifications and designs. NPI has no long-term agreements with any manufacturers for its products, but relies on its management's business contacts with manufacturers in renewing its short-term agreements. There is no assurance that NPI will be able to continue to renew its present agreements with manufacturers on terms economically favorable to NPI, if at all. Any inability or delay in NPI's renewal of its agreements at economically favorable terms could have a material adverse effect on NPI unless alternative supplies are available. NPI's management believes that if they are unable to utilize any of their present suppliers, it would be able to secure alternative manufacturers / suppliers at comparable terms.
Sales and Marketing
NPI has working vendor agreements with its major customers. NPI sells its products through the use of its in-house personnel and independent sales agents covered under sales and marketing agreements. NPI contracts with agents, who are responsible for contacting potential customers 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 on a commission basis only, calculated on the net sales price of products invoiced to customers. No commissions are paid until NPI receives payment from customers.
NPI also sells a substantial percentage of its products under a direct import program that offers NPI customers the additional services of arranging for overseas manufacturing and delivery to overseas freight forwarders and, for additional cost, on-site factory product inspections 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 can also arrange for the complete turn-key deliveries of its products to its customer’s place of business. Currently, NPI estimates approximately slightly more than 36% of its sales are made through the use of its direct import program and the remainder from warehouse sales.
NPI markets its products through such major chains as Family Dollar, Dollar Tree, Ocean State Jobbers, Auto Zone, Bi-Mart, and Straus Auto, among others. During our fiscal year ended December 31, 2013, NPI's large accounts accounted for 30% of NPI's revenues. The loss of any of these major customers could have a material adverse effect on NPI operating results. NPI's strategic plan for 2014 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Competition
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers many of which have far greater financial resources than NPI and therefore NPI's ability to increase market share may be limited. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers.
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. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac and various other producers.
Price is the primarily 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 substitutable with those of competitors. However, NPI believes that opportunities exist to differentiate all of its products on the basis of brand name, quality, reliability and customer service.
Intellectual Property
NPI has been issued the following trademark: The Bitty Booster Cable™, which was renewed in August 2008 and extended through August 2018.
Employees
As of December 31, 2013, NPI employed 10 persons, including its executive officer, as well as customer service and warehouse employees.
Facilities
NPI operates from a Company-owned 38,500 square feet of warehouse and office facility located in Houston, TX. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale.
During 2014, NPI sold the 38,500 square feet of warehouse facility for $1,325,000 cash and leased it back from the buyer at a monthly rent of $10,125 for 10 years with no bargain purchase option at the end of the lease term.
Brenham Oil & Gas, Corp.
We were incorporated as Brenham Oil & Gas Inc. on November 7, 1997 under the laws of the State of Texas as a wholly-owned subsidiary of American International Industries, Inc. (“American” or “AMIN”). Brenham Oil and Gas Corp (“Brenham”), a Nevada corporation, was incorporated on April 21, 2010 and Brenham Oil & Gas Inc. became a wholly-owned subsidiary of Brenham following the unanimous vote by American’s board of directors on April 8, 2010 approving the distribution of 10,297,019 shares of Brenham Common Stock, on a pro rata 1 for 1 basis, to the shareholders of American (the “Spin-Off Distribution”). Following the Spin-Off Distribution, American retained approximately 54% of our Common Stock. As of this filing, American owns 51.0% of our Common Stock.
Our principal executive offices are located at 601 Cien Street, Suite 235, Kemah, Texas 77565-3077, which are the executive offices of American, and are provided to us on a rent-free basis. The telephone number of our principal executive offices is (281) 334-9479. Our web site is brenhamoil.com.
Our Business Plan
Brenham’s primary objective and current focus will be accessing capital to fund its drilling programs in Texas.
Brenham is an independent exploration and production company focused on acquiring a portfolio of assets in the United States and international locations. Brenham’s approach is to create a foundation of development and production assets in the United States, coupled with high potential international exploration opportunities.
Our focus for United States production is Texas, including both conventional and unconventional resources. The Company intends to identify existing oil fields where technology can be applied to increase the percentage of oil that can be recovered from such fields. Secondly, the Company seeks to identify acreage in unconventional resources capable of generating oil and condensate production, such as the Eagle Ford.
Our focus for international exploration is Sub-Saharan Africa. This is based on the considerable experience of our management team, which includes a track record of acquisitions and discoveries for major oil and gas companies in Africa. The analysis used by Brenham to identify exploration acquisitions is based on a top-down and bottom-up approach. The “top down” process seeks to utilize our management team’s prior experience of comparing analogues of success and failure from seismic and drilling data in Africa (and elsewhere) for purposes of generating a “short-list” of the most attractive blocks. The “bottom up” process seeks to obtain narrowly focused, prospect-specific data on a block-by-block basis. The “bottom-up” review of specific blocks is used to confirm management’s “short-list” of recommendations.
We intend to develop strategic relationships and enter into long-term participation agreements with major oil and gas companies, in both domestic and international markets. We believe that such alliances will create a platform for exploration and development activities.
Recent Developments
In March 2014, AITP entered into an earnest money contract for $3,350,000 for its 174 acres in Waller County, Texas.
On March 6, 2014, the Company 's wholly owned subsidiary, Northeastern Plastics, Inc. sold its office warehouse property, a 32,000 sq. ft. office warehouse facility on 1-59 in Houston, Texas. The property was sold for $1,325,000 in cash, and Northeastern reduced its long-term debt with a $1,000,000 payment of principal and entered into a modification and extension agreement whereby the maturity date was extended from February 22, 2014 to February 22, 2019. The note as amended bears interest at 7.25% and payment of $3,941 are owed monthly for 59 months beginning March 22, 2014, and a balloon payment owed for the remainder of the note payable and interest (approximately $196,000) due February 22, 2019.
In January 2014, AITP entered into an earnest money contract for $1,500,000 plus 20% carried interest, for its 31 acres in Houston, Texas. The Company estimates that this sale will close July 1, 2014.
On January 16, 2014, Brenham acquired a 332 acre oil and gas lease, the "Inez Field Prospect," located in Victoria County, Texas. Further, Brenham acquired #1 Roberts Unit well-bore, as well as all the equipment down-hole and surface equipment associated therewith. Brenham acquired 100% of the working interest and a net revenue interest of 74%. The Company will pay an additional $230,000 to the Seller prior to the beginning of any oil & gas exploration.
On March 12, 2013, Brenham entered into an agreement with an effective date of January 1, 2013, to purchase a 10% working interest in the Pierce Junction Field for $50,000 cash and a $70,000 non-interest bearing note payable due on August 31, 2013. Brenham's asset acquisition includes eight producing wells, with an additional seven wells scheduled for mechanical work-over that should add more oil reserves. Additional offsetting acreage can be developed by Brenham on a well by well basis to produce additional oil reserves from several producing horizons. Brenham is presently negotiating to acquire an additional 85% ownership of the Pierce Junction Field.
On February 28, 2013, Brenham leased 394 acres in Galveston County for the acquisition of mineral rights for the Gillock Field for $131,100 cash and 200,000 shares of AMIN restricted common stock. The acquired acreage is located just west of Galveston Bay, Galveston County, 35 miles southeast of Houston and 15 miles northwest of Galveston. It is adjacent to and one location away from the Gillock, East Segment Field operated by Alta Mesa Services, and about two miles west of the Eagle Bay Field operated by Sandridge Onshore, LLC and Transtexas Gas Corp. The conclusions of an internal reserve analysis, including a 4 mile by 4 mile seismic study of the 394 acre lease acquired by Brenham indicated proved undeveloped (PUD) and discounted NPV of 10% valued at $38,259,500. The Company is in the process of obtaining an independent reserve report on its Gillock Field Interest, and plans to seek financing for a two-well development program later in 2014.
In December 2012, Brenham Equatorial Guinea, LLC, a subsidiary of Brenham Oil & Gas Corp., executed a Production Sharing Contract with the Government of Equatorial Guinea in West Africa. Pursuant to the terms of the Agreement, Brenham received a 15% participating interest in newly-created Block Y, which consolidates four offshore exploration blocks into a single, half-million acre license. Brenham is negotiating the sale of its subsidiary, Brenham Oil and Gas International, LLC for purposes of focusing the Companies’ efforts and resources on the Texas assets.
In addition, Brenham is continuing to pursue its $6.4 billion claim against ENI and TGS in connection with its "tortious interference" case, which transaction was previously negotiated in a "production sharing agreement" with the country of Togo, Africa. Brenham’s claims are currently in the process of being appealed over matters primarily related to whether the Texas court was the appropriate venue for pursuing the claims.
Our Properties
Brenham holds oil and gas leases interests in Texas.
Victoria County, Texas
On January 16, 2014, Brenham acquired a 332 acre oil and gas lease, the "Inez Field Prospect," located in Victoria County, Texas. Further, Brenham acquired #1 Roberts Unit well-bore, as well as all the equipment down-hole and surface equipment associated therewith. Brenham acquired 100% of the working interest and a net revenue interest of 74%. In January 1990, Ken Petroleum Corporation drilled and completed the #1 Roberts Unit in the Inez (8,600') Field in Victoria County, Texas. The well was initially completed in the Yegua "B" between 8498-8510' and flowed 2,668 MCFGPD on an 8/64" choke. In February 1990, Stuart Petroleum Testers performed a Full Scale Separator Test, and it was determined that the Roberts well had a potential of 9,000 MCFGPD and 65.14 barrels of 48° API condensate during the 4-point test. The well later encountered mechanical problems and has since been shut-in.
Brenham plans to side track or drill a new well to regain production from the well in the Yegua. Reserves are estimated to be 4 billion cubic feet of gas and 160,000 barrels of condensate per well from the Yegua. Brenham can drill 3-4 wells on the lease.
The secondary objective is the over-pressured Jackson Shale interval from 6,000 ft. to 8,000 ft., which tested gas from a 40 ft. perforated interval. In the new well to be drilled in the Yegua, Brenham plans to core several intervals in the Jackson Shale to conduct a petro physical study.
Pierce Junction Field - Houston, Texas
The Pierce Junction Field includes eight producing wells, with an additional seven wells scheduled for mechanical work-over that should add more oil reserves. The wells currently have production of 30 barrels per day. Additional offsetting acreage can be developed by Brenham on a well by well basis to produce additional oil reserves from several producing horizons. Presently, Brenham is seeking to acquire additional working interests in this field from the other partners. The Company also is developing a plan to undertake a comprehensive work over program to increase production in the field to approximately 100 barrels per day.
Gillock Field - Galveston County, Texas
Gillock Fields are segments of a large, complexly faulted deep seated salt dome. Brenham purchased 4 square miles of 3D seismic data for the purpose of completion of its drilling program in this field. A preliminary review of the reprocessed 3D seismic data shows numerous fault traps and amplitude bright spots normally associated with hydrocarbon production at both the Frio and deeper Vicksburg level. Additionally, structural rollover indicative of a hydrocarbon trap is also present in shallower horizons as well. As there are well over 20 pay zones in Gillock Field, the possibility of shallower pay would not be a surprise and all of the aforementioned anomalies are being carefully investigated and evaluated by our experienced geophysical team. The 3D seismic data in conjunction with adjacent and nearby production will enable Brenham to pick precise drillable locations in the Frio as well as providing Brenham the opportunity to upgrade the reserve category of the Vicksburg Formation, thereby enhancing the value of the Company.
Washington County, Texas
Since November 7, 1997 (inception), Brenham Oil & Gas Inc. has owned an oil and gas mineral royalty interest on a 24 acre parcel of land located in Washington County, Texas. The royalty interest is currently leased by Anadarko Petroleum Corporation for a term continuing until the covered minerals are no longer produced in paying quantities from the leased premises.
Competition
The oil and gas industry is highly competitive. We will encounter strong competition from major oil and gas companies and from other independent operators in seeking to acquire prospects and hiring and retaining qualified personnel. Many, if virtually not all, of these competitors have far greater financial, technical and personnel resources and far longer operating histories than Brenham. As a result, our competitors are able to devote more financial and other resources to evaluate and acquire the more desirable prospects. Furthermore, our competitors are expected to better withstand the financial losses resulting from unsuccessful drill attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide economic conditions.
We are also affected by competition for drilling rigs and the availability of related equipment. To the extent that in the future we acquire and develop undeveloped properties, higher commodity prices generally increase the demand for drilling rigs, supplies, services, equipment and crews, and can lead to shortages of, and increasing costs for, drilling equipment, services and personnel. Over the past three years, oil and gas companies have experienced higher drilling and operating costs. Shortages of, or increasing costs for, experienced drilling crews and equipment and services could restrict our ability to drill wells and conduct our operations. There can be no assurance that we will be able to compete successfully in all of the above areas.
Environmental Matters and Regulation
General
Virtually all aspects of oil and gas industry are subject to a vast array of laws and regulations, both domestically and internationally. In addition, it may be expected that in the future, new laws and regulations will be adopted that will limit certain operations and/or increase the costs of such operations. These laws and regulations either presently require or in the future may require, among other things:
· acquiring various permits before drilling commences;
· enjoining some or all of the operations of facilities deemed not in compliance with permits;
· restricting the types, quantities and concentration of various substances that can be released into the environment in connection with oil and gas and natural gas drilling, production and transportation activities;
· limiting or prohibiting drilling activities in certain locations lying within protected or otherwise sensitive areas; and
· requiring remedial measures to mitigate pollution from our operations.
Compliance with these laws can be costly; the regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability. Moreover, public interest in the protection of the environment has increased significantly in recent years, notwithstanding the widely recognized public demand for “energy independence.” Offshore drilling in some areas has been opposed by regulatory agencies as well as environmental groups and, in other areas, has been restricted by regulations. Our operations could be adversely affected to the extent laws are enacted or other governmental action is taken that prohibits or restricts offshore drilling or imposes environmental requirements that result in increased costs to the oil and gas industry in general, such as more stringent or costly waste handling, disposal or cleanup requirements.
The following is a summary of some of the existing laws or regulatory issues to which we and our business operations are or may be subject to in the future.
Oil and Gas Pollution Act of 1990
The U.S. Oil and Gas Pollution Act of 1990 ("OPA") and regulations thereunder impose liability on responsible parties for damages resulting from oil and gas spills into or upon navigable waters or in the exclusive economic zone of the U.S. Liability under the OPA is strict, joint and several and potentially unlimited. A "responsible party" under the OPA includes the lessee or permittee of the area in which an offshore facility is located. The OPA also requires the lessee or permittee of the offshore area in which a covered offshore facility is located to establish and maintain evidence of financial responsibility to cover potential liabilities related to an oil and gas spill for which such person would be statutorily responsible in an amount that depends on the risk represented by the quantity or quality of oil and gas handled by such facility. The MMS of the U.S. Department of the Interior ("DOI") has promulgated regulations that implement the financial responsibility requirements of the OPA. A failure to comply with the OPA's requirements or inadequate cooperation during a spill response action may subject a responsible party to civil, administrative and/or criminal enforcement actions.
Clean Water Act
The U.S. Federal Water Pollution Control Act of 1972, as amended, ("CWA") imposes restrictions and controls on the discharge of pollutants, produced waters and other oil and gas and natural gas wastes into waters of the U.S. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future. Under the CWA, permits must be obtained to discharge pollutants into regulated waters. In addition, certain state regulations and the general permits issued under the federal National Pollutant Discharge Elimination System program prohibit discharge of produced waters and sand, drilling fluids, drill cuttings and certain other substances related to the oil and gas industry into certain coastal and offshore waters.
The CWA provides for civil, criminal and administrative penalties for unauthorized discharges of oil and gas and other hazardous substances and imposes liability on parties responsible for those discharges for the costs of cleaning up related damage and for natural resource damages resulting from the release. Comparable state statutes impose liabilities and authorize penalties in the case of an unauthorized discharge of petroleum or its derivatives, or other hazardous substances, into state waters.
Marine Protected Areas
Executive Order 13158, issued in 2000, directs federal agencies to safeguard existing Marine Protected Areas ("MPAs") in the U.S. and establish new MPAs. The order requires federal agencies to avoid harm to MPAs to the extent permitted by law and to the maximum extent practicable. It also directs the U.S. Environmental Protection Agency ("EPA") to propose regulations under the CWA to ensure appropriate levels of protection for the marine environment. This order and related CWA regulations have the potential to adversely affect our operations by restricting areas in which we may carry out future development and exploration projects and/or causing us to incur increased operating expenses.
Consideration of Environmental Issues in Connection with Governmental Approvals
Our operations will frequently require licenses, permits and other governmental approvals. Several federal statutes, including the Outer Continental Shelf Lands Act ("OCSLA"), the National Environmental Policy Act ("NEPA"), and the Coastal Zone Management Act ("CZMA") require federal agencies to evaluate environmental issues in connection with granting such approvals or taking other major agency actions. OCSLA, for instance, requires the DOI to evaluate whether certain proposed activities would cause serious harm or damage to the marine, coastal or human environment, and gives the DOI authority to refuse to issue, suspend or revoke permits and licenses allowing such activities in certain circumstances, including when there is a threat of serious harm or damage to the marine, coastal or human environment. Similarly, NEPA requires DOI and other federal agencies to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency must prepare an environmental assessment and, potentially, an environmental impact statement. CZMA, on the other hand, aids states in developing a coastal management program to protect the coastal environment from growing demands associated with various uses, including offshore oil and gas and natural gas development. In obtaining various approvals from the DOI, we will have to certify that we will conduct our activities in a manner consistent with any applicable CZMA program. Violation of these requirements may result in civil, administrative or criminal penalties.
Naturally Occurring Radioactive Materials
Wastes containing naturally occurring radioactive materials ("NORM") may also be generated in connection with our operations. Certain oil and gas and natural gas exploration and production activities may enhance the radioactivity of NORM. In the U.S., NORM is subject primarily to regulation under individual state radiation control regulations. In addition, NORM handling and management activities are governed by regulations promulgated by the Occupational Safety and Health Administration. These regulations impose certain requirements concerning worker protection; the treatment, storage and disposal of NORM waste; the management of waste piles, containers and tanks containing NORM; and restrictions on the uses of land with NORM contamination.
Resource Conservation and Recovery Act
The U.S. Resource Conservation and Recovery Act ("RCRA") and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development and production of crude oil and gas or natural gas are currently exempt from RCRA's requirements pertaining to hazardous waste and are regulated under RCRA's non-hazardous waste and other regulatory provisions. A similar exemption is contained in many of the state counterparts to RCRA. At various times in the past, proposals have been made to amend RCRA to rescind the exemption that excludes oil and gas and natural gas exploration and production wastes from regulation as hazardous waste. Accordingly, it is possible that certain oil and gas and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in our costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position. Also, in the course of our operations, we expect to generate some amounts of ordinary industrial wastes, such as waste solvents and waste oil and gas that may be regulated as hazardous wastes.
Air Pollution Control
The U.S. Clean Air Act ("CAA") and state air pollution laws adopted to fulfill its mandates provide a framework for national, state and local efforts to protect air quality. Our operations will utilize equipment that emits air pollutants subject to federal and state air pollution control laws. These laws require utilization of air emissions abatement equipment to achieve prescribed emissions limitations and ambient air quality standards, as well as operating permits for existing equipment and construction permits for new and modified equipment. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the CAA and associated state laws and regulations, including the suspension or termination of permits and monetary fines.
Superfund
The U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ("CERCLA") also known as "Superfund," imposes joint and several liability for response costs at certain contaminated properties and damages to natural resources, without regard to fault or the legality of the original act, on some classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current or past owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance at the site. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur.
Protected Species and Habitats
The federal Endangered Species Act, the federal Marine Mammal Protection Act, and similar federal and state wildlife protection laws prohibit or restrict activities that could adversely impact protected plant and animal species or habitats. Oil and gas and natural gas exploration and production activities could be prohibited or delayed in areas where such protected species or habitats may be located. Additionally, expensive mitigation may be required to accommodate such activities.
Health and Safety
Our operations may become subject to the requirements of the federal Occupational Safety and Health Act ("OSH Act") and comparable state statutes. These laws and their implementing regulations strictly govern the protection of the health and safety of employees. The OSH Act hazard communication standard, EPA community right-to-know regulations under Title III of the Superfund Amendments and Reauthorization Act of 1986 and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations. Such laws and regulations also require us to ensure our workplaces meet minimum safety standards and provide for compensation to employees injured as a result of our failure to meet these standards as well as civil and/or criminal penalties in certain circumstances.
Accidental spills or releases may occur in the course of our future operations, and we cannot assure you that we will not incur substantial costs and liabilities as a result, including costs relating to claims for damage to property and persons. Moreover, environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure you that we have been or will be at all times in compliance with such laws, or that environmental laws and regulations will not change or become more stringent in the future in a manner that could have a material adverse effect on our financial condition, results of operations or ability to make distributions to you.
Other Regulation Related to the Oil and Gas Industry
The oil and gas industry is regulated by numerous federal, state and local authorities. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and gas industry may increase our cost of doing business by increasing the future cost of transporting our production to market, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.
Homeland Security Regulations
The Department of Homeland Security Appropriations Act of 2007 requires the Department of Homeland Security ("DHS") to issue regulations establishing risk-based performance standards for the security of chemical and industrial facilities, including oil and gas and natural gas facilities that are deemed to present "high levels of security risk." The DHS is currently in the process of adopting regulations that will determine whether our operations may in the future be subject to DHS-mandated security requirements. Presently, it is not possible to accurately estimate the costs we could incur, directly or indirectly, to comply with any such facility security laws or regulations, but such expenditures could be substantial.
U.S. Coast Guard and the U.S. Customs Service
In case we have to transport drilling rigs to potential sites in the U.S. Gulf of Mexico, our operation of such drilling rigs would become subject to the rules and regulations of the U.S. Coast Guard and the U.S. Customs Service. Such regulation sets safety standards, authorizes investigations into vessel operations and accidents and governs the passage of vessels into U.S. territory. We would be required by these agencies to obtain various permits, licenses and certificates with respect to these operations.
International Laws and Regulations
Our exploration and production activities that may occur in other nations, including those in West Africa, are subject to the laws and regulations of such nations. These regulations may govern licensing for drilling operations, mandatory involvement of local partners in our operations, taxation of our revenues, safety and environmental matters and our ability to operate in such jurisdictions as a foreign participant.
Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that could substantially increase our costs.
Employees
As of December 31, 2013, we had four employees. All employees are currently located in the U.S. None of these employees are represented by labor unions or covered by any collective bargaining agreement. We believe that relations with our employees are satisfactory.
Offices
We currently utilize approximately 1,500 square feet of office space at the offices of American located at 601 Cien Street, Suite 235, Kemah, TX 77565-3077, which are provided to us by American on a rent-free basis.
American International Holdings Corp.
American International Holdings Corp. (“AMIH”) is a 93.2% owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN). AMIH also has a wholly-owned subsidiary, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation. Upon the execution of an Asset Purchase Agreement dated April 3, 2012, discussed under “General Background of AMIH” below, DSWSI became a non-operating company.
On August 13, 2012, AMIH effected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for one hundred (1:100) basis. All share and per share amounts contained in this Form 10-K have been adjusted retroactively to reflect the reverse stock split.
General Background of AMIH
From May 1, 2005 through April 16, 2009, the Company had three subsidiaries. Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by the Company, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities were wholly-owned subsidiaries of the Company. Hammonds manufactured engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries.
On February 3, 2010, the Company completed a reverse merger pursuant to which the Company was merged with and into Hammonds and Hammonds’ name was changed to Delta Seaboard International, Inc. During 2012, the Company changed its name to American International Holdings, Inc.
On April 3, 2012, AMIH entered into an Asset Purchase Agreement (“Agreement”) by and among Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, who were AMIH's president and director and vice-president and director, respectively, on the date of the Agreement, DSWSI, and American. Pursuant to the terms of the Agreement, AMIH: (i) sold all of the assets of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resigned as executive officers and as members of AMIH’s board of directors; (iii) Mr. Derrick resigned as a director of American; and (iv) Messrs. Derrick and Burleigh transferred and assigned all of their 319,258 AMIH shares to American. In consideration for the sale of the DSWSI assets to Purchaser, Purchaser paid AMIH $1,600,000 in cash and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000. Total consideration for the sale was $2,620,000. On February 27, 2013, AMIH received $800,000 in payment of the balance due on the note receivable from Messrs. Derrick and Burleigh.
Upon the closing of the Agreement on April 3, 2012, American then held an aggregate, including previous holdings, of 647,858 shares of AMIH's issued and outstanding common stock, representing approximately 86.7% of AMIH's shares. At the same date, AMIH ceased to be an operating company and became a non-operating "shell company", as that term is defined in Rule 144(i) under the Securities Act of 1933, as amended.
Description of AMIH’s Business
Current Status as a Shell Company
Since April 3, 2012, we have been classified as a "shell company". Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act") defines "shell company," as a company (other than an asset-backed issuer), which has "no operations; and either no or nominal assets; assets consisting of solely cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets." Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.
Business Objective
The Company's current business objective is to become an operating company, by seeking a business combination with an operating company, acquiring assets or other means. We intend to use the Company's limited personnel but significant cash resources and liquidity resulting from the sale of DSWSI in connection with fulfilling its business objective. The Company will utilize its capital stock, debt or a combination of capital stock and debt, together with its financial resources, in furtherance of its business objective.
It may be expected that entering into one or more transactions in pursuit of its business objective will involve the issuance of restricted shares of capital stock. The issuance of additional shares of our Common Stock or other capital stock that may be convertible into Common Stock:
· may significantly reduce the equity interest of our existing stockholders;
· may cause a change in control if a substantial number of our shares of Common Stock or other capital stock are issued and may also result in the resignation or removal of our present officers and directors; and
· may adversely affect the prevailing market price for our Common Stock.
Similarly, if we issued debt securities, it could result in:
· default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations;
· acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenants were breached without a waiver or renegotiations of such covenants;
· our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; and
· our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
We currently plan to seek potential business combinations by investigating opportunities and, if such investigation warrants, acquiring a target company or business seeking the perceived advantages of being a publicly held corporation and that understands the benefit of being able to employ our funds in its business. Our principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business (and/or an acquisition) rather than immediate, short-term earnings. We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The investigation and analysis of new business opportunities has and will be undertaken by or under the supervision of our officers and directors. As of the date of this filing, we have not entered into any preliminary or definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidates regarding business combination opportunities for us. In our efforts to analyze potential acquisition targets, we may consider the following kinds of factors:
· Potential for growth, indicated by new technology, anticipated market expansion or new products;
· Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
· Strength and diversity of management, either in place or scheduled for recruitment;
· Capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
· The cost of participation by us as compared to the perceived tangible and intangible values and potentials;
· The extent to which the business opportunity can be advanced;
· The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
· Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, our management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the limited capital we have plans to allocate for investigation, we may not discover or adequately evaluate adverse facts about the potential business opportunities that may be acquired.
Form of Acquisition
The manner and extent to which we participate in a business combination opportunity will depend upon the nature of the opportunity, our respective needs and desires as well as those of the principals of the opportunity, and the relative negotiating strength of us and such principals.
It is likely that we will affect a business combination through the issuance of common stock or other securities, which may result in a change of control. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), depends upon the issuance to the stockholders of the acquired company of at least 80% of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all present AMIH stockholders would, in such circumstances, retain 20% or less of the total issued and outstanding shares. Under other circumstances, depending upon the relative negotiating strength of the parties, present AMIH stockholders may retain substantially less than 20% of the total issued and outstanding shares. This could result in substantial additional dilution to the equity of those who were our stockholders prior to such reorganization / business combination.
Our present stockholders may not have control of a majority of our voting shares following a reorganization / business combination transaction. Further, as part of such a transaction, all or a majority of our directors may resign and new directors may be appointed without any vote by stockholders.
In the case of an acquisition, the transaction may be accomplished upon the sole determination of our management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. It may be expected that AMIH’s management will seek to structure any such transaction so as not to require stockholder approval and the inherent delays and expenses.
It is anticipated that the investigation of specific business opportunities and the negotiation, preparation and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to consummate a specific business combination opportunity after incurring the associated costs, the costs of the related investigation would not be recoverable.
We presently have no employees apart from our officers and directors. We expect no significant changes in the number of our employees other than such changes, if any, that may result in connection with a business combination.
American International Texas Properties, Inc. ("AITP")
AITP owns a portfolio of strategically located parcels of land primarily in Houston, Texas and vicinity. The portfolio includes:65 acres in Galveston County, Texas174 acres in Waller County, Texas1.7 acres in Galveston County, Texas2 lots in Galveston County, Texas5.38 acres on Interstate 59 in Houston, Texas31 acres on Airport Boulevard in Houston, Texas 95.81 acres (50% ownership) in Galveston County7 units - The Dawn Condominiums in Galveston County, Texas
Recent Transactions
During 2014, we entered into sale contracts for the 32 acres on Airport Boulevard in Houston, Texas for $1,500,000, plus 20% carried interest, and 174 acres in Waller County for $3,350,000.
During the year ended December 31, 2013, two Dawn Condominium units were sold for $160,334, resulting in a loss on sale of assets of $103,174.
During the year ended December 31, 2013, the Board of Directors of American approved the purchase of a 50% undivided interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II.
During the year ended December 31, 2012, six Dawn Condominium units were sold for $553,621, resulting in a loss on sale of assets $169,352 and The remaining units are listed for sale with a broker. No assurance can be given on the likelihood of completing the sales.
During the year ended December 31, 2012, 14 acres of vacant commercial use land in Houston, Texas was granted to a third party to save on property taxes associated with holding this property, resulting in a loss of $160,925.
ITEM 1A.
ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESSES
General
We may experience adverse impacts on our results of operations as a result of adopting new accounting standards or interpretations
Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our operating results or cause unanticipated fluctuations in our operating results in future periods. For example, we are required by the Sarbanes-Oxley Act of 2002 to file annual reports and quarterly reports disclosing the effectiveness of our internal controls and procedures. Although we believe our internal controls are operating effectively, and we have committed internal resources to ensure compliance, we cannot guarantee that we will not have any material weaknesses as reported by our auditors, or that such deficiencies will not be discovered through our internal reviews, and such determination could materially adversely affect our business or significantly increase our costs in order to establish effective controls and procedures.
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements
To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affects the reported values of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:
- contract costs and profits and revenue recognition;
- provisions for uncollectible receivables and recoveries of costs from subcontractors, vendors and others;
- provisions for income taxes and related valuation allowances;
- recoverability of other intangibles and related estimated lives;
- accruals for estimated liabilities;
- timing of the introduction of new products and services and market acceptance of the same
Risks related to our NPI subsidiary
Dependence upon third-party manufacturers for its products
Virtually all of NPI's products, which include products sold in the automotive and consumer retail and after-market channels, are manufactured overseas. NPI has no long-term agreements with any manufacturers for its products, but relies on management's business contacts with manufacturers in renewing its short-term 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. Any inability or delay in NPI's renewal of its agreements at economically favorable terms could have a material adverse effect on NPI unless alternative supplies are available.
Dependence upon third-party licenses
NPI markets its diversified product assortment under the Good Choice® and MOTOR TREND® brand names. Nearly all of the NPI Good Choice® product line has been tested at the Good Housekeeping Institute and prominently carries the Good Housekeeping "Seal" on the vast majority of its products. The NPI Good Choice® product assortment includes a variety of booster cables, portable hand lamps, lighting products, cord sets, residential household light bulbs, night lights, multiple outlet devices and other consumer products. The Good Choice® program is dependent upon a national advertising campaign in the newsstand issues of Good Housekeeping magazine, pursuant to an agreement with Good Housekeeping.
The NPI MOTOR TREND® branded products include a variety of booster cables, portable and rechargeable hand lamps, lighting products, cord sets, emergency road side kits and miscellaneous battery and other consumer automotive accessories. The NPI MOTOR TREND® program is a standard licensing program with Source Inter Link and MOTOR TREND® magazine. NPI’s business would be materially adversely affected if either the Good Housekeeping or MOTOR TREND® relationship was terminated.
Dependence upon major customers
NPI markets its products through such major chains as Advanced Auto Parts, Family Dollar, Dollar Tree, GBI - Dollar Tree, Ocean State Jobbers, Big Lots, H.E.B., Publix, Freds, Bi-Mart, and Dollar General, among others. During our fiscal year ended December 31, 2012, NPI's large accounts accounted for 46% of NPI's revenues. The loss of any of these major customers could have a material adverse effect on NPI operating results. NPI's strategic plan for 2013 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Dependence upon independent sales agents and internal personnel for sales and marketing
NPI has working vendor agreements with its major customers. NPI sells its products through the use of its in-house personnel and independent sales agents covered under sales and marketing agreements. NPI contracts with agents, who are responsible for contacting potential customers 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 on a commission basis only, calculated on the net sales price of products invoiced to customers. No commissions are paid until NPI receives payment from customers. NPI is not dependent upon its sales agents and would not be adversely affected if one or more sales agents having established relationships with NPI’s major customers terminated the relationship with NPI.
NPI faces competition from larger companies
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. This competition may adversely affect NPI's ability to continue to increase revenues and market share. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers. 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. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac, among others.
Price is the primarily 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 substitutable with those of competitors.
Risks related to our BOG subsidiary
Brenham has no proven reserves on its existing Permian Basin, Texas property and the prospects that Brenham may decide to pursue for exploration and development may not yield oil and gas in commercial quantities or quality, if at all, in which event Brenham will incur significant losses.
At present, Brenham has no proven reserves. Any future prospects may not prove to be commercially viable even if available seismic and geological information indicate the potential presence of oil and gas. As a result, any prospects that Brenham may decide to acquire and develop may not yield oil and gas in commercial quantities or quality, or at all. Evaluating prospects will require substantial seismic data reprocessing and interpretation. Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. We therefore do not know if any of our prospects will contain oil and gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil and gas is found on our prospects in commercial quantities, construction costs of oil and gas pipelines or floating production systems, as applicable, and transportation costs may prevent such prospects from being economically viable.
Brenham may face substantial uncertainties in connection with any prospects, which could significantly delay or even prevent our ability to act on our plan of operation.
In this filing, we provide statements in connection with Brenham's plan of operation. Statements in connection with this plan of operation may face substantial uncertainties. To date, Brenham has not yet identified any prospects. Any analogies drawn by us from other companies’ wells, prospects or producing fields may not prove to be indicators of the success of developing reserves from Brenham's prospects, notwithstanding the proximity of Brenham's prospects to other companies producing properties. Furthermore, evaluating the to-be-acquired data from wells or prospects produced by other parties which we may use may not lead to the results that we may expect.
It is possible that none of the future wells on Brenham's prospects’ properties will find commercially exploitable accumulations of oil and gas. Any significant variance between actual results and our assumptions could then materially and adversely affect the quantities of oil and gas attributable to any prospects.
Identifying prospects and drilling wells is speculative, often involving significant costs that may exceed our expectations and, further, may not result in any discoveries of future production or reserves in commercially exploitable quantities. Any material inaccuracies in future drilling costs, estimates or underlying assumptions will materially adversely affect Brenham's plan of operation and business objectives, thereby adversely affecting the value of our shares.
Seeking prospects, exploring for and developing oil and gas reserves involves a high degree of operational and financial risk, which precludes Brenham's ability to make any definitive estimates as to the time required and costs involved in reaching certain objectives. The actual costs of seeking prospects, drilling, completing and operating wells may exceed Brenham's budgeted costs and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oil and gas field equipment and related services. Prospects may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. Moreover, the successful drilling of an oil and gas well does not necessarily result in a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomic or only marginally economic. Initial costs associated with identifying prospects and drilling wells require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. If Brenham's actual costs are significantly more than any estimated costs, Brenham may not be able to continue its plan of operation and/or business objectives and would be forced to modify its plan of operation.
Brenham's unidentified prospects and drilling locations may be scheduled out over several years, making them susceptible to uncertainties that could materially affect the occurrence or timing of any drilling, thereby hindering our ability to generate cash flow from operations, if any.
Brenham's ability to identify, drill and develop future drilling locations depends on a number of factors, including the availability of equipment and capital, seasonal conditions, regulatory approvals, oil and gas prices, costs and drilling results. The final determination on whether to drill any of these prospects will be dependent upon the factors described elsewhere in this annual report. Due to these uncertainties, we do not know if any presently unidentified Prospect that we may identify in the future will be drilled within a reasonable timeframe, or at all, or, if we will be able to economically produce oil and gas in commercially exploitable quantities from these or any other potential drilling locations. As such, Brenham's actual drilling activities may be materially different from its expectations, which could adversely affect its plan of operation and future financial condition.
Brenham expects not to be the operator on all or even many of its future prospects, and, therefore, will not be able to control the timing of exploration or development efforts, associated costs, or the rate of production of any non-operated assets, which could prevent Brenham from realizing any return targets that we may envision.
As Brenham carries out its exploration and development programs, Brenham may enter into arrangements with respect to future prospects that result in a greater proportion of its prospects being operated by others. As a result, Brenham may have limited ability to exercise influence over the operations of its future prospects that will be operated by potential partners. Dependence on third-party operators could prevent Brenham from realizing certain return targets for those co-operated prospects. The success and timing of identifying prospects, exploration and development activities will depend on a number of factors that will be largely outside of Brenham's control, including:
- the timing and amount of capital expenditures;
- the co-operator's expertise and financial resources;
- approval of other participants in drilling wells;
- selection of technology; and
- the rate of production of reserves, if any.
This limited ability to exercise control over the operations of some of Brenham's prospects may cause a material adverse effect on Brenham's results of operations and financial condition.
Brenham is dependent on the experience of members of its management and technical team and the loss of one or more such persons could significantly delay its plan of operation if Brenham is unable to replace such persons with qualified individuals on a timely basis, which could have an adverse effect on Brenham's results of operations.
Brenham must rely upon the ability, expertise, judgment and discretion of its management and the success of its technical team in identifying prospects and in discovering and developing oil and gas reserves. Brenham's performance and success are dependent, in part, upon key members of its management and technical team, and the departure of such key persons would be detrimental to its future success. There can be no assurance that Brenham's management will remain in place. We do not have any "key man" life insurance on any member of Brenham's team. The loss of any of Brenham's management and technical team members could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham's future development and exploration operations require substantial capital, and Brenham may be unable to obtain needed capital or financing on satisfactory terms, or at all, which would delay or even prevent Brenham from successfully pursuing and fully developing its business plan and its ability to generate revenues in both the short and long term.
The oil and gas industry is capital intensive and we anticipate that Brenham will need to raise significant amounts of capital to meet its funding requirements, in amounts that we have not yet determined. Brenham expects its capital outlays and operating expenditures to increase substantially over at least the next several years as Brenham starts its operations. Identifying prospects, obtaining seismic data and commencing exploration and production are all very expensive and we expect that Brenham will need to raise substantial capital, through future private or public equity offerings, strategic alliances or debt financing, before we achieve commercialization of any of Brenham's prospects.
Brenham's future capital requirements will depend on many factors, including:
- the scope, rate of progress and cost of exploration and production activities;
- oil and gas and natural gas prices;
- Brenham's ability to locate and acquire prospects;
- Brenham's ability to produce oil and gas or natural gas from those reserves;
- the terms and timing of any drilling and other production-related arrangements that Brenham may enter into;
- the cost and timing of governmental approvals and/or concessions; and
- the effects of competition by larger companies operating in the oil and gas industry.
Brenham does not currently have any commitments for external funding and does not expect to generate any significant revenue from production for several years, or at all. Additional financing may not be available on favorable terms, or at all. Even if Brenham succeeds in selling additional securities to raise funds, the sale of additional equity securities would dilute the ownership percentage of Brenham's existing shareholders and new investors may demand rights, preferences or privileges senior to those of existing holders of Brenham's Common Stock. If we raise additional capital through debt financing, the financing may involve covenants that restrict Brenham's business activities. If we choose to offer interests in our prospects to third-party operators, Brenham may lose operating control over such prospects.
Brenham's working capital needs are difficult to forecast and may vary significantly, which could require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all. The failure or any significant delay in raising capital as needed may be expected to materially reduce or eliminate Brenham's opportunity for success.
At present, Brenham's working capital needs are extremely difficult to predict. This difficulty is due primarily to not having identified actual prospects and therefore we lack the ability to estimate with any degree of accuracy the costs associated with identifying and acquiring prospects, the timing and costs related to Brenham's exploration and development efforts, the availability of personnel and equipment necessary for such efforts, fluctuations in the price of oil and gas, the costs and timing of regulatory approvals and the number of prospects we determine to pursue. Brenham may therefore be subject to significant and rapid increases in our working capital needs that could require us to seek additional financing sources and there can be no assurance in our ability to secure additional financing at acceptable terms, if at all. Restrictions in any debt agreements that we may enter into may impair our ability to obtain other sources of financing.
Brenham will be dependent upon its ability to enter into arrangements for financing with third parties and any delay or failure to enter into such arrangements could adversely affect the Brenham's operating results.
Brenham's ability to identify and acquire prospects will depend upon its ability to identify and enter into financing arrangements in sufficient amounts at acceptable terms, of which there can be no assurance. This will include strategic relationships with existing oil and gas development and exploration companies, public or private sales of equity or debt securities as well as from other funding sources and/or joint ventures with third parties. Due to our long-term capital requirements, we may seek to access the public or private equity markets if and when conditions are favorable. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of Brenham's Common Stock or other securities convertible into Brenham's Common Stock, the ownership interest of Brenham's existing shareholders will be diluted. If we are not able to obtain financing when needed, Brenham may be unable to successfully carry out our business plan. As a result, we may have to significantly limit our operations for the foreseeable future and, as a result, our business, financial condition and results of operations would be materially adversely affected.
Current economic and credit conditions could adversely affect Brenham's plan of operation and could result in significant losses for the foreseeable future.
Brenham's ability to secure additional financing and satisfy its financial obligations and indebtedness outstanding from time to time will depend upon future operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, most of which will be beyond our control. The prolonged continuation or worsening of current credit market conditions would have a material adverse effect on Brenham's ability to secure financing on favorable terms, if at all.
The development schedule of any oil and gas projects that Brenham may identify, including the availability and cost of drilling rigs, equipment, supplies, personnel and oil and gas field services, is subject to delays and cost overruns.
Historically, most oil and gas projects have experienced delays and capital cost increases and overruns due to, among other factors, the unavailability or high cost of drilling rigs and other essential equipment, supplies, personnel and oil and gas field services. The cost to develop prospects has not been fixed and remains dependent upon a number of factors, including the completion of detailed cost estimates and final engineering, contracting and procurement costs. Construction and operation schedules may not proceed as planned and may experience delays or cost overruns. Any delays may increase the costs of the projects, requiring additional capital, and such capital may not be available in a timely and cost-effective fashion.
Non-U.S. operations may be adversely affected by political and economic circumstances in the countries in which Brenham may operate, in which event Brenham may experience delays or be prevented from commencing or continuing operations in such countries.
Non-U.S. oil and gas exploration, development and production activities are subject to political and economic uncertainties (including but not limited to changes, sometimes frequent or marked, in energy policies or the personnel administering them), expropriation of property, cancellation or modification of contract rights, foreign exchange restrictions, currency fluctuations, royalty and tax increases and other risks arising out of foreign governmental sovereignty over the areas in which Brenham's operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and insurrection. These risks may be higher in the developing countries in which Brenham intends to conduct activities, including Africa.
Potential operations in these areas increase Brenham's exposure to risks of war, local economic conditions, political disruption, civil disturbance and governmental policies that may:
- disrupt our operations;
- restrict the movement of funds or limit repatriation of profits;
- lead to U.S. government or international sanctions; and
- limit access to markets for periods of time.
Several countries in Africa are presently experiencing or have experienced political instability in the past. Disruptions may occur in the future, and losses caused by these disruptions may occur that will not be covered by insurance, if, indeed, any insurance is available at costs that Brenham can afford.
Consequently, Brenham's non-U.S. exploration, development and production activities may be substantially affected by factors which could have a material adverse effect on Brenham's financial condition and results of operations. Furthermore, in the event of a dispute arising from non-U.S. operations, Brenham may be subject to the exclusive jurisdiction of courts outside the U.S. or may not be successful in subjecting non-U.S. persons to the jurisdiction of courts in the U.S., which could adversely affect the outcome of such dispute.
The oil and gas industry, including the acquisition of exploratory acreage in Africa, is intensely competitive and unless Brenham is able to compete effectively, its plan of operation will have to be modified and its ability to pursue prospects could be materially, adversely effected.
The international oil and gas industry, including in the U.S. and Africa, is highly competitive in all aspects, including the exploration for, and the development of, new sources of supply. Brenham expects to operate in a highly competitive environment for acquiring exploratory prospects and hiring and retaining trained personnel. Many of Brenham's competitors possess and employ financial, technical and personnel resources substantially greater than Brenham, which can be particularly important in the areas in which Brenham operates. These companies may be able to pay more for productive oil and gas properties and prospects and to evaluate, bid for and purchase a greater number of properties and prospects than Brenham's financial or personnel resources permit. Furthermore, these companies may also be better able to withstand the financial pressures of unsuccessful drill attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide economic conditions, and may be better able to absorb the burdens resulting from changes in relevant laws and regulations, which would adversely affect Brenham's competitive position. Brenham's ability to acquire additional prospects and to find and develop reserves in the future will depend on its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial competition for available capital for investment in the oil and gas industry. As a result of these and other factors, Brenham may not be able to compete successfully in an intensely competitive industry, which could cause a material adverse effect on Brenham's results of operations and financial condition.
Participants in the oil and gas industry are subject to complex laws that can affect the cost, manner or feasibility of doing business and could result in unanticipated costs and delays that could adversely affect Brenham's financial condition.
Exploration and production activities in the oil and gas industry are subject to extensive local, state, federal and international regulations. Brenham may be required to make large expenditures to comply with governmental regulations, particularly in respect of the following matters:
- licenses for drilling operations;
- royalty increases, including retroactive claims;
- drilling and development bonds;
- reports concerning operations;
- the spacing of wells;
- unitization of oil and gas accumulations;
- remediation or investigation activities for environmental purposes; and
- taxation.
Under these and other laws and regulations, Brenham could be liable for personal injuries, property damage and other types of damages. Failure to comply with these laws and regulations also may result in the suspension or termination of Brenham's operations and subject Brenham to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that could substantially increase Brenham's costs. Any such liabilities, penalties, suspensions, terminations or regulatory changes could have a material adverse effect on Brenham's financial condition and results of operations.
Brenham's future operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and costs that we do not anticipate or that we may not be able to adequately fund; any inability to fund material liabilities and related costs could result in a discontinuation of Brenham's operations.
Brenham's future operations will be, subject to various international, foreign, federal, state and local environmental, health and safety laws and regulations governing, among other things, the emission and discharge of pollutants into the ground, air or water, the generation, storage, handling, use and transportation of regulated materials and the health and safety of our employees. Brenham is required to obtain environmental permits from governmental authorities for certain of Brenham's operations, including drilling permits for wells. There is a risk that Brenham will not be in complete compliance with these permits and the environmental laws and regulations to which Brenham is subject at all times. If Brenham violates or fails to comply with these laws, regulations or permits, Brenham could be fined or otherwise sanctioned by regulators, including through the revocation of permits or the suspension or termination of operations. If Brenham fails to obtain permits in a timely manner or at all (due to opposition from community or environmental interest groups, governmental delays, or any other reasons), such failure could impede Brenham's operations, which could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham could be held liable for all environmental, health and safety costs and liabilities arising out of its actions and omissions as well as those of potential third-party contractors. To the extent Brenham does not address these costs and liabilities or is otherwise in breach of lease requirements, Brenham's future leases could be suspended or terminated. Brenham intends to hire third parties to perform the majority of the drilling and other services related to its operations. There is a risk that Brenham may contract with third parties with unsatisfactory environmental, health and safety records or that Brenham's contractors may be unwilling or unable to cover any losses associated with their acts and omissions. Accordingly, Brenham could be held liable for all costs and liabilities arising out of the acts or omissions of its contractors, which could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham may be required to maintain bonding or insurance coverage for certain risks relating to its operations, including environmental risks. Even under such policies, Brenham may not be insured against certain risks. Brenham's insurance may not cover any or all environmental claims that might arise from its operations or those of third-party contractors. If a significant accident or other event occurs and is not fully covered by Brenham's insurance, or Brenham's third-party contractors have not agreed to bear responsibility, such accident or event could have a material adverse effect on Brenham's results of operations and financial condition. In addition, Brenham may not be able to obtain required bonding or insurance coverage at all or in time to meet its anticipated startup schedule for each well, and if we fail to obtain this bonding or coverage, such failure could have a material adverse effect on Brenham's results of operations and financial condition.
In addition, Brenham expects continued attention to climate change issues. Various countries and U.S. states and regions have agreed to regulate emissions of greenhouse gases, including methane (a primary component of natural gas) and carbon dioxide, a byproduct of oil and gas and natural gas combustion. The U.S. federal government, as well as the U.S. Environmental Protection Agency, are currently considering national greenhouse gas regulation. Each have proposed bills or rules which would require or result in greenhouse gas emissions reductions. Final laws or regulations could be adopted this or next year. The regulation of greenhouse gases in the areas in which Brenham intends to operate could adversely impact Brenham's operations.
Environmental, health and safety laws are complex, change frequently and have tended to become increasingly stringent over time. Brenham's costs of complying with current and future environmental, health and safety laws, and Brenham's liabilities arising from releases of, or exposure to, regulated substances may adversely affect Brenham's results of operations and financial condition. See "Description of Business - Environmental Matters and Regulation."
Brenham may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that Brenham violated the Foreign Corrupt Practices Act could have us subject to civil or criminal liability and that could have a material adverse effect on Brenham's business and prevent Brenham from operating in one or more jurisdictions.
Brenham is subject to the Foreign Corrupt Practices Act ("FCPA") and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Brenham may do business in the future in countries and regions in which we may face, directly or indirectly, corrupt demands by officials, tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized payments or offers of payments by one of Brenham's employees or consultants, even though these parties are not always subject to Brenham's control. Brenham's existing safeguards and any future improvements may prove to be less than effective, and Brenham's employees and consultants may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect Brenham's business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Risks related to our AMIH subsidiary
AMIH has a limited operating history. AMIH also has no commitments from any officers, directors, or shareholders to provide additional funding. AMIH has had no operations and generated no revenues since April 2012.
AMIH has a limited operating history, and has had no operations nor any revenues or earnings from operations since in or about April 2012. AMIH has no significant assets or resources, other than the cash and receivable received in connection with the Asset Purchase Agreement. AMIH will sustain operating expenses in connection with being a public reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"), without corresponding revenues, at least until the consummation of a business combination. No officer, director or shareholder has agreed to provide us funding in the future. This may result in incurring a net operating loss which will increase continuously until AMIH can consummate a business combination with a target company. There is no assurance that AMIH can identify a target company that its management deems desirable or be able to consummate a business combination with a desirable target company. In the event that AMIH is unable to raise sufficient funds, AMIH will be required to utilize its presently available cash resources in order to continue its administrative operations and remain as a current reporting company until AMIH can consummate a business combination.
The nature of AMIH’s proposed operations is highly speculative.
The success of AMIH’s proposed plan of operation will depend to a great extent on the operations, financial condition and management of the identified target company. While management will prefer a business combination with one or more entities having established operating histories, there can be no assurance that AMIH will be successful in locating candidates meeting such criteria. In the event AMIH completes a business combination, of which there can be no assurance, the success of its operations will be dependent upon management of the target company and numerous other factors beyond the control of AMIH.
The acquisition of material assets will require substantial additional capital.
In addition to seeking out a merger or acquisition candidate, AMIH’s current management plans to seek out potential assets for the AMIH to purchase. The consideration for any acquisition may include shares of AMIH’s common stock and will likely include substantial additional capital which, if it requires more than its available cash, AMIH will need to raise. AMIH may be unable to raise such capital and/or may be forced to raise such capital on unfavorable terms. The failure of AMIH to raise any required additional capital to complete an acquisition will prevent AMIH from consummating any future planned acquisitions.
The competition for business opportunities and combinations is great.
AMIH is and will continue to be an insignificant participant in the business of seeking mergers with and acquisitions of business entities and assets. A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies which may be merger or acquisition target candidates for AMIH. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than AMIH and, consequently, AMIH will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, AMIH will also compete with numerous other small public companies in seeking merger or acquisition candidates.
It will be impracticable for AMIH to conduct an exhaustive investigation prior to any business combination, which may lead to a failure to meet its fiduciary obligations to its shareholders.
To the extent that AMIH is limited to its available cash, which AMIH will continue to utilize to continue as a public company, and the fact that AMIH only has three officers and directors will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a target company. The decision to enter into a business combination, therefore, will likely be made without detailed feasibility studies, independent analysis, market surveys or similar information which, if AMIH had more funds available, would be desirable. AMIH will be particularly dependent in making decisions upon information provided by the principals and advisors associated with the business entity seeking our participation. Management may not be able to meet its fiduciary obligation to AMIH and AMIH stockholders due to the impracticability of completing thorough due diligence of a target company. By AMIH’s failure to complete a thorough due diligence and exhaustive investigation of a target company, AMIH is more susceptible to derivative litigation or other stockholder suits. In addition, this failure to meet its fiduciary obligations increases the likelihood of plaintiff success in such litigation.
AMIH has no current agreements in place for a business combination or other transaction, and currently has no standards for potential business combinations, and as a result, the management of AMIH has sole discretion regarding any potential business combination.
AMIH has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity. There can be no assurance that AMIH will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. The officers and directors and controlling shareholders of AMIH has complete control and discretion over whether or not AMIH will enter into a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. There is no assurance that AMIH will be able to negotiate a business combination on favorable terms. AMIH has not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which it will require a target company to have achieved, or without which AMIH would not consider a business combination with such business entity. Accordingly, AMIH may enter into a business combination with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics.
Reporting requirements may delay or preclude an acquisition.
The Act requires reporting companies such as AMIH, to provide certain information on Form 8-K / 12-G about significant acquisitions including audited financial statements for the company acquired and a detailed description of the business operations and risks associated with such company's operations. The time and additional costs that may be incurred by some target companies to prepare such financial statements and descriptive information may significantly delay or essentially preclude consummation of an otherwise desirable acquisition by AMIH. Additionally, acquisition prospects that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
AMIH has not conducted any market research regarding any potential business combinations.
AMIH has neither conducted, nor have others made available to it, market research indicating that demand exists for the transactions contemplated by AMIH. Even in the event demand exists for a transaction of the type contemplated by AMIH, there is no assurance AMIH will be successful in completing any such business combination.
AMIH does not plan to diversify its operations in the event of a business combination.
AMIH’s proposed operations, even if successful, will in all likelihood result in AMIH engaging in a business combination with only one target company. Consequently, AMIH’s activities will be limited to those engaged in by the business entity which AMIH will merge with or acquire. AMIH’s inability to diversify its activities into a number of areas may subject AMIH to economic fluctuations within a particular business or industry and therefore increase the risks associated with AMIH’s operations.
A business combination may result in a change in control in the management of AMIH.
A business combination involving the issuance of AMIH’s common stock may result in shareholders of a target company obtaining a controlling interest in the AMIH. Any such business combination may require AMIH shareholders to sell or transfer all or a portion of their common stock. The resulting change in control of the AMIH, if such change in control occurs, will likely result in removal of AMIH’s current officers and directors and a corresponding reduction in or elimination of their participation in the future affairs of the AMIH.
A business combination may result in a reduction of percentage share ownership.
AMIH’s primary plan of operation is based upon a business combination with a business entity which, in all likelihood, will result in AMIH issuing securities to shareholders of such business entity. The issuance of previously authorized and unissued common stock would result in a reduction in percentage of shares owned by AMIH’s present shareholders and could therefore result in a change in control of AMIH’s management.
Federal and state taxation rules could adversely affect any business combination AMIH may undertake.
Federal and state tax consequences will, in all likelihood, be major considerations in any business combination AMIH may undertake. Currently, such transactions may be structured so as to result in tax-free treatment to both companies, pursuant to various federal and state tax provisions. AMIH intends to structure any business combination so as to minimize the federal and state tax consequences to both AMIH and the target company; however, there can be no assurance that such business combination will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes which may adversely affect both parties to the transaction.
AMIH is required as a reporting company under the Exchange Act to be provided audited financial statements in connection with any business combination.
AMIH will require audited financial statements from any business entity we propose to acquire. No assurance can be given that a desirable target company will have available audited financials prior to the intended date of a business combination. In cases where audited financials are unavailable, AMIH will not be able to comply with the provisions of the Exchange Act which requires the filing of a Form 8-K/12G requiring full disclosure equivalent to that contained in a Form 10 together with audited financial statements within 4 business days of the execution of the agreement consummating a business combination transaction.
AMIH’s business will have no revenues unless and until it merges with or acquire an operating business or assets.
AMIH has had no revenues from operations for approximately the past nine months. AMIH may not realize any revenues unless and until it successfully merges with or acquire an operating business or material assets, of which there can be no assurance.
AMIH may issue more shares in connection with a merger or acquisition, which would result in substantial dilution.
AMIH’s Certificate of Incorporation authorizes the issuance of a maximum of 195,000,000 shares of common stock. Any merger or acquisition effected by AMIH may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of AMIH’s common stock held by the then existing stockholders. Moreover, the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm's-length basis by AMIH’s management, resulting in an additional reduction in the percentage of common stock held by the then existing stockholders. AMIH’s Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of AMIH’s stockholders will occur and the rights of the holders of common stock might be materially adversely affected.
AMIH cannot assure that following a business combination with an operating business that it will be able to quote our common stock on the OTCBB.
Following a business combination, AMIH may seek the listing of its common stock on the OTCBB. After completing a business combination, until AMIH’s common stock is listed on the OTC Bulletin Board, its common stock will be listed on the "pink sheets," where AMIH’s stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of AMIH’s common stock. In addition, AMIH would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling AMIH’s common stock, which may further affect its liquidity. This would also make it more difficult for AMIH to raise additional capital following a business combination. Additionally, there can be no assurances that AMIH will be able to obtain listing on the OTC Bulletin Board, which failure could cause its common stock become worthless.
Principal stockholders may engage in a transaction to cause AMIH to repurchase their shares of common stock.
In order to provide control of AMIH to a third party, AMIH’s principal stockholders may choose to cause AMIH to sell securities to third parties, with the proceeds of such sale being utilized for AMIH to repurchase shares of common stock held by such principal stockholders. As a result of such transaction, AMIH’s management, principal stockholders and Board of Directors may change.
RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
Market prices of our equity securities can fluctuate significantly
The market prices of our common stock may change significantly in response to various factors and events beyond our control, including the following:
- the other risk factors described in this Form 10-K;
- changing demand for our products and services and ability to develop and generate sufficient revenues;
- any delay in our ability to generate operating revenue or net income from new products and services;
- general conditions in markets we operate in;
- general conditions in the securities markets;
- issuance of a significant number of shares, whether for compensation under employee stock options, conversion of debt, potential acquisitions, stock dividends and additional financing using equity securities or otherwise.
Compliance with Penny Stock Rules
As the result of the fact that the market price for our common stock has been below $5 per share, our common stock is considered a "penny stock" as defined in the Exchange Act and the rules thereunder. Unless our common stock is otherwise excluded from the definition of "penny stock," the penny stock rules apply with respect to that particular security. The penny stock rules require a broker-dealer prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock is subject to the penny stock rules, it may become more difficult to sell such securities. Such requirements, if applicable, could additionally limit the level of trading activity for our common stock and could make it more difficult for investors to sell our common stock.
Shares eligible for future sale
As of December 31, 2012, the Registrant had 1,619,714 shares of common stock issued, 550,409 shares are "restricted" as that term is defined under the Securities Act, and in the future may be sold in compliance with Rule 144 under the Securities Act. Rule 144 generally provides that a person holding restricted securities for a period of one year may sell every three months in brokerage transactions and/or market-maker transactions an amount equal to the greater of one (1%) percent of (a) the Company's issued and outstanding common stock or (b) the average weekly trading volume of the common stock during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who has not been an affiliate of the Company during the three months preceding the sale and who has satisfied a two-year holding period. However, all of the current shareholders of the Company owning 5% or more of the issued and outstanding common stock are subject to Rule 144 limitations on selling.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns the 38,500 square foot warehouse and office facility utilized by NPI. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale (see notes 4 and 9).
During 2014, NPI sold the 38,500 square feet of warehouse facility for $1,325,000 cash and leased it back from the buyer at a monthly rent of $10,125 for 10 years with no bargain purchase option at the end of the lease term.
The Company's executive offices which consist of 1,892 square feet are leased from an unaffiliated third party for $3,476 per month.
The Company believes its various facilities are adequate to meet current business needs, and that its properties are adequately covered by insurance.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
American International Industries, Inc. v. William W. Botts. American filed this lawsuit against William W. Botts (“Botts”) seeking damages as a result of a Stock Purchase Agreement and Consulting Agreement that American entered into with Botts on September 12, 2007. Under the Stock Purchase Agreement, American gave Botts $1,000,000 in cash and 28,800 shares of restricted AMIN stock (24,000 original shares plus a 20% stock dividend) for 170,345 shares of OI Corporation. As part of the original agreement, Botts had the right to sell the 28,800 shares back to American for $41.70 per share. Under the Consulting Agreement, American agreed to pay Botts $14,000 per month, plus expenses for performing consulting services. On or about November 5, 2008, American paid Botts $100,000 to terminate the Consulting Agreement to stop the accrual of monthly consulting payments to Botts. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note (note 10) with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 28,800 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 110,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts.
On July 1, 2012, the parties reached another settlement, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note. The remaining $49,281 was recorded as Botts lawsuit settlement expense during the year ended December 31, 2012.
American International Industries, Inc. v. Rubicon Financial Incorporated. On March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 20,000 restricted shares of American's common stock, valued at $49.00 per common share based upon the closing market price on the date of acquisition.
On August 19, 2011, American was granted a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus attorney's fees and accrued interest at 5% per annum by the 281st District Court, following which American, through California counsel, commenced a separate proceeding seeking to enforce the judgment against Rubicon in a court of competent jurisdiction in Orange County, CA.
Rubicon has filed a separate action with the same District Court in Harris County, TX, seeking to have the judgment vacated and seeking sanctions against American. On May 1, 2012, the default judgment was vacated by the District Court but Rubicon's demand for sanctions was denied. The District Court determined that American would not suffer injury.
On May 24, 2012, American filed a motion seeking an order in effect rescinding its May 1, 2012 order that had vacated the default judgment against Rubicon. On July 12, 2012, the Court granted American's motion and ordered a new trial on the issue of whether Rubicon was negligent in failing to appear before the Court in the proceeding that resulted in the grant of the $2 million default judgment on August 19, 2011.
As a result of the July 12, 2012 order, American has been informed by its Texas counsel that the default judgment against Rubicon remains in full force and effect. American has also been informed by its California counsel that it plans to file a motion seeking a stay in the California proceeding pending the final determination of the District Court in Harris County, TX. American believes that it will prevail on the merits in this proceeding against Rubicon in the District Court, Harris County, and that it will be able to successfully enforce a final judgment of approximately $2 million plus interest in California.
On May 7, 2013, a settlement agreement was reached, whereby American received $7,500 from Rubicon and Joe Mangiapane, Jr. for the release of all claims arising out of or in connection with this suit.
Consumer Advocacy Group, Inc. v. Northeastern Plastics, Inc. and American International Industries, Inc . In October 2012, NPI and American entered into a settlement agreement with Consumer Advocacy Group, Inc., whereby NPI agreed to cease distribution and/or sales of the Bitty Booster Cable 10 Gauge 10 ft. product in California and to pay $54,000 in attorney’s fees and $1,000 in lieu of a civil penalty. The amount of $55,000 was recorded as the NPI settlement during the year ended December 31, 2012.
Shumate Machine Works, Inc. v. American International Industries, Inc. In September 2012, American entered into a settlement agreement with Shumate Machine Works, Inc. relating to a tax liability issue associated with American’s purchase of Shumate Machine Works, Inc. in 2008, whereby American agreed to pay $40,000 to HII Technologies, Inc. Under the agreement, American paid $20,000 in cash and entered into a promissory note agreement for the remaining $20,000, with interest of 4% per year, payable in installments of $1,000 monthly through March 2014. Additionally, American transferred its 296,000 shares of HII Technologies, Inc. common stock for attorney’s fees, which were recorded at $0 on American’s balance sheet. Previously, American had fully recognized trading losses associated with these shares. The $40,000 settlement amount was recorded as the Shumate settlement during the year ended December 31, 2012.
American Inernational Industries, Inc. v. Juan Carlos Martinez. In 2002 American acquired 100% of Marald, Inc. from Juan Carlos Martinez. Mr. Martinez continued as an employee and President of Marald. A few months after the acquisition date, Mr. Martinez notified American that he would resign and demanded that Marald be sold back to him. American sold Marald to Mr. Martinez for $225,000 and two 10 year promissory notes for $300,000. In October 2007, no payments had been made, causing the notes to go into default. In May 2010, American agreed to cancel the notes in exchange for a new $300,000 personal note with Mr. Martinez. During 2013, the note entered into default status due to non-payment. Under the terms of the note, American accelerated the maturity with the entire unpaid principal balance plus all interest at a default rate of 18% is immediately due and payable.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently quoted under the symbol AMIN on the OTCBB. For the periods indicated, the following table sets forth the high and low trade prices per share of common stock. The below prices represent inter-dealer trades without retail markup, markdown, or commission and may not necessarily represent actual transactions.
The Company believes that as of December 31, 2013, there were approximately 1,100 owners of its common stock.
Issuer purchases of equity securities
On August 23, 2010, the Company announced that its Board of Directors approved a stock repurchase program, effective August 23, 2010. Under the program, the Company is authorized to repurchase up to $1,000,000 of its outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. The repurchases may be made on the open market, in block trades or otherwise. The program may be suspended or discontinued at any time. The stock repurchase program will be funded using the Company’s working capital. During 2012, the Company purchased 148,327 shares under this plan at an average price paid per share of $1.50. During 2013, the Company purchased 45,823 shares under this plan at an average price paid per share of $1.67.
The following table provides information with respect to purchases made by or on behalf of the Corporation or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Corporation’s common stock during the fourth quarter of 2013.
Dividend Policy
Holders of our common stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. There are no restrictions in our articles of incorporation or by-laws that restrict us from declaring dividends. During prior years it has been the policy of the Company not to pay cash dividends and to retain future earnings to support our growth. Any payment of cash dividends in the future will be dependent upon the amount of funds legally available therefore, the Company's earnings, financial condition, capital requirements and other factors that the Board of Directors may deem relevant. The Board of Directors will continue to evaluate the Company's earnings, financial condition, capital requirements and other factors in any future determination to declare and pay cash and/or stock dividends.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to equity compensation plans under which our common stock is authorized for issuance as of December 31, 2013.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
Certain statements included or incorporated by reference in this Annual Report on Form 10-K may be deemed "forward looking statements" within the meaning of the federal securities laws. In many cases, these forward looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," or similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. Our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties.
General
American International Industries, Inc, (the “Company”, “American International”) is a growing investment organization that takes an active role in the companies it invests in to foster growth and profitability through its financial resources and its management expertise. American International has interests in Industry, Finance, Real Estate and Oil & Gas.
American International acts as a professional and financial partner to improve its subsidiary's access to capital, market share and revenues. The company's business strategy is based on two distinct concepts; control combined with active management assistance and financial partnerships.
The combination of these concepts is based on efficient and smooth integration of American International's designated management team and proven procedures into each company. Even in cases where American International acquires controlling interest of a company, it still practices gradual transition, thus ensuring the support of the company's long-term shareholders.
By operating as a holding company, American International serves both as a financial and professional business savvy partner for its subsidiaries. Its role is to improve each portfolio company's access to potential capital, help them benefit from the economics of scale through the consolidation of administrative functions, and to provide universal access to the financial and management expertise of each company's corporate personnel.
American International Industries, Inc. (AMIN), the holding company, has its own portfolio of diversified investments such as cash, receivables, stocks portfolio, etc. In addition, AMIN, as a holding company, owns three (3) operating companies, Brenham Oil & Gas, Corp. (“engaged in the acquisition of petroleum resources”), Northeastern Plastics, Inc. (“supplier of automotive aftermarket & electrical products”) and American International Texas Properties, Inc. (“investments” in Real Estate). Each of the above described operating subsidiaries has its own management team, revenues and profits base; however, AMIN the holding company itself derives its own profits primarily from the sale of assets, which sale of assets may depend on market conditions, USA and world economic conditions, and other unforeseen factors. The holding company costs of operating are substantial, such as home office, general and administrative, professional, accounting and auditing fees, governance, compliance costs and the cost of a responsible Board of Directors and related expenses. Since its inception, and over twelve (12) years, AMIN acquired and sold operating companies, real estate, and other investments, with most sales of its assets resulting in profits.
American International's management team and its subsidiaries management teams have acquired substantial experience and expertise in the industries its portfolio companies operate in. This allows it to significantly contribute to the development and expansion of each business' operations. This creative mentor-type relationship is reinforced further by American International's extensive participation in each company's board of directors.
American International's asset portfolio consists of the following subsidiaries:
Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
American International Holdings Corp. (“AMIH”) formerly Delta Seaboard International ("Delta") - a 93.2% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry. Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation was a wholly-owned subsidiary of AMIH. On April 3, 2012, AMIH sold the operating assets and liabilities of DSWSI.
Brenham Oil & Gas ("BOG") - a 53.3% owned subsidiary that currently owns oil and gas properties. Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.
American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.
We intend to continue our efforts to grow through the acquisition of additional and complementary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complementary businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples and which present opportunity for growth and profitability. These efforts will include the application of improved access to financing and management expertise afforded by synergistic relationships between the Company and its subsidiaries. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with our expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity. Periodically as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to the holding company and our shareholders and to enable the Company to acquire larger companies.
The Company’s real estate investment policy historically has been to acquire real estate for resale based upon our view of market conditions. Such properties are listed on the balance sheet as real estate acquired for resale. Real estate is not a segment of the Company's business.
We expect 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 we will be able to identify, acquire or manage profitably of 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 our operating results, diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities. Some or all of which could have a material adverse effect on our business, financial condition and results of operations. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. It is our current intention to finance future acquisitions by using shares of our common stock and other forms of financing as the consideration to be paid. In the event that the common stock does not have and 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, we may be required to seek other forms of financing in order to proceed with our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional equity or debt financing at terms acceptable to the Company.
Corporate overhead includes our investment activities for financing current operations and expansion of our current holdings, as well as evaluating the feasibility of acquiring additional businesses.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to our consolidated financial statements for the years ended December 31, 2013 and 2012.
Allowance for Doubtful Accounts
American’s ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. American extends credit to customers and other parties in the normal course of business. American regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, American makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. When American determines that a customer may not be able to make required payments, American increases the allowance through a charge to income in the period in which that determination is made. Though American’s bad debts have not historically been significant, we could experience increased bad debt expense should a major customer or market segment experience a financial downturn or our estimate of uncollectible accounts, which is based on our historical experience, prove to be inaccurate.
Inventories
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis. American assesses the realizability of its inventories based upon specific usage and future utility. American’s subsidiaries regularly evaluate their inventory and maintain a reserve for excess or obsolete inventory. Generally, American’s subsidiaries record an impairment allowance for products with no movement in over twelve months that they believe to be either unsalable or salable only at a reduced selling price. Management further uses their judgment in evaluating the recoverability of all inventory based upon known and expected market conditions. A charge to income is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.
Off-Balance Sheet Arrangements
As of December 31, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
New Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
RESULTS OF OPERATION
We have three reporting segments and corporate overhead: Northeastern Plastics ("NPI"), American International Holdings Corp. (“AMIH”), , American International Texas Properties, Inc. ("AITP"), Brenham Oil & Gas ("BOG") and corporate overhead.
YEAR ENDED DECEMBER 31, 2013 VERSUS YEAR ENDED DECEMBER 31, 2012
Net revenues. Revenues from continuing operations were $7,158,087 for the year ended December 31, 2013, compared to $7,982,893 for the year ended December 31, 2012, representing a decrease of $824,806 or 10.33%. NPI's revenues decreased by $826,760, or 10.42%, to $7,107,732 for the year ended December 31, 2013, compared to $7,934,492 for the same period in the prior year. NPI's revenues decreased primarily because of lower revenues with one of its principal customers. NPI has added several new customers to replace this business and expects to add additional medium to large customers in the year 2014. For the years ended December 31, 2013 and December 31, 2012, Brenham's revenues were $36,483 and $781, respectively. For the year ended December 31, 2013 and December 31, 2012, AITP's revenues were $13,872 and $47,620.
Cost of sales and margins. Cost of sales for the year ended December 31, 2013 was $5,459,145, compared to $6,083,875 for the year ended December 31, 2012. Our gross margins for the year ended December 31, 2013 were 23.73% compared to gross margins for the year ended December 31, 2012 of 23.80%.
Selling, general and administrative. Consolidated selling, general and administrative expenses for the year ended December 31, 2013 were $3,574,646, compared to $4,115,964 in the prior year, representing a decrease of $541,318, or 13.15%. General and administrative expenses for the years ended December 31, 2013 and 2012 included non-cash stock-based compensation of $342,880 and $147,574, respectively.
Loss on sale of assets. Loss on sale of assets for the year ended December 31, 2013 was $103,174, compared to loss on the sale of assets of $330,277 for the year ended December 31, 2012. During the year ended December 31, 2013, two Dawn Condominium units were sold for $160,334, resulting in a loss on sale of assets of $103,174. During the year ended December 31, 2012, six Dawn Condominium units were sold for $553,621, resulting in a loss on sale of assets of $169,352. During the year ended December 31, 2012, 14 acres of vacant commercial use land in Houston, Texas was granted to a third party to save on property taxes associated with holding this property, resulting in a loss of $160,925. (see Note 6 to the consolidated financial statements).
Income (loss) from operations. We had an operating loss of $2,021,878 for the year ended December 31, 2013 compared to $2,547,223 for the year ended December 31, 2012.
Total other income/expenses. Other expenses were $17,252 for the year ended December 31, 2013, compared to $304,897 for the year ended December 31, 2012. Other expenses for the year ended December 31, 2012 included expenses of $49,281 for the Botts lawsuit settlement, $55,000 for NPI’s lawsuit settlement, and $40,000 for the Shumate lawsuit settlement. Other expenses for the year ended December 31, 2012 included non-cash unrealized losses on trading securities of $6,227. Realized gains on trading securities for the year ended December 31, 2013 were $252,143 compared to gain of $41,447 for the year ended December 31, 2012. Interest expense was $246,807 during the year ended December 31, 2013, compared to $246,230 during the same period in the prior year.
Net loss. We had a consolidated net loss from continuing operations of $2,067,073, or $0.98 per share, for the year ended December 31, 2013, compared to $2,844,405, or $1.56 per share, for the year ended December 31, 2012. We had net income from discontinued operations of $0, or $0.00 per share, for the year ended December 31, 2013, compared to a net income of $195,810, or $0.13 per share, for the year ended December 31, 2012. Discontinued operations for the year ended December 31, 2012 includes a gain on disposal of DSWSI’s assets and liabilities of $1,118,327 for the total consideration of $2,620,000 less DSWSI's assets and associated liabilities of $1,501,673 (see Note 7 to the consolidated financial statements). Net income from discontinued operations for the year ended December 31, 2012 includes DSWSI's net loss of $922,517.
Our net loss was $1,784,681, or $0.98 per share, for the year ended December 31, 2013, compared to $2,130,266, or $1.43 per share, for the year ended December 31, 2012.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is our ability to generate sufficient cash flows to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently, our liquidity needs arise primarily from working capital requirements, debt service on indebtedness, and capital expenditures.
Capital expenditures for the year ended December 31, 2013 were $47,679 compared to $3,510 for the same period in the prior year. The Company has no major capital expenditure commitments for the next 12 months.
The Company's prospects for selling real estate from its portfolio have improved significantly due to infrastructure developments in close proximity to these properties. Management believes that demand and prices for real estate will increase during the next 12 months from the date of this report. The appraised values of certain of the Company's portfolio of real estate are significantly higher than the value recorded on the balance sheet.
For the year ended December 31, 2013, our investing activities provided cash of $1,098,825, compared to $2,547,199 during the year ended December 31, 2012. Our financing activities used cash of $405,555 during the year ended December 31, 2013, compared to net cash provided of $402,998 during the year ended December 31, 2012.
NPI has a line of credit from Trustmark Bank in the amount of $2,000,000, which has a maturity date of April 30, 2014.
We believe that our cash on hand, operating cashflows, and credit facilities will be sufficient to fund our operations, service our debt, and fund planned capital expenditures for at least 12 months from the date of this report.
Total assets at December 31, 2013 were $14,772,398, compared to $16,578,479 at December 31, 2012, representing a decrease of $1,806,081. At December 31, 2013, consolidated working capital was $7,028,461 compared to working capital of $9,239,149 at December 31, 2012, representing a decrease of $2,210,688. Total assets as of December 31, 2013, included real estate held for sale of $8,421,465, inventories of $1,495,030, accounts receivable of $1,365,460, cash and cash equivalents of $715,752, $889,218 in notes receivable, and $771,728 of property and equipment.
We had total liabilities of $5,434,432 as of December 31, 2013, which included $5,076,912 of current liabilities, mainly consisting of $1,245,792 of accounts payable and accrued expenses and $3,497,808 of current installments of long-term debt.
Cash flow from operations. Net cash used in operating activities from continuing operations was $994,152 for the year ended December 31, 2013, compared to $2,802,989 for the year ended December 31, 2012. Net cash used in operating activities for the year ended December 31, 2013 was derived from our net loss from continuing operations of $2,067,073, which included non-cash expenses, including depreciation and amortization of $93,086 and share-based compensation of $342,880.
Our net loss from continuing operations for the year ended December 31, 2013 included a loss on the sale of assets of $103,174, compared to $330,277 for the year ended December 31, 2012. Accounts receivable decreased by $621,201 during the year ended December 31, 2013 compared to an increase of $974,839 during the same period in 2012. Accounts payable decreased by $362,880 during the year ended December 31, 2013, compared to an increase of $414,385 during the same period in 2012. Our inventories decreased by $275,274 for the year ended December 31, 2013, compared to a decrease of $72,711 during the year ended December 31, 2012.
Cash flow from investing activities. Our investing activities provided cash of $1,098,825during the year ended December 31, 2013, primarily as a result of proceeds from the sale of trading securities of $3,374,885 and proceeds from notes receivable of $848,702, offset by the purchase of trading securities of $3,017,917. For the year ended December 31, 2012, our investing activities provided cash of $2,547,199 primarily as a result of proceeds from the sale of the assets of DSWSI of $1,600,000, proceeds from the sale of real estate held for sale of $553,621 and proceeds from notes receivable of $315,417, proceeds from the sale of trading securities of $596,280, offset by the purchase of trading securities of $374,727 and the costs of securing patents and trademarks of $139,882.
Cash flow from financing activities. During the year ended December 31, 2013 our financing activities used cash of $405,555, primarily as a result of payments on debt of $493,085 and payments for acquisition of treasury stock of $159,110, offset by proceeds from sale of common stock of subsidiary of $200,000. Our financing activities provided cash of $402,998 during the year ended December 31, 2012, primarily as a result of net borrowings under lines of credit agreements of $1,017,000, offset by payments on debt of $282,671, payments for the acquisition of treasury stock of $223,113, and loans to related parties of $177,965
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
American International Industries, Inc.
Kemah, Texas
We have audited the accompanying consolidated balance sheets of American International Industries, Inc. and Subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of American International Industries, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the periods described above then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
April 15, 2014
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
See accompanying notes to the consolidated financial statements.
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
See accompanying notes to the consolidated financial statements.
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
See accompanying notes to the consolidated financial statements.
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
See accompanying notes to the consolidated financial statements.
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Notes to Audited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Organization, Ownership and Business
American International Industries, Inc. ("American"), a Nevada corporation, operates as a diversified holding company with a number of wholly-owned subsidiaries and some partially owned subsidiaries. American is a diversified corporation with interests in industrial/commercial companies and an oil and gas service business. American's business strategy is to acquire controlling equity interests in businesses that it considers undervalued. American's management takes an active role in providing its subsidiaries with access to capital, leveraging synergies and providing management expertise in order to improve its subsidiaries' growth.
Principles of Consolidation
The consolidated financial statements include the accounts of American and its wholly-owned subsidiaries Northeastern Plastics, Inc. ("NPI") and American International Texas Properties, Inc. ("AITP"), American International Holdings Corp. (“AMIH”), formerly Delta Seaboard International, Inc. ("Delta"), in which American holds a 93.2% shareholder interest, and Brenham Oil & Gas Corp. (“BOG”), in which American holds a 51.0% interest. All significant intercompany transactions and balances have been eliminated in consolidation.
On October 17, 2012, American effected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for ten (1:10) basis. All share and per share amounts for American contained in these financial statements have been retroactively adjusted to reflect the reverse stock split.
On August 13, 2012, AMIH effected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for one hundred (1:100) basis. All share and per share amounts for AMIH contained in these financial statements have been retroactively adjusted to reflect the reverse stock split.
On April 3, 2012, AMIH entered into an Asset Purchase Agreement with Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, who were Delta's president and director and vice-president and director, respectively, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and a wholly-owned subsidiary of AMIH, and American.
The agreement provided, among other things, that: (i) AMIH sell, transfer and assign the assets and liabilities of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resign as executive officers and as members of AMIH’s board of directors; and (iii) Messrs. Derrick and Burleigh transfer and assign all of their 319,258 AMIH shares valued at $624,704 to American. In consideration for the sale, transfer and assignment of the DSWSI net assets to Purchaser, Purchaser paid $1,600,000 in cash at the closing and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000, of which $220,000 was paid prior to December 31, 2012. Total consideration for the sale was $2,620,000. On February 27, 2013, AMIH received $800,000 in payment of the balance due on the note receivable from Messrs. Derrick and Burleigh.
Discontinued operations for the year ended December 31, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the initial consideration of $3,000,000 less DSWSI's operating assets and associated liabilities of $1,501,673. DSWSI's net loss of $922,517 for the year ended December 31, 2012 is included in discontinued operations. On December 19, 2012, the $1,400,000 note receivable from the sale of DSWSI’s assets was sold to Messrs. Derrick and Burleigh for $1,020,000, and the gain on disposal of DSWSI was reduced by $380,000 to $1,118,327.
Reclassifications
Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented.
Cash and Equivalents
American considers cash and equivalents to include cash on hand and certificates of deposits with banks with an original maturity of three months or less, that American intends to convert.
Accounts Receivable
Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.
Allowance for Doubtful Accounts
American extends credit to customers and other parties in the normal course of business. American regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, American makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. When American determines that a customer may not be able to make required payments, American increases the allowance through a charge to income in the period in which that determination is made.
Notes Receivable
Notes receivable are carried at the expected net realizable value. Impairment of notes receivable is based on management's continued assessment of the collectability of debtors.
Inventories
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis and includes the cost of the inventories and freight. American assesses the realizability of its inventories based upon specific usage and future utility. A charge to income is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.
Investment Securities
American accounts for its investments in accordance with ASC 320-10, "Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which American does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
Oil and Gas Properties, Full Cost Method
BOG uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities, are capitalized as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. BOG assesses overall values of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future development of individually significant properties and the ability of BOG to obtain funds to finance their programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
Under this method, sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the consolidated statements of operations.
Costs of oil and gas properties are amortized using the units of production method under this method. Depletion expense calculated per equivalent physical unit of production amounted to $0.44 per barrel of oil equivalent for the year ended December 31, 2013.
Ceiling Test
In applying the full cost method, BOG performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of oil and gas properties is compared to the “estimated present value” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. During the years ended December 31, 2013 and 2012, no impairment of oil and gas properties was recorded.
Property, Plant, Equipment, Depreciation, Amortization and Long-Lived Assets
Long-lived assets include:
Property, Plant and Equipment - Assets acquired in the normal course of business are recorded at original cost and may be adjusted for any additional significant improvements after purchase. We depreciate the cost evenly over the assets’ estimated useful lives. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense.
Identifiable intangible assets - These assets are recorded at acquisition cost. Intangible assets with finite lives are amortized evenly over their estimated useful lives.
At least annually, we review all long-lived assets for impairment. When necessary, we record changes for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets.
If the carrying amount of a reporting unit exceeds its fair value, we measure the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets (Step Two Analysis). The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities (“carrying amount”) is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. At December 31, 2013 and 2012, American completed its annual impairment testing of goodwill. During, each year, there were no events or circumstances that would have indicated potential impairment. At December 31, 2013 and 2012, the carrying amount of NPI did not exceed its fair value and as a result, no impairment loss was recognized.
Revenue Recognition
Revenue is recognized when the earnings process is completed, the risks and rewards of ownership have transferred to the customer, which is generally the same day as delivery or shipment of the product, the price to the buyer is fixed or determinable, and collection is reasonably assured. Delta receives purchase orders for all of its service work and related pipe sales. All sales are recorded when the work is completed or when the pipe is sold. NPI has purchase orders for all sales, of which many of the items are requested to be container shipped and shipped directly to the end users. All sales are recorded when the inventory items are shipped. Taxes assessed by a governmental authority that are incurred as a result of a revenue transaction are not included in revenues. American has no significant sales returns or allowances.
Income Taxes
American is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.
American has adopted ASC 740-10 “Accounting for Uncertainty in Income Taxes” which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740-10 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2013, American had not recorded any tax benefits from uncertain tax positions.
Net Income (Loss) Per Common Share
The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2013 and 2012, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net income (loss) per common share. These securities include 10,000 options to purchase shares of common stock that were not "in the money".
Advertising Costs
The cost of advertising is expensed as incurred.
Management's Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
Stock-Based Compensation
American sometimes grants shares of stock for goods and services and in conjunction with certain agreements. These grants are accounted for based on the grant date fair values.
Fair Value of Financial Instruments
Effective January 1, 2008, American adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Basis of Fair Value Measurement
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Unobservable inputs reflecting American's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
American believes that the fair value of its financial instruments comprising cash, accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts. The interest rates payable by American on its notes payable approximate market rates. The fair values of American's Level 1 financial assets, trading securities and marketable securities - available for sale that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security. As of December 31, 2013 and 2012, American did not have any significant Level 2 or 3 financial assets or liabilities.
The following tables provide fair value measurement information for American's trading securities and marketable securities - available for sale:
Subsequent Events
American has evaluated all transactions from December 31, 2013 through the financial statement issuance date for subsequent event disclosure consideration.
New Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
Note 2 - Concentrations of Credit Risk
American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. The FDIC no longer has limits on non-interest bearing accounts. American has not incurred losses related to these deposits.
Trade accounts receivable subject American to the potential for credit risk with customers in the retail and distribution sectors. To reduce credit risk, American performs ongoing evaluations of its customer’s financial condition but generally does not require collateral. As of and during the year ended December 31, 2013, the Company had one customer that accounted for 14.8% of revenues and 19.8% of trade accounts receivable, one customer that accounted for 13.6% of revenues and 12.7% of accounts receivable, and one customer that accounted for 14.2% of revenues.
Note 3 - Trading Securities and Marketable Securities - Available for Sale
Investments in equity securities primarily include shares of common stock in various companies that are bought and held principally for the purpose of selling them in the near term with the objective of generating profits on short-term differences in price. These investments are classified as trading securities and, accordingly, any unrealized changes in market values are recognized in the consolidated statements of operations. For the years ended December 31, 2013 and 2012, American had net unrealized trading losses of $48,416 and net unrealized trading losses of $6,227, respectively, related to securities held on those dates. American recorded net realized gains of $252,143 and net realized gains of $41,447 for the years ended December 31, 2013 and 2012, respectively.
On June 21, 2010, American received as compensation for consulting services 1,000,000 restricted shares of ADB International Group, Inc. ("ADBI") common stock valued at $1,370,000, based on the closing market price of $1.37 per share on that date. On December 8, 2010, American purchased an additional 300,000 shares for $35,000. This investment is classified as marketable securities - available for sale and, accordingly, any unrealized changes in market values are recognized as other comprehensive loss. At December 31, 2013 and 2012, this investment was valued at $8,000, and $65,000, respectively, based on the closing market price of $0.05 and $0.01, respectively, per share on those dates. American recognized other comprehensive losses of $57,000 for the year ended December 31, 2013, and other comprehensive income of $57,200 for the year ended December 31, 2012 for the unrealized changes in market values for this investment.
Equity markets can experience significant volatility and therefore are subject to changes in value. Based upon the current volatile nature of the U.S. securities markets and the decline in the U.S. economy, we believe that it is possible, that the market values of our equity securities could decline in the near term. We have a policy in place to review our equity holdings on a regular basis. Our policy includes, but is not limited to, reviewing each company’s cash position, earnings/revenue outlook, stock price performance, liquidity and management/ownership. American seeks to manage exposure to adverse equity returns in the future by potentially increasing the diversity of our securities portfolios.
Note 4 - Notes Receivable
Short-term notes receivable consists of the following:
Notes receivable - related party:
On July 13, 2012, the Company and Daniel Dror II entered into an agreement whereby the Company agreed to purchase from Daniel Dror II a 50% interest in 96 acres in Galveston, Texas for $1,810,000, of which $181,000 was paid immediately (recorded as note receivable - related party as of December 31, 2012) and the remaining $1,629,000 was due at closing. On January 22, 2013, the Company agreed to an amended contract which changed the terms of the purchase of the land. Also, on January 22, 2013, the Board of Directors of American approved the purchase of a 50% interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II. The note receivable was assigned to KDT. Daniel Dror II is the adult son of Daniel Dror, American’s Chairman, Chief Executive Officer, and President. KDT is owned by an entity which is controlled by the brother of Daniel Dror. This property is recorded on the balance sheet as “Real estate held for sale” for $541,000.
Long-term note receivables consist of the following:
(a) Sale of Marald, Inc., principal and interest due monthly through June 1, 2022. The original note was for $300,000 and was discounted to $200,000 for the receipt of full payment on or before October 25, 2007. In July 2012, payments began under a new extension and renewal agreement for the note balance plus accrued interest, with the payment terms indicated above. Since April 2013, no payments have been received on this note. American has filed a lawsuit for the total amount owed plus interest and attorney’s fees. The Company believes this receivable is fully collectible, but has classified the receivable as long-term at December 31, 2013.
(b) Unsecured note receivable due April 1, 2018. This note was issued for $601,300. This note was previously owed by Southwest Gulf Coast Properties, Inc. ("SWGCP") resulting from closing costs, principal and interest paid by American on the SWGCP loan at TXCB. In February, SWGCP obtained a judgment against Kentner Shell ("Shell"), who personally guaranteed the note, for $4,193,566 for matters related to these condominiums. On September 30, 2011, SWGCP assigned all of its interests in this judgment to American in exchange for this note and $10. On April 1, 2013, American and Shell executed a $620,000 note agreement whereby Shell will make monthly payments in the amount of $5,000, beginning May 1, 2013, with a balloon payment for the remaining amount owed due on or before April 1, 2018.
At December 31, 2013, American has reserved a total of $19,523 on all notes receivable in the aggregate due to uncertainty of collectability. American believes this reserve remains appropriate at December 31, 2013.
Interest income on notes receivable is recognized principally by the simple interest method. During the years ended December 31, 2013 and 2012, American recognized interest income of $65,069 and $60,103, respectively, on the notes receivable.
Note 5 - Inventories
Inventories consisted of the following:
Note 6 - Real Estate Held for Sale
Real estate held for sale consisted of the following:
(a) Dawn Condominium units on the waterfront in Galveston, Texas- During the year ended December 31, 2013, two Dawn Condominium units were sold for a total of $160,334, resulting in a total loss on sale of assets of $103,174.
(b) 50% interest in 96 acres of vacant commercial use land in Galveston County, Texas- On January 22, 2013, the Board of Directors of American approved the purchase of a 50% undivided interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II.
(c) 31 acres - vacant mixed use land in Houston, Texas - During 2013, the Company recorded a $43,000 impairment to write down the land to its estimated net realizable value.
(d) 17 acres - vacant mixed use land in Houston, Texas- During the year ended December 31, 2013, NPI transferred this 17-acre tract of land from property and equipment to real estate held for sale. This property has been listed with a broker and American is actively pursuing a sale of this property.
American reviewed the accounting standards Real Estate - General (ASC 970-10) and Property, Plant, and Equipment (ASC 360-10) to determine the appropriate classification for these properties. According to ASC 970-10, real estate that is held for sale in the ordinary course of business is classified as inventory, which is a current asset. ASC 360-10 provides the following criteria for property to be classified as held for sale:
1) Management with the appropriate authority commits to a plan to sell the asset;
2) The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
3) An active program to locate a buyer and other actions required to complete the plan of sale have been initiated;
4) The sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale;
5) The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
6) Actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Management consulted with the real estate brokers for these properties and reviewed the recent interest for each property. Based on our consultations and review, we believe that the sale of these properties within one year is probable. We concluded that all of these criteria have been met for these properties and that they are appropriately classified as held for sale in current assets.
Note 7 - Sale of DSWSI
On April 3, 2012, AMIH sold all of the assets and liabilities of DSWSI.
Discontinued operations for the year ended December 31, 2012 includes a gain on sale of DSWSI of $1,118,327 for the initial consideration of $2,620,000 less DSWSI's assets and associated liabilities of $1,501,673. DSWSI's net loss of $922,517 for the year ended December 31, 2012 is included in discontinued operations.
The gain on sale of DSWSI is summarized below:
(1) Face value of this note receivable was originally $1,400,000. On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000, and the gain on disposal of DSWSI was reduced by $380,000 to $1,118,327.
DSWSI's revenues and net loss before income tax and gain on disposal of discontinued operations are summarized below:
Note 8. Oil and Gas Properties
The Company follows the full cost method of accounting for its investments in oil and natural gas properties. All costs incurred in the acquisition, exploration and development of oil and natural gas properties, including unproductive wells, are capitalized. During the years ended December 31, 2013 and 2012, $177,055 and $0, respectively, of such costs were capitalized.
We recorded $1,982 and $0 of depletion expense during the years ended December 31, 2013 and 2012, respectively. Costs of oil and gas properties are amortized using the units of production method.
In applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of oil and gas properties is compared to the “estimated present value” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. During the years ended December 31, 2013 and 2012, no impairment of oil and gas properties was recorded.
Below are the components of oil and gas properties balance:
a) Royalty interest in 24 acres in Washington County, Texas- We have an oil and gas mineral royalty interest, covering a twenty-four acre tract of land located in Washington County, Texas, which is carried on the balance sheet at $0. The royalty interest is currently leased by Anadarko Petroleum Corporation for a term continuing until the covered minerals are no longer produced in paying quantities from the leased premises. Royalties on the minerals produced are currently incidental and paid to BOG as follows: (i) for oil and other liquid hydrocarbons, and (ii) for gas (including casing-head gas), the royalty is one-sixth of the net proceeds realized by Anadarko Petroleum Corporation on the sale thereof, less a proportionate part of ad valorem taxes and production, severance, or other excise taxes. In addition, BOG 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 in leased premises, or lands pooled therewith, are capable of producing paying quantities, but such wells are either shut-in or production is not being sold.
b) Royalty interest in 700 acres in the Permian Basin- On July 22, 2011, BOG entered into an Asset Purchase and Sale Agreement with Doug Pedrie, Davis Pedrie Associates, LLC and Energex Oil, Inc. (“Sellers”), pursuant to which BOG acquired 700 acres of unproved property located in the Permian Basin near Abilene, Texas. The agreement provided for the Sellers to complete all oil lease assignments by August 15, 2011. The purchase consideration for the acquisition is the issuance to Sellers of 2,000,000 restricted shares of Brenham common stock valued at $8,400, with an additional 2,000,000 restricted shares to be issued contingent upon realization of certain production targets in 2012. On March 8, 2012, this agreement was rescinded and replaced with an agreement that in consideration for the BOG share issuance, BOG has a 2.5% overriding royalty interest in all of the leases associated with this property and any properties acquired or renewed in the future within a ten-mile radius. In addition, the contingency to issue additional shares was removed.
c) 10% working interest in the Pierce Junction Field- On March 12, 2013, Brenham entered into an agreement with an effective date of January 1, 2013, to purchase a 10% working interest in the Pierce Junction Field for $50,000 cash and a $70,000 non-interest bearing note payable due on August 31, 2013. On May 30, 2013, the holder of this note payable accepted $37,500 as full payment and Brenham recorded $32,500 as a reduction in the value of the oil and gas property due to the decrease in the consideration given to acquire it.
d) Lease of 394 acres in the Gillock Field- Brenham leased 394 acres in Galveston County for the acquisition of 100% working interest in the Gillock Field from Kemah Development Texas, L.P. (“KDT”) and Daniel Dror II Trust of 2012 for $300 per acre, or $131,100 (recorded as accounts payable - related parties in the consolidated balance sheet as of December 31, 2013) and 200,000 shares of American restricted common stock. Brenham issued 3,326,316 shares of Brenham restricted common stock to American as payment in full for the 200,000 shares issued by American on Brenham’s behalf. In 2002, KDT paid $1,175,000 for the original 437 acres and the mineral rights to 394 acres. However, KDT assigned no value to the mineral rights. Due to the related parties having no basis in the mineral rights, Brenham expensed the costs associated with the transaction which totaled $447,100 and consisted of i) $316,000 of stock-based compensation calculated at the grant date fair value of the 3,326,316 shares of Brenham common stock issued to American (which equaled the grant date fair value of the common stock American issued to KDT and the Daniel Dror II Trust) and ii) the $131,100 related party payable which as amended is due on December 30, 2014 (previously the receivable was due by October 31, 2013). The Company capitalized $83,500 of exploration costs during 2013.
Note 9 - Property and Equipment
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
During the year ended December 31, 2013, NPI transferred a 17-acre tract of land for $1,155,359 from property and equipment to real estate held for sale. This property has been listed with a broker and American is actively pursuing a sale of this property.
Depreciation expense for the years ended December 31, 2012 and 2011 was $45,761 and $60,276, respectively.
Note 10 - Intangible Assets
Intangible assets at December 31, 2013 consisted of the following:
Intangible assets at December 31, 2012 consisted of the following:
Amortization expense for the years ended December 31, 2013 and 2012 was $44,696 and $25,810, respectively.
Note 11 - Debt
Debt consisted of the following:
(a) Daniel Dror, Chairman and CEO of American, is a personal guarantor of these notes payable.
(b) On February 22, 2014, the Company entered into a modification and extension agreement with the bank. In connection with this agreement, the Company paid down $1,000,000 of the note payable owed to the bank. In addition, the term of the note payable was extended from February 22, 2014 to February 22, 2019. The note as amended bears interest at 7.25% and payment of $3,941 are owed monthly for 59 months beginning March 22, 2014, and a balloon payment owed for the remainder of the note payable and interest (approximately $196,000) due February 22, 2019.
Each of American's subsidiaries that have outstanding notes payable has secured such notes by that subsidiary’s inventory, accounts receivable, property and equipment and is guaranteed by American.
Note 12 - Commitments and Contingencies
American International Industries, Inc. v. William W. Botts.American filed this lawsuit against William W. Botts (“Botts”) seeking damages as a result of a Stock Purchase Agreement and Consulting Agreement that American entered into with Botts on September 12, 2007. Under the Stock Purchase Agreement, American gave Botts $1,000,000 in cash and 28,800 shares of restricted AMIN stock (24,000 original shares plus a 20% stock dividend) for 170,345 shares of OI Corporation. As part of the original agreement, Botts had the right to sell the 28,800 shares back to American for $41.70 per share. Under the Consulting Agreement, American agreed to pay Botts $14,000 per month, plus expenses for performing consulting services. On or about November 5, 2008, American paid Botts $100,000 to terminate the Consulting Agreement to stop the accrual of monthly consulting payments to Botts. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 28,800 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 110,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts.
On July 1, 2012, the parties reached another settlement, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note. The remaining $49,281 was recorded as Botts lawsuit settlement expense during the year ended December 31, 2012.
American International Industries, Inc. v. Rubicon Financial Incorporated. On March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 20,000 restricted shares of American's common stock, valued at $49.00 per common share based upon the closing market price on the date of acquisition.
On August 19, 2011, American was granted a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus attorney's fees and accrued interest at 5% per annum by the 281st District Court, following which American, through California counsel, commenced a separate proceeding seeking to enforce the judgment against Rubicon in a court of competent jurisdiction in Orange County, CA.
Rubicon has filed a separate action with the same District Court in Harris County, TX, seeking to have the judgment vacated and seeking sanctions against American. On May 1, 2012, the default judgment was vacated by the District Court but Rubicon's demand for sanctions was denied. The District Court determined that American would not suffer injury.
On May 24, 2012, American filed a motion seeking an order in effect rescinding the May 1, 2012 order that had vacated the default judgment against Rubicon. On July 12, 2012, the Court granted American's motion and ordered a new trial on the issue of whether Rubicon was negligent in failing to appear before the Court in the proceeding that resulted in the grant of the $2,000,000 default judgment on August 19, 2011.
As a result of the July 12, 2012 order, American has been informed by its Texas counsel that the default judgment against Rubicon remains in full force and effect. American has also been informed by its California counsel that it plans to file a motion seeking a stay in the California proceeding pending the final determination of the District Court in Harris County, TX. American believes that it will prevail on the merits in this proceeding against Rubicon in the District Court, Harris County, and that it will be able to successfully enforce a final judgment of approximately $2,000,000 plus interest in California.
On May 7, 2013 a settlement agreement was reached, whereby American will receive $7,500 from Rubicon and Joe Mangiapane, Jr. for the release of all claims arising out of or in connection with this suit.
Consumer Advocacy Group, Inc. v. Northeastern Plastics, Inc. and American International Industries, Inc. In October 2012, NPI and American entered into a settlement agreement with Consumer Advocacy Group, Inc., whereby NPI agreed to cease distribution and/or sales of the Bitty Booster Cable 10 Gauge 10 ft. product in California and to pay $54,000 in attorney’s fees and $1,000 in lieu of a civil penalty. The amount of $55,000 was recorded as the NPI settlement during the year ended December 31, 2012.
Shumate Machine Works, Inc. v. American International Industries, Inc.In September 2012, American entered into a settlement agreement with Shumate Machine Works, Inc. relating to a tax liability issue associated with American’s purchase of Shumate Machine Works, Inc. in 2008, whereby American agreed to pay $40,000 to HII Technologies, Inc. Under the agreement, American paid $20,000 in cash and entered into a promissory note agreement for the remaining $20,000, with interest of 4% per year, payable in installments of $1,000 monthly through March 2014. Additionally, American transferred its 296,000 shares of HII Technologies, Inc. common stock for attorney’s fees, which were recorded at $0 on American’s balance sheet. Previously, American had fully recognized trading losses associated with these shares. The $40,000 settlement amount was recorded as the Shumate settlement during the year ended December 31, 2012.
American International Industries, Inc. v. Juan Carlos Martinez.In 2002, American acquired 100% of Marald, Inc. from Juan Carlos Martinez. Mr. Martinez continued as an employee and President of Marald. A few months after the acquisition date, Mr. Martinez notified American that he would resign and demanded that Marald be sold back to him. American sold Marald to Mr. Martinez for $225,000 and two 10 year promissory notes for $300,000. In October 2007, no payments had been made, causing the notes to go into default. In May 2010, American agreed to cancel the notes in exchange for a new $300,000 personal note with Mr. Martinez. During 2013, the note entered into default status due to non-payment. Under the terms of the note, American accelerated the maturity with the entire unpaid principal balance plus all interest at a default rate of 18% is immediately due and payable.
Note 13 - Capital Stock and Stock Options
American is authorized to issue up to 1,000,000 shares of Preferred Stock, $0.001 par value per share, of which 1,000 shares 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.
On June 9, 2011, the Board of Directors of American approved the issuance to Daniel Dror, CEO, of 1,000 shares of the Company’s Series A Preferred Stock. Mr. Dror has personally guaranteed the following loans of American, and without such guarantees, American would not have been able to receive such funding: (1) a $1,450,000 loan to Northeastern Plastics (“NPI”) at Icon Bank; (2) a $3,000,000 loan to Delta Seaboard at Trustmark National Bank; (3) a $1,850,000 loan to the Company, Rob Derrick and Ron Burleigh at Texas Community Bank (which has since been repaid); and (4) a $3,250,000 loan to NPI at Trustmark National Bank (collectively the “loans”); which the Company has received and continues to receive significant value. Based on 1% of the outstanding balances of these loans at June 9, 2011, American valued these preferred shares and recorded a guarantor fee of $49,463 to prepaid expenses. This amount is being amortized to expense over the remaining terms of these loans. During the years ended December 31, 2013 and 2012, American recorded amortization of $5,912 and $19,983, respectively.
The Series A Preferred Stock, as amended, has the right to vote in aggregate, on all shareholder matters votes equal to 30% of the total shareholder vote on any and all shareholder matters. The Series A Preferred Stock will be entitled to this 30% voting right no matter how many shares of common stock or other voting stock of American are issued or outstanding in the future. For example, if there are 10,000 shares of American’s common stock issued and outstanding at the time of a shareholder vote, the holder of the Series A Preferred Stock (Mr. Dror), voting separately as a class, will have the right to vote an aggregate of 4,286 shares, out of a total number of 14,286 shares voting. Additionally, American shall not adopt any amendments to American’s Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.
American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 103,680 are reserved for issuance pursuant to the exercise of options pursuant to an employment agreement with American's Chairman and CEO.
On July 13, 2012, the Company and Daniel Dror II entered into an agreement whereby the Company agreed to purchase from Daniel Dror II a 50% interest in 96 acres in Galveston, Texas for $1,810,000, of which $181,000 was paid immediately (recorded as note receivable - related party as of December 31, 2012) and the remaining $1,629,000 was due at closing. On January 22, 2013, the Company agreed to an amended contract which changed the terms of the purchase of the land. Also, on January 22, 2013, the Board of Directors of American approved the purchase of a 50% interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II. The note receivable was assigned to KDT. Daniel Dror II is the adult son of Daniel Dror, American’s Chairman, Chief Executive Officer, and President. KDT is owned by an entity which is controlled by the brother of Daniel Dror. This property is recorded on the balance sheet as “Real estate held for sale” for $541,000.
On February 28, 2013, Brenham leased 394 acres in Galveston County for the acquisition of mineral rights for the Gillock Field from KDT and Daniel Dror II Trust of 2012 for $300 per acre, or $131,100 and 200,000 shares of American restricted common stock. Brenham issued 3,326,316 shares of Brenham restricted common stock to American as payment in full for the 200,000 shares issued by American on Brenham’s behalf.
On February 28, 2013, Brenham announced that Bryant Mook has been appointed President and Chief Operating Officer.
Pursuant to a stock purchase agreement, during 2013, Brenham issued Mr. Mook 11,050,127 shares of common stock in
exchange for cash proceeds of $200,000.
On October 1, 2013, American entered into a stock purchase agreement with Scott Wolinsky, a former director of American, whereby American purchased Mr. Wolinsky’s 89,540 shares of American’s common stock for cash of $130,000 and a non-interest bearing note payable of $200,000, due on September 30, 2014. A related treasury stock obligation in the amount of $200,000 was recorded. In the event that American is unwilling or not able to make the $200,000 payment when the note becomes due, at American’s option, it may instruct Wolinsky to sell the shares in the open market and apply the proceeds from such sales to any balance owed. In the event that Wolinsky sells the shares for more than $200,000, Wolinsky shall return any portion of the unsold shares back to American and any proceeds over $200,000. As of December 31, 2013, 26,000 shares have been returned to the Company.
A summary of the status of American's stock options to employees for the year ended December 31, 2013 is presented below:
During the year ended December 31, 2013, American and its subsidiaries issued the following shares for services:
American issued 21,000 shares of common stock valued at $26,880 to employees for bonuses.
American issued 200,000 shares of common stock valued at $316,000 for the acquisition of mineral rights for the Gillock Field from KDT and Daniel Dror II Trust of 2012.
American received $72,000 of cash proceeds from sales of common stock that occurred during 2011.
American repurchased 45,823 shares of its common stock for $159,110 from third parties.
During the year ended December 31, 2012, American and its subsidiaries issued the following shares for services:
American issued 18,000 shares of common stock valued at $37,600 to third parties for services. American accrued the February 2013 issuance of 21,000 bonus shares valued at $26,880.
Brenham issued 100,000 shares of its common stock with a value of $5,000 to a third party.
Brenham issued 3,000,000 stock options with a value of $104,974 to one of its officers.
During the year ended December 31, 2012, AMIH declared preferred dividends of $20,000, which were accrued and unpaid. On June 29, 2011, AMIH entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of AMIH’s outstanding preferred stock, into 37,696 shares (3,769,626 shares pre-split) of common stock and also agreed to waive all accrued dividends payable on the preferred stock. In consideration for the conversion, AMIH agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder is due and payable at the rate of $20,000 per month. On February 23, 2012, AMIH completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of AMIH's preferred stock were converted into 37,696 shares (3,769,626 shares pre-split) of AMIH's common stock and accrued dividends of $1,055,000 were forgiven. On March 11, 2013, American and VOMF entered into a securities purchase agreement whereby American paid $12,000 in exchange for the 41,768 common shares of AMIH owned by VOMF.
Note 14 - Income Taxes
The components of the income tax provision for the years ended December 31, 2013 and 2012 are as follows:
The following table sets forth a reconciliation of the statutory federal income tax for the years ended December 31, 2013 and 2012:
The tax effects of the temporary differences between financial statement income and taxable income are recognized as a deferred tax asset and liabilities. Significant components of the deferred tax asset and liability as of December 31, 2013 and December 31, 2012 are set out below:
American has loss carry-forwards totaling $29,724,719 available at December 31, 2013 that may be offset against future taxable income. If not used, the carry-forwards will expire as follows:
Note 15 - Related Parties
Notes receivable - related party
On July 13, 2012, the Company and Daniel Dror II entered into an agreement whereby the Company agreed to purchase from Daniel Dror II a 50% interest in 96 acres in Galveston, Texas for $1,810,000, of which $181,000 was paid immediately (recorded as note receivable - related party as of December 31, 2012) and the remaining $1,629,000 was due at closing. On January 22, 2013, the Company agreed to an amended contract which changed the terms of the purchase of the land. Also, on January 22, 2013, the Board of Directors of American approved the purchase of a 50% interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II. The note receivable was assigned to KDT. Daniel Dror II is the adult son of Daniel Dror, American’s Chairman, Chief Executive Officer, and President. KDT is owned by an entity which is controlled by the brother of Daniel Dror. This property is recorded on the balance sheet as “Real estate held for sale” for $541,000.
Accounts payable to related parties
On February 28, 2013, Brenham leased 394 acres in Galveston County for the acquisition of mineral rights for the Gillock Field from KDT and Daniel Dror II Trust of 2012 for $300 per acre, or $131,100 and 200,000 shares of American restricted common stock. Brenham issued 3,326,316 shares of Brenham restricted common stock to American as payment in full for the 200,000 shares issued by American on Brenham’s behalf. The $131,100 is payable to KDT on or before December 30, 2014.
In addition, as of December 31, 2013 and 2012, the Company owed other amounts to related parties of $2,212 and $12,026, respectively.
Note 16 - Segment Information
American International Industries, Inc. is a holding company and has the following reporting segments:
Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
American International Holdings Corp. (“AMIH”), formerly Delta Seaboard International ("Delta") - a 93.2% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry; As of December 31, 2013, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and formerly a subsidiary of Delta, was a wholly-owned subsidiary of AMIH. On April 3, 2012, AMIH entered into an Asset Purchase Agreement to sell the operating assets and liabilities of DSWSI.
American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
Brenham Oil & Gas ("BOG") - a 51.0% owned subsidiary that currently owns oil and gas properties. Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.
Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. American evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses. American's reportable segments are strategic business units that offer different technology and marketing strategies. Most of the businesses were acquired as subsidiaries and the management at the time of the acquisition was retained. American's areas of operations are principally in the United States. No single foreign country or geographic area is currently significant to the consolidated financial statements.
Consolidated revenues from external customers, operating loss, depreciation and amortization expense, interest expense, capital expenditures, non-cash transactions, and identifiable assets were as follows:
Note 17 - Subsequent Events
On January 8, 2014, BOG entered into an agreement in which it will acquire a 332-acre oil and gas lease, the “Inez Prospect,” located in Victoria County, Texas, and the #1 Roberts Unit well-bore, and all the down-hole equipment and surface equipment associated therewith. BOG acquired 100% of the working interest for a total purchase price of $250,000, consisting of a $20,000 down payment, and a payment of the remaining $230,000 prior to the beginning of any exploration.
In January 2014, AITP entered into an earnest money contract for $1,500,000, plus 20% carried interest,for its 31 acres in Houston, Texas. The Company estimates that this sale will close July 1, 2014
On March 6, 2014, the Company’s wholly owned subsidiary, Northeastern Plastics, Inc. sold its office warehouse property, a 32,000 sq. ft. office warehouse facility on I-59 in Houston, Texas. The property was sold for $1,325,000 in cash, and Northeastern reduced its long-term debt with a $1,000,000 payment of principal and entered into a modification and extension agreement whereby the maturity date was extended from February 22, 2014 to February 22, 2019. The note as amended bears interest at 7.25% and payment of $3,941 are owed monthly for 59 months beginning March 22, 2014, and a balloon payment owed for the remainder of the note payable and interest (approximately $196,000) due February 22, 2019.
In March 2014, AITP entered into an earnest money contract for $3,350,000 for its 174 acres in Waller County, Texas.
ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we conducted an evaluation as of December 31, 2013 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2013.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of management, including our principal executive and principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on this evaluation under the COSO Framework, management concluded that our internal control over financial reporting was not effective as of December 31, 2013. Such conclusion reflects the departure of our chief financial officer and assumption of duties of the principal financial officer by our chief executive officer and the resulting lack of accounting experience of our now principal financial officer and a lack of segregation of duties. Until we are able to remedy these material weaknesses, we are relying on third party consultants to assist with financial reporting.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2013, the Company’s chief financial officer resigned. Since the resignation of the chief financial officer, the Company has relied on consultants to assist with financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
At present, the Company has two executive officers and four directors. Our directors are elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will have qualified. The following table sets forth the name, age and position held with respect to our present directors and executive officers:
Daniel Dror has served as Chairman of the Board, Chief Executive Officer and President of the Company since September 1997. From 1994 to 1997, 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.
Charles R. Zeller has served as a director of the Company, since 2000, and Interim Chief Financial Officer since November 21, 2013. Mr. Zeller is a developer of residential subdivisions including Cardiff Estates, 800 acres subdivision in Houston, TX and estate of Gulf Crest in downtown Pearland, Texas. He has extensive experience in real estate and finance and has been a real estate investor and developer for over 35 years, including shopping centers, office buildings, and apartment complexes and the financing of such projects. Mr. Zeller is the President of RealAmerica Corporation.
Thomas J. Craft, Jr., an attorney admitted to practice under the laws of the State of Florida. Mr. Craft specializes in federal securities laws, and maintains his principal law office in Palm Beach County, Florida. Mr. Craft has served on the board of several public companies during the past five years. Mr. Craft was appointed a director of the Company on November 22, 2002.
On July 14, 2010, the Company's Board of Directors appointed Scott Wolinsky to its Board. Mr. Wolinsky is a Registered Patent Agent, Electrical Engineer, Inventor and former Primary Patent Examiner with over sixteen years of related patent experience. He graduated from the State University of New York at Stony Brook with a Bachelor of Engineering in Electrical Engineering. Mr. Wolinsky has worked as an Electrical Engineer at various satellite and military aircraft companies and for the United States Patent and Trademark Office as a Patent Examiner. Currently, Mr. Wolinsky works for the law firm of Volpe and Koenig P.C. in Philadelphia, Pennsylvania as a Senior Patent Agent, specializing in the preparation and prosecution of patent applications associated with wireless communications, electrical circuits and computer / database systems.
Advisory Director
On February 19, 2004, the Board of Directors of the Company appointed M. Truman Arnold as an advisor to the Company's Board of Directors. Mr. Arnold has served as vice president of administrative services for The Coastal Corporation, a major multinational oil and gas company, from 1995 through January 2001. Mr. Arnold brings to the Company and its Board of Directors over 40 years experience in the oil and gas industry.
Section 16(a) Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Company’s Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Company pursuant to Section 16(a). Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the directors, executive officers, and greater than ten percent (10%) beneficial owners have filed all reports required under Section 16(a).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following tables contain compensation data for the Chief Executive Officer and other named executive officers of the Company for the fiscal years ended December 31, 2013 and 2012:
(1) See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions. For the year ended December 31, 2012, 2,500 shares valued at $3,200 were accrued as a stock award for Sherry McKinzey. These shares were issued in February 2013. For the year ended December 31, 2011, Daniel Dror received 377,500 restricted shares valued at $215,175 and Sherry McKinzey received 25,000 shares valued at $6,250. Daniel Dror received 1,000,000 shares of Brenham valued at $4,200 and 1,000,000 shares of Delta valued at $50,000. Sherry McKinzey received 175,000 shares of Delta valued at $8,750.
(2) The salary for Mr. Dror includes $120,000 for American, $90,000 for Brenham, and $90,000 for AMIH.
(3) Represents total payments for an automobile owned by the Company utilized by Mr. Dror.
(4) Represents total payments for an automobile owned by the Company utilized by Ms. McKinzey.
(5) Resigned as Director, VP, and CFO on November 21, 2013.
(6) Appointed as Interim CFO on November 21, 2013.
On October 1, 2004, Mr. Dror entered into a five-year employment agreement with the Company, which provided for compensation of $10,000 per month, and annual bonuses to be determined by the Board of Directors, and the grant of 100,000 warrants per year at an exercise price of $6.55 per share. In March 2007, the employment agreement was extended to March 31, 2012 and the warrants were amended to provide for the grant of 144,000 warrants per year, which reflects the 20% stock dividend the Company paid in 2005 and 2006, at an increased exercise price of $7.00, based upon the average closing price of the Company’s shares during September 2004. The warrants have an expiration date two years following each annual grant. In connection with the Company's 20% stock dividends to all shareholders on September 19, 2007 and July 16, 2008, the terms of these warrants were adjusted to reflect the dividend, resulting in the warrants being exercisable to buy 207,360 shares for $4.86 per share. In July 2011, the employment agreement was amended and extended for four years. The Employment Agreement has a term effective from March 30, 2011 to March 30, 2016, and provides for a monthly salary to Mr. Dror of $10,000 plus a bonus as determined by the Board of Directors. Additionally, Mr. Dror is entitled to a special bonus in the event that lenders or investment bankers working with the Company require the personal guarantee of Mr. Dror. The Employment Agreement also provides that Mr. Dror will receive the equivalent of $10,000 in restricted shares of the Company’s common stock per month during the term of the Employment Agreement. In the event of a change in control of the Company, resulting in Mr. Dror ceasing to serve as the Company’s Chief Executive Officer, President and Chairman, Mr. Dror is entitled to receive from the Company within ninety (90) days of the change in control a sum equal to five (5) years of the base salary then payable to him under the Employment Agreement and $1,000,000 in cash. The Company is also required to provide and pay premiums on life insurance policy on Mr. Dror (up to $3,000,000 in coverage), with the beneficiary designated by Mr. Dror. Finally, the Employment Agreement provided for the issuance to Mr. Dror of the 1,000 shares of newly designated Series A Preferred Stock in consideration for guarantying the loans of the Company, see note 10.
In May 2012, Mr. Dror entered into a four-year employment agreement with the AMIH, which provided for compensation of $10,000 per month, and annual bonuses to be determined by the Board of Directors. Mr. Dror is entitled to receive from AMIH within ninety (90) days of the change in control a sum equal to five (5) years of the base salary then payable to him under the Employment Agreement and $1,000,000 in cash. AMIH is also required to provide and pay premiums on life insurance policy on Mr. Dror (up to $3,000,000 in coverage), with the beneficiary designated by Mr. Dror.
In May 2012, Mr. Dror entered into a four-year employment agreement with the BOG, which provided for compensation of $10,000 per month, and annual bonuses to be determined by the Board of Directors. Mr. Dror is entitled to receive from BOG within ninety (90) days of the change in control a sum equal to five (5) years of the base salary then payable to him under the Employment Agreement and $1,000,000 in cash. BOG is also required to provide and pay premiums on life insurance policy on Mr. Dror (up to $3,000,000 in coverage), with the beneficiary designated by Mr. Dror.
In September 1994, Mr. Marc 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, to $158,000 in 2006, and to $195,000 in 2008. 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 exchange for one year’s base salary.
In September 2012, Sherry McKinzey, CFO, entered into a one-year employment agreement beginning September 16, 2012, which provides for an annual salary of $85,000 plus a bonus as determined by the Board of Directors. In addition to her base compensation, Ms. McKinzey will be entitled to a bonus as determined by the Company’s board of directors from time to time. In the event of a change in control of the Company, resulting in Ms. McKinzey ceasing to serve as the Company’s Chief Financial Officer, Ms. McKinzey shall be entitled to receive and the Company shall pay to Ms. McKinzey within ninety (90) days of the change in control a sum equal to one (1) year of the base salary then payable to her under the employment agreement.
Grants of Plan-Based Awards
None.
Outstanding Equity Awards at Fiscal Year-End
None.
Director Summary Compensation Table
The directors serve without cash compensation, but may be granted stock as bonus compensation from time to time. The table below summarizes the compensation paid by the Company to non-employee Directors for the fiscal year ended December 31, 2013.
(1) Daniel Dror, the Company’s Executive Chairman and Chairman of the Board is not included in this table. The compensation received by Mr. Dror as an employee of the Company, is shown in the Executive Summary Compensation Table.
(2) See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The table below discloses any person (including any "group") who is known to the Registrant to be the beneficial owner of more than five (5%) percent of the Registrant's voting securities and each executive officer and director. At December 31, 2013, the Registrant had 2,138,986 shares of common stock issued and 1,000 shares of preferred stock issued.
(1) The J & J Zeller Trust, of which Mr. Zeller is the Trustee, holds 1,000 restricted shares.
(2) International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother, owns 273,878 shares. Mr. Dror is not an officer, director or shareholder of International Diversified Corporation, Ltd., and he disclaims any beneficial interest in the shares owned by Mr. Faiwuszewicz or his corporation.
(3) Kemah Development Texas L.P., owned by an entity which is controlled by the brother of Daniel Dror. Daniel Dror disclaims any ownership in or control over KDT.
(4) Daniel Dror's brother is the Trustee.
(5) On October 1, 2013, American entered into a stock purchase agreement with Scott Wolinsky, a former director of American, whereby American purchased Mr. Wolinsky’s 89,540 shares of American’s common stock for cash of $130,000 and a non-interest bearing note payable of $200,000, due on September 30, 2014, which was secured by 63,540 shares which were not delivered as of December 31, 2013.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Public Accountants
The Registrant's Board of Directors has appointed GBH CPAs, PC, which firm has issued its report on our consolidated financial statements for the years ended December 31, 2013 and 2012.
Principal Accounting Fees
The following table set forth the following: under "Audit Fees" the aggregate fees billed for each of the past two fiscal years for professional services rendered by the principal accountant for the audit of the Company's financial statements and review of financial statements included in the Company's quarterly reports; under "Audit-Related Fees" the aggregate fees billed in each of the last two fiscal years for assistance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements; under "Tax Fees" the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, advice and planning; and under "All Other Fees" the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant.
(1)Audit fees consist of audit and review services, consents and review of documents filed with the SEC.
(2)Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues.
(3)Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues.
ITEM 15.
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are to be filed as part of the Annual Report:
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
American International Industries, Inc.
By /s/ Daniel Dror
Daniel Dror
President, Chief Executive Officer and Director
April 15, 2014
By /s/ Charles R. Zeller
Charles R. Zeller
Interim CFO and Director
April 15, 2014
By /s/ Thomas J. Craft, Jr.
Thomas J. Craft, Jr.
Director
April 15, 2014
CERTIFICATIONS
I, Charles R. Zeller, certify that:
1. I have reviewed this annual report of American International Industries Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 15, 2014
/s/ Charles R. Zeller
Interim CFO
CERTIFICATIONS
I, Daniel Dror, certify that:
1. I have reviewed this annual report of American International Industries Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 15, 2014
/s/ Daniel Dror
CEO and Chairman
Statement Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
The undersigned, Charles R. Zeller, Interim CFO of American International Industries, Inc., a Nevada corporation, hereby makes the following certification as required by Section 906(a) of the Sarbanes-Oxley Act of 2002, with respect to the following of this report filed pursuant to Section 15(d) of the Securities Exchange Act of 1934: Annual Report of Form 10-K/A for the period ended December 31, 2013.
The undersigned certifies that the above annual report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, and information contained in the above quarterly report fairly presents, in all respects, the financial condition of American International Industries, Inc. and results of its operations.
Date: April 15, 2014
Charles R. Zeller
Interim CFO
/s/ Charles R. Zeller
Statement Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
The undersigned, Daniel Dror, CEO and Chairman of American International Industries, Inc., a Nevada corporation, hereby makes the following certification as required by Section 906(a) of the Sarbanes-Oxley Act of 2002, with respect to the following of this report filed pursuant to Section 15(d) of the Securities Exchange Act of 1934: Annual Report of Form 10-K/A for the period ended December 31, 2013.
The undersigned certifies that the above annual report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, and information contained in the above quarterly report fairly presents, in all respects, the financial condition of American International Industries, Inc. and results of its operations.
Date: April 15, 2014
Daniel Dror
Chairman
/s/ Daniel Dror