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, 2010 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;
· Delta Seaboard International ("Delta") - a 48.1% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
· Downhole Completion Products, Inc. ("DCP") - an 80% owned subsidiary, provides major international oil and gas service company end-users with the highest quality proprietary downhole/completion threaded products under any condition.
· 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 ("BOG"), 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. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 54,680,074 shares of common stock, representing 54.7% of BOG’s total outstanding shares
On November 11, 2010, American sold the assets and associated liabilities of its wholly-owned subsidiary, Shumate Energy Technologies, Inc. ("SET") to Larry C. Shumate, President of SET, for $10,000. The assets and associated liabilities are classified as discontinued operations in the consolidated balance sheet as of December 31, 2009 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). Net income from the deconsolidation of SET for the year ended December 31, 2010 and SET's net loss for the year ended December 31, 2009 are included in discontinued operations, net of income taxes in the consolidated statements of operations and in the consolidated statement of cash flows for the years ended December 31, 2010 and 2009 (see note 16).
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On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger"). In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and effected a one-for-ten (1:10) reverse stock split ("Reverse Split") of its common stock. Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,552 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.
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.
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. Currently, corporate overhead includes BOG, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas. Through BOG, 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 acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. In April 2010, American entered into a Separation and Distribution Agreement to spin off Brenham Oil & Gas, Inc., which was 100% owned by American. In conjunction with this transaction, American formed Brenham Oil & Gas, Corp. with authorized common stock of 200,000,000 shares and authorized preferred stock of 10,000,000 shares. BOG issued 64,977,093 shares of common stock to American for all shares of Brenham Oil & Gas, Inc., of which American issued as a dividend 10,297,019 shares to the existing stockholders of American. For the year ended December 31, 2010, Brenham issued 13,000,000 shares of common stock for cash consideration of $22,100 and 22,000,000 shares for services valued at $45,466. American maintains control of Brenham through ownership of 54,680,074 shares of Brenham's common stock, representing about 55% of the outstanding shares as of December 31, 2010. On September 21, 2010, American prepared a registration statement on Form S-1 in order to register the BOG shares being distributed to American’s shareholders. On November 1, 2010, American filed an amended registration statement on Form S-1/A in response to questions received from the SEC. Assuming the effectiveness of the registration statement, these shareholders will have registered free-trading shares. BOG will then be a separate reporting company, and we plan to take action in the future to quote BOG's common stock on the Over-The-Counter Bulletin Board.
On June 23, 2010, Joe Hoover, President of DCP, purchased 20% of the 1,000 shares of Common Stock of DCP held by American for $20,000 in cash and a $55,000 promissory note. American recorded a $74,814 gain on sale of assets for this transaction.
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.
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.
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, 2010, the Company had 6 employees at the executive offices.
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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 ASC 810 Consolidation. 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.
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.
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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, 2010, Delta had 33 employees, including its two executive officers. No employees are covered by a collective bargaining agreement and Delta considers relations with its employees satisfactory.
Facilities
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. During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities to Southwest Gulf Coast Properties, Inc. ("SWGCP"). During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities. Delta continues to occupy and lease these facilities from Wintech. 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.
Downhole Completion Products, Inc.
Effective January 2010, the Company formed a new wholly-owned subsidiary, Downhole Completion Products, Inc. ("DCP"). DCP is managed by Joe Hoover, President, and is located at 4747 Research Forest Dr., Suite 180-215, The Woodlands, TX 77381
DCP's Business
DCP is a global procurement subsidiary, which focuses on supplying end users in the oil and gas and mining sectors of the energy field service markets. DCP offers professional and technical expertise, delivered at competitive prices, which allows us to grow with our customers by being cost effective in a timely manner while providing quality products and services.
Global Energy Field Services Markets
The global energy field services market is comprised of several market segments including oil & gas field services, pipeline, transportation, process controls, fluid and control management, sub-sea, refining, and maintenance services for these areas. DCP currently provides manufactured products, spare parts, and assemblies for the oil & gas field services market segment. DCP relies on the export market to generate and increase revenues for the year 2011. We have already established our presence in the following countries to develop business: Guatemala, Peru, Colombia, and Argentina, West Africa, Turkey, and Europe.
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Products and Services
The diverse line of products DCP provides/manufactures includes the following but is not limited to:
- OCTG/Drilling tubular products used for energy field service applications;
- Top drive assemblies, sub-assemblies and spare service parts;
- Measurement while drilling (MWD) products;
- Directional drilling products;
- Completion tools;
- Rig and Engine spare parts
- Natural gas measurement equipment, including valves and fittings
- General supplies for daily site operation
- Sub-sea control equipment.
- Logistics
Sales and Marketing
DCP is continually in the process of business development. DCP stands to establish long-term relationships with customers as well as vendors globally while working to increase its sales with existing customers. DCP develops business through direct contacts and referrals. DCP communicates and offers services in English, French, Spanish, and Russian. DCP targets the procurement/service side of the business, which is a continual operation and is not always affected by the fluctuation in the commodities market. Strategically, we have the possibility to establish frame contracts with specific material and manufacturers.
DCP’s Competition
Every vendor and manufacturer for the oil and gas industry in Houston is a competitor. DCP differentiates itself by providing a service other vendors don’t have the knowledge or the structure to provide. Most of our vendors in the U.S. rely upon DCP to handle export and logistics while our end users overseas rely on DCP to supply them quickly, with quality products, and efficient costs to run their operations. DCP becomes their preferred source to effectively supply their global operations.
Business Strategy
DCP plans on utilizing its experience, knowledge, and productivity to develop more business with existing customers and targeting new ones. Because of our business structure, DCP maintains a low cost of operations thus making it possible to increase revenues and profit margins allowing us to be more competitive.
Raw Materials
The principal raw materials that DCP uses are carbon steel, aluminum, stainless steel, various special alloys and other metals and/or products. 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 DCP’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 DCP’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, DCP 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 DCP’s operations; however, it is possible that DCP may not be able to pass any portion of such increases on to its customers in the future.
Government Regulation and Environmental Matters
DCP’s operations comply with all of Homeland Security’s regulations. At this time, DCP does not use any material or doesn’t practice in any way that could harm or create any concern to the environment. DCP does have the ability to supply end users with emission reduction material regulated by countries.
Safety
DCP works with vendors and manufacturers that are certified API or ISO, which apply all safety and regulation in the workplace related to our business.
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Employees
DCP employs 4 people in The Woodlands, Texas. No employees are represented by a labor union, and DCP has not entered into a collective bargaining agreement with any union. DCP has not experienced any work stoppages and considers the relations with its employees to be good.
Facilities
DCP operates out of the home office of Joe Hoover, President of DCP, located in The Woodlands, TX.
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® magazine.
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 2010 expected pass through readership rate for the upcoming Good Choice® 2011 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.
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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, 2010, NPI's large accounts accounted for 54% 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 2011 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Competition
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers many of which have far greater financial resources than NPI and therefore NPI's ability to increase market share may be limited. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers.
In the consumer durables electrical products market, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac and various other producers.
Price is the primarily significant factor in the safety products market and the consumer durables electrical products markets. Many of NPI's products are made to industry specifications, and are therefore essentially functionally substitutable with those of competitors. However, NPI believes that opportunities exist to differentiate all of its products on the basis of brand name, quality, reliability and customer service.
Intellectual Property
NPI has been issued the following trademarks: The Good Choice®, Jumpower™, expiring February 2009, and The Bitty Booster Cable™, which was renewed in August 2008.
Employees
As of December 31, 2010, NPI employed 8 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. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale (see notes 6, 8 and 9). NPI plans to build new facilities on this site.
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Corporate Transactions
On June 21, 2010, American received as compensation for consulting services 1,000,000 restricted shares of ADB International Group, Inc. ("ADBI") common stock valued at $1,370,000, based on the closing market price of $1.37 per share on that date. American purchased an additional 300,000 shares for $35,000. This investment is classified as marketable securities - available for sale and, accordingly, any unrealized changes in market values are recognized as other comprehensive loss in the consolidated statements of operations. At December 31, 2010, this investment was valued at $130,000, based on the closing market price of $0.10 per share on that date. American recognized other comprehensive loss for the year ended December 31, 2010 of $1,275,000 for the unrealized loss on this investment.
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. At December 31, 2009, American was carrying this property on the balance sheet for $4,611,233, which represented $3,332,543 in principal and accrued interest allocated to the property received at the time of default and the assumption of a $1,278,690 note payable secured by the property by another lien holder, see Note 8. This property consisted of seven tracts, of which several are under contract for sale and the remainder are listed for sale with a broker. The appraised values of these properties exceeded the $4,611,233 owed to American. Values were allocated to the tracts of property based on their recent individual appraised values relative to the total appraised value. During the year ended December 31, 2010, American sold an 8 acre tract recorded at $175,480 for $340,445, which was used to reduce the note payable balance to $938,245. American recognized in the consolidated statements of operations a $164,965 gain on sale of assets for this transaction. On November 22, 2010, a 17 acre tract was transferred to NPI at the allocated cost of $1,155,359. NPI obtained a $1,450,000 long-term loan from the bank using this property as collateral. The proceeds from this loan were used to pay the remaining $938,245 note payable balance and NPI's property loan balance of $440,381 (see notes 6, 8 and 9). NPI plans to build new facilities on this site.
During the third quarter of 2009, and in connection with the guarantor’s fee described below, 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. The current balance owed on this loan is $3,600,000. 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 $3,901,500. American has a note receivable of $601,300 from SWGCP at December 31, 2010, resulting from closing costs, principal and interest paid by American on the loan. 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 bank loan and the balance owed to American.
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 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 65% 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 65% 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 DCP 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.
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 DCP uses are carbon steel, aluminum, stainless steel, various special alloys and other metals and/or products. 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 DCP’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 DCP’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, DCP 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 DCP’s operations; however, it is possible that DCP may not be able to pass any portion of such increases on to its customers in the future.
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. 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.
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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 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, 2010, NPI's large accounts accounted for 54% 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 2011 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Dependence upon independent sales agents and internal personnel for sales and marketing
NPI has working vendor agreements with its major customers. NPI sells its products through the use of its in-house personnel and independent sales agents covered under sales and marketing agreements. NPI contracts with agents, who are responsible for contacting potential customers in a pre-determined sales area. NPI provides these agents with manuals, brochures, and other promotional materials, which are used in the selling process. After sales are completed through the use of an agent, NPI directly bills the customer, and all payments are made directly to NPI. Agents are compensated on a commission basis only, calculated on the net sales price of products invoiced to customers. No commissions are paid until NPI receives payment from customers. NPI is not dependent upon its sales agents and would not be adversely affected if one or more sales agents having established relationships with NPI’s major customers terminated the relationship with NPI.
NPI faces competition from larger companies
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. This competition may adversely affect NPI's ability to continue to increase revenues and market share. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers. In the consumer durables electrical products market, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac, among others.
Price is the primarily significant factor in the safety products market and the consumer durables electrical products markets. Many of NPI's products are made to industry specifications, and are therefore essentially functionally substitutable with those of competitors.
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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, 2010, we had 10,971,325 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, 2010, the Registrant had 10,971,325 shares of common stock issued, 3,478,458 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. During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities to Southwest Gulf Coast Properties, Inc. ("SWGCP"). During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities. Delta continues to occupy and lease these facilities from Wintech. 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 owns the 38,500 square foot warehouse and office facility utilized by NPI. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale (see notes 6, 8 and 9). NPI plans to build new facilities on this site.
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. negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. After non-controlling interest, the net impact of this settlement on American's net income is $739,500. Delta recovered $700,000 of 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 year ended December 31, 2010.
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. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 288,000 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 1,100,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts. For the year ended December 31, 2010, American recognized a loss and accrued a current liability for the settlement of $1,650,000.
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ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 14, 2010, 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 Steven M. Plumb to serve on our board until the next annual meeting of shareholders or until their successors are elected and qualified, voted to ratify our selection of GBH CPAs, PC as independent auditors for 2010, and to ratify and approve the Company’s 2010 Employee Benefit Plan. At the date of the annual meeting, the Company had a total of 10,318,926 shares of common stock outstanding and a total of 9,087,197 were present and voted. The following tables set forth the vote of shareholders with respect to the three proposals:
Proposal 1. Election of Directors
On June 23, 2010, the board of directors of American accepted the resignation of Thomas J. Craft, Jr. as chairperson of the audit committee. On July 14, 2010, the Company's Board of Directors appointed Scott Wolinsky to its Board and as a member of its Audit Committee.
Proposal 2. Ratification of GBH CPAs, PC as Independent Auditors for 2010
Proposal 2. Ratification of the Company’s 2010 Employee Benefit Plan
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently quoted under the symbol AMIN on the OTCBB. For the periods indicated, the following table sets forth the high and low trade prices per share of common stock. The below prices represent inter-dealer trades without retail markup, markdown, or commission and may not necessarily represent actual transactions.
The Company believes that as of December 31, 2010, 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. During 2010, the Company purchased 74,900 shares under this plan at an average price paid per share of $0.65.
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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 2010.
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 2010, the Company issued restricted securities as follows:
(i)
in October 2010, the Company issued 200,000 restricted shares as a bonus to the Chief Executive Officer valued at $120,000, based upon the closing market price on such date;
(ii)
in October 2010, the Company issued 50,000 restricted shares as a bonus to the Chief Financial Officer valued at $30,000, based upon the closing market price on such date;
(iii) in July and October 2010, the Company issued 5,000 and 25,000 restricted shares, respectively, as bonuses to its employees valued at $4,600 and $15,000, respectively, based upon the closing market prices on such dates;
(iv)
in July and October 2010, the Company issued 3,000 and 25,000 restricted shares, respectively, to the Company’s directors for serving on our Board of Directors valued at $2,760 and $15,000, based upon the closing market price on such date;
(v)
during the year ended December 31, 2010, the Company issued 1,100,000 restricted shares for cash consideration of $1,117,200 for investment from 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.
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, 2010.
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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;
· Delta Seaboard International ("Delta") - a 48.1% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
· Downhole Completion Products, Inc. ("DCP") - an 80% owned subsidiary, provides major international oil and gas service company end-users with the highest quality proprietary downhole/completion threaded products under any condition.
· 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 ("BOG"), 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. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 54,680,074 shares of common stock, representing 54.7% of BOG’s total outstanding shares
On November 11, 2010, American sold the assets and associated liabilities of its wholly-owned subsidiary, Shumate Energy Technologies, Inc. ("SET") to Larry C. Shumate, President of SET, for $10,000. The assets and associated liabilities are classified as discontinued operations in the consolidated balance sheet as of December 31, 2009 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). Net income from the deconsolidation of SET for the year ended December 31, 2010 and SET's net loss for the year ended December 31, 2009 are included in discontinued operations, net of income taxes in the consolidated statements of operations and in the consolidated statement of cash flows for the years ended December 31, 2010 and 2009 (see note 16).
On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger"). In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and effected a one-for-ten (1:10) reverse stock split ("Reverse Split") of its common stock. Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,552 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.
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.
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Currently, corporate overhead includes BOG, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas. Through BOG, 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 acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. In April 2010, American entered into a Separation and Distribution Agreement to spin off Brenham Oil & Gas, Inc., which was 100% owned by American. In conjunction with this transaction, American formed Brenham Oil & Gas, Corp. with authorized common stock of 200,000,000 shares and authorized preferred stock of 10,000,000 shares. BOG issued 64,977,093 shares of common stock to American for all shares of Brenham Oil & Gas, Inc., of which American issued as a dividend 10,297,019 shares to the existing stockholders of American. For the year ended December 31, 2010, Brenham issued 13,000,000 shares of common stock for cash consideration of $22,100 and 22,000,000 shares for services valued at $45,466. American maintains control of Brenham through ownership of 54,680,074 shares of Brenham's common stock, representing about 55% of the outstanding shares as of December 31, 2010. On September 21, 2010, American prepared a registration statement on Form S-1 in order to register the BOG shares being distributed to American’s shareholders. On November 1, 2010, American filed an amended registration statement on Form S-1/A in response to questions received from the SEC. Assuming the effectiveness of the registration statement, these shareholders will have registered free-trading shares. BOG will then be a separate reporting company, and we plan to take action in the future to quote BOG's common stock on the Over-The-Counter Bulletin Board.
On June 23, 2010, Joe Hoover, President of DCP, purchased 20% of the 1,000 shares of Common Stock of DCP held by American for $20,000 in cash and a $55,000 promissory note. American recorded a $74,814 gain on sale of assets for this transaction.
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.
Related Party Transactions
During the year ended December 31, 2010, American issued 200,000 shares of common stock to the CEO for services valued at $120,000.
During the year ended December 31, 2010, American issued 1,100,000 restricted shares of common stock for cash consideration of $1,117,200 for investment from 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.
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During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities with a book value of $422,737 to Southwest Gulf Coast Properties, Inc. ("SWGCP"). SWGCP assumed the $943,500 note payable on the property. American recognized a $520,763 gain on sale of assets for this transaction. During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities and is responsible for the associated $1,750,000 note payable. American and Wintech entered into a profit sharing agreement in October 2010, whereby American will receive 50% of any profit if the property is sold, based on the sales price for the property less any outstanding balance on the note payable.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to our consolidated financial statements for the years ended December 31, 2010 and 2009.
Allowance for Doubtful Accounts
American’s ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. American extends credit to customers and other parties in the normal course of business. American regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, American makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. When American determines that a customer may not be able to make required payments, American increases the allowance through a charge to income in the period in which that determination is made. Though American’s bad debts have not historically been significant, we could experience increased bad debt expense should a major customer or market segment experience a financial downturn or our estimate of uncollectible accounts, which is based on our historical experience, prove to be inaccurate.
Inventories
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis. American assesses the realizability of its inventories based upon specific usage and future utility. American’s subsidiaries regularly evaluate their inventory and maintain a reserve for excess or obsolete inventory. Generally, American’s subsidiaries record an impairment allowance for products with no movement in over twelve months that they believe to be either unsalable or salable only at a reduced selling price. Management further uses their judgment in evaluating the recoverability of all inventory based upon known and expected market conditions. A charge to income is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.
Off-Balance Sheet Arrangements
As of December 31, 2010, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
New Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2010 VERSUS YEAR ENDED DECEMBER 31, 2009
We have three reporting segments and corporate overhead: Northeastern Plastics ("NPI"), Delta Seaboard Well Service ("Delta"), Downhole Completion Products ("DCP"), and corporate overhead.
Net revenues. Revenues from continuing operations were $24,263,332 for the year ended December 31, 2010, compared to $18,463,407 for the year ended December 31, 2009, representing an increase of $5,799,925, or 31.4%. Revenues increased primarily due to an increase in NPI's revenues of $4,786,441, or 49.5%, because NPI replaced a very large supplier for one of its major accounts, substantially increasing its business with this customer. Delta's revenues increased by $233,320, or 2.7%. In 2010, the Company formed a new subsidiary, DCP, which contributed revenues of $778,486. Brenham's revenues for the year ended December 31, 2010 were $1,678.
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Cost of sales for the year ended December 31, 2010 was $16,354,957, compared to $11,107,087 for the year ended December 31, 2009. Our gross margins in 2010 were 32.6%, compared to gross margins of 39.8% in 2009. The decline in margins was primarily due to a change in the revenue mix. NPI's revenues represented 59.6% of total revenues for the year ended December 31, 2010, compared to 52.4% in 2009. The margins on NPI's revenues are historically lower than the margins on our other revenue components.
Consolidated selling, general and administrative expenses for the year ended December 31, 2010 were $11,189,708, compared to $10,450,154 in the prior year, representing an increase of $739,554, or 7.1%. Non-cash stock-based compensation for the year ended December 31, 2010 was $1,437,876, compared to $507,830 for the year ended December 31, 2009, representing an increase of $930,046, of which $847,750 was to the executive officers of Delta in consideration for extending their employment agreements. Selling, general and administrative expenses for the year ended December 31, 2010 included $645,270 in bad debt expense, primarily due to a $600,000 reserve established due to the uncertainty of collectability of notes receivable. NPI's selling, general and administrative expenses for the year ended December 31, 2010 increased by $600,841 associated with the increase in revenues. These increases were significantly offset by lower expenses for Delta associated with a decline in rig service revenues and a significant reduction in corporate operating costs, including executive salaries and related expenses.
We had an operating loss of $3,281,333 for the year ended December 31, 2010, compared to an operating loss of $3,093,834 for the year ended December 31, 2009.
Other income was $1,441,048 for the year ended December 31, 2010, compared to $687,218 for the year ended December 31, 2009, representing an improvement of $753,830 from the prior period. Other income for the year ended December 31, 2010 includes non-cash compensation for consulting services of $1,370,000. The Company received 1,000,000 restricted shares of ADB International Group, Inc. common stock valued at $1.37 per share for these consulting services. Other income for the year ended December 31, 2010 included gains on the sale of assets of $763,597. During the year ended December 31, 2010, American sold an 8 acre tract of land with a book value of $175,480 for $340,445 and recognized a $164,965 gain for this transaction (see note 4). During the year ended December 31, 2010, American sold its 51% ownership in Delta's facilities with a book value of $422,737 and the purchaser assumed the $943,500 note payable on the property. American recognized a $520,763 gain for this transaction (see note 6). On June 23, 2010, Joe Hoover, President of DCP, purchased 20% of the 1,000 shares of Common Stock of DCP held by American for $20,000 in cash and a $55,000 promissory note. American recorded a $74,814 gain on sale of assets for this transaction. Additionally, other income for the year ended December 31, 2010 included the receipt of $700,000 by Delta as a cash settlement for its claims in an insurance lawsuit. Other income included an expense of $1,650,000 for the Botts lawsuit settlement which was settled in February 2011 (see note 13). Interest and dividend income decreased by $324,397 for the year ended December 31, 2010 compared to the prior year due to lower interest rates and a reduction in the balance of certificates of deposit.
Net income/loss. We had a net loss from continuing operations of $1,827,764, or $0.18 per share, for the year ended December 31, 2010, compared to a net loss of $2,443,398, or $0.28 per share, for the same period in 2009. We had net income from discontinued operations of $1,391,644, or $0.14 per share, for the year ended December 31, 2010, compared to a net loss of $1,144,038, or $0.13 per share, for the year ended December 31, 2009. Net income from discontinued operations for the year ended December 31, 2010 includes the gain on deconsolidation of SET of $2,954,974, offset by SET's net loss of $1,563,330 for the period January 1, 2010 through November 11, 2010. Net loss from discontinued operations for the year ended December 31, 2009 includes SET's net loss of $794,038 and $350,000 for the payment of Hammond's remaining bank debt.
Our net income was $56,963, or $0.01 per share, for the year ended December 31, 2010, compared to net a net loss of $2,952,088, or $0.34 per share, for the year ended December 31, 2009.
Delta
During the year ended December 31, 2010, Delta had revenues of $9,023,129, compared to $8,789,809 during the year ended December 31, 2009, representing an increase of $233,320, or 2.7%. Pipe sales for the year ended December 31, 2010 were $5,878,377 compared to $4,208,215 for the year ended December 31, 2009, representing an increase of $1,670,162, or 39.7%. Pipe sales increased primarily due to significantly increased drilling activities during 2010. Additionally, the cost of steel products decreased, allowing Delta to be more competitive in the pipe market. More pipe was sold to end-users, affording Delta larger pipe orders with higher margins. Rig service revenues decreased for the year ended December 31, 2010 by $1,436,842, or 31.4%, to $3,144,752 compared to $4,581,594 for the year ended December 31, 2009. Rig service revenues have decreased due to major maintenance on two rigs during 2010.
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.
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Operating expenses increased by $704,527, or 7.1%, to $10,676,449 for the year ended December 31, 2010, compared to operating expenses of $9,971,922 for the year ended December 31, 2009. Cost of sales for the year ended December 31, 2010 was $4,701,810, compared to $3,583,773 during the year ended December 31, 2009, an increase of $1,118,037, or 31.2%. The increase in cost of sales was due to the increase in pipe sales during the year ended December 31, 2010. General and administrative expenses were $5,974,639 for the year ended December 31, 2010, compared to $6,388,149 for the year ended December 31, 2009, representing a decrease of $413,510, or 6.5%. General and administrative expenses include non-cash stock-based compensation of $858,790 primarily to the executive officers of Delta Seaboard in consideration for extending their employment agreements (as described in note 1). This was offset significantly by lower operating expenses associated with the decline in rig service revenues. Delta had an operating loss of $1,653,320 during the year ended December 31, 2010, compared to $1,182,113 during the year ended December 31, 2009, an increase of $471,207 from the prior period.
NPI
NPI's revenues were $14,460,039 for the year ended December 31, 2010, compared to $9,673,598 for the year ended December 31, 2010, representing an increase of $4,786,441, or 49.5%. NPI's revenues increased primarily because NPI replaced a very large supplier for one of its major accounts, substantially increasing its business with this customer. Additionally, NPI's revenues increased due to the addition of several new accounts and increased orders for existing accounts. NPI’s gross margin for the year ended December 31, 2010 improved to 24% compared to 23% for the prior year. For the year ended December 31, 2010, selling, general and administrative expenses were $2,535,469, compared to $1,934,628 for the prior year, representing an increase of $600,841, or 31%. The increase is associated with the increase in revenues. NPI experienced operating income of $878,608 for the year ended December 31, 2010, compared to an operating income of $255,256 during the prior year.
NPI is highly reliant upon a small customer base, with approximately 54% of its sales in 2010 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 2011 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.
DCP
In 2010, the Company formed a new subsidiary, DCP. For the year ended December 31, 2010, DCP's revenues were $778,486, gross margin was 17%, selling, general and administrative expenses were $120,875, and DCP experienced operating income of $10,826.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is our ability to generate sufficient cash flows to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently, our liquidity needs arise primarily from working capital requirements, debt service on indebtedness, and capital expenditures. We have funded these liquidity requirements from sales of real estate and property and equipment of $1,287,445, the issuance of common stock of $1,117,200, net borrowings under lines of credit agreements and the issuance of debt of $1,878,620, and a net decrease in investments in of certificates of deposit of $422,068.
Capital expenditures for the year ended December 31, 2010 were $175,117 compared to $220,145 for the same period in the prior year. The Company has no major capital expenditure commitments for the next 12 months.
Net cash used in operating activities from continuing operations was $1,361,271 for the year ended December 31, 2010, compared to $422,885 for the year ended December 31, 2009. Accounts receivable and accounts payable increased significantly for NPI. This was due primarily to improved operating income by NPI due to improvements in the economy and the addition of new business. NPI replaced a very large supplier for one of its major accounts, substantially increasing its business with this customer. Additionally, NPI's revenues increased due to the addition of several new accounts and increased orders for existing accounts. Management expects this trend to continue. Additionally, other income for the year ended December 31, 2010 includes non-cash compensation for consulting services of $1,370,000.
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The Company's prospects for selling real estate from its portfolio have improved significantly due to infrastructure developments in close proximity to these properties. Management believes that demand and prices for real estate will increase during the next 12 to 24 months from the date of this report. The appraised values of the Company's portfolio of real estate is significantly higher than the value recorded on the books.
For the year ended December 31, 2010, our investing activities provided cash of $1,460,687, compared to $2,700,789 during the year ended December 31, 2009. Our financing activities used cash of $275,852 during the year ended December 31, 2010, compared to $3,206,707 during the year ended December 31, 2009.
In January 2011, NPI obtained a line of credit from Trustmark Bank in the amount of $3,000,000. Our subsidiary, Delta has a line of credit for $2,000,000 with Trustmark Bank, which has a maturity date in April 2011. 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. Delta has an excellent relationship with its bank and believes that they will be able to renegotiate their lines of credit at terms and conditions satisfactory to the Company.
We believe that our cash on hand, operating cashflows, and credit facilities will be sufficient to fund our operations, service our debt, and fund planned capital expenditures for at least 12 months from the date of this report.
Total assets at December 31, 2010 were $25,890,861, compared to $31,012,169 at December 31, 2009, representing a decrease of $5,121,308. At December 31, 2010, consolidated working capital was $9,728,802, compared to working capital of $13,141,451 at December 31, 2009, representing a decrease of $3,412,649. Total assets as of December 31, 2010, included real estate held for sale of $5,825,321 (see note 4), inventories of $5,600,152, accounts receivable of $4,061,201, cash and cash equivalents of $1,515,904, certificates of deposit of $777,119, $1,790,444 of trading securities, $1,464,756 in notes receivable, and $3,673,289 of property and equipment. Assets from discontinued operations at December 31, 2009 were $5,437,622.
We had total liabilities of $12,164,212 as of December 31, 2010, which included $10,356,281 of current liabilities, mainly consisting of $3,799,823 of accounts payable and accrued expenses, $4,794,723 of current installments of long-term debt, and $1,650,000 for the Botts lawsuit settlement which was settled in February 2011 (see note 13), and long-term liabilities of $1,807,931, consisting of long-term debt (less current installments). Liabilities from discontinued operations at December 31, 2009 were $6,742,128 (see note 16).
Cash flow from operations. For the year ended December 31, 2010, we used cash in operations of $1,361,271, compared to $422,885 during the same period in 2009. Our net loss from continuing operations of $1,827,764 for the year ended December 31, 2010 included non-cash income of $2,133,596, including shares received for consulting services of $1,370,000 and gains on disposals of assets of $763,596. Non-cash expenses included in net income were $4,194,649, including depreciation and amortization of $461,503, share-based compensation of $1,437,876, bad debt expense of $645,270, and the accrual of $1,650,000 for the Botts lawsuit settlement (see note 13). Our net loss from continuing operations of $2,443,398 for the year ended December 31, 2009 included non-cash expenses of $1,034,080, including depreciation and amortization of $526,250 and share-based compensation of $507,830. Accounts receivable increased by $2,496,984 during the year ended December 31, 2010, compared to an decrease of $1,014,897 during the same period in 2009. Our inventories increased by $104,174 for the year ended December 31, 2010, compared to an increase of $537 during the year ended December 31, 2009. Accounts payable increased by $1,230,828 during the year ended December 31, 2010, compared to an increase of $224,779 during the same period in 2009. Accounts receivable and accounts payable increased during the year ended December 31, 2010 primarily due to increased revenues at NPI.
Cash flow from investing activities. For the year ended December 31, 2010, our investing activities provided cash of $1,460,687 primarily as a result of proceeds from the sale of real estate held for sale of $943,500, from the sale of property and equipment of $343,945, the sale of trading securities of $509,039, and a net decrease in investments in certificates of deposit of $422,068, offset by the issuance of notes receivable of $120,000, the purchase of trading securities of $410,013, and the purchase of property and equipment of $175,117. Our investing activities provided cash of $2,700,789 during the year ended December 31, 2009, as a result of a net decrease in investments in certificates of deposit of $3,115,813, proceeds from notes receivable of $295,104, the sale of trading securities of $1,504,617, and loans from related parties of $23,997, offset by the issuance of a note receivable of $300,000, the purchase of trading securities of $1,718,597, and purchases of property and equipment of $220,145.
Cash flow from financing activities. Our financing activities used cash of $275,852 during the year ended December 31, 2010, primarily as a result of payments on debt of $3,245,118, offset by the issuance of common stock of $1,117,200 and net borrowings under lines of credit agreements and the issuance of debt of $1,878,620. During the year ended December 31, 2009, our financing activities used cash of $3,206,707, primarily as a result of payments on debt of $2,925,284 and payments for the acquisition of treasury stock of $252,223.
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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 was due August 31, 2010. NPI was not in payment default and has been current with all of its debt and interest payments since the inception of the line of credit. 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. The technical default has been resolved and Wachovia extended the line of credit to December 31, 2010. In January 2011, NPI obtained a line of credit from Trustmark Bank in the amount of $3,000,000, which is due in April 2012, to replace the Wachovia line of credit.
Our subsidiary, Delta has a line of credit for $2,000,000 with Trustmark Bank, which has a maturity date in April 2011. 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. Delta has an excellent relationship with its bank and believes 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:
Consolidated Balance Sheets - December 31, 2010 and 2009
Consolidated Statements of Operations - Years Ended December 31, 2010 and 2009
Consolidated Statements of Changes in Stockholders’ Equity - Years Ended December 31, 2010 and 2009
Consolidated Statements of Cash Flows - Years Ended December 31, 2010 and 2009
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, 2010. 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, 2010.
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, 2010 and 2009, and the related consolidated statements of operations and comprehensive loss, 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 audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of American International Industries, Inc. and Subsidiaries as of December 31, 2010 and 2009, 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, 2011
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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 and Comprehensive Loss
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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 some partially owned subsidiaries. American is a diversified corporation with interests in industrial/commercial companies and an oil and gas service business. American's business strategy is to acquire controlling equity interests in businesses that it considers undervalued. American's management takes an active role in providing its subsidiaries with access to capital, leveraging synergies and providing management expertise in order to improve its subsidiaries' growth.
Principles of Consolidation
The consolidated financial statements include the accounts of American International Industries, Inc. ("American") and its wholly-owned subsidiary, Northeastern Plastics, Inc. ("NPI"), Delta Seaboard International, Inc. ("Delta"), in which American holds a 48.1% shareholder interest, Brenham Oil & Gas Corp. (“BOG”), in which American holds a 54.7% interest, and Downhole Completion Products, Inc. (“DCP”), in which American holds an 80% shareholder interest. All significant intercompany transactions and balances have been eliminated in consolidation.
On November 11, 2010, American sold the assets and associated liabilities of its wholly-owned subsidiary, Shumate Energy Technologies, Inc. ("SET") to Larry C. Shumate, President of SET, for $10,000. The assets and associated liabilities are classified as discontinued operations in the consolidated balance sheet as of December 31, 2009 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). Net income from the deconsolidation of SET for the year ended December 31, 2010 and SET's net loss for the year ended December 31, 2009 are included in discontinued operations, net of income taxes in the consolidated statements of operations and in the consolidated statement of cash flows for the years ended December 31, 2010 and 2009 (see note 16).
On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger"). In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and effected a one-for-ten (1:10) reverse stock split ("Reverse Split") of its common stock. Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,552 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.
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Currently, corporate overhead includes BOG, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas. Through BOG, 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 acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. In April 2010, American entered into a Separation and Distribution Agreement to spin off Brenham Oil & Gas, Inc., which was 100% owned by American. In conjunction with this transaction, American formed Brenham Oil & Gas, Corp. with authorized common stock of 200,000,000 shares and authorized preferred stock of 10,000,000 shares. BOG issued 64,977,093 shares of common stock to American for all shares of Brenham Oil & Gas, Inc., of which American issued as a dividend 10,297,019 shares to the existing stockholders of American. For the year ended December 31, 2010, Brenham issued 13,000,000 shares of common stock for cash consideration of $22,100 and 22,000,000 shares for services valued at $45,466. American maintains control of Brenham through ownership of 54,680,074 shares of Brenham's common stock, representing about 55% of the outstanding shares as of December 31, 2010. On September 21, 2010, American prepared a registration statement on Form S-1 in order to register the BOG shares being distributed to American’s shareholders. On November 1, 2010, American filed an amended registration statement on Form S-1/A in response to questions received from the SEC. Assuming the effectiveness of the registration statement, these shareholders will have registered free-trading shares. BOG will then be a separate reporting company, and we plan to take action in the future to quote BOG's common stock on the Over-The-Counter Bulletin Board.
On June 23, 2010, Joe Hoover, President of DCP, purchased 20% of the 1,000 shares of Common Stock of DCP held by American for $20,000 in cash and a $55,000 promissory note. American recorded a $74,814 gain on sale of assets for this transaction.
Reclassifications
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. During the year ended December 31, 2010, accounts receivable balances totaling $165,934 were written off against the allowance.
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 ASC 320-10, "Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which American does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
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.
Intangible assets at December 31, 2010 and December 31, 2009 included goodwill of $674,539 related to the acquisition of NPI.
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 ASC 350-20 effective January 1, 2002. If the carrying amount of a reporting unit exceeds its fair value, we measure the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets (Step Two Analysis). The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities (“carrying amount”) is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. At December 31, 2010 and 2009, American completed its annual impairment testing of goodwill. During, each year, there were no events of circumstances that would have indicated potential impairment. At December 31, 2010 and 2009, the carrying amount of NPI did not exceed its fair value and as a result, no impairment loss was recognized.
December 31, 2010 and 2009 balances for long-lived assets are detailed in later footnotes: Property and Equipment (note 6) and Intangible Assets (note 7).
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. 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 ASC 740-10 “Accounting for Uncertainty in Income Taxes” which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740-10 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2010, 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 year ended December 31, 2009, potential dilutive stock options of 207,360 that had an anti-dilutive effect were not included in the calculation of diluted net loss per common share. These securities include options to purchase shares of common stock that were not "in the money". No dilutive securities were outstanding at December 31, 2010.
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 ASC 718-10, "Accounting for Stock-Based Compensation" based on the grant date fair values.
Fair Value of Financial Instruments
Effective January 1, 2008, American adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Basis of Fair Value Measurement
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Unobservable inputs reflecting American's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
American believes that the fair value of its financial instruments comprising cash, accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts. The interest rates payable by American on its notes payable approximate market rates. The fair values of American's Level 1 financial assets, trading securities and marketable securities - available for sale that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security. As of December 31, 2010, American did not have any significant Level 2 or 3 financial assets or liabilities.
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The following table provides fair value measurement information for American's trading securities and marketable securities - available for sale:
Subsequent Events
American has evaluated all transactions from December 31, 2010 through the financial statement issuance date for subsequent event disclosure consideration.
New Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
Note 2 - Trading Securities and Marketable Securities - Available for Sale
Investments in equity securities primarily include shares of common stock in various companies that are bought and held principally for the purpose of selling them in the near term with the objective of generating profits on short-term differences in price. These investments are classified as trading securities and, accordingly, any unrealized changes in market values are recognized in the consolidated statements of operations. For the years ended December 31, 2010 and 2009, American had unrealized trading gains of $1,659,902 and $498,396, respectively, related to securities held on those dates. American recorded realized losses of $459,436 and $460,517 for the years ended December 31, 2010 and 2009, respectively.
On June 21, 2010, American received as compensation for consulting services 1,000,000 restricted shares of ADB International Group, Inc. ("ADBI") common stock valued at $1,370,000, based on the closing market price of $1.37 per share on that date. American purchased an additional 300,000 shares for $35,000. This investment is classified as marketable securities - available for sale and, accordingly, any unrealized changes in market values are recognized as other comprehensive loss in the consolidated statements of operations. At December 31, 2010, this investment was valued at $130,000, based on the closing market price of $0.10 per share on that date. American recognized other comprehensive loss for the year ended December 31, 2010 of $1,275,000 for the unrealized loss on this investment.
Equity markets can experience significant volatility and therefore are subject to changes in value. Based upon the current volatile nature of the U.S. securities markets and the decline in the U.S. economy, we believe that it is possible, that the market values of our equity securities could decline in the near term. We have a policy in place to review our equity holdings on a regular basis. Our policy includes, but is not limited to, reviewing each company’s cash position, earnings/revenue outlook, stock price performance, liquidity and management/ownership. American seeks to manage exposure to adverse equity returns in the future by potentially increasing the diversity of our securities portfolios.
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Note 3 - Inventories
Inventories consisted of the following:
Note 4 - 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. At December 31, 2009, American was carrying this property on the balance sheet for $4,611,233, which represented $3,332,543 in principal and accrued interest allocated to the property received at the time of default and the assumption of a $1,278,690 note payable secured by the property by another lien holder, see Note 8. This property consisted of seven tracts, of which several are under contract for sale and the remainder are listed for sale with a broker. The appraised values of these properties exceeded the $4,611,233 owed to American. Values were allocated to the tracts of property based on their recent individual appraised values relative to the total appraised value. During the year ended December 31, 2010, American sold an 8 acre tract recorded at $175,480 for $340,445, which was used to reduce the note payable balance to $938,245. American recognized in the consolidated statements of operations a $164,965 gain on sale of assets for this transaction. On November 22, 2010, a 17 acre tract was transferred to NPI at the allocated cost of $1,155,359. NPI obtained a $1,450,000 long-term loan from the bank using this property as collateral. The proceeds from this loan were used to pay the remaining $938,245 note payable balance and NPI's property loan balance of $440,381 (see notes 6, 8 and 9). NPI plans to build new facilities on this site.
During the third quarter of 2009, and in connection with the guarantor’s fee described below, 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. The current balance owed on this loan is $3,600,000. 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 $3,901,500. American has a note receivable of $601,300 from SWGCP at December 31, 2010, resulting from closing costs, principal and interest paid by American on the loan. 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 bank loan and the balance owed to American.
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.
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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. With the exception of American's 287 acres, 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. The 287 acres is classified as held for sale in long-term assets.
Note 5 - Notes Receivable
Short-term notes receivable consists of the following:
(a) Note secured by a 2nd lien on property. This note was issued for $601,300. This note is secured by a 2nd lien on the Dawn Condominiums, located in Galveston, Texas, with an appraised value of over $3,901,500. This note is owed by SWGCP resulting from closing costs, principal and interest paid by American on the SWGCP loan at Texas Community Bank, the 1st lienholder on these condominium units. The current balance owed on the Texas Community Bank loan is $3,600,000. 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 bank loan and the balance owed to American.
(b) Unsecured note receivable due December 31, 2011. This note is owed by Lakeland Partners III, L.P., and is personally guaranteed by one of its principals.
Long-term notes receivable consists of the following:
(a) Note secured by 2nd lien on property of former subsidiary, SET. This note originated from advances and fees charged to SET during the year ended December 31, 2010, and is secured by a 2nd lien on the business operations, equipment, inventory, leasehold, trademarks, licenses, permits and / or general intangibles of SET. Stillwater National Bank is the 1st lienholder.
(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. On May 4, 2010, a new promissory note was executed in the amount of $300,000 for the note balance plus accrued interest, with the payment terms indicated above. Since payments are currently being made on the other note receivable with Marald in accordance with note terms, no further discounting of the loan was deemed necessary as of December 31, 2010.
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(c) Unsecured notes receivable due April 30 and December 31, 2008. 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 issued 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 purchased from Texas Community Bank with a face amount of $300,000. This delinquent note was purchased on September 30, 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. American has hired an attorney in this matter. The attorney has secured a judgment against one of the guarantors and is pursuing collection.
At December 31, 2010, management reviewed its notes receivable for impairment. Based on this review, American reserved a total of $600,000 due to uncertainty of collectibility.
Interest income on notes receivable is recognized principally by the simple interest method. During the years ended December 31, 2010 and 2009, American recognized interest income of $10,696 and $256,907, respectively.
Note 6 - Property and Equipment
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities with a book value of $422,737 to Southwest Gulf Coast Properties, Inc. ("SWGCP"). SWGCP assumed the $943,500 note payable on the property. American recognized a $520,763 gain on sale of assets for this transaction. During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities and is responsible for the associated $1,750,000 note payable. American and Wintech entered into a profit sharing agreement in October 2010, whereby American will receive 50% of any profit if the property is sold, based on the sales price for the property less any outstanding balance on the note payable. On November 22, 2010, a 17 acre tract of land was transferred from real estate held for sale to NPI at the allocated cost of $1,155,359. NPI obtained a $1,450,000 long-term loan from the bank using this property as collateral (see notes 4 and 9).
Depreciation expense for the years ended December 31, 2010 and 2009 was $461,503 and $526,250, respectively.
Note 7 - Intangible Assets
Intangible assets at December 31, 2010 and 2009 consisted of goodwill of $674,539 related to the acquisition of NPI.
Note 8 - 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. On November 22, 2010, a 17 acre tract was transferred to NPI at the allocated cost of $1,155,359. NPI obtained a $1,450,000 long-term loan from the bank using this property as collateral. The proceeds from this loan were used to pay the remaining $938,245 note payable balance and NPI's property loan balance of $440,381 (see notes 4, 6 and 9).
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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. At December 31, 2010 and 2009, the average annual interest rates of our short-term borrowings were approximately 4.99% and 11.48%, respectively.
Note 9 - Long-term Debt
Long-term debt consisted of the following:
(a) On November 22, 2010, a 17 acre tract was transferred to NPI at the allocated cost of $1,155,359. NPI obtained a $1,450,000 long-term loan from the bank using this property as collateral. The proceeds from this loan were used to pay the remaining $938,245 short-term note payable balance and NPI's property loan balance of $440,381 (see notes 4, 6 and 8).
(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 was due August 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. 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 recommended another lender. The technical default has been resolved and Wachovia has extended the line of credit to December 31, 2010. In January 2011, NPI obtained a line of credit from Trustmark Bank in the amount of $3,000,000, which is due in April 2012, to replace the Wachovia line of credit.
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, 2010:
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Note 10 - 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, 2010, American purchased 74,900 common shares as treasury stock for $48,654. American issued 1,100,000 restricted shares of common stock for cash consideration of $1,117,200 for investment from 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. From April 2010 through December 2010, Brenham issued 13,000,000 shares of common stock for cash consideration of $22,100.
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 $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. These options expired on March 30, 2010.
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 year ended December 31, 2010 is presented below:
Stock-based compensation consists of the following:
During the year ended December 31, 2010, American and its subsidiaries issued the following shares for services:
American issued 680,000 shares of common stock valued at $533,660 to employees, directors and third parties.
Delta issued 9,807,843 shares of its common stock with a value of $858,750 to employees and former employees.
BOG issued 22,000,000 shares of its common stock with a value of $45,466 to employees and third parties.
During the year ended December 31, 2009, American issued 452,554 shares of common stock valued at $507,830 to employees, directors and third parties for services.
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Note 11 - Concentration of Credit Risk
American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. The FDIC no longer has limits on non-interest bearing accounts. Although the financial institutions are considered creditworthy, at December 31, 2010, American's cash and certificates of deposit balances held in banks in interest bearing accounts exceeded the limit covered by the Federal Deposit Insurance Corporation by approximately $1.1 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, 2010, NPI had one customer that accounted for 14% of trade accounts receivable, one customer that accounted for 21% of trade accounts receivable and 32% of revenues on a consolidated basis.
Note 12 - Income Taxes
The components of the income tax provision (benefit) for the years ended December 31, 2010 and 2009 are as follows:
The following table sets forth a reconciliation of the statutory federal income tax for the years ended December 31, 2010 and 2009:
The tax effects of the temporary differences between financial statement income and taxable income are recognized as a deferred tax asset and liabilities. Significant components of the deferred tax asset and liability as of December 31, 2010 and 2009 are set out below:
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American has loss carry-forwards totaling $17,457,840 available at December 31, 2010 that may be offset against future taxable income. If not used, the carry-forwards will expire as follows:
Note 13 - Commitments and Contingencies
On July 23, 2008, Delta Seaboard Well Service, Inc. negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. After non-controlling interest, the net impact of this settlement on American's net income is $739,500. Delta recovered $700,000 of 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 year ended December 31, 2010.
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. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 288,000 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 1,100,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts. For the year ended December 31, 2010, American recognized a loss and accrued a current liability for the settlement of $1,650,000.
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, of which $781,728 has been recognized through December 31, 2008. For the years ended December 31, 2010 and 2009, no TERP grant revenue has been recognized. 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.
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. Delta 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. Delta is still determining the effect this will have, but believes it will not materially affect Delta because of tax loss carry-forwards.
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Note 14 - 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;
· Delta Seaboard International ("Delta") - a 48.1% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
· Downhole Completion Products, Inc. ("DCP") - an 80% owned subsidiary, provides major international oil and gas service company end-users with the highest quality proprietary downhole/completion threaded products under any condition.
· 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 ("BOG"), 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. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 54,680,074 shares of common stock, representing 54.7% of BOG’s total outstanding shares.
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), depreciation and amortization expense, interest expense, capital expenditures, non-cash transactions, and identifiable assets were as follows:
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Note 15 - Related Party Transactions
During the year ended December 31, 2010, American issued 200,000 shares of common stock to the CEO for services valued at $120,000.
During the year ended December 31, 2010, American issued 1,100,000 restricted shares of common stock for cash consideration of $1,117,200 for investment from 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.
During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities with a book value of $422,737 to Southwest Gulf Coast Properties, Inc. ("SWGCP"). SWGCP assumed the $943,500 note payable on the property. American recognized a $520,763 gain on sale of assets for this transaction. During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities and is responsible for the associated $1,750,000 note payable. American and Wintech entered into a profit sharing agreement in October 2010, whereby American will receive 50% of any profit if the property is sold, based on the sales price for the property less any outstanding balance on the note payable.
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Note 16 - Discontinued Operations
On November 11, 2010, American sold the assets and associated liabilities of its wholly-owned subsidiary, Shumate Energy Technologies, Inc. ("SET") to Larry C. Shumate, President of SET, for $10,000. The assets and associated liabilities are classified as discontinued operations in the consolidated balance sheet as of December 31, 2009 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). Net income from the deconsolidation of SET for the year ended December 31, 2010 and SET's net loss for the year ended December 31, 2009 are included in Discontinued operations, net of income taxes in the consolidated statements of operations and in the consolidated statement of cash flows for the years ended December 31, 2010 and 2009.
The consolidated balance sheet at December 31, 2009 has been restated to reflect the discontinued operations of SET as summarized below:
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.
The consolidated statement of operations for the year ended December 31, 2009 has been restated to reflect the discontinued operations of SET and Hammonds as summarized below:
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The consolidated statement of cash flows for the year ended December 31, 2009 has been restated to reflect the discontinued operations of SET as summarized below:
SET's revenues and net loss before income tax are summarized below:
Net income from discontinued operations on the consolidated statement of operations for the year ended December 31, 2010 includes the gain on deconsolidation of $2,954,974, offset by SET's net loss of $1,563,330 for the period January 1 through November 11, 2010.
Note 17 - Subsequent Events
From January 1, 2011 through March 31, 2011, American paid $8,630 to repurchase 13,300 shares of its common stock for treasury and issued 116,000 for services valued at $81,200. During the three months ended March 31, 2011, American issued 500,000 restricted shares of common stock for cash consideration of $300,000 for investment from Daniel Dror, CEO, Dror Charitable Foundation for the Arts, and the Dror Family Trust, related parties to Daniel Dror. On January 4, 2011, Delta issued 2,550,000 restricted shares of common stock to employees and third parties for services valued at $127,500.
Effective February 25, 2011, American and Botts settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note with 5% annual interest paid in monthly installments to Botts due by February 1, 2012 (see note 13). The 288,000 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 1,100,000 restricted American shares (these shares were issued during the year ended December 31, 2010. See note 15). The cash proceeds from the restricted share sale were used to fund the settlements to Botts. For the year ended December 31, 2010, American recognized a loss and accrued a current liability for the settlement of $1,650,000.
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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, 2010.
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, 2010 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 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. McKinzey 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.
On July 14, 2010, the Company's Board of Directors appointed Scott Wolinsky to its Board and as a member of its Audit Committee. Mr. Wolinsky is a Registered Patent Agent, Electrical Engineer, Inventor and former Primary Patent Examiner with over sixteen years of related patent experience. He graduated from the State University of New York at Stony Brook with a Bachelor of Engineering in Electrical Engineering. Mr. Wolinsky has worked as an Electrical Engineer at various satellite and military aircraft companies and for the United States Patent and Trademark Office as a Patent Examiner. Currently, Mr. Wolinsky works for the law firm of Volpe and Koenig P.C. in Philadelphia, Pennsylvania as a Senior Patent Agent, specializing in the preparation and prosecution of patent applications associated with wireless communications, electrical circuits and computer / database systems.
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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.
Report of the Audit Committee
The Audit Committee of the Board of Directors of the Company is currently comprised of three directors, Steven M. Plumb, chairman, Charles R. Zeller and Scott Wolinsky, all of whom satisfy the requirements to serve as independent directors.
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, a copy of which filed on May 3, 2007 as part of the Company's definitive proxy statement on Schedule 14A. 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, 2010, 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, 2010 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
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Received written disclosures and a letter from GBH CPAs, PC regarding its independence as required by PCAOB Rule 3526. 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, 2010 for filing with the SEC.
Audit Committee
Steven M. Plumb, Chairman
Charles R. Zeller,
Scott Wolinsky
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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, 2010, and the appointment was ratified by the shareholders at the annual meeting held on July 14, 2010.
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 years ended December 31, 2010 and 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 $120,000 and Sherry McKinzey received 50,000 shares valued at $30,000. Robert W. Derrick, Jr. received 6,000 shares valued at $3,920 for serving on the Board of Directors. Messrs. Derrick and Burleigh received 9,607,843 post-Reverse Split shares of Delta in consideration for extending their employment agreements for five years in addition to the balance of their current employment agreements.
(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. McKinzey.
(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 payments for personal insurance premiums for Mr. Burleigh.
(7) Represents total payments for an automobile owned by the Company utilized by Mr. Hoover.
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. During the year ended December 31, 2010, Messrs. Derrick and Burleigh received 9,607,843 post-Reverse Split shares of Delta in consideration for extending their employment agreements for five years in addition to the balance of their current employment agreements.
In July 2009, Sherry McKinzey, 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. McKinzey 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. McKinzey ceasing to serve as the Company’s Chief Financial Officer, Ms. McKinzey shall be entitled to receive and the Company shall pay to Ms. McKinzey within ninety (90) days of the change in control a sum equal to one (1) year of the base salary then payable to her under the employment agreement.
Grants of Plan-Based Awards
(1)
Restricted shares.
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Outstanding Equity Awards at Fiscal Year-End
None.
Director Summary Compensation Table
The directors serve without cash compensation, but may be granted stock as bonus compensation from time to time. The table below summarizes the compensation paid by the Company to non-employee Directors for the fiscal year ended December 31, 2010.
(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.
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, 2010, the Registrant had 10,971,325 shares of common stock issued.
(1) The J & J Zeller Trust, of which Mr. Zeller is the Trustee, holds 12,320 restricted shares.
(2) 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.
(3) Dror Family Trust, a trust for the benefit of Daniel Dror's sons, Daniel Dror II and David Alexander Dror, who is a minor. Mr. Dror is not a trustee of the Dror Family Trust and he disclaims any beneficial interest in the trust.
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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, 2010, American issued 200,000 shares of common stock to the CEO for services valued at $120,000.
During the year ended December 31, 2010, American issued 1,100,000 restricted shares of common stock for cash consideration of $1,117,200 for investment from 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.
During the three months ended June 30, 2010, American sold its 51% ownership in Delta's facilities with a book value of $422,737 to Southwest Gulf Coast Properties, Inc. ("SWGCP"). SWGCP assumed the $943,500 note payable on the property. American recognized a $520,763 gain on sale of assets for this transaction. During the three months ended September 30, 2010, Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, acquired this 51% ownership and assumed the note payable. Wintech now owns 100% of Delta's facilities and is responsible for the associated $1,750,000 note payable. American and Wintech entered into a profit sharing agreement in October 2010, whereby American will receive 50% of any profit if the property is sold, based on the sales price for the property less any outstanding balance on the note payable.
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, 2010 and 2009.
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 definitive proxy statement on Schedule 14A on July 31, 2008.
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.
10.5
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.
10.15ii
Daniel Dror Employment Agreement dated March 19, 2007 filed with the Registrant's definitive proxy statement on March 18, 2008.
19.3
Definitive Proxy Statement for Annual Meeting of Shareholders filed on May 28, 2010
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.
99.1 Audit Committee Charter filed on May 3, 2007 as part of the Registrant's definitive proxy statement.
b. Form 8-K Reports: 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 21, 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 on April 20, 2010 with disclosure under Item 8.01, “Other Events.” The registrant filed a Form 8-K on May 12, 2010 with disclosure under Item 3.01, “Notice of Delisting or Failure to Satisfy Continued Listing Rule.” The Registrant filed a Form 8-K on June 29, 2010 with disclosure under Item 3.01, “Notice of Delisting or Failure to Satisfy Continued Listing Rule.” The registrant filed a Form 8-K on July 15, 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, 2011
By /s/ Sherry L. McKinzey
Sherry L. McKinzey
Chief Financial Officer
March 31, 2011
By /s/ Charles R. Zeller
Charles R. Zeller
Director
March 31, 2011
By /s/ Thomas J. Craft, Jr.
Thomas J. Craft, Jr.
Director
March 31, 2011
By /s/ Robert W. Derrick, Jr.
Robert W. Derrick, Jr.
Director
March 31, 2011
By /s/ Steven M. Plumb
Steven M. Plumb
Director
March 31, 2011
By /s/ Scott Wolinsky
Scott Wolinsky
Director
March 31, 2011