ITEM 1. DESCRIPTION OF BUSINESS
Some of the statements contained in this Form 10-K of American International Industries, Inc. (hereinafter the "Company" or the "Registrant") for its year ended December 31, 2009 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:
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the success or failure of management's efforts to implement their business strategies for each subsidiary;
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the ability of the Company to raise sufficient capital to meet operating requirements of our subsidiaries;
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the ability of the Company to hire and retain quality management for our subsidiaries;
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the ability of the Company to compete with other established companies that operate in the same markets and segments;
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the effect of changing economic conditions impacting operations of our subsidiaries;
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the ability of the Company to successfully manage its subsidiaries and from time to time sell certain assets and subsidiaries to maximize value; and
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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 Galveston Bay, 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;
·Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.
·Delta Seaboard Well Services (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
·Corporate overhead - the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses. Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on the Company's balance sheet at $0. Through Brenham Oil & Gas, the Company 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 enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by the Company, to assist them with the resources required to develop their reserves.
The historical financial statements of the Company include the acquisitions of acquired companies as of the effective dates of the acquisitions, and the results of those companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.
Our long-term strategy is to expand the operations of each of our subsidiaries in their respective fields by providing managerial and financial support to our subsidiaries. As part of our business model, we explore mergers, acquisitions and dispositions of businesses and assets from time to time, based upon the reasonable discretion of management and the value added of each potential transaction.
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We encounter substantial competition in each of our subsidiaries product and service areas. Such competition is expected to continue. Depending on the particular market involved, our subsidiaries compete on a variety of factors, such as price, quality, delivery, customer service, performance, product innovation and product recognition. Other competitive factors for certain products include breadth of product line, research and development efforts and technical and managerial capability.
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.
On December 31, 2008, the board of directors of the Company approved the deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from the Company. To effect the deconsolidation of Hammonds, the Company was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 17.4 million shares of Hammonds’ common stock to the Company’s shareholders of record on December 31, 2008, the Company’s ownership is proximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to the Company. As a result, the majority of Hammonds’ board of directors is no longer controlled by the Company. Additionally, a reduction of the Company’s guarantee of Hammonds’ debt was obtained from Texas Community Bank.
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, 2009, the Company had 6 employees at the executive offices.
Delta Seaboard Well Service, Inc.
Effective September 30, 2003, the Company acquired a 51% interest in Delta Seaboard Well Service, Inc. and a related entity, Seaboard Well Service (collectively "Delta"), both Texas corporations, for cash consideration of $1,000,000 pursuant to a stock purchase agreement. We also issued 400,000 shares of series A 5% cumulative redeemable convertible preferred stock ("Series A Preferred Stock") to a creditor of Delta in consideration for the release of the creditor’s interest in certain of Delta's coastal rigs and in satisfaction of certain Delta indebtedness. The Series A Preferred Stock issued to the former creditor is convertible into shares of the Company's restricted common stock at $10.00 per share. In 2004 the holder of the Series A Preferred Stock converted 10,000 shares of Series A Preferred Stock into 10,000 shares of common stock and in 2005 the holder of the Series A Preferred Stock agreed to convert the remaining 390,000 Series A Preferred Stock into 390,000 shares of common stock issuable at a rate of 10,000 shares per month.
On February 3, 2010, Hammonds and Delta completed an agreement, pursuant to which Delta will be merged into Hammonds in consideration for the issuance of 63,110,925 post-reverse restricted shares of Common Stock to the noncontrolling shareholders of Delta and to American. As a result, the controlling shareholders of Delta will become controlling shareholders of Hammonds, which will result in Delta’s former shareholders owning 93.6% of Hammonds' Common Stock. Following the reverse merger, American will own 32,859,935 shares of Common Stock, representing 48.2% of the Hammonds' total outstanding shares and the owners of the noncontrolling interest in Delta will own 30,924,353 shares of Common Stock, representing 45.4% of the Hammonds' total outstanding shares. All other stockholders of the Hammonds will own 4,357,962 shares of Common Stock, representing 6.4% of the Hammonds' total 68,142,250 outstanding shares. Hammonds' name will be changed from Hammonds Industries, Inc. to Delta Seaboard International, Inc. ("DSI"). In accordance with FIN46(R), American will consolidate DSI although its ownership is less than 51%, because American has a controlling financial interest in DSI.
Delta is managed by Robert W. Derrick, Jr. and Ron Burleigh, who are Delta's executive officers and owners of the 49% noncontrolling interest of Delta. Mr. Derrick was elected as a director of the Company in February 2004. Delta was founded in 1958 in Houston, Texas.
Delta's Business
Delta's well site services provide a broad range of products and services that are used by oil companies and independent oil and natural gas companies operating in South and East Texas, and the Gulf Coast market. Delta's services include workover services, plugging and abandonment, and well completion and recompletion services. During 2004, Delta consolidated its Louisiana operations into its Houston operation and facilities and sold three rigs in Louisiana to third parties. Delta continues to own one land-based rig in Louisiana and five land-based rigs in the Gulf Coast region of Texas.
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Well Service Market
Demand for Delta's workover and related services are correlated to the level of expenditures by oil and gas producers, which is a function of oil and gas prices. In general, we expect demand for Delta's services to increase significantly due to expanding activities of oil and gas producers in the United States as a result of the significant increase in energy prices in the U.S. and worldwide. Delta is dependent to a significant degree on the level of development and workover activities in the U.S. Gulf Coast area. Delta faces competition from many larger companies in the U.S. Gulf of Mexico market.
Products and Services
Workover Services. Delta provides workover products and services primarily to customers in the U.S. Gulf Coast market. Workover products and services are used to restore or increase production on a producing well. Workover services are typically used during the well development, production and abandonment stages. Delta's hydraulic workover units are typically contracted on a short-term dayrate basis. As a result, utilization of our workover units varies from period to period and the time to complete a particular service contract depends on several factors, including the number of wells and the type of workover or pressure control situations involved. Usage of our workover units is also affected by the availability of trained personnel. With our current level of trained personnel, we estimate that we have the capability to crew and operate multiple jobs simultaneously.
During 2008, Delta had the opportunity to purchase and import new Chinese Seamless Pipe (OCTG) and make it available to our customers who were drilling and completing new wells in the United States.
Delta's Competition
Delta believes that it has certain competitive advantages related to cost efficiencies, material coordination, reduced engineering time resulting from its highly experienced staff of toolpushers, field supervisors and operations managers, and its fully integrated operations with cementing and electric wireline operations that include cutting casing and tubing as part of Delta's services. Delta also believes that with the financial resources of the Company and its access to the public capital markets, Delta will be able to pursue strategic acquisitions and enter into ventures that should result in long-term growth and market expansion.
Delta's services are sold in highly competitive markets. The competition in the oil and gas industry could result in reduced profitability or inability to increase market share. In its markets, principally in South and East Texas, and the Gulf Coast, Delta competes principally with the following entities: Tetra Applied Technologies and Five J.A.B., as well as a number of smaller companies. The land drilling service business is highly fragmented and consists of a small number of large companies and many smaller companies. Many of Delta's competitors have greater financial resources than Delta. Delta relies upon the Company's ability to provide working capital and secure debt and/or equity financing in order for Delta to continue to expand its oil and gas well services business and pursue its growth plan in land-based exploration and drilling operations.
Government Regulation
The business of Delta is significantly affected by federal, state and local laws and regulations relating to the oil and natural gas industry. Changes in these laws and regulations, including more restrictive administrative regulations and enforcement of these laws and regulations, could significantly affect Delta's business and results of operations. Delta cannot predict future changes in existing laws and regulations or how these changes in laws and regulations may be interpreted or the effect changes in these laws and regulations may have on Delta or its future operations or earnings. Delta cannot predict whether additional laws and regulations will be adopted. Delta depends on the demand for its products and services from oil and natural gas companies. This demand is affected by economic cycles, changing taxes and price and other laws and regulations relating to the oil and gas industry, including those specifically directed to oilfield and offshore operations. The adoption of new laws and regulations curtailing exploration and development drilling for oil and natural gas in our areas of operation could also adversely affect Delta's operations by limiting demand for its products and services. Delta cannot determine the extent to which its future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations or enforcement.
Although Delta believes that it is in compliance with existing laws and regulations, there can be no assurance that substantial costs for compliance will not be incurred in the future. Moreover, it is possible that other developments, such as the adoption of more restrictive environmental laws, regulations and enforcement policies, could result in additional costs or liabilities that Delta cannot currently quantify.
Employees
As of December 31, 2009, Delta had 39 employees, including its two executive officers. No employees are covered by a collective bargaining agreement and Delta considers relations with its employees satisfactory.
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Facilities
Delta's facilities consist of 2,500 square feet of office space and 10,000 square feet of warehouse located in Houston, TX. These facilities were formerly leased by Delta and were acquired by Delta in 2005 from a third party for $850,000. In 2006, these facilities were acquired by American International Industries, Inc. (51%) and Delta's executive officers and owners of the noncontrolling interest of Delta (49%). During 2004, Delta consolidated its Louisiana operations and offices into its Houston facilities to create operating efficiencies. Delta has retained a 5,000 square foot office and warehouse facility in Louisiana which is leased from a third party at an annual rental of $18,000.
Shumate Energy Technologies, Inc.
Effective October 8, 2008, Shumate Energy Technologies, Inc. (SET), our wholly-owned subsidiary, purchased the assets of Shumate Machine Works Corporations from Shumate Industries, Inc. for a purchase price of $5,000,000 (see Note 3). SET is managed by Larry C. Shumate, President, and is located at 12060 FM 3083, Conroe, Texas 77301.
SET’s Business
SET, our contract machining and manufacturing subsidiary, focuses in the energy field services market. SET manufactures products, parts, components, and assemblies for its customers designed to their specifications. SET provides state of the art 3-D modeling software, computer numeric-controlled, or CNC, machinery and manufacturing expertise to our customers’ research and development, engineering, and manufacturing departments for desired results with their products. SET’s customers include, without limitation, Baker Hughes, Canrig Drilling Technology, a Nabors Industries company, FMC Technologies, Halliburton Energy Services, National Oil Well Varco, Oceaneering Intervention Engineering, Shell Development, Smith International, and Weatherford International.
Energy Field Services Markets
The energy field services market is comprised of several market segments including oil & gas field services, pipeline and transportation, process controls, fluid management and controls, sub-sea, refining, and maintenance services for these areas. SET currently manufactures products, spare parts, and assemblies for the oil & gas field services market segment. SET currently manufactures products, spare parts, and assemblies for the oil & gas field services market segment. The U.S. Government’s Energy Information Agency (EIA) stated in its February 10, 2010 Short Term Energy Outlook that the world oil market should gradually tighten in 2010 and 2011, as the global economic recovery continues and world oil demand begins to grow again. Current 2010 futures market prices for natural gas appear to provide the necessary economic incentive to expand drilling programs. As a result, EIA expects monthly natural gas production to begin to slowly increase later this year and continue on an upward trend through the end of 2011.
Products and Services
The diverse line of products SET manufactures includes the following:
- Expandable tubular products including liner hangers, launchers and sand screens for energy field service applications;
- Top drive assemblies, sub-assemblies and spare service parts;
- Measurement while drilling (MWD) products;
- Directional drilling products;
- Completion tools;
- Exploration products for research and development;
- Natural gas measurement equipment, including fittings and valves;
- Power frames for centrifugal pumps and mud motors; and
- Sub-sea control equipment.
SET has a broad portfolio of industry-recognized quality and proprietary trade capabilities, including API licensure for specifications 7.1 and 5CT relating to threading capabilities, API Spec Q1, API ISO/TS 29001, and ISO 9001 certification.
SET’s investment in capital equipment and software provides capabilities to perform close tolerance, highly specialized work for oil field equipment and tools, process controls, formation evaluation tools, and exploration and production products. SET’s capabilities include producing large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using a myriad of materials of construction including high grade carbon steel, high grade stainless steel, nickel, and chrome based alloys. SET uses state of the art, large part CNC equipment in the production of these parts and has developed in-house trade secrets and processes with respect to the manufacture of certain products. SET produces complex assemblies, including expandable tubing technology products that are used in field service operations under extreme environmental conditions for oil and gas exploration.
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Sales and Marketing
SET has developed and maintained long-term relationships with its customers. Management uses a variety of methods to identify target customers, including the utilization of databases, direct mail, and participation in manufacturers’ trade shows. The energy field service target market usually consists of larger, well capitalized companies as well as smaller firms. These efforts supplement SET’s traditional sales and marketing efforts of customer referrals and territory canvassing.
Nearly all of SET’s sales are on a negotiated price basis. In some cases, sales are the result of a competitive bid process where a customer sends to SET and other competitors a list of products required, and SET submits a bid on each job. Frequently, the ability to meet customer delivery schedules as well as plant capacities and capabilities are a significant aspect of winning any bid or purchase order.
SET has a customer base of more than 25 customers, up 25% over 2008. Two of these customers represented approximately 78% percent of its revenues for fiscal year 2008. SET continually focuses on developing more volume from secondary and tertiary customers and with new customers to reduce customer concentration risk. Management believes that long-term relationships with many of its customers will contribute to SET’s success.
SET’s customers include, without limitation, Baker Hughes, Canrig Drilling Technology, a Nabors Industries company, Enventure Global Technologies, FMC Technologies, Halliburton Energy Services, National Oil Well Varco, Oceaneering Intervention Engineering, Shell Development, Smith International, and Weatherford International.
SET’s Competition
The machining and manufacturing business is engaged in fragmented and highly competitive industry segments. Management estimates that there are more than 100 machine shops in the metro-Houston area alone. SET estimates that its share of the market, based on 2007 revenues, is less than one percent (1%). Competition is based primarily on quality, service, price, performance timeliness and geographic proximity. SET competes with a large number of other machining and manufacturing operators on a national, regional and local basis, most of which have greater financial resources than SET does, and several of which are public companies. SET also competes with overseas competitors whose labor costs may be significantly lower than our costs.
SET believes that it is able to compete by defining and understanding customer needs and by using its equipment and machinery base to manufacture products with difficult specifications and tolerances.
Business Strategy
Strategies to achieve growth include the following:
Generating more revenues and increasing profit margins by expanding contract machining and manufacturing business and through investing in additional state-of-the art CNC equipment which offers the ability to make increasingly complex tools as required by customers. As a result of higher commodity prices, activity levels and pricing for SET’s customers, SET will continue to expand its operations and invest in additional computer-numeric controlled machinery that allows it to manufacture higher precision critical components for its customers growing demand of energy equipment. In 2009 SET quickly capitalized on newly qualified API licensing by launching into the threaded products arena. This has proven to be another avenue for both new and established customers to take advantage of additional service offerings.
Acquiring other technology-oriented products to leverage asset base, manufacturing infrastructure, market presence and experienced personnel. SET has extensive experience in manufacturing and machining products, and has a reputation for providing quality products and services in the energy field services market. SET has an existing base of customers and existing distribution channels in this market. SET intends to combine its experience, reputation, customer base, and distribution channels with its expertise and knowledge of the industry to market and distribute other technology-oriented product lines for this customer base and through these distribution channels.
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Raw Materials
The principal raw materials that SET uses are carbon steel, aluminum, stainless steel, nickel, brass, titanium and various special alloys and other metals. The metals industry as a whole is cyclical, and at times pricing and availability of raw materials in the metals industry can be volatile due to numerous factors beyond SET’s control, including general, domestic and international economic conditions, labor costs, production levels, competition, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of raw materials, and may, therefore, adversely affect SET’s net sales, operating margin, and profitability. On average, pricing for raw materials has fluctuated about thirty percent annually on a historical basis. During periods of rising raw materials pricing, SET has been able to pass through the increase in cost to its customers approximately ninety percent of the time. The remaining ten percent reflects down-time between reviewing costs on standardized repetitive work that is not quoted on a monthly basis. Accordingly, the increase in the cost of raw materials has had an immaterial effect on SET’s operations; however, it is possible that SET may not be able to pass any portion of such increases on to its customers in the future.
Intellectual Property
SET relies on trade secret protection for our confidential and proprietary information. SET seeks to enter into confidentiality agreements with its employees, partners, and suppliers. It is possible, however, that others will independently obtain similar information or otherwise gain access to SET’s trade secrets.
Government Regulation and Environmental Matters
SET’s operations are subject to a number of federal, state and local regulations relating to the protection of the environment and to workplace health and safety. In particular, its operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, painting product on premises, environmental protection, remediation and workplace exposure. Hazardous materials used in SET’s operations include lubricants and cleaning solvents. SET believes that it is in substantial compliance with all such laws and does not currently anticipate that it will be required to expend any substantial amounts in the foreseeable future in order to meet current environmental or workplace health and safety requirements.
Although no environmental claims have been made against SET and SET has not been named as a potentially responsible party by the Environmental Protection Agency or any other entity, it is possible that SET could be identified by the EPA, a state agency or one or more third parties as a potentially responsible party under CERCLA or under analogous state laws. If so, SET could incur substantial litigation costs to prove that SET was not responsible for the environmental damage.
Safety
SET is committed to emphasizing and focusing on safety in the workplace. SET has a variety of safety programs in place, which include periodic safety meetings and training sessions to teach proper safety work procedures. SET has established “best practices” processes throughout most of its operations to ensure that employees comply with safety standards that SET establishes and to ensure full compliance with federal, state and local laws and regulations. In addition, SET intends to continue to emphasize the need for an accident-free workplace.
Employees
SET employs 34 people in Conroe, Texas. No employees are represented by a labor union, and SET has not entered into a collective bargaining agreement with any union. SET has not experienced any work stoppages and considers the relations with its employees to be good.
Facilities
SET leases 30,000 square feet of manufacturing and office space located in Conroe, TX.
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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. In June 1998, the Company acquired all the capital stock of Acqueren, Inc., a Delaware corporation, that owned 100% of Northeastern Plastics, Inc. The total purchase consideration for Acqueren was approximately $2,140,000. Northeastern Plastics was originally founded in 1986 as a New York Corporation. 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®, Truck Trend and Automobile magazines.
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 a variety 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 2009 expected pass through readership rate for the upcoming Good Choice® 2010 ads are expected to exceed 21,000,000 potential viewings.
NPI products are available at stores such as Family Dollar, Dollar Tree, H.E.B., Dollar General, Freds, Big Lots, Bi-Mart, and Publix, 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 30% 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, Big Lots, Ocean State Jobbers, H.E.B., Freds, Publix, Bi-Mart, and Dollar General, among others. During our fiscal year ended December 31, 2009, NPI's large accounts accounted for 76% 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 2010 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
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Competition
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's 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 trademarks: The Good Choice®, Jumpower™, expiring February 2009, and The Bitty Booster Cable™, which was renewed in August 2008.
Employees
As of December 31, 2009, NPI employed 10 persons, including its executive officer, as well as customer service and warehouse employees. No employees are covered by a collective bargaining agreement. NPI's management considers relations with its employees to be satisfactory.
Facilities
NPI operates from a Company-owned 38,500 square feet of warehouse and office facility located in Houston, TX.
Corporate Transactions
On September 12, 2007, American acquired 170,345 shares, or approximately 7%, of OI Corporation's (NasdaqGM: OICO) common stock for a $1,000,000 cash payment and the issuance of 240,000 restricted shares of American's common stock, valued at $5.05 per common share based upon the closing market price on that date, for a total purchase price of $2,212,000. The OICO shares were purchased from OI Corporation's former President and CEO, William W. Botts. The closing market price on the date of this transaction for OICO was $13.23 per common share. During 2008, American purchased an additional 7,000 shares at an average purchase price of $11.67 per share. In October 2008, OICO purchased 176,945 shares of American's OICO holdings for $1,882,923, or $10.64 per share. The realized loss from the sale of the shares in 2008 was $406,456.
On November 27, 2007, American acquired 1,000,000 restricted shares, or approximately 9% of Rubicon Financial Incorporated’s (OTCBB: RBCF.OB) common stock for a $1,000,000 cash payment and the issuance of 200,000 restricted shares of American's common stock, valued at $4.90 per common share based upon the closing market price on that date, for a total purchase price of $1,980,000. The closing market price on the date of this transaction for RBCF was $2.87 per common share. During 2008, American purchased an additional 38,900 shares at an average purchase price of $0.17 per share. Rubicon Financial Incorporated is a development stage company, operating as a full service insurance agency offering personal and commercial lines, health, and life insurance products to individuals and companies in California (see Note 2 to the financial statements).
For the years ended December 31, 2009 and 2008, American had unrealized trading gains of $498,396 and losses of $4,054,334, respectively, related to securities held on those dates. The unrealized losses for the year ended December 31, 2008, were due primarily to the decline in value of American's 1,000,000 shares of Rubicon Financial Incorporated's (OTCBB: RBCF.OB) common stock of $3,394,991. At December 31, 2009 and 2008, our investment in shares of RBCF common stock, classified as trading securities on the balance sheet, was valued at $311,670, or $0.30 per share, and $322,170, or $0.30 per share, respectively, based upon the closing market prices on those dates, respectively. American recorded realized gains of $19,654 and realized losses of $539,958 for the years ended December 31, 2009 and 2008, respectively (see Note 2 to the financial statements).
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On October 19, 2007, Nestle Products Corporation (incorporated on October 18, 2007 in the State of Nevada), a wholly-owned subsidiary of the Company, acquired 9.9% of Las Vegas Premium Gold Products, Inc., a private Nevada corporation, in exchange for 50,000 restricted shares of the Company's common stock valued at $250,000, or $5.00 per common share based upon the closing market price on that date. On October 3, 2008, NPC entered into an agreement with LVPG, whereby the parties have agreed to rescind the October 2007 stock purchase agreement. LVPG returned 60,000 shares (50,000 original shares plus 10,000 stock dividend shares) of AMIN common stock and NPC returned 470,237 shares of LVPG common stock. In October 2008, the Investment in Las Vegas Premium Gold Products of $250,000 was reversed and the return of AMIN's 60,000 shares were recorded as treasury stock.
During the fourth quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default. American is carrying this property on the balance sheet for $4,611,233, which represents the portion of the principal and accrued interest allocated to the property received at the time of default, see Note 6, and the assumption of a note payable secured by the property (see Notes 6 and 9 to the financial statements). During the third quarter of 2009, and in connection with the guarantor’s fee described below, American pledged $250,000 in certificates of deposit for a $3,850,000 loan to Southwest Gulf Coast Properties, Inc. at Texas Community Bank. Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums with an appraised value of over $3,900,000. During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County appraised at $540,000 as a guarantor's fee. In connection with this fee, American pledged $1,750,000 in certificates of deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community Bank. During the third quarter of 2009, the principal balance of the loan was repaid and the bank released the pledged certificates of deposit to American. During 2007, American purchased for investment a 174 acre tract of land in Waller County, Texas for $1,684,066. This property is listed for sale with a real estate broker. American also owns 287 undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. American is carrying this property on the balance sheet at its historical book value of $225,000. American has engaged an independent broker on an exclusive basis to sell the property. These properties are not going to be developed by nor are they being held as inventory by American.
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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 Delta subsidiary
Delta’s operations are materially dependent on levels of oil and gas workover and abandonment activities in the United States
Delta's services include workover services, plugging and abandonment, and well completion and recompletion services. Activity levels for Delta’s oil and gas related services business is affected both by short-term and long-term trends in oil and gas prices and supply and demand balance, among other factors. Oil and gas prices and, therefore, the levels of workover and abandonment activities, tend to fluctuate. Demand for Delta's services can vary significantly due to levels of activities of oil and gas producers in the United States which are directly effected by the significant increase in energy prices in the U.S. and worldwide. Delta is dependent to a significant degree on the level of development and workover activities in the U.S. Gulf Coast area.
Any prolonged slowdown of the U.S. economy may contribute to an eventual downward trend in the demand for Delta’s services
Other factors affecting Delta’s oil and gas services business include any decline in production of oil and gas wells in the Texas and Gulf Coast area in which it operates. Delta’s revenues and profitability are particularly dependent upon oil and gas industry activity and spending levels in the Texas and Gulf Coast region. Delta’s operations may also be affected by interest rates and cost of capital, tax policies and overall economic activity. Adverse changes in any of these other factors may depress the levels of well workover and abandonment and result in a corresponding decline in the demand for Delta’s products and services and, therefore, have a material adverse effect on Delta’s revenues and profitability.
Profitability of Delta’s operations is dependent on numerous factors beyond Delta’s control
Delta’s operating results in general, and gross margin in particular, are functions of market conditions and the product and service mix sold in any period. Other factors impact the cost of sales, such as the price of steel, because approximately 60% of Delta’s oil and gas related revenues is from the sale of new drilling pipe and used pipe extracted during Delta’s well plugging business. Competition for pipe which is impacted by the US and worldwide cost of and demand for steel, availability of skilled labor and contract services, shortages in raw materials due to untimely supplies or ability to obtain items at reasonable prices may also continue to affect the cost of sales and the fluctuation of gross margin in future periods.
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Delta encounters and expect to continue to encounter intense competition in the sale of Delta’s products and services
Delta competes with numerous companies and its services are sold in highly competitive markets. The competition in the oil and gas industry could result in reduced profitability or inability to increase market share. In its markets, principally in South and East Texas, and the Gulf Coast, Delta competes principally with the following entities: Tetra Applied Technologies, Key Energy Services, Basic Energy, which are far larger than Delta, as well as a number of smaller companies. The land drilling service business is highly fragmented and consists of a small number of large companies and many smaller companies. Many of Delta's competitors have greater financial resources than Delta. Many of Delta’s competitors have substantially greater financial and other related resources than us.
Dependence upon major customers for Delta’s workover products and services
Delta provides workover products and services primarily to customers in the U.S. Gulf Coast market. Workover products and services are used to restore or increase production on a producing well. Workover services are typically used during the well development, production and abandonment stages. Delta's hydraulic workover units are typically contracted on a short-term dayrate basis. As a result, utilization of Delta’s workover units varies from period to period and the time to complete a particular service contract depends on several factors, including the number of wells and the type of workover or pressure control situations involved. In 2007, Delta’s largest customers for workover services were El Paso Production Company, The Houston Exploration Company, The Railroad Commission of Texas, Legend Natural Gas and Dominion Exploration and Production, Inc.
Delta’s revenues and cash flows from pipe sales are subject to commodity price risk
Approximately 60% of Delta’s oil and gas related revenues is from the sale of pipe; therefore, Delta has increased market risk exposure in the pricing applicable to the costs of steel. Realized pricing is primarily driven by the prevailing worldwide price and demand for steel. The cost of steel has been increasing significantly due to increased world demand generally and from China and India specifically.
Delta’s business involves certain operating risks, and its insurance may not be adequate to cover all losses or liabilities Delta might incur in its operations
Delta’s operations are subject to many hazards and risks, including the following:
- fires and explosions;
- accidents resulting in serious bodily injury and the loss of life or property;
- pollution and other damage to the environment; and
- liabilities from accidents or damage by our fleet of trucks, rigs and other equipment.
If these hazards occur, they could result in suspension of operations, damage to or destruction of our equipment and the property of others, or injury or death to our or a third party's personnel.
Risks related to government regulation
Delta’s business is significantly affected by federal, state and local laws and regulations relating to the oil and natural gas industry. Changes in these laws and regulations, including more restrictive administrative regulations and stricter enforcement of these laws and regulations, could significantly affect Delta's business and results of operations. Delta cannot predict future changes in existing laws and regulations or how these laws and regulations may be interpreted or the effect changes in these laws and regulations may have on Delta or its future operations and profitability. Delta cannot predict whether additional laws and regulations will be adopted. The adoption of new laws and regulations curtailing exploration and development drilling for oil and natural gas in Delta’s areas of operation could also materially adversely affect Delta's operations by limiting demand for its products and services.
Delta’s workover products and services are subject to and affected by various types of government regulation, including numerous federal and state environmental protection laws and regulations. These laws and regulations are becoming increasingly complex and stringent. Governmental authorities have the power to enforce compliance with these regulations, and violators are subject to civil and criminal penalties, including civil fines, injunctions, or both. Third parties may also have the right to pursue legal actions to enforce compliance. It is possible that increasingly strict environmental laws, regulations and enforcement policies could result in substantial costs and liabilities to Delta and could subject its operations to increased scrutiny.
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Risks related to our SET subsidiary
The majority of our revenues are generated from a small number of customers, and our results of operations and cash flows will be adversely affected if any of our major customers either fail to pay on a timely basis or cease to purchase our products.
Two of our customers accounted for approximately 78% of our sales. At December 31, 2009, four customers accounted for approximately 58% of our trade accounts receivable balance. These customers do not have any ongoing commitment to purchase our products and services. We generally do not require collateral from our customers, although we do perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses which, when realized, have been within the range of our expectations. If one or more of our major customers stops purchasing our products or defaults in its obligation to pay us, our results of operations as well as our cash flows will be adversely affected.
We face significant competition in our markets. Our inability to compete successfully could have a material adverse effect on our business and results of operations.
The energy field services industry is highly competitive. Competition in the sale of our products is primarily based on process capability, quality, cost, delivery and responsiveness. Many of our competitors are entities that are larger and have greater financial and personnel resources than we do. We may not be able to compete successfully. If we do not compete successfully, our business and results of operations will be materially adversely affected.
We purchase metals in the open market, and our profitability may vary if prices of metals fluctuate.
The principal raw materials that we use are carbon steel, aluminum, stainless steel, nickel, brass, titanium and various special alloys and other metals. The metals industry as a whole is cyclical, and at times pricing and availability of raw materials in the metals industry can be volatile due to numerous factors beyond our control, including general, domestic and international economic conditions, labor costs, production levels, competition, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of raw materials, and may, therefore, adversely affect our net sales, operating margin and net income. During periods of rising raw materials pricing, there can be no assurance that we will be able to pass any portion of such increases on to our customers. When raw material prices decline, customer demands for lower prices could result in lower sale prices and, as we use existing inventory, result in lower margins. Changing metal prices could adversely affect our ability to attain profitably.
The oil & gas industry is subject to fluctuations in demand, which results in fluctuations in our results of operations.
Most of our products are sold to oil and gas field services companies that experience significant fluctuations in demand based on economic conditions, energy prices, domestic and international drilling rig counts, consumer demand, and other factors beyond our control. In 2008 and 2007, we experienced increased activity levels driven by increases in energy commodity prices and increased demand for oil field drilling products. However, SET has seen decreased order volume as the world demand for crude products has decreased during the 2008 - 2009 recession. Reduced demand for oil field drilling products typically results in lower activity levels for our company. These changes can happen very quickly and without forecast or notice, and may have a material adverse effect on our results of operations.
Our operations are subject to a number of federal, state and local regulations relating to the protection of the environment and to workplace health and safety. If we were found to be responsible for significant damages related to such regulation, it could have a material adverse effect on our business and results of operation.
Our operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, environmental protection, remediation, workplace exposure, and other matters. Hazardous materials that we use in our operations primarily include lubricants and cleaning solvents. Our leased facility is located in an industrial area close to properties with histories of heavy industrial use. Although no environmental claims have been made against us and we have not been named as a potentially responsible party by the EPA or any other party, it is possible that we could be identified by the EPA, a state agency or one or more third parties as a potentially responsible party under CERCLA or under analogous state laws. If so, we could incur substantial litigation costs to prove we are not responsible for the environmental damage, or, if we were found to be a responsible party, we could be liable for significant damages. This could have a material adverse effect on our business and results of operations.
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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 subscription and 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 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, 2009, NPI's large accounts accounted for 76% 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 2010 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 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.
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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.
Possible issuance of additional securities
Our Articles of Incorporation authorize the issuance of 50,000,000 shares of common stock, par value $0.001 and 1,000,000 shares of preferred stock, par value $0.001. At December 31, 2009, we had 9,191,325 shares of common stock issued and 0 preferred shares issued. To the extent that additional shares of common stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of common stock may adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
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, 2009, the Registrant had 9,191,325 shares of common stock issued, 3,831,364 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.
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ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
During 2004, the Company's majority owned subsidiary, Delta consolidated its Houston and Louisiana facilities into a combined 12,500 square foot leased executive office, sales and warehouse facility in Houston, TX, which facility was acquired by Delta in 2005 from a third party for $850,000. In 2006, these facilities were acquired at the same amount from Delta by American International Industries, Inc., which has a 51% interest, and by Delta's executive officers who acquired the remaining 49% interest. Delta continues to maintain a 5,000 square foot office and warehouse facility in Louisiana which is leased from an unaffiliated third party at an annual rental of $18,000. The Company leases a 30,000 square foot manufacturing and office facility utilized by SET for $22,100 per month. The Company owns the 38,500 square foot warehouse and office facility utilized by NPI. 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
On July 23, 2008, Delta Seaboard Well Service, Inc., our 51% owned subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. After noncontrolling interest, the net impact of this settlement on American's net income is $739,500. Delta partially recovered this loss through insurance as described below.
Delta Seaboard Well Service, Inc. v. Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance Alliance and Robert Holman (“Broker Lawsuit”). On February 19, 2010, Delta settled its claims in the Broker Lawsuit and received $700,000, which will be included in other income for the three months ended March 31, 2010.
Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs are claiming an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. On February 22, 2010, the trial judge entered a $269,138 judgment in favor of the plaintiffs. The attorneys plan a motion for a new trial. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available liability insurance coverage to fund any judgment that might be entered. Delta intends to vigorously defend this case. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
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 288,000 shares of restricted AMIN stock (240,000 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 288,000 shares back to American for $4.17 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. In February 2010, the case was mediated and the parties attempted to settle the case. However, the parties have been unable to agree on terms. If the parties can not agree, the case will have to be mediated again or tried. Additional information has been recently discovered to support American's case. Our attorney believes that if the case is tried, either side could win. If Botts wins, we believe that the maximum loss for American would be approximately $1,500,000. If the case is tried, American intends to vigorously defend this case. An evaluation of the outcome of this case cannot be made at this time. American expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
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ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 18, 2009, the Company's annual meeting of shareholders was held. At the meeting the shareholders voted for the election of Daniel Dror, Charles R. Zeller, Robert W. Derrick, Jr., and Thomas J. Craft, Jr., and John W. Stump III to serve on our board until the next annual meeting of shareholders or until their successors are elected and qualified and voted to ratify our selection of GBH CPAs, PC as independent auditors for 2009. At the date of the annual meeting, the Company had a total of 9,105,372 shares of common stock outstanding and a total of 6,768,769 were present and voted. The following tables set forth the vote of shareholders with respect to the two proposals:
Proposal 1. Election of Directors
On November 30, 2009, the board of directors of American accepted the resignation of John W. Stump, III as a director and as chairperson of the audit committee and as a member of the compensation committee and nominating committee, positions he has held since April 20, 2007. On January 19, 2010, the board of directors of American appointed Steven M. Plumb as a director, chairperson of the audit committee and a member of the compensation committee and nominating committee.
Proposal 2. Ratification of GBH CPAs, PC as Independent Auditors for 2009
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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 NasdaqCM. For the periods indicated, the following table sets forth the high and low trade prices per share of common stock, adjusted for the 20% stock dividends to all shareholders on July 16, 2008. 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, 2009, there were approximately 1,100 owners of its common stock.
Issuer purchases of equity securities
On January 17, 2007, the Company announced that its Board of Directors approved a stock repurchase program, effective January 12, 2007. Under the program, the Company is authorized to repurchase up to $3,000,000 of its outstanding shares of common stock from time to time over the next three years, 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 2007, the Company purchased 23,162 shares under this plan at an average price paid per share of $4.65. During 2008, the Company purchased 24,948 shares under this plan at an average price paid per share of $2.35. During 2009, the Company purchased 257,646 shares under this plan at an average price paid per share of $0.98.
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 2009.
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. During fiscal year 2008, the Company paid to shareholders on July 16, 2008, a stock dividend of 20%. 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.
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Recent Sales of Unregistered Securities
During 2009, the Company issued restricted securities as follows:
(i)
in July 2009, the Company issued 200,000 restricted shares as an incentive to the Chief Executive Officer to extend his employment agreement for three years, valued at $200,000, based upon the closing market price on such date;
(ii)
in July 2009, the Company issued 50,000 restricted shares as an incentive to the Chief Financial Officer to extend her employment agreement for three years, valued at $50,000, based upon the closing market price on such date;
(iii) in August and December 2009, the Company issued 25,000 and 20,000 restricted shares, respectively, as bonuses to its employees valued at $32,000 and $25,000, respectively, based upon the closing market prices on such dates;
(iv)
in October 2009, the Company issued 4,000 shares of restricted stock to the Company’s directors for serving on our Board of Directors valued at $4,840, based upon the closing market price on such date;
The Company believes that the above issuances of restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions.
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, 2009.
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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
General
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;
·Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.
·Delta Seaboard Well Services (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
·Corporate overhead - the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses. Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on the Company's balance sheet at $0. Through Brenham Oil & Gas, the Company 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 enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by the Company, to assist them with the resources required to develop their reserves.
The historical financial statements of the Company include the acquisitions of acquired companies as of the effective dates of the purchases, and the results of those companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.
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.
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On December 31, 2008, the board of directors of the Company approved the deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from the Company. To effect the deconsolidation of Hammonds, the Company was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 17.4 million shares of Hammonds’ common stock to the Company’s shareholders of record on December 31, 2008, the Company’s ownership is proximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to the Company. As a result, the majority of Hammonds’ board of directors is no longer controlled by the Company. Additionally, a reduction of the Company’s guarantee of Hammonds’ debt was obtained from Texas Community Bank.
Related Party Transactions
During the year ended December 31, 2009, American issued 200,000 shares of common stock to the CEO for services valued at $200,000. At December 31, 2009, Delta had a balance due to the noncontrolling interest owners of $120,000 and SET had a balance of $180,000 due to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to our consolidated financial statements for the years ended December 31, 2009 and 2008.
Off-Balance Sheet Arrangements
As of December 31, 2009, 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
Effective January 1, 2009, American began implementation of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 (ASC 810 “Consolidation”) required American to:
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Recharacterize minority interests, previously classified within liabilities, as noncontrolling interests reported as a component of consolidated equity on the balance sheet,
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Include total income in net income, with separate disclosure on the face of the consolidated income statement of the attribution of income between controlling and noncontrolling interests, and
·
Account for increases and decreases in noncontrolling interests as equity transactions with any difference between proceeds of a purchase or issuance of noncontrolling interests being accounted for as a change to the controlling entity’s equity instead of as current period gains/losses in the consolidated income statement. Only when the controlling entity loses control and deconsolidates a subsidiary will a gain or loss be recognized.
SFAS No. 160 was effective prospectively for fiscal years beginning on or after December 15, 2008 except for its specific transition provisions for retroactive adoption of the balance sheet and income statement presentation and disclosure requirements for existing minority interests that are reflected in these consolidated financial statements for all periods presented. As a result of the implementation of SFAS No. 160, which required retrospective application of presentation requirements, total equity at December 31, 2008 increased by $2,085,573 representing noncontrolling interests, and total liabilities at December 31, 2008 decreased by $2,085,573 as a result of the elimination of minority interest. Also as a result of the adoption of SFAS No. 160, for the year ended December 31, 2008, loss from continuing operations, net of income taxes increased by $57,726 and net losses attributable to the noncontrolling interests increased by $57,726.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009, and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact American’s results of operations or financial condition. The Codification did not change GAAP; however, it did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. American implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
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In addition to the pronouncements noted above, there were various other 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 OPERATIONS
YEAR ENDED DECEMBER 31, 2008 VERSUS YEAR ENDED DECEMBER 31, 2007
We have three reporting segments and corporate overhead: Northeastern Plastics ("NPI"), Shumate Energy Technologies ("SET"), Delta Seaboard Well Service ("Delta"), and corporate overhead.
Our consolidated net revenues for the year ended December 31, 2009 were $25,656,678, compared to $32,108,660 for the prior year, a decrease of $6,451,982, or 20%. The decrease in revenues was due to lower demand for pipe and rig services, resulting in a decrease in Delta's revenues of $10,342,022, or 54%, compared to the prior year. Our new wholly-owned subsidiary, SET, contributed revenues of $7,193,272 for the full year ended December 31, 2009 compared to $2,584,464 for the three months ended December 31, 2008, an increase of $4,608,808. Revenues for NPI of $10,392,365 in 2009 compared to $9,673,597 in 2008 decreased by $718,768 due to the decline in the economy.
Cost of sales for the year ended December 31, 2009 was $17,593,869, compared to $20,726,120 for the year ended December 31, 2008. Our gross margins in 2009 were 31.4%, compared to gross margins of 35.5% in 2008. The decline in margins was primarily due to the decline in pipe sales at Delta. The margins on pipe sales are historically greater than the margins on our other revenue components.
Consolidated selling, general and administrative expenses for the year ended December 31, 2009 were $11,523,098, compared to $11,951,117 in the prior year, representing a decrease of $428,019, or 4%. Costs at Delta and NPI decreased by $667,706 and $122,866 associated with their decreased revenues, and Corporate costs decreased by $209,445. Costs at SET were higher by $571,998 for the full year ended December 31, 2009 compared to the three months included in the prior year.
We had an operating loss of $3,460,289 for the year ended December 31, 2009, compared to an operating loss of $568,577 for the year ended December 31, 2008.
We had other income of $274,217 in 2009, compared to other expense of $318,844 in 2008. Other income for the year ended December 31, 2009 included $175,000 for providing right-of-way access on the 287 acres in Galveston County. Interest and dividend income was $420,853, net realized/unrealized gains on trading securities was $518,050, and interest expense was $873,518 for the year ended December 31, 2009. The primary reason for the other expense in 2008 was due to net realized/unrealized losses on trading securities of $4,594,292 and the recognition of $1,450,000 for the Delta lawsuit settlement (see Note 17 to the financial statements), offset by $4,922,591 for recognition of the property dividend distribution gain associated with the declaration of the Hammonds’ stock dividend (see Note 14 to the financial statements). The unrealized losses on trading securities of $4,054,334 for the year ended December 31, 2008 were due primarily to a decline in the market value of our investment in Rubicon Financial Incorporated of $3,394,991 (see Note 2 to the financial statements). The realized losses on trading securities of $539,958 for the year ended December 31, 2008 resulted primarily from the loss on the sale of our investment in OI Corporation of $406,456. American recognized as a guarantor's fee the receipt of a 1.705 acre tract of land in Galveston County appraised at $540,000 (see Note 5 to the financial statements). Delta recognized other income from a Texas Emissions Reduction Plan (TERP) grant in the amount of $277,606 for the year ended December 31, 2008. For further disclosure regarding the TERP grant (see Note 13 to the financial statements). Interest and dividend income was $693,431 and interest expense was $841,212 for the year ended December 31, 2008.
We had a net loss from continuing operations of $3,237,436, or $0.37 per share, for the year ended December 31, 2009, compared to a net loss of $834,881, or $0.11 per share, for the year ended December 31, 2008.
We had a net loss from discontinued operations of $350,000, or $0.04 per share, for the year ended December 31, 2009, compared to net income from discontinued operations of $9,274,274, or $1.18 per share, for the year ended December 31, 2008. Net income from discontinued operations for the year ended December 31, 2008 includes the gain on deconsolidation of $15,421,569, offset by Hammonds' net loss of $6,147,295 for the year ended December 31, 2008.
Our net loss was $2,952,088, or $0.34 per share, for the year ended December 31, 2009, compared to net income of $8,381,667, or $1.07 per share, for the year ended December 31, 2008.
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Delta
Delta had revenues of $8,789,809 for the year ended December 31, 2009, compared to $19,131,831 in the prior year, or a decrease of $10,342,022, or 54%. The decrease in revenues was due to lower demand for pipe and rig services. For the year ended December 31, 2009, pipe sales represented 47.9% of Delta's revenues, compared to 74.5% for the year ended December 31, 2008. Margins for the year ended December 31, 2009 were $5,206,036, or 59%, compared to $8,764,069, or 46%, in the prior year reflecting pricing pressure on Delta's products due to lower demand. Delta's selling general and administrative expenses for the year ended December 31, 2009 were $6,905,855, compared to $6,238,149 in the prior year, representing a decrease of $667,706, or 10%. The decrease is associated with the decline in revenues. Delta experienced an operating loss of $1,032,113 for the year ended December 31, 2009, compared to operating income of $1,858,214 in the prior year.
Delta, as part of its business, sells salvaged and new pipe to operators of oil and gas fields. 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
For the year ended December 31, 2009, NPI's revenues were $9,673,597, compared to revenues of $10,392,365 during the prior year, a decrease of $718,768. The revenue decrease was due primarily to the decline in the economy. NPI’s gross margin for the year ended December 31, 2009 improved to 23% compared to 20% for the prior year. For the year ended December 31, 2009, selling, general and administrative expenses were $1,934,628, compared to $2,057,495 for the prior year, representing a decrease of $122,866, or 6%. The decrease is associated with the decline in revenues. NPI experienced operating income of $255,256 for the year ended December 31, 2009, compared to an operating loss of $18,650 during the prior year.
NPI is highly reliant upon a small customer base, with approximately 58% of its sales in 2009 being generated through one principal customer. There is significant risk in having such a large portion of revenues concentrated to this extent and the loss of one or more principal customers could result in a reduction in NPI’s revenues. The sales of NPI have historically been subject to sharp seasonal variations. NPI's strategic plan for 2010 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Our subsidiary, NPI has purchase orders from all customers for all of its 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 items are shipped.
SET
For the year ended December 31, 2009, SET's revenues were $7,193,272, gross margin was 10%, selling, general and administrative expenses were $1,072,944, and SET experienced an operating loss of $366,455. The results of SET for the period of October 8, 2008 to December 31, 2008 are included in our results of operations. For the period ended December 31, 2008, SET's revenues were $2,584,464, gross margin was 22%, selling, general and administrative expenses were $500,946, and net operating income was $78,681.
LIQUIDITY AND CAPITAL RESOURCES
The Company had current assets of $22,143,193 at December 31, 2009, compared to current assets of $26,360,921 at December 31, 2008. Current assets decreased by $4,217,728 for the year ended December 31, 2009, primarily due to a decrease in cash and certificates of deposit of $4,503,000, which was used to make payments of $3,825,454 on debt and line-of-credit agreements and to fund operating activities. The Company's current liabilities at December 31, 2009, were $9,001,742, compared to $8,164,894 at December 31, 2008. Working capital for the year ended December 31, 2009 was $13,141,451, compared to $18,196,027 at year end 2008. At December 31, 2009, the Company had total assets of $31,012,169, compared to total assets of $35,977,944 at December 31, 2008. The Company's total liabilities at December 31, 2009 were $16,351,308, compared to $17,985,254 at December 31, 2008.
For the year ended December 31, 2009, we had negative cash flows from operations of $707,357, compared to negative cash flows from operations of $98,324 during 2008. For the year ended December 31, 2009, the negative cash flow from operations was the result of our net loss from continuing operations of $3,237,436. Our net loss for the year ended December 31, 2009 included non-cash income of $498,396 for unrealized gains on trading securities and non-cash expenses of $1,687,179, including depreciation and amortization of $1,179,349 and non-cash compensation of $507,830. Accounts receivable decreased by $1,376,300, inventories decreased by $328,525, and trading securities increased by $213,980.
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For the year ended December 31, 2008, the negative cash flow from operations was the result of our net loss from continuing operations of $834,881 for the year ended December 31, 2008. Our net loss for the year ended December 31, 2008 included non-cash income of $5,740,197, including $4,922,591 for recognition of the property dividend distribution gain associated with the declaration of the Hammonds’ stock dividend (see Note 14 to the financial statements), the recognition of guarantor's fee income from the receipt of a 1.705 acre tract of land in Galveston County appraised at $540,000 (see Note 5 to the financial statements), and income from a Texas Emissions Reduction Plan (TERP) grant in the amount of $277,606. Our net loss for the year ended December 31, 2008 included non-cash expenses of $6,880,562, including unrealized losses on trading securities of $4,054,334, a $1,450,000 loss from the Delta lawsuit settlement (see Note 17 to the financial statements), depreciation and amortization of $647,851, and non-cash compensation of $728,377. Excluding the acquired assets and liabilities of SET, our inventories decreased by $876,516, trading securities decreased by $1,872,157, deposits for pipe purchases increased by $2,221,932, accounts receivable increased by $697,618, and accounts payable decreased by $734,635 for the year ended December 31, 2008.
Cash provided by investing activities for the year ended December 31, 2009 was $3,035,615, compared to net cash used in investing activities of $3,751,040 in 2008. Cash was provided by investing activities in 2009 as a result of a net decrease in investments in certificates of deposit of $3,115,813 and proceeds from notes receivable of $295,104, offset by the issuance of a note receivable of $300,000 and the purchase of property and equipment of $275,599.
Cash used by investing activities in 2008 resulted from the assumption of a $5,000,000 note for the purchase of the Shumate Machine Works assets, a net decrease in investments in certificates of deposit of $880,000, proceeds from notes receivable of $1,098,866, and proceeds from the sale of drilling rig equipment of $200,000, offset by purchases of property and equipment of $373,911, and the issuance of notes receivable of $475,000.
During the year ended December 31, 2009, our financing activities used cash of $3,365,445 compared to cash provided of $4,670,144 during 2008. During the year ended December 31, 2009, we received net proceeds from the issuance of debt of $783,851. We made payments of $3,825,454 on debt and line-of-credit agreements and purchased 257,646 shares of treasury stock at a cost of $252,223. During 2008, we received proceeds from borrowings of $9,067,663, made payments of $3,102,278 on debt and $1,443,423 on margin loans.
On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia. The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of its debt and interest payments since the inception of the line of credit. The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required. Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group review NPI for a new loan. This group declined the loan and the bank has recommended another lender. NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. NPI has a consistent and growing base of business with large seasonal sales received in the third and fourth quarters. Historically, during this period every year, NPI receives a large order from its primary customer and briefly exceeds its borrowing base to make the inventory purchases necessary to fill that order. For the past 10 years, this has not been a problem and NPI's representative at the bank has always been willing to work with NPI. At December 31, 2009, NPI’s line of credit balance was $1,099,000 and as of this filing, the balance has been reduced by $73,000 to $1,026,000. NPI’s current assets at December 31, 2009 were $4,457,821, and included $1,208,334 and $2,754,233 in accounts receivable and inventory, respectively.
Our subsidiary, Delta has a line of credit for $2,000,000 with Trust Mark Bank, which has a maturity date in April 2010. Both Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months. Management plans to renew this line of credit upon expiration. Our Subsidiary, SET, has a $1,000,000 line of credit with Stillwater National Bank and Trust, which has a maturity date in September 2010. Delta and SET have excellent relationships with their banks and believe that they will be able to renegotiate their lines of credit at terms and conditions satisfactory to the Company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance Sheets - December 31, 2009 and 2008
Consolidated Statements of Operations - Years Ended December 31, 2009 and 2008
Consolidated Statements of Changes in Stockholders’ Equity - Years Ended December 31, 2009 and 2008
Consolidated Statements of Cash Flows - Years Ended December 31, 2009 and 2008
Notes to the Consolidated Financial Statements
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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 defined by SEC rules adopted under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed 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. It consists of policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we made an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, we used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2009.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide a management report in the Annual Report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
American International Industries, Inc. and Subsidiaries
Kemah, Texas
We have audited the accompanying consolidated balance sheets of American International Industries, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 audit 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, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years 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
March 31, 2010
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AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
The accompanying notes are an integral part of these consolidated financial statements.
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The accompanying notes are an integral part of these consolidated financial statements
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AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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American International Industries, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Organization, Ownership and Business
American, a Nevada corporation, operates as a diversified holding company with a number of wholly-owned subsidiaries and one majority-owned subsidiary. 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 International Industries, Inc. ("American") and its wholly-owned subsidiaries, Northeastern Plastics, Inc. ("NPI") and Shumate Energy Technologies, Inc. ("SET"), and Delta Seaboard Well Service, Inc. ("Delta"), in which American holds a controlling shareholder interest. All significant intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to amounts in prior periods to conform with 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 Receivables
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. 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.
Freight and Shipment Policy
American's policy is to expense all freight and shipment expenses as incurred.
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Investment Securities
American accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115 (ASC 320-10), "Accounting for Certain 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 shown in the caption "unrealized gains (losses) on shares available-for-sale" included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
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. As required by SFAS No. 141(R) (ASC 805-10), the acquisition of the assets of Shumate Machine Works by Shumate Energy Technologies has been recorded using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date. For more information on the acquisition of Shumate, see Note 3.
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.
SFAS No. 142 (ASC 350-20) eliminated the amortization of goodwill, and requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. American adopted SFAS No. 142 (ASC 350-20) effective January 1, 2002.
December 31, 2009 and December 31, 2008 balances for long-lived assets are detailed in later footnotes: Property and Equipment (note 7) and Intangible Assets (note 8).
Revenue Recognition
Revenue is recognized when the earning 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. SET receives purchase orders for machining of oil field drilling parts, components and tools. Customers have the right to inspection and acceptance for generally up to five days after taking delivery. Returns are not accepted due to the custom specifications of each product, but rework on items is necessary if the product was not within the original order specifications. Customer requests for rework and customer rejection of shipments has been historically low. 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.
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American has adopted FIN 48 (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. FIN 48 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, 2009, American had not recorded any tax benefits from uncertain tax positions.
Net Income (Loss) Per 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, 2009 and 2008, 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 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 under FASB Statement No. 123R (ASC 718-10), "Accounting for Stock-Based Compensation" based on the grant date fair values.
Subsequent Events
American evaluated events occurring between the end of our fiscal year, December 31, 2009, and March 31, 2010 when the consolidated financial statements were issued.
New Accounting Pronouncements
Effective January 1, 2009, American began implementation of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 (ASC 810 “Consolidation”) required American to:
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Recharacterize minority interests, previously classified within liabilities, as noncontrolling interests reported as a component of consolidated equity on the balance sheet,
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Include total income in net income, with separate disclosure on the face of the consolidated income statement of the attribution of income between controlling and noncontrolling interests, and
·
Account for increases and decreases in noncontrolling interests as equity transactions with any difference between proceeds of a purchase or issuance of noncontrolling interests being accounted for as a change to the controlling entity’s equity instead of as current period gains/losses in the consolidated income statement. Only when the controlling entity loses control and deconsolidates a subsidiary will a gain or loss be recognized.
SFAS No. 160 was effective prospectively for fiscal years beginning on or after December 15, 2008 except for its specific transition provisions for retroactive adoption of the balance sheet and income statement presentation and disclosure requirements for existing minority interests that are reflected in these consolidated financial statements for all periods presented. As a result of the implementation of SFAS No. 160, which required retrospective application of presentation requirements, total equity at December 31, 2008 increased by $2,085,573 representing noncontrolling interest, and total liabilities at December 31, 2008 decreased by $2,085,573 as a result of the elimination of minority interest. Also as a result of the adoption of SFAS No. 160, for the year ended December 31, 2008, loss from continuing operations, net of income taxes increased by $57,726 and net losses attributable to the noncontrolling interest increased by $57,726.
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In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009, and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact American’s results of operations or financial condition. The Codification did not change GAAP; however, it did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. American implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
In addition to the pronouncements noted above, there were various other 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.
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, certificates of deposit, 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 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, 2009, American did not have any significant Level 2 or 3 financial assets or liabilities. The following table provides fair value measurement information for American's trading securities:
Note 2 - Trading Securities
Investments in marketable 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, 2009 and 2008, American had unrealized trading gains of $498,396 and losses of $4,054,334, respectively, related to securities held on those dates. The unrealized losses for the year ended December 31, 2008, were due primarily to the decline in value of American's 1,000,000 shares of Rubicon Financial Incorporated's (OTCBB: RBCF.OB) common stock of $3,394,991. At December 31, 2009 and 2008, our investment in shares of RBCF common stock, classified as trading securities on the balance sheet, was valued at $311,670, or $0.30 per share, and $322,170, or $0.30 per share, respectively, based upon the closing market prices on those dates, respectively. American recorded realized gains of $19,654 and realized losses of $539,958 for the years ended December 31, 2009 and 2008, respectively.
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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 marketable 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 3 - Acquisition of the Assets of Shumate Machine Works by Shumate Energy Technologies
On October 8, 2008, a subsidiary of American completed the purchase of 100% of the assets and assumed certain liabilities of Shumate Machine Works Corporation, a subsidiary of Shumate Industries, Inc. ("SHMT"). The terms of the agreement provided for a purchase price of $5.0 million funded by the simultaneous closing of a $5.0 million term note by Shumate Machine Works, secured by the assets of SHMT, and the receipt of SHMT common stock with a value equivalent to any negative working capital at the closing date of the transaction. In connection with the negative working capital provision of the agreement, American received 1,401,170 restricted shares of SHMT common stock valued at $0.30 per share for a total value of $420,351. These shares represented approximately 6.4% of SHMT’s outstanding shares as of October 8, 2008. The assets are now owned by a wholly-owned American subsidiary, Shumate Energy Technologies, Inc.
American's subsidiary recorded the acquisition using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date. The purchase price of $5,000,000 has been allocated at follows:
The $744,403 of acquired intangible assets includes $729,000 assigned to Computer Numerical Control ("CNC") programs and $15,403 assigned to the acquired name and logo. These intangible assets have a weighted average useful life of 7 years.
Revenues and expenses of Shumate Energy Technologies, Inc. are included in American's statements of operations from October 8, 2008 through December 31, 2009.
Note 4 - Inventory and Deposits for Pipe Inventory Purchases
Inventories consisted of the following:
Periodically, American enters into agreements to purchase pipe inventory from vendors. At December 31, 2009 and 2008, American had cash deposits of $1,336,244 and $2,221,932, respectively, for inventory purchases under these agreements that had not been received.
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Note 5 - Real Estate Transactions
During the fourth quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default. American is carrying this property on the balance sheet for $4,611,233, which represents $3,332,543 in principal and accrued interest allocated to the property received at the time of default, see Note 6, and the assumption of a $1,278,690 note payable secured by the property by another lien holder, see Note 9. This property consists of seven tracts, of which several are under contract for sale and the remainder are listed for sale with a broker.
During the third quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default. At September 30, 2009, American carried this property on the balance sheet for $198,500, which represented the portion of the principal and accrued interest allocated to the property received at the time of default, see Note 6. On October 28, 2009, American entered into a settlement with the purchaser of this property. The title company involved in the purchase transaction paid $150,000 in November 2009 in exchange for American's deed of trust for the property. Upon receipt of the $150,000, American removed the property from its balance sheet and recorded the difference of $48,500 to the note and accrued interest. This receivable is secured by real property from the original $225,000 note receivable.
During the third quarter of 2009, and in connection with the guarantor’s fee described below, American has pledged $250,000 in certificates of deposit for a $3,850,000 loan to Southwest Gulf Coast Properties, Inc. at Texas Community Bank. Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums with an appraised value of over $3,900,000.
During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County valued at $540,000 as a guarantor's fee. In connection with this fee, American pledged $1,750,000 in certificates of deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community Bank. During the third quarter of 2009, the principal balance of the loan was repaid and the bank released the pledged certificates of deposit to American. This property is listed for sale with a broker.
During 2007, American purchased for investment a 174 acre tract of land in Waller County, Texas for $1,684,066. This property is listed for sale with a real estate broker. American also owns 287 undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. American is carrying this property on the balance sheet at its historical book value of $225,000. American has engaged an independent broker on an exclusive basis to sell the property. These properties are not going to be developed by nor are they being held as inventory by American. These properties are listed for sale with a broker.
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:
Management with the appropriate authority commits to a plan to sell the asset;
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;
An active program to locate a buyer and other actions required to complete the plan of sale have been initiated;
The sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale;
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
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.
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Note 6 - Long-term Notes Receivable
Long-term notes receivable consists of the following:
(a) Net note receivable from sale of real estate, principal payment due on or before July 30, 2009. On July 30, 2004, American sold real estate to an unaffiliated third party for a cash payment equal to the first lien and $250,000 owed to Orion HealthCorp, Inc. and a note receivable in the amount of $5,000,000 secured by a lien on the real estate. The note is being amortized over a 20 year period, with a balloon payment at the end of five years in the amount of $4,012,084, and bears interest of 3% per annum. The note was discounted by $1.6 million to the present value of the lowest level of annual payments required by the sales contract, or $3.4 million, over the maximum period required. Principal payments had reduced the note balance to $3.0 million as of September 30, 2009. American recorded a gain, using the reduced profit method for recording the sale of land, in the amount of $1,815,070 on the sale of this real estate based on discounting the $5,000,000 note at a 7.6% interest rate (approximating the market rate for real estate transactions by the buyer). The borrower did not make the payment due on July 30, 2009. During the fourth quarter of 2009, American acquired the deed to the property in lieu of payment of the debt, see Note 5.
(b) Sale of former subsidiary, Marald, Inc., principal and interest due monthly through July 2012. 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. Marald is currently in default on its payments. New payment terms are being negotiated for this note receivable. Since the loan is reflected at a $100,000 discount to the original note face value and payments are currently being made on the other note receivable with Marald in accordance with note terms, American believes payment terms will be successfully negotiated and no further discounting of the loan was deemed necessary as of December 31, 2009.
(c) Unsecured notes receivable due April 30 and December 31, 2008. These delinquent notes were due from Hammonds Industries, Inc. ("Hammonds"). The assets of the Hammonds' companies were sold on April 16, 2009 (see Note 19). On August 13, 2009, Hammonds, American, Delta, and the noncontrolling interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. This agreement includes a provision to issue common shares for these unsecured notes. American closed this transaction in February 2010 and Hammonds will issue 10,000,000 post-Reverse Split common shares at fair value of $0.087 per share in consideration for the conversion of the principal and interest on these notes.
(d) Note secured by property and shares of stock, interest due monthly at 18%, per annum principal payment due on or before May 9, 2009. This note is in default and American has obtained the shares of stock and a portion of the real property securing this note. On July 13, 2009, American received title to 2,000,000 shares of Momentum Biofuels, Inc., valued at $40,000, or $0.02 per share. As of November 4, 2009, American had sold all of these shares on the open market for $25,411. During the third quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default. At September 30, 2009, American carried this property on the balance sheet for $198,500, which represented the portion of the principal and accrued interest allocated to the property received at the time of default, see Note 6. On October 28, 2009, American entered into a settlement with the purchaser of this property. The title company involved in the purchase transaction paid $150,000 in November 2009 in exchange for American's deed of trust for the property. Upon receipt of the $150,000, American removed the property from its balance sheet and recorded the difference of $48,500 to the note and accrued interest. This receivable is secured by real property from the original $225,000 note receivable.
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(e) Note purchased from Texas Community Bank with a face amount of $300,000. This delinquent note was purchased on March 31, 2009 for $300,000 and new payment terms are being negotiated for this note receivable with the debtors, Las Vegas Premium Gold. This note was purchased as an investment to receive the interest income from the note. Management has assessed this note for impairment and feels that collectability is reasonably possible based on the personal guarantees of the principals.
Interest income on notes receivable is recognized principally by the simple interest method. During the years ended December 31, 2009 and 2008 American recognized interest income of $256,907 and $336,277, respectively.
Note 7 - 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, 2009, $171,793 of equipment that was classified as other assets as of December 31, 2008, was placed in service and reclassified to property and equipment.
Depreciation expense for the years ended December 31, 2009 and 2008 was $1,073,006, and $621,265, respectively.
SET has entered into a capital lease agreement for the acquisition of machinery and equipment. The assets acquired under such financing arrangement included in property and equipment is as follows:
Principal repayment provisions of this long-term capital lease are as follows at December 31, 2009:
Note 8 - Intangible Assets
Intangible assets at December 31, 2009 consisted of the following:
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Intangible assets at December 31, 2008 consisted of the following:
Amortization expense for the years ended December 31, 2009 and 2008 was $106,343, and $26,586, respectively.
Note 9 - Short-term Notes Payable
(a) This note was assumed as part of the foreclosure on property that was security for a note receivable owed to American. See Note 5.
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 guarantees from American.
At December 31, 2009 and 2008, the average annual interest rates of our short-term borrowings were approximately 10.11% and 5.91%, respectively.
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Note 10 - Long-term Debt
Long-term debt consisted of the following:
(a) Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months. Management plans to renew this line of credit upon expiration.
(b) On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia. The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of its debt and interest payments since the inception of the line of credit. The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required. Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group review NPI for a new loan. This group declined the loan and the bank has recommended another lender. NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. At December 31, 2009, NPI’s line of credit balance was $1,099,000 and as of this filing, the balance has been reduced by $73,000 to $1,026,000. NPI’s current assets at December 31, 2009 were $4,457,821, and included $1,208,334 and $2,754,233 in accounts receivable and inventory, respectively.
(c) During the year ended December 31, 2009, the due dates for these notes were extended and the balances have been reclassified to long-term.
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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 guarantees from American.
Principal repayment provisions of long-term debt are as follows at December 31, 2009:
Note 11 - 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 no 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.
American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 1,036,800 are reserved for issuance pursuant to the exercise of options pursuant to an employment agreement with American's Chairman and CEO.
During the year ended December 31, 2009, American purchased 257,646 common shares as treasury stock for $252,223.
On March 30, 2007, American issued 144,000 stock options to American's Chairman and CEO, with an exercise price of $7.00 per share, expiring in 2 years. In connection with American's 20% stock dividends to all shareholders on September 19, 2007 and July 16, 2008, the terms of these options were adjusted to reflect the dividends, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share. These options expired on March 30, 2009.
On March 30, 2008, American issued 172,800 stock options to American's Chairman and CEO, with an exercise price of $5.83 per share, expiring in 2 years, valued at of $88,063 and recorded as share-based compensation. In connection with American's 20% stock dividend to all shareholders on July 16, 2008, the terms of these options were adjusted to reflect the dividend, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share.
American estimated the fair value of each stock option at the grant date as $0.51 by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2008 as follows:
A summary of the status of American's stock options to employees for the years ended as of December 31, 2008 and 2009 is presented below:
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Stock-based compensation consists of the following:
Note 12 - Concentration of Credit Risk
American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. Although the financial institutions are considered creditworthy, at December 31, 2009, American's cash and certificates of deposit balances held in banks exceeded the limit covered by the Federal Deposit Insurance Corporation by approximately $1.2 million. The terms of these deposits are on demand to minimize risk. 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, 2009, American had one customer that accounted for 12% of trade accounts receivable and 22% of revenues on a consolidated basis. Additionally, American had one other customer that accounted for 16% of revenues on a consolidated basis.
Note 13 - Texas Emissions Reduction Plan Grant
Delta is the recipient of a Texas Emissions Reduction Plan ("TERP") grant from the Texas Commission on Environmental Quality in the amount of $1,157,273. TERP is a comprehensive set of incentive programs aimed at improving air quality in Texas. Through this grant, Delta’s rig engines are being replaced with engines certified to emit 25% less nitrogen oxide (“NOx”) than required under the current federal standard for the horsepower of the engines. The old engines must be destroyed or rendered permanently inoperable.
International Accounting Standard No. 20 (IAS 20): Accounting for Government Grants and Disclosure of Government Assistance provides guidance on recognizing, measuring and disclosing government grants, which requires that grants related to assets be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. However, IAS 20 is under review because it is inconsistent with the "Framework" for International Accounting Standards. The "Framework" states that "Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets . . ., other than those relating to contributions from equity participants." The International Accounting Standards Board (IASB) noted that recognizing an amount in the balance sheet as a deferred credit is inconsistent with the "Framework" in that the entity has no liability. The IASB has decided to replace the guidance in IAS 20 for accounting for government grants with the guidance in IAS 41: Agriculture. Also, the IASB noted that SFAS No. 116: Accounting for Contributions Received and Contributions Made, while exempting government grants to business entities from its scope, provides an accounting model that can be applied to government grants and that is consistent with the "Framework." In both IAS 41 and SFAS No. 116, the guidance calls for establishing an asset and recording the grant (contribution) as income. American applied this guidance and during the year ended December 31, 2008, Delta increased machinery and equipment and other assets in the amounts of $229,381 and $48,225, respectively, and recognized other income for this grant in the amount of $277,606.
TERP grant recipients are required to monitor and track the total NOx emission reductions and cost-effectiveness. The grant contract includes provisions for the return of a prorated share of the grant if the NOx emission reductions originally projected are not achieved. American has not recorded any liabilities in connection with this matter because management has determined that return of any grant receipts is not likely. Based on the advice of the State of Texas authorities who administer the grant, the taxability of this grant has not been determined and the advice of the Internal Revenue Service has been inconsistent. American is still determining the effect this will have, but believes it will not materially affect American because of the tax loss carryforwards explained in note 15 below.
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Note 14 - Property Dividend Distribution Gain
On April 16, 2008, American declared a special dividend of shares of common stock of its subsidiary, Hammond Industries, Inc. (OTCBB: “HMDI”) to American's shareholders, of one share of HMDI common stock for each share of American's common stock owned and held on the record date. On November 7, 2008, American increased the special dividend from one to two shares of HMDI common stock for each share of American's common stock. As a result of these declarations, American recorded a property dividend distribution gain of $4,922,591. The amount of the gain was determined as the difference between the market price of HMDI common stock of $0.42 and $0.30 per share on April 16, 2008 and on November 7, 2008, respectively, and American's book value per share of $0.076 for 17,354,646 shares of HMDI common stock to be distributed.
Note 15 - Income Taxes
The provision for income taxes consists of the following:
The tax provision differs from amounts that would be calculated by applying federal statutory rates to income before income taxes primarily because:
- American consolidates subsidiaries for financial statements which cannot be consolidated for income tax purposes; therefore, some subsidiaries may pay federal income tax despite the accumulated net operating losses of American as a whole;
- no tax benefits have been recorded for nondeductible expenses totaling $460,426, and
- the valuation allowance for deferred tax assets increased by $4,828,288.
The following table sets forth a reconciliation of statutory income taxes:
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American has loss carryforwards totaling $19,825,048 available at December 31, 2009 that may be offset against future taxable income. If not used, the carryforwards will expire as follows:
Note 16 - Income (Loss) Per Share
Basic income (loss) per share is calculated on the basis of the weighted average number of common shares outstanding. Diluted income (loss) per share, in addition to the weighted average determined for basic income (loss) per share, includes common stock equivalents, which would arise from the conversion of the preferred stock to common shares.
Note 17 - Commitments and Contingencies
Various key officials of American have entered into employment agreements with American. In July 2009, the CEO of American entered into a three-year employment agreement which provides for a monthly salary of $10,000 plus a bonus as determined by the Board of Directors. Also, the agreement provides for the grant of 200,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement. Additionally, the CEO will receive the equivalent of $10,000 in restricted shares of American common stock on a monthly basis for the remaining term of the agreement. The CFO of American entered into a three-year employment agreement in July 2009, which provides for an annual salary of $110,000 plus a bonus as determined by the Board of Directors. Also, the agreement provides for the grant of 50,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement. The president of NPI previously entered into an at-will employment agreement that provides an annual salary of $195,000 plus a bonus based upon operating results of this subsidiary. The employment agreement also grants the president of NPI an option to purchase NPI common stock equal to 5% of NPI's equity at an exercise price of 5% of the total stockholder's equity, if NPI conducts an initial public offering of its common stock during the time of his employment. Delta’s president and vice president entered into employment agreements that provide for an annual base salary of $150,000 each. On October 7, 2008, Larry C. Shumate entered into a three-year employment agreement with SET to serve as President of SET, which provides for an annual salary of $185,000 plus a bonus as determined by the Board of Directors. The employment agreement provides for health and life insurance coverage and a vehicle allowance of $800 per month. After two consecutive years of Earnings Before Interest, Depreciation and Amortization (EBITDA) of greater than $1,000,000 for the years ended December 31, 2009 and 2010, based on the financial statements of SET included in the American's audited consolidated financial statements, Mr. Shumate shall be entitled to a non-qualified option to purchase for $100 unencumbered shares of common stock of SET equal to 10% percent of all shares outstanding of SET, which option would be exercisable 30 days after the issuance of the December 31, 2010 audited financial statements of American.
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On July 23, 2008, Delta Seaboard Well Service, Inc., our 51% owned subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. After noncontrolling interest, the net impact of this settlement on American's net income is $739,500. Delta partially recovered this loss through insurance as described below.
Delta Seaboard Well Service, Inc. v. Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance Alliance and Robert Holman (“Broker Lawsuit”). On February 19, 2010, Delta settled its claims in the Broker Lawsuit and received $700,000, which will be included in other income for the three months ended March 31, 2010.
Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs are claiming an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. On February 22, 2010, the trial judge entered a $269,138 judgment in favor of the plaintiffs. The attorneys plan a motion for a new trial. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available liability insurance coverage to fund any judgment that might be entered. Delta intends to vigorously defend this case. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
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 288,000 shares of restricted AMIN stock (240,000 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 288,000 shares back to American for $4.17 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. In February 2010, the case was mediated and the parties attempted to settle the case. However, the parties have been unable to agree on terms. If the parties can not agree, the case will have to be mediated again or tried. Additional information has been recently discovered to support American's case. Our attorney believes that if the case is tried, either side could win. If Botts wins, we believe that the maximum loss for American would be approximately $1,500,000. If the case is tried, American intends to vigorously defend this case. An evaluation of the outcome of this case cannot be made at this time. American expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
Delta is the recipient of a TERP grant from the Texas Commission on Environmental Quality in the amount of $1,157,273, of which $781,728 has been recognized through December 31, 2009. TERP grant recipients are required to monitor and track the total NOx emission reductions and cost-effectiveness. The grant contract includes provisions for the return of a prorated share of the grant if the NOx emission reductions originally projected are not achieved. American has not recorded any liabilities in connection with this matter because management has determined that return of any grant receipts is not likely.
Delta leases space under a commercial lease which expires in 2010, SET leases space under a commercial lease which expires in 2013, and American leases space under a commercial lease which expires in 2012. SET entered into a capital lease agreement for the acquisition of machinery and equipment which expires in 2011. Future minimum lease payments are as follows:
SET leases space under a commercial lease which expires in October 2013. Future minimum lease payments are as follows:
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Note 18 - Segment Information
We have 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;
·Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.
·Delta Seaboard Well Services (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
·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. Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on American's balance sheet at $0. 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. American is seeking to enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by American, to assist them with the resources required to develop their reserves.
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 significant to the consolidated financial statements.
Consolidated revenues from external customers, operating income (loss), identifiable assets, depreciation and amortization expense, and capital expenditures were as follows:
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Note 19 - Discontinued Operations
On December 31, 2008, the board of directors of American approved the deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from American. To effect the deconsolidation of Hammonds, American was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 17.4 million shares of Hammonds’ common stock to American's shareholders of record on December 31, 2008, American's ownership is approximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to American. As a result, the majority of Hammonds’ board of directors is no longer controlled by American. Additionally, a reduction of American's guarantee of Hammonds’ debt to $1,000,000 was obtained from Texas Community Bank.
On April 16, 2009, Hammonds entered into an Asset Purchase Agreement with FabCorp, Inc., a Houston-based manufacturing company, pursuant to which Hammonds sold all of its assets to a newly formed Texas company, Hammonds Technologies, LLC., a wholly owned subsidiary of FabCorp, Inc. Pursuant to the Asset Purchase Agreement, FabCorp purchased all of the assets in consideration for the payment of Hammonds’ debt owed to Texas Community Bank in the amount of $2.6 million. The balance of Hammonds’ bank debt in the amount of $350,000 was paid by American and was recorded as a net loss from discontinued operations for the year ended December 31, 2009. American was relieved of its $1,000,000 guarantee of Hammonds’ debt.
Hammonds' revenues and net loss before income tax are summarized below:
Net income (loss) from discontinued operations on the consolidated statement of operations for the year ended December 31, 2008 includes the gain on deconsolidation of $15,421,569, offset by Hammonds' net loss of $6,147,295 for the year ended December 31, 2008. The market value of the Hammonds' common shares owned at December 31, 2008 was $0.17 per share, or $1,140,443. However, as of the date of this filing, Hammonds' common shares are trading at less than $0.01 per share and American considers its investment in Hammonds other than temporarily impaired. As a result, American has fully written off its investment in Hammonds and has not included any value for Hammonds in the balance sheet as of December 31, 2008.
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Note 20 - Related Party Transactions
During the year ended December 31, 2009, American issued 200,000 shares of common stock to the CEO for services valued at $200,000. At December 31, 2009, Delta had a balance due to the noncontrolling interest owners of $120,000 for advances made by officers to help fund operations and SET had a balance of $180,000 due to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother, for advances made to help fund operations.
During the third quarter of 2009, Texas Community Bank made a loan for $3,850,000 to Southwest Gulf Coast Properties, Inc. (SWGCP) for the purchase of Dawn Condominiums L.P. American has pledged $250,000 in certificates of deposit for this loan. Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums, located in Galveston, Texas, with an appraised value of over $3,900,000. American has an account receivable of $194,609 from SWGCP at December 31, 2009, resulting from closing costs paid by American at the closing of the loan. Charles Zeller, a director of American, is the President of SWGCP. This property is listed for sale with a broker. Until the properties are sold, rental income from the condominium units will be used to pay interest on the loan and the receivable balance owed to American.
Note 21 - Subsequent Events
On February 3, 2010, Hammonds and Delta completed an agreement, pursuant to which Delta was merged into Hammonds in consideration for the issuance of 63,110,925 post-reverse restricted shares of Common Stock to the noncontrolling shareholders of Delta and to American. As a result, the controlling shareholders of Delta will become controlling shareholders of Hammonds, which will result in Delta’s former shareholders owning 93.6% of Hammonds' Common Stock. Following the reverse merger, American will own 32,859,935 shares of Common Stock, representing 48.2% of the Hammonds' total outstanding shares and the owners of the noncontrolling interest in Delta will own 30,924,353 shares of Common Stock, representing 45.4% of the Hammonds' total outstanding shares. All other stockholders of the Hammonds will own 4,357,962 shares of Common Stock, representing 6.4% of the Hammonds' total 68,142,250 outstanding shares. Hammonds' name will be changed from Hammonds Industries, Inc. to Delta Seaboard International, Inc. ("DSI"). In accordance with FIN46(R) (ASC 810 Consolidation), American will consolidate DSI although its ownership is less than 51%, because American has a controlling financial interest in DSI.
On February 19, 2010, Delta settled its claims in the Broker Lawsuit and received $700,000, which will be included in other income for the three months ended March 31, 2010.
In February 2010, the case was mediated and the parties attempted to settle the case. However, the parties have been unable to agree on terms. If the parties can not agree, the case will have to be mediated again or tried. Additional information has been recently discovered to support American's case. Our attorney believes that if the case is tried, either side could win. If Botts wins, we believe that the maximum loss for American would be approximately $1,500,000. If the case is tried, American intends to vigorously defend this case. An evaluation of the outcome of this case cannot be made at this time. American expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
From January 1, 2010 through March 31, 2010, American paid $3,274 to repurchase 2,300 shares of its common stock for treasury and issued 78,000 shares of common stock for services valued at $91,040. Additionally, during this period, American issued 1,000,000 restricted shares of common stock for cash consideration of $1,010,000 for investment to International Diversified Corporation, Ltd., Dror Charitable Foundation for the Arts, Daniel Dror II Trust of 1976, and the Dror Family Trust, all of which are related parties to Daniel Dror, CEO.
American has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.
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ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9T. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining an adequate level of internal controls over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:
- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.
Evaluation of disclosure controls and procedures. In connection with the audit of the Company's financial statements for the year ended December 31, 2009, the Company's CEO and CFO conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures and discussions with our independent accountants, our CEO and CFO concluded that our determined that our disclosure controls and procedures were effective as of December 31, 2009.
Changes in internal controls. There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2009 that have materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide a management report in the Annual Report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
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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.
Sherry L. Couturier has served as Chief Financial Officer of American International since June 1, 2007, and has been with the company since August 1, 2006. Sherry graduated with a B.S. in Accounting from the University of Alabama and has been a Certified Public Accountant since 1986. She has held positions in both public and industry accounting. Prior to joining the Company, Sherry worked for El Paso Corporation for 14 years as a supervisor for various accounting departments and as a training and development consultant.
Charles R. Zeller has served as a director of the Company, since 2000. 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.
Robert W. Derrick, Jr. was appointed to the board of directors on February 19, 2004. Mr. Derrick has served as Delta's president since September 2002 and was Delta's vice president from December 1989 until September 2002. Delta has been in the oil and gas business for more than 35 years, engaged in the sale of oil field pipe, tubular, well-completion work and provides work-over services for existing oil and gas wells. Delta is also expanding into exploration.
Steven M. Plumb, a CPA licensed in Texas, is a financial manager and senior executive experienced in operations, finance and marketing. Mr. Plumb is the president of Clear Financial Solutions, Inc. a business consulting firm that assists public and private companies with financing, operations improvement, outsourced CFO services, SEC reporting, mergers and acquisitions, and financial analysis. Mr. Plumb has served as the CFO of several public companies, including Striker Oil & Gas, Inc., Hyperdynamics Corp., Oncolin Therapeutics, Inc., Bluegate Corp., and Adventrx Pharmaceuticals. Prior to starting his own consulting firm, Mr. Plumb served as the Chief Financial Officer of DePelchin Children's Center, and as controller of Memorial City Rehabilitation Hospital in Houston, Texas. Mr. Plumb is a former auditor and consultant with KPMG. Mr. Plumb earned his BBA degree in accounting from the University of Texas at Austin. Mr. Plumb was appointed a director and chairperson of the audit committee of the Company on January 19, 2010.
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.
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Report of the Audit Committee
The Audit Committee of the Board of Directors of the Company is currently comprised of three directors, Messrs. Charles R. Zeller, Thomas J. Craft, Jr., and Steven M. Plumb, all of whom satisfy the requirements to serve as Independent Directors, as those requirements have been defined by The Securities and Exchange Commission and NASDAQ. The Board of Directors has determined that Mr. Plumb, who is a Certified Public Accountant, licensed in Texas, and having extensive financial experience, qualifies as an "audit committee financial expert" within the meaning of Item 401of Regulation SB of the Securities Exchange Act. Mr. Plumb is independent of management based on the independence requirements set forth in the NASD’s definition of "independent director."
The Audit Committee has furnished the following report:
The Audit Committee is appointed by the Company’s Board of Directors to assist the Board in overseeing (1) the quality and integrity of the financial statements of the Company, (2) the independent auditor’s qualifications and independence, (3) the performance of the Company’s internal audit function and independent auditor and (4) the Company’s compliance with legal and regulatory requirements. The authority and responsibilities of the Audit Committee are set forth in a written Audit Committee Charter adopted by the Board, filed as a part of the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on June 19, 2003. The Charter grants to The Audit Committee, sole responsibility for the appointment, compensation and evaluation of the Company’s independent auditor and the internal auditors for the Company, as well as establishing the terms of such engagements. The Audit Committee has the authority to retain the services of independent legal, accounting or other advisors as the Audit Committee deems necessary, with appropriate funding available from the Company, as determined by the Audit Committee, for such services. The Audit Committee reviews and reassesses the Charter annually and recommends any changes to the Board for approval.
The Audit Committee is responsible for overseeing the Company’s overall financial reporting process. In fulfilling its oversight responsibilities for the financial statements for the Company fiscal year ended December 31, 2009, the Audit Committee:
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Reviewed and discussed the annual audit process and the audited financial statements for the fiscal year ended December 31, 2009 with management and GBH CPAs, PC, the Company’s independent auditor;
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Discussed with management, and GBH CPAs, PC the adequacy of the system of internal controls;
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Discussed with GBH CPAs, PC the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit; and
-
Received written disclosures and a letter from GBH CPAs, PC regarding its independence as required by Independence Standards Board Standard No. 1. The Audit Committee discussed with GBH CPAs, PC its independence.
The Audit Committee also considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial reporting and audit process that the Audit Committee determined appropriate. In addition, the Audit Committee’s meetings included executive sessions with the Company’s independent auditors and the Company’s accounting and reporting staff, in each case without the presence of the Company’s management.
In performing all of these functions, the Audit Committee acts only in an oversight capacity. Also, in its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of the independent auditor, who, in their report, express an opinion on the conformity of the Company’s annual financial statements to accounting principles generally accepted in the United States of America.
Based on the Audit Committee’s review of the audited financial statements and discussions with management and GBH CPAs, PC, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the SEC.
Audit Committee
Steven M. Plumb, Chairman
Charles R. Zeller,
Thomas J. Craft, Jr.
Independent Public Accountants
The Company’s Audit Committee has approved the appointment by the Company's Board of Directors of GBH CPAs, PC as independent public accountants for the fiscal year ending December 31, 2009, and the appointment was ratified by the shareholders at the annual meeting held on November 18, 2009.
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Audit Committee Pre-Approval Policy
Pursuant to the terms of the Company’s Audit Committee Charter, the Audit Committee is responsible for the appointment, compensation and oversight of the work performed by the Company’s independent auditor. The Audit Committee, or a designated member of the Audit Committee, must pre-approve all audit (including audit-related) and non-audit services performed by the independent auditor in order to assure that the provisions of such services does not impair the auditor’s independence. The Audit Committee has delegated interim pre-approval authority to the Chairman of the Audit Committee. Any interim pre-approval of permitted non-audit services is required to be reported to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent auditor to management.
The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. With respect to each proposed pre-approved service, the independent auditor must provide detailed back-up documentation to the Audit Committee regarding the specific service to be provided pursuant to a given pre-approval of the Audit Committee. Requests or applications to provide services that require separate approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Company’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence. All of the services described in Item 14 Principal Accountant Fees and Services were approved by the Audit Committee.
Code of Ethics
The Corporation has adopted a Code of Ethics that are designed to deter wrongdoing and to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in the Company's SEC reports and other public communications. The Code of Ethics promotes compliance with applicable governmental laws, rules and regulations.
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).
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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 year ended December 31, 2009:
(1)
See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions. Daniel Dror received 200,000 restricted shares valued at $200,000 and Sherry Couturier received 57,200 shares valued at $59,000.
(2)
Represents total payments for an automobile owned by the Company utilized by Mr. Dror.
(3)
Represents total payments for an automobile owned by the Company utilized by Ms. Couturier.
(4)
Represents payments for 401-K matching for Mr. Derrick.
(5)
Represents payments for personal insurance premiums for Mr. Burleigh in the amount of $37,208 and payments for 401-K matching in the amount of $4,829.
(6) Represents a vehicle allowance of $1,165 per month to Mr. Shumate and company-paid health insurance premiums of $1,311 per month.
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 2009, the employment agreement was amended and extended for three years. The employment agreement provides for a monthly salary of $10,000 plus a bonus as determined by the Board of Directors. Also, the agreement provided for the grant of 200,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement. Additionally, the CEO will receive the equivalent of $10,000 in restricted shares of American common stock on a monthly basis for the remaining term of the agreement. Mr. Dror shall be entitled to a special bonus in the event that lenders or investment bankers working with the Company require the personal guarantee of Mr. Dror. 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 shall be entitled to receive and the Company shall pay to Mr. Dror 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 issue to Mr. Dror the shares underlying the warrants, based upon an adjusted exercise price equal to par value of the shares at the date of the change in control and $1,000,000 cash. The Company shall provide and pay premiums on life insurance policy on the Executive (up to $3,000,000 in coverage), with the beneficiary designated by Mr. Dror.
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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 2004 Messrs. Derrick and Burleigh entered into ten-year employment agreements with Delta to serve as Delta's president and vice president, respectively. The employment agreements provided for an annual base salary of $115,000 each, which was increased to $150,000 in 2005. In 2008, Messrs. Derrick and Burleigh received additional compensation of due to Delta’s substantial growth.
In July 2009, Sherry Couturier, CFO, entered into a three-year employment agreement beginning July 1, 2009, which provides for an annual salary of $110,000 plus a bonus as determined by the Board of Directors. In addition to her base compensation, Ms. Couturier will be entitled to a bonus as determined by the Company’s board of directors from time to time. Also, the agreement provided for the grant of 50,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement. In the event of a change in control of the Company, resulting in Ms. Couturier ceasing to serve as the Company’s Chief Financial Officer, Ms. Couturier shall be entitled to receive and the Company shall pay to Ms. Couturier 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.
On October 7, 2008, Larry C. Shumate entered into a three-year employment agreement with SET to serve as President of SET, which provides for an annual salary of $185,000 plus a bonus as determined by the Board of Directors. The employment agreement provides for health and life insurance coverage and a vehicle allowance of $1,165 per month. After two consecutive years of Earnings Before Interest, Depreciation and Amortization (EBITDA) of greater than one million dollars ($1,000,000) for the years ended December 31, 2009 and 2010, based on the financial statements of SET included in the Company’s audited consolidated financial statements, Mr. Shumate shall be entitled to a non-qualified option to purchase for one hundred dollars ($100) unencumbered shares of common stock of SET equal to ten (10%) percent of all shares outstanding of SET, which option would be exercisable thirty (30) days after the issuance of the December 31, 2010 audited financial statements of the Company.
Grants of Plan-Based Awards
(1)
Restricted shares.
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Outstanding Equity Awards at Fiscal Year-End
(1)
Mr. Dror was entitled to receive 207,360 warrants per year through 2009 at an exercise price of $4.86 per share. The warrants had an expiration date two years following each annual grant. In connection with any Company stock dividend, the terms of these warrants will be adjusted to reflect the dividend.
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, 2009.
(1) Daniel Dror, the Company’s Executive Chairman and Chairman of the Board, and Robert W. Derrick, Jr., the President of Delta, are not included in this table. The compensation received by Messrs. Dror and Derrick, Jr., as employees of the Company, are shown in the Executive Summary Compensation Table.
(2) See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions.
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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, 2009, the Registrant had 9,191,325 shares of common stock issued.
(1) Based upon 8,871,369 shares of Common Stock outstanding at December 31, 2009, except with respect to Mr. Dror’s percentage which is based upon 9,078,729 shares outstanding which includes 207,360 shares underlying currently exercisable warrants.
(2) The J & J Zeller Trust, of which Mr. Zeller is the Trustee, holds 6,320 restricted shares.
(3) International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother, owns 2,237,782 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.
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ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Company obtains approval from its entire Board of Directors prior to entering into any transactions with a related party or affiliate of the Company, including disclosure to the Board of Directors of such relationship prior to any action or vote of the Board of Directors. Prior to entering into any financing arrangement with any affiliated parties, disclosure is made to the Board of Directors regarding the terms and conditions of such related party transactions.
During the year ended December 31, 2009, American issued 200,000 shares of common stock to the CEO for services valued at $200,000. At December 31, 2009, Delta had a balance due to the noncontrolling interest owners of $120,000 and SET had a balance of $180,000 due to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother.
During the third quarter of 2009, Texas Community Bank made a loan for $3,850,000 to Southwest Gulf Coast Properties, Inc. (SWGCP) for the purchase of Dawn Condominiums L.P. American has pledged $250,000 in certificates of deposit for this loan. Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums, located in Galveston, Texas, with an appraised value of over $3,900,000. American has an account receivable of $194,609 from SWGCP at December 31, 2009, resulting from closing costs paid by American at the closing of the loan. Charles Zeller, a director of American, is the President of SWGCP. This property is listed for sale with a broker. Until the properties are sold, rental income from the condominium units will be used to pay interest on the loan and the receivable balance owed to American.
We have determined that Messrs. Plumb, Zeller, and Craft meet the standards of independence under applicable NASDAQ Stock Market (“NASDAQ”) listing standards, including that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment.
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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, 2009 and 2008.
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. All of the services described below were approved by the Audit Committee.
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ITEM 15.
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
a. The following exhibits are to be filed as part of the Annual Report:
Exhibit No.
Identification of Exhibit
3(i)
Certificate of Incorporation and Amendments, filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
3(ii)
Amended and Restated By-laws, filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
4.1
Common Stock Certificate, American International Industries, Inc., filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
10.1
Daniel Dror Employment Agreement dated May 14, 1998, filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
10.2
Daniel Dror Employment Agreement dated October 16, 1998, filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
10.3
Marc H. Fields Employment Agreement, filed with the Registrant's registration statement Form 10-SB/12G on December 30,1998.
10.4
Shabang Merchant Service Agreement, filed with the Registrant's Form 10-KSB for the year ended December 31, 1998.
10.5
American International Industries, Inc. Lease, filed with the Registrant's Form 10-KSB for the year ended December 30,1999.
10.6
Brenham Oil and Gas, Inc. Royalty Interest, filed with the Registrant's Form 10-KSB for the year ended December 31, 1998.
10.7
Brenham Oil and Gas Interest Lease, filed with the Registrant's Form 10-KSB for the year ended December 31, 1998.
10.8
Northeastern Plastics, Inc. Lease, filed with the Registrant's Form 10-KSB for the year ended December 31, 1998.
10.9
Juan Carlos Martinez Employment Agreement, attached to the Company's Form 10-SB/A filed December 21, 1999.
10.10
Marald, Inc. Acquisition Agreement, attached to the Company's Form 10-SB/A filed December 21, 1999.
10.11
Security Agreement between the Company and Elk International Corporation Ltd., attached to the Company's Form 10-KSB for the year 2001.
10.12
Revolving Credit Note between the Company and Elk International Corporation Ltd., attached to the Company's Form 10-KSB for the year 2001.
10.13
Delta Seaboard Well Service, Inc., attached to the Company's Form 8-K filed December 30, 2003
10.14
SurgiCare Agreement, attached to the Company's Form 10-KSB for the year 2003.
10.15
Daniel Dror Employment Agreement dated October 1, 2004, filed herewith.
17.1
Resignation of Herbert Shapiro, Jr. filed with Form 8-K on March 11, 2004
17.2
Resignation of John W. Stump, III, filed with Form 8-K on December 29, 2004
19.1
Definitive Proxy Statement for Annual Meeting of Shareholders filed on May 14, 2002
19.2
Definitive Proxy Statement for Annual Meeting of Shareholders filed on May 9, 2003
21.4
List of Subsidiaries filed herewith
31.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002, filed herewith.
31.2
Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002, filed herewith.
32.1
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002, filed herewith.
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002, filed herewith.
b. Form 8-K Reports: The Registrant filed a Form 8-K on December 4, 2009 with disclosure under Item 5.02, "Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers." The Registrant filed a Form 8-K on January 20, 2010 with disclosure under Item 5.02, "Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers." The Registrant filed a Form 8-K/A on January 20, 2010 with disclosure under Item 5.02, "Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers."
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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
March 31, 2010
By /s/ Sherry L. Couturier
Sherry L. Couturier
Chief Financial Officer
March 31, 2010
By /s/ Charles R. Zeller
Charles R. Zeller
Director
March 31, 2010
By /s/ Thomas J. Craft, Jr.
Thomas J. Craft, Jr.
Director
March 31, 2010
By /s/ Robert W. Derrick, Jr.
Robert W. Derrick, Jr.
Director
March 31, 2010
By /s/ Steven M. Plumb
Steven M. Plumb
Director
March 31, 2010