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AMERICAN INTERNATIONAL INDUSTRIES INC 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
amin10q3q2011.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
 
FORM 10-Q>
_________________________
 
 
ý                                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2011
 
OR
 
 
¨                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________
 
Commission File No.: 1-33640
 
 
(Exact Name Of Registrant As Specified In Its Charter)
 
Nevada
88-0326480
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
601 Cien Street, Suite 235, Kemah, TX
77565-3077
(Address of Principal Executive Offices)
(ZIP Code)
 
 Registrant's Telephone Number, Including Area Code: (281) 334-9479
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No x
 
At November 14, 2011, the Registrant had 15,076,585 shares of common stock outstanding and 1,000 shares of preferred stock outstanding.
 
 

 
 
Item
Description
Page
 
PART I - FINANCIAL INFORMATION
 
 
   
ITEM 1.
3
ITEM 2.
24
ITEM 3.
28
ITEM 4.
28
 
   
 
PART II - OTHER INFORMATION
 
 
   
ITEM 1.
29
ITEM 1A.
29
ITEM 2.
29
ITEM 3.
29
ITEM 4.
29
ITEM 5.
29
ITEM 6.
30
 
 
2
 

 
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
 
 
 
3
 

 
(Unaudited)
   
September 30, 2011
   
December 31, 2010
 
Assets
           
Current assets:
           
   Cash and cash equivalents
 
$
711,976    
$
1,471,362
 
   Certificates of deposit
    -      
777,119
 
   Trading securities
    223,436      
1,790,444
 
   Accounts receivable, less allowance for doubtful accounts
               
     of $74,851 and $78,187, respectively
    5,468,771      
4,060,621
 
   Receivable from related parties     494       -  
   Short-term notes receivable     3,958,566       421,300  
   Current portion of notes receivable
    30,338      
38,892
 
   Inventories, net
    4,773,011      
5,433,493
 
   Real estate held for sale
    6,120,703      
5,600,321
 
   Prepaid expenses and other current assets
    365,658      
253,534
 
   Assets held for sale     -       237,997  
     Total current assets
    21,652,953      
20,085,083
 
  
               
Long-term receivables, less current portion
    1,443,138      
1,004,564
 
Real estate held for sale     -       225,000  
Oil & gas properties - unproved     16,800       -  
Property and equipment, net of accumulated depreciation and amortization
    3,752,087      
3,673,289
 
Goodwill
   
674,539
     
674,539
 
Marketable securities - available for sale     8,450       130,000  
Other assets
    47,881      
97,003
 
Assets held for sale     -       1,383  
       Total assets
 
$
27,595,848    
$
25,890,861
 
Liabilities and Equity
               
Current liabilities:
               
   Accounts payable and accrued expenses
 
$
3,759,720    
$
3,571,269
 
   Bank overdrafts      44,621       -  
   Accrued lawsuit settlement     -       1,650,000  
   Short-term notes payable
   
361,609
     
91,183
 
   Accounts and notes payable to related parties
    8,251      
20,552
 
   Current installments of long-term debt
    5,237,856      
4,794,723
 
   Liabilities associated with assets held for sale     -       228,554  
     Total current liabilities
    9,412,057      
10,356,281
 
                 
Long-term debt, less current installments
    1,657,739      
1,807,931
 
     Total liabilities
     11,069,796      
12,164,212
 
                 
Commitments and contingencies 
   
-
     
 -
 
                 
 
 
 
 
 
 
 
4
 
 
 
   
September 30, 2011
   
December 31, 2010
 
Equity:
               
   Preferred stock, $0.001 par value, 1,000,000 authorized, 1,000 and 0 shares issued and outstanding, respectively
   
1
     
 -
 
   Common stock, $0.001 par value, 50,000,000 authorized;
               
       15,499,142 and 10,971,325 shares issued, respectively
               
       15,089,085 and 10,604,868 shares outstanding, respectively
    15,499      
10,972
 
   Additional paid-in capital
    36,865,407      
34,271,654
 
   Stock subscription receivable     (74,000     -  
   Accumulated deficit
   
(19,245,556
   
(19,806,883
   Accumulated other comprehensive loss     (1,396,550     (1,275,000
   Less treasury stock, at cost; 410,057 and 366,457 shares, respectively
   
(577,216
   
(554,428
   Total American International Industries, Inc. equity
    15,587,585      
12,646,315
 
       Noncontrolling interest
    938,467      
1,080,334
 
   Total equity
    16,526,052      
13,726,649
 
   Total liabilities and equity
 
 $
27,595,848    
$
25,890,861
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
   
Three Months Ended
   
Nine Months Ended
 
  
 
September 30, 2011
   
September 30, 2010
   
September 30, 2011
   
September 30, 2010
 
                             
Revenues
  $ 7,346,982     $ 9,458,245     $ 16,578,019     $ 17,944,055  
Costs and expenses:
                               
   Cost of sales
    4,461,083       6,860,318       9,688,864       12,212,272  
   Selling, general and administrative
    3,380,699       2,251,973       8,733,228       7,484,823  
     Total operating expenses
    7,841,782       9,112,291       18,422,092       19,697,095  
                                 
   Gain (loss) on sale of assets     3,513,824       (20,662     3,513,824        760,542  
                                 
Operating income (loss)
    3,019,024       325,292       1,669,751       (992,498
  
                               
Other income (expenses):
                               
   Interest and dividend income
    1,553       23,824       15,250       61,595  
   Delta lawsuit settlement     -       -       -       700,000  
   Consulting service income     -       -       -       1,370,000  
   Realized losses on the sale of trading securities     (534,320     (414,607     (793,410     (96,293
   Unrealized gains on trading securities      289,425       360,937       205,957       158,881  
   Interest expense
    (105,767     (113,764     (350,120     (342,721
   Other income (expense)
     (55,200     4,168       (9,458     100,166  
     Total other income (expense)
    (404,309      (139,442     (931,781     1,951,628  
  
                               
     Income from continuing operations before income tax
    2,614,715       185,850       737,970       959,130  
     Income tax expense
    133,348       1,123       149,595       51,354  
     Net income from continuing operations
    2,481,367       184,727       588,375       907,776  
     Loss on disposal of discontinued operations     -       -       (50,000     -  
     Loss from discontinued operations, net of income taxes
    -       (352,021     (4,410     (1,079,662
     Net income (loss)
    2,481,367       (167,294     533,965       (171,886
     Net loss (income) attributable to the noncontrolling interest     4,861       (2,555     27,362       410,646  
     Net income (loss) attributable to American International Industries, Inc.   $ 2,486,228     $ (169,849   $ 561,327     $ 238,760  
Net income (loss) per common share - basic and diluted:                                
     Continuing operations   $ 0.17     0.01     $ 0.04     0.13  
     Discontinued operations    
0.00
      (0.03     (0.00     (0.11
     Total
  $  0.17     $ (0.02   $ 0.04     $ 0.02  
  
                               
Weighted average common shares - basic and diluted
    14,832,445       10,080,504       13,072,335       9,780,898  
                                 
Comprehensive income (loss)                                
     Net income (loss)   $ 2,481,367     $ (167,294   $ 533,965     (171,886
     Unrealized loss on marketable securities     (11,050     (500,000     (121,550     (320,000
Total comprehensive income (loss)     2,470,317       (667,294     412,415       (491,886
     Comprehensive loss (income) attributable to the noncontrolling interest     4,861       (2,555     27,362       410,646  
Comprehensive income (loss) attributable to American International Industries, Inc.   $ 2,475,178     $ (669,849   $ 439,777     $ (81,240
   
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
6

 
Consolidated Statements of Cash Flows
(Unaudited)
 
   
Nine Months Ended September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
               
   Net income (loss)
 
$
533,965
 
 
$
(171,886
)
   Loss from discontinued operations, net of income taxes     (54,410     (1,079,662 )
   Net income from continuing operations     588,375       907,776  
   Adjustments to reconcile net income from continuing operations to net cash used in operating activities from continuing operations:
               
       Depreciation and amortization
    351,163       349,273  
       Share-based compensation
    1,284,627      
1,174,803
 
       Amortization of guarantor fee     12,032       -  
       Shares received for consulting services     -       (1,370,000
       Gain on sale of assets     (3,513,824     (760,542
       Realized losses on the sale of trading securities
    793,410
 
   
96,293
 
       Unrealized gains on trading securities
    (205,957     (158,881
)
       Change in operating assets and liabilities:
               
          Accounts receivable
    (1,306,092    
(5,979,278
          Inventories
     660,482        207,086
 
          Prepaid expenses and other current assets
    170,277        169,615  
          Other assets
    1,068      
-
 
          Accounts payable and accrued expenses
    (1,238,535
)
    4,036,082  
             Net cash used in operating activities from continuing operations
    (2,402,974    
(1,327,773
                 
Cash flows from investing activities from continuing operations:
               
   Purchase of trading securities     (1,596,475     (649,207
   Proceeds from sale of trading securities      2,576,030       792,013  
   Proceeds from sale of equity investment
    -       20,000  
   Proceeds from sale of real estate held for sale     -       943,500  
   Proceeds from sale of property and equipment     37,000       340,445  
   Purchase of property and equipment
    (305,955
)
   
(131,777
)
   Purchase of real estate held for resale     -       (29,557
   Redemption of certificate of deposit
    250,000
 
   
625,000
 
   Investment in certificate of deposit      (5,381     (519,243
   Proceeds from notes receivable
     109,980       26,963  
   Loans from (to) related parties, net
     (12,795
)
   
211,615
 
            Net cash provided by investing activities from continuing operations
    1,052,404
 
    1,629,752
 
  
               
Cash flows from financing activities from continuing operations:
               
   Proceeds from issuance of common stock
     977,001      
1,015,200
 
   Proceeds from issuance of common stock of subsidiary     -       22,100  
   Net borrowings under lines of credit agreements and short-term notes
    595,963
 
    541,620  
   Bank overdrafts     44,621       -  
   Payment of deemed dividends on VOMF settlement     (50,000     -  
   Principal payments on debt
    (953,518
)
   
(1,718,337
)
   Payments for acquisition of treasury stock of subsidiary     (95     -  
   Payments for acquisition of treasury stock
     (22,788
)
   
(5,174
)
            Net cash provided by (used in) financing activities from continuing operations
    591,184      
(144,591
)
                 
Net increase (decrease) in cash and cash equivalents from continuing operations
 
 
(759,386  
 
157,388
 
Cash and cash equivalents at beginning of period
    1,471,362       1,692,340  
Cash and cash equivalents at end of period
  $ 711,976     1,849,728  
 
 
 
7

 
 
 
Nine Months Ended September 30,
   
2011
   
2010
 
Discontinued operations - SET:                
   Net cash provided by operations   $ -     29,205  
   Net cash used in investing activities     -       (10,386
   Net cash used in financing activities     -       (18,819 )
Net decrease in cash and cash equivalents from discontinued operations     -       -  
Cash and cash equivalents at beginning of year from discontinued operations     -       -  
Cash and cash equivalents at end of year from discontinued operations   $ -     -  
                 
Supplemental schedule of cash flow information:                
   Interest paid    $ 348,741     333,020  
   Taxes paid   $ 73,751     47,479  
                 
Non-cash investing and financing transactions:                
   Receipt of common stock to convert promissory note due from Delta   -     872,352  
   Note payable issued for lawsuit settlement   400,000     -  
   Unrealized loss on available for sale securities   121,550     320,000  
   Note receivable issued for common stock of DCP   $ -     55,000  
   Real property received in foreclosure on note receivable   $ -     66,304  
   Issuance of note receivable for interest receivable balance   $ -     100,000  
   Financing of prepaid insurance   $ 244,970     250,753  
   Fixed assets placed in service reclassified from other assets   $ 48,009     -  
   Accounts payable and dividends payable assumed in Delta reverse merger transaction   -      597,131  
   Adjustment to noncontrolling interest in Delta and BOG   29,935     295,279  
   Delta dividends declared and unpaid   180,000     180,000  
   Stock issued to related party for receivable   74,000     -  
   Stock issued to related party for real estate   $ 520,382     -  
   Financing of fixed assets   $ 75,952     -  
   VOMF settlement recorded as deemed dividend for Delta   250,000     -  
   SET receivable from foreclosure of certificate of deposit   $ 532,500     -  
   Issuance of BOG stock for oil & gas properties   8,400     -  
   Contingent consideration for issuance of BOG stock for oil & gas properties   $ 8,400     -  
   Preferred stock issued to officer as guarantor fee   $ 49,463     -  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
8

 
American International Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
 
Note 1 - Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements of American International Industries, Inc. (“American”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in American's latest Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2010. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Form 10-K have been omitted.

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 subsidiaries Northeastern Plastics, Inc. ("NPI") and American International Texas Properties, Inc. ("AITP"), Delta Seaboard International, Inc. ("Delta"), in which American holds a 46.4% shareholder interest, and Brenham Oil & Gas Corp. (“BOG”), in which American holds a 49% interest.  All significant intercompany transactions and balances have been eliminated in consolidation.

On September 23, 2010, Joe Hoover, President of Downhole Completion Products, Inc. ("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.  On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities, which are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheets as of December 31, 2010 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  DCP's net loss of $4,410 for the nine months ended September 30, 2011, and net loss of $2,371 and net income of $931 for the three and nine months ended September 30, 2010, respectively, are included in discontinued operations.  During the nine months ended September 30, 2011, American received the $5,000 for the purchase.  This is included as income from discontinued operations for the three and nine months ended September 30, 2011.  American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the nine months ended September 30, 2011.

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.  SET's net loss of $360,120 and $728,572 for the three and nine months ended September 30, 2010, respectively, 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 nine months ended September 30, 2010.

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.  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.

 
9

 
American owns 32,859,935 shares of common stock, representing 46.4% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 32,425,832 shares of common stock, representing 45.7% of Delta's total outstanding shares. All other stockholders of Delta own 5,606,483 shares of common stock, representing 7.9% of Delta's total 70,892,250 outstanding shares.
 
Currently, corporate overhead includes BOG, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas and an oil field in Abine, 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 58,680,074 shares of Brenham's common stock, representing about 49% of the outstanding shares as of September 30, 2011.
The resale registration statement of Brenham was declared effective by the SEC on May 16, 2011. This registration statement registered 10,279,019 shares of Brenham common stock issued to American shareholders as a dividend on July 21, 2010. BOG is a separate reporting company, and BOG's common stock is quoted on the Over-The-Counter Bulletin Board beginning in August 2011.

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.

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.

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 three and nine months ended September 30, 2011, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net income (loss) per common share. These securities include 100,000 options to purchase shares of common stock that were not "in the money".
 
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.
 
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.>
 
10

 
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 September 30, 2011, American did not have any significant Level 2 or 3 financial assets or liabilities. The following table provides fair value measurement information for American's trading securities and marketable securities - available for sale:>
 
   
As of September 30, 2011
 
               
 Fair Value Measurements Using:
 
   
Carrying
Amount
   
Total
Fair Value
   
Quoted Prices
in Active Markets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Financial Assets:
                             
  Trading Securities
 
$
233,436    
$
233,436
   
$
-
   
$
-
   
$
-
 
  Marketable Securities - available for sale   $  8,450     $  8,450     $ -      -      -  
 
   
As of December 31, 2010
 
               
 Fair Value Measurements Using:
 
   
Carrying
Amount
   
Total
Fair Value
   
Quoted Prices
in Active Markets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Financial Assets:
                             
  Trading Securities
 
$
1,790,444    
$
1,790,444
   
$
-
   
$
-
   
$
-
 
  Marketable Securities - available for sale   $ 130,000     $ 130,000     $ -      -      -  
 
Oil & gas properties - unproved
 
Currently, oil & gas properties owned by Brenham have minimal production to maintain the lease and are considered unproved.  Management will assess the appropriate method of accounting to use for amortization, successful efforts or full cost, once these properties have been proved.
 
Subsequent Events
 
American has evaluated all transactions from September 30, 2011 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.>
 
 
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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 three months ended September 31, 2011 and 2010, American had unrealized trading gains of $289,425 and $360,937, respectively, related to securities held on those dates.  American recorded realized losses of $534,320 and $414,607 for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 31, 2011 and 2010, American had unrealized trading gains of $205,957 and $158,881, respectively, related to securities held on those dates.  American recorded realized losses of $793,410 and $96,293 for the nine months ended September 30, 2011 and 2010, respectively.
 
On September 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 September 30, 2011, this investment was valued at $8,450, based on the closing market price of $0.0065 per share on that date.  American recognized other comprehensive loss for the three months and nine months ended September 30, 2011 and 2010 of $11,050, 500,000, $121,550 and 320,000, respectively, 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.
 
Note 3 - Inventories
 
Inventories consisted of the following:>
   
September 30, 2011
   
December 31, 2010
 
Finished goods
  $ 4,779,013     $ 5,482,932  
Less reserve
    (6,002 )     (49,439 )
    $ 4,773,011     $ 5,433,493  
 
Note 4 - Real Estate Transactions>
 
On September 30, 2011, AITP sold the 287-acre property located in Dickinson, Texas, to Texas Community Bank, N.A. ("TXCB") as part of a settlement of lawsuit claims that American had against TXCB, for consideration of $3,701,824 in the form of a secured note receivable of $3,599,766 and interest receivable of $102,058. This note receivable is fully collateralized by a 1st lien on 17 condominium units at the waterfront Dawn Condominium complex located in Galveston, Texas, having an appraised value of $3,901,500.  A sale of all 17 units is currently being negotiated.  American and TXCB ("the parties") have signed a sales proceeds sharing agreement for the 287-acre property.  In accordance with the sales proceeds sharing arrangement, if the 287-acre property is sold by TXCB at a minimum price of $5,000,000 to an unrelated third party on or before December 31, 2013, American will receive the difference between the first $5,000,000 in sales proceeds and $3,100,000 or $1,900,000.  In the event that the sales price of the 287-acre property exceeds $5,000,000 such amount over the $5,000,000 consideration shall be divided on a 50/50 basis between American and TXCB, in addition to the $1,900,000.  The settlement has resulted in a net gain of $3,476,824, which does not include the value of the sale proceeds sharing agreement.
 
On January 13, 2011, American entered into a letter of intent with Kemah Development Texas L.P. (“KDT”) which is owned by an entity which is controlled by the brother of Daniel Dror (Daniel Dror disclaims any ownership in or control over KDT), pursuant to which KDT agreed to sell 65 acres of land located in Galveston County, Texas (the “Property”) to American in consideration for restricted shares of common stock. Subsequently, the agreement was amended to provide for the purchase price to be paid by the issuance of 1,460,000 restricted shares of common stock with a fair market value of $919,800. These shares were issued on June 10, 2011. American has received an appraisal of the Property from an independent third-party appraiser which concluded that the Property had an estimated fair market value of approximately $1,900,000. The purchase of the Property closed on July 9, 2011, and American recorded the land at $520,382, the original cost to KDT of this property, and recorded share-based compensation of $399,418 in July 2011. American's present intention is that the Property will be held by its wholly-owned real estate subsidiary, American International Texas Properties, Inc.
 
 
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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.  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 three months ended September 30, 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 warehouse property loan balance of $440,381.  NPI plans to build a new and larger facility on this site to accommodate business expansion.
 
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 extension fee.  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 has engaged an independent broker on an exclusive basis to sell the property.  This property is not going to be developed by nor is it being held as inventory by American.
 
American reviewed the accounting standards Real Estate - General (ASC 970-10) and Property, Plant, and Equipment (ASC 360-10) to determine the appropriate classification for these properties.  According to ASC 970-10, real estate that is held for sale in the ordinary course of business is classified as inventory, which is a current asset.  ASC 360-10 provides the following criteria for property to be classified as held for sale:>
  • Management with the appropriate authority commits to a plan to sell the asset;
  • The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
  • An active program to locate a buyer and other actions required to complete the plan of sale have been initiated;
  • The sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale;
  • The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
  • Actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Management consulted with the real estate brokers for these properties and reviewed the recent interest for each property.  Based on our consultations and review, we believe that the sale of these properties within one year is probable.  We concluded that all of these criteria have been met for these properties and that they are appropriately classified as held for sale in current assets.
 
Note 5 - Notes and other receivables
 
Short-term notes receivable consists of the following:
   
September 30, 2011
   
December 31, 2010
 
Note secured by a 1st lien on property, interest at the greater of prime plus 1% or 4.25% due monthly, principal due on or before September 30, 2012 (a)   $  3,599,766     $ -  
Unsecured note receivable, interest at 3% due in semi-annual payments, principal due on or before October 1, 2014 (b)    
596,300
     
601,300
 
Unsecured note receivable, interest at 3%, principal and interest due on December 10, 2011 (c)      62,500          
Unsecured note receivable, interest at 10% due monthly, principal due on or before December 31, 2011 (c)    
-
     
120,000
 
      4,258,566       721,300  
Reserve due to uncertainty of collectability      (300,000      (300,000
Short-term notes receivable
 
$
3,958,566
   
$
421,300
 
 
(a) Note secured by a 1st lien on property.  On September 30, 2011, AITP sold the 287 acre property located in Dickinson, Texas, to TXCB as part of a settlement of lawsuit claims that American had against TXCB, for consideration of $3,701,824 in the form of a secured note receivable of $3,599,766 and interest receivable of $102,058 (note 4). This note receivable is fully collateralized by a 1st lien on 17 condominium units at the waterfront Dawn Condominium complex located in Galveston, Texas, having an appraised value of $3,901,500.  A sale of all 17 units is currently being negotiated.
 
13

 
(b) Unsecured note receivable due October 1, 2014. This note was issued for $601,300. This note was previously owed by SWGCP resulting from closing costs, principal and interest paid by American on the SWGCP loan at TXCB. In February, SWGCP obtained a judgment against Kentner Shell ("Shell"), who personally guaranteed the note, for $4,193,566 for matters related to these condominiums.  On June 30, 2011, SWGCP assigned all of its interests in this judgment to American in exchange for this note and $10.  In September 2011, American and Shell entered into an agreement whereby Shell will make quarterly payments in the amount of $100,000, beginning April 1, 2012.  Further, in the event that Shell pays $400,000 on or before October 1, 2012, the debt will be considered paid in full.  In the event that Shell pays $500,000 on or before October 1, 2013, the debt will be considered paid in full.  American has not specifically discounted this note due to the $300,000 reserve due to uncertainty of collectability which has been recorded for short-term notes receivable.
 
(c) Unsecured note receivable due December 10, 2011.  This note replaces the $120,000 note previously owed by Lakeland Partners III, L.P.  In September 2011, American and Shell entered into an agreement whereby the $120,000 note was paid in full for the consideration of $62,500 in cash and a new note agreement for $62,500, due in full with interest on December 10, 2011.  Proceeds from the cash payment in the amount of $5,000 were applied to the note discussed in (b) above.
 
Long-term receivables consists of the following:
   
September 30, 2011
   
December 31, 2010
 
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through September 5, 2012
  $  30,338     $
59,251
 
Unsecured note from former subsidiary, SET, interest at 4% due monthly beginning July 1, 2011, principal payment due on June 1, 2014 (a)     629,205       629,205  
Unsecured receivable from former subsidiary, SET, no terms (a)     513,933       -  
Unsecured note receivable for sale of former subsidiary, Marald, Inc., due in monthly payments of $3,074, including interest at 4%, beginning April 1, 2011 through March 1, 2021 (b)
   
300,000
     
300,000
 
Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (c)    
300,000
      300,000  
Note secured by shares of DCP stock, interest due quarterly at 5%, principal payment due on or before September 23, 2012 (d)
     -       55,000  
Notes receivable
    1,773,476      
1,343,456
 
Reserve due to uncertainty of collectability      (300,000     (300,000
      1,473,476       1,043,456  
Less current portion
   
(30,338
   
(38,892
Long-term notes receivable
 
$
 1,443,138    
$
1,004,564
 
 
(a) Unsecured receivables from former subsidiary, SET.  This note originated from advances and fees charged to SET during the year ended December 31, 2010.  Stillwater National Bank is the 1st lienholder.  In August 2011, $513,933 was added to the balance owed by SET.  SET owed a note to a bank that was secured by a certificate of deposit held by American.  The bank foreclosed on the certificate of deposit to pay the note balance.  Currently, SET is in Chapter 11 bankruptcy proceedings and American and SET have entered into a non-binding letter of intent and have presented a proposal for the full payment of this debt for consideration by the court.  These bankruptcy proceedings are ongoing as of September 30, 2011 and through the date of this filing.
 
(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 September 30, 2011.
 
(c) 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.
 
(d) Note secured by shares of DCP stock.  On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities.  Additionally, American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss on discontinued operations for the nine months ended September 30, 2011.
 
 
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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 collectability. American believes this reserve remains appropriate at September 30, 2011.
 
Interest income on notes receivable is recognized principally by the simple interest method.  During the three and nine months ended September 30, 2011 and 2010, American recognized interest income of $646, $7,307, $3,130 and $21,467, respectively.
 
Note 6 - Property and Equipment>
 
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
 
 
Years
 
September 30, 2011
   
December 31, 2010
 
Land
   
$
1,663,020
   
$
1,663,020
 
Building and improvements
20
   
975,768
     
967,504
 
Machinery and equipment
7-15
     3,791,805      
3,449,237
 
Office equipment and furniture
7
   
279,128
     
278,871
 
Automobiles
5
   
759,131
     
724,013
 
         7,468,852      
7,082,645
 
Less accumulated depreciation
     
(3,716,765
   
(3,409,356
Net property and equipment
   
$
 3,752,087    
$
3,673,289
 
 
During the nine months ended September 30, 2011, assets of $48,009 were placed in service and reclassified from other assets to property and equipment.  Depreciation expense for the three and nine months ended September 30, 2011 and 2010 was $114,493, $113,824, $351,163 and $349,273, respectively.
 
Note 7 - Intangible Assets>
 
Intangible assets at September 30, 2011 and December 31, 2010 consisted of goodwill of $674,539 related to the acquisition of NPI.
 
Note 8 - Short-term Notes Payable>
 
   
September 30, 2011
   
December 31, 2010
 
Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $22,796 through May 1, 2011
 
-    
$
91,183
 
Insurance note payable with interest at 4.79%, principal and interest due in monthly payments of $22,270 through May 1, 2012
    155,890       -  
Note payable with interest at 0.00%, principal due in monthly payments of $20,000 through April 20, 2012 (a)
    140,000       -  
Note payable with interest at 5% due monthly, principal due in monthly payments of $20,000, with a final principal balance due on February 1, 2012, secured by trading securities     65,719       -  
   
$
361,609    
$
91,183
 

(a) On June 29, 2011, Delta entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of Delta’s outstanding preferred stock, into 3,769,626 shares of common stock and also agreed to waive all accrued dividends payable on the preferred stock. In consideration for the conversion, Delta agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder is due and payable at the rate of $20,000 per month. If Delta elects to prepay VOMF $120,000 of the balance due on or before the end of business on November 15, 2011, VOMF will consider this amount as full consideration for the payment of this note. If Delta fails to timely make the monthly payments, VOMF has the option to maintain ownership of the preferred stock, retain any and all previously paid installments, terminate the agreement, and not have waived the dividends. It is the intent of Delta to make full payment to VOMF by November 15, 2011. The consideration of $250,000 has been recorded as a deemed dividend.
 
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 September 30, 2011 and December 31, 2010, the average annual interest rates of our short-term borrowings were approximately 2.97% and 4.99%, respectively.>
 
 
 
15

 
Note 9 - Long-term Debt
 
Long-term debt consisted of the following:
   
September 30, 2011
   
December 31, 2010
 
Revolving line of credit to a bank, which allows Delta to borrow up to $2,700,000, due in monthly payments of interest only, with interest at prime floating rate of 3.25%, with the principal balance due April 30, 2012, secured by assets of Delta. (a) (b)
$   1,673,527     $
1,658,527
 
Note payable to a bank, due in monthly installments of $11,549, including interest at 7.25% with a principal balance due in November 2013, secured by real property. (a)
     1,420,035       1,444,875  
Revolving line of credit to a bank, which allows NPI to borrow up to $3,250,000, interest due monthly at 6.5%, principal balance due December 31, 2010, secured by assets of NPI.
   
-
     
 
1,239,000
 
Revolving line of credit to a bank, which allows NPI to borrow up to $3,000,000, interest due monthly at the greater of prime (3.25%) plus one or 5%, principal balance due in April 2012, secured by assets of NPI. (a)
     1,819,963       -  
Note payable to a bank, due in quarterly payments of interest only, with interest at 6%, with a principal balance due in May 2012, secured by real property.
   
1,410,000
     
1,566,000
 
Note payable due in monthly payments of $19,373, including interest at 6%, through March 2013, secured by assets of Delta.
     431,241      
571,013
 
Note payable to a bank, due in monthly payments of $6,120, including interest at 8.25%, through August 9, 2012, secured by assets of Delta.
     64,464      
 
108,442
 
Other secured notes with various terms, secured by the assets of Delta
     76,365      
14,797
 
     
6,895,595
     
6,602,654
 
Less current portion
   
(5,237,856
   
(4,794,723
   
$
1,657,739    
$
1,807,931
 
 
(a) Daniel Dror, Chairman and CEO of American, is a personal guarantor of these notes payable.
(b) During the three months ended June 30, 2011, this line of credit was renewed and the limit was increased from $2,000,000 to $2,700,000.
 
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 September 30, 2011:
 
2011
 
$
85,292  
2012
    5,221,771  
2013     1,557,678  
2014      18,988  
2015
    11,866  
Total
 
$
6,895,595
 
 
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 1,000 shares are presently outstanding. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions.
 
On June 9, 2011, the Board of Directors of American approved the issuance to Daniel Dror, CEO, of 1,000 shares of the Company’s Series A Preferred Stock. Mr. Dror has personally guaranteed the following loans of American, and without such guarantees, American would not have been able to receive such funding: (1) a $1,450,000 loan to Northeastern Plastics (“NPI”) at Icon Bank; (2) a $3,000,000 loan to Delta Seaboard at Trustmark National Bank; (3) a $1,850,000 loan to the Company, Rob Derrick and Ron Burleigh at Texas Community Bank (which has since been repaid); and (4) a $3,250,000 loan to NPI at Trustmark National Bank (collectively the “loans”); which the Company has received and continues to receive significant value.  Based on the balances of these loans at June 9, 2011, American valued these preferred shares and recorded a guarantor fee of $49,463 to prepaid expenses.  This amount is being amortized to expense over the remaining terms of these loans.
 
 
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The Series A Preferred Stock, as amended, has the right to vote in aggregate, on all shareholder matters votes equal to 30% of the total shareholder vote on any and all shareholder matters. The Series A Preferred Stock will be entitled to this 30% voting right no matter how many shares of common stock or other voting stock of American are issued or outstanding in the future. For example, if there are 10,000 shares of American’s common stock issued and outstanding at the time of a shareholder vote, the holder of the Series A Preferred Stock (Mr. Dror), voting separately as a class, will have the right to vote an aggregate of 4,286 shares, out of a total number of 14,286 shares voting.  Additionally, American shall not adopt any amendments to American’s Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.
 
American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 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 nine months ended September 30, 2011, American purchased 43,600 common shares as treasury stock for $22,788  American issued 1,545,216 restricted shares of common stock for cash consideration of $793,000 and a receivable of $26,000 for investment from Dror Charitable Foundation for the Arts and the Dror Family Trust, both of which are related parties to Daniel Dror, CEO.  Mr. Dror is not a trustee of the Dror Charitable Foundation for the Arts nor of the Dror Family Trust and he disclaims any beneficial interest in these trusts. Additionally, American issued 400,000 restricted shares of common stock for cash consideration of $184,000 and a receivable of $48,000 to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother. 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.
 
On January 13, 2011, American entered into a letter of intent with Kemah Development Texas L.P. (“KDT”) which is owned by an entity which is controlled by the brother of Daniel Dror (Daniel Dror disclaims any ownership in or control over KDT), pursuant to which KDT agreed to sell 65 acres of land located in Galveston County, Texas (the “Property”) to American in consideration for restricted shares of common stock. Subsequently, the agreement was amended to provide for the purchase price to be paid by the issuance of 1,460,000 restricted shares of common stock with a fair market value of $919,800. These shares were issued on June 10, 2011. American has received an appraisal of the Property from an independent third-party appraiser which concluded that the Property had an estimated fair market value of approximately $1,900,000. The purchase of the Property closed on July 9, 2011, and American recorded the land at $520,382, the original cost to KDT of this property, and recorded share-based compensation of $399,418 in July 2011. American's present intention is that the Property will be held by its wholly-owned real estate subsidiary, American International Texas Properties, Inc.
 
On June 24, 2011, American issued 100,000 stock warrants to American's President, Mr. S. Scott Gaille, with an exercise price of $0.60 per share, expiring in 2 years, valued at $46,559 and recorded as share-based compensation.
 
American estimated the fair value of each stock warrant at the grant date as $0.47 by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2011 as follows:
   
September 24, 2011
 
Dividend yield
    0.00
Expected volatility
     104.50
Risk free interest
    0.75 %
Expected lives
 
2 years
 
 
A summary of the status of American's stock warrant to employees for the nine months ended September 30, 2011 is presented below:
 
   
Shares
   
Weighted Average Exercise Price
    Intrinsic Value  
Outstanding and exercisable as of December 31, 2010
   
-
   
$
N/A
       
Granted     100,000       0.60        
Exercised
     -        N/A        
Canceled / Expired
    -       N/A        
Outstanding and exercisable as of September 30, 2011
   
100,000
   
$
0.60
  $ -  
 
 
 
 
17

 
Stock-based compensation consisted of the following:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    2011     2010    
2011
   
2010
 
Common shares issued for services
  $ 513,319     137,193     $ 1,238,068     $ 1,174,803  
Stock options issued for services
    -        -       46,559       -  
   Stock-based compensation
  $ 513,319     $ 137,193     1,284,627     $ 1,174,803  
 
During the three and nine months ended September 30, 2011, American and its subsidiaries issued the following shares for services:
  • American issued 196,000 and 1,122,601 shares of common stock valued at $78,200 and $675,449, respectively, to employees, directors and third parties.
  • American issued 1,460,000 restricted shares of common stock with a fair market value of $919,800 for property with an original cost of $520,382 to a related party, and recorded the difference as share-based compensation of $399,418.
  • Delta issued 0 and 2,550,000 shares of its common stock with a value of $0 and $127,500, respectively, to employees.
  • BOG issued 4,500,000 shares of its common stock with a value of $18,900 to employees, directors and third parties.
During the three and nine months ended September 30, 2010, American and its subsidiaries issued the following shares for services:
  • American issued 102,000 and 258,000 shares of common stock valued at $92,760 and $271,620, respectively, to employees, directors and third parties.
  • Delta issued 0 and 9,807,843 shares of its common stock with a value of $0 and $858,750, respectively, to employees and former officers.
  • BOG issued 21,500,000 shares of its common stock with a value of $44,433 to employees.
On July 22, 2011, BOG entered into an Asset Purchase and Sale Agreement (the “Agreement”) with Doug Pedrie, Davis Pedrie Associates, LLC and Energex Oil, Inc. (“Sellers”), pursuant to which BOG acquired 700 acres of unproved property located in the Permian Basin near Abilene, Texas. The Agreement provides for the Sellers to complete all oil lease assignments by August 15, 2011. The purchase consideration for the acquisition is the issuance to Sellers of 2,000,000 restricted shares of BOG common stock valued at $8,400, with an additional 2,000,000 restricted shares to be issued contingent upon realization of certain production targets in 2012. This property is on the balance sheet as "Oil & gas properties - unproved" for $16,800, and a contingent liability has been recorded for $8,400 for the potential issuance of the additional restricted shares.
 
During the nine months ended September 30, 2011, Delta declared preferred dividends of $180,000 which were accrued and unpaid.
  
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 September 30, 2011, 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 $7,200. 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 nine months ended September 30, 2011, NPI had one customer that accounted for 24% of revenues and 23% of trade accounts receivable on a consolidated basis.
 
 
18

 
Note 12 - Income Taxes
 
The components of the income tax provision for the three and nine months ended September 30, 2011 and 2010 are as follows:
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011     2010    
2011
    2010  
Current:
                 
 
 
         
  Federal
 
$
-     $ -     $ -     $ -  
  State
    133,348       1,123       149,595       51,354  
Total current
     133,348        1,123       149,595       51,354  
                                 
Deferred:                        
 
     
  Federal     -       -       -       -  
  State     -       -       -       -  
Total deferred
    -       -       -        -  
                                 
Total income tax provision   $  133,348     $ 1,123    
 149,595     $ 51,354  
 
The following table sets forth a reconciliation of the statutory federal income tax for the three and nine months ended September 30, 2011 and 2010:
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011    
2010
    2011    
2010
 
Income tax expense computed at statutory rate
  $ 918,126     $ 63,189    
$
250,910    
$
326,104
 
Share-based compensation
    154,128       46,646       436,773      
399,433
 
Meals and entertainment      6,142       3,079       17,692       19,472  
Other     -       -       -       227  
Change in valuation allowance      (1,078,396     (112,914      (705,375     (745,236
Texas margin tax
    133,348       1,123        149,595      
51,354
 
  
  $  133,348     $ 1,123    
$
149,595
 
 
$
51,354
 
 
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 September 30, 2011 and December 31, 2010 are set out below:
 
   
September 30, 2011
 
December 31, 2010
 
Deferred Tax Assets:
 
 
 
       
  Net operating loss carryforward
  5,891,498   $ 5,935,666  
  Loss on discontinued operations      18,499     119,000  
  Book depreciation in excess of tax     522,524     -  
  Other      4,388     49,168  
Total deferred tax assets
    6,436,909     6,103,834  
               
Deferred Tax Liabilities:      
 
     
  Tax depreciation in excess of books     -     (837,322 )
  Gain on exchange of property for note receivable     (1,182,120   -  
  Unrealized gains on trading securities     (70,025   (562,898
  Other     -      (13,764 )
Total deferred tax liabilities
    (1,252,145   (1,413,984 )
               
Valuation allowance     (5,184,764   (4,689,850 )
Net deferred tax asset  
-   $
-
 
 
 
 
19

 
American has loss carry-forwards totaling $18,210,628 available at September 30, 2011 that may be offset against future taxable income.  If not used, the carry-forwards will expire as follows:
 
Operating Losses
Amount
 
Expires
$
1,388,093
 
2019
 
2,086,064
 
2020
  860,006    2022 
  566,409    2023 
   1,028,302    2024 
 
1,551,019
 
2025
   73,187    2026 
 
80,092
 
2027
  3,413,803  
 2028 
  3,742,891   2029 
  3,420,762   2030 
$ 18,210,628  
 
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 was included in other income for the nine months ended September 30, 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 (note 8) 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.
 
American International Industries, Inc. v. Rubicon Financial Incorporated. On November 27, 2007, American acquired 1,000,000 restricted shares of Rubicon Financial Incorporated’s (OTCBB: RBCF.OB) common stock for a $1,000,000 cash payment and the issuance of 200,000 restricted shares of American's common stock, valued at $4.90 per common share based upon the closing market price on that date, for a total purchase price of $1,980,000. On August 19, 2011, American received a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus accrued interest at 5%.
 
Wintech Partners, LLC ("Wintech"), a company owned by the noncontrolling interest owners of Delta, owns 100% of Delta's Houston facilities and is responsible for the associated $1,750,000 note payable. Delta pays rent to Wintech by paying the 5.75% interest due on the note payable. American is a guarantor on this note and has an agreement with Wintech for a 50% profit participation for the sale of this property over the amount owed on the note. Delta also has a 5,000 square foot office and warehouse facility in Louisiana which is leased from Wintech at an annual rental of $18,000.
 
Future minimum lease payments are as follows:
   
Amount
 
Year December 31, 2011
 
$
33,300
 
Year December 31, 2012
    77,700  
Year December 31, 2013     11,100  
    $ 122,100  
 
20

 
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 46.4% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
   · American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
   · Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.  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 58,680,074 shares of common stock, representing 49% 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:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    2011    
2010
   
2011
   
2010
 
Revenues:
                               
Northeastern Plastics
  $ 4,404,716     $ 7,032,493    
$
8,425,385    
$
11,234,563  
Delta Seaboard
     2,941,919        2,424,500       8,151,616       6,708,240  
Brenham Oil & Gas      347       1,252       1,018       1,252  
   Total revenues
  $  7,346,982     $ 9,458,245    
$
16,578,019    
$
17,944,055  
                                 
Operating income (loss) from continuing operations:
                               
Northeastern Plastics
  $ 421,686     $ 685,634    
$
393,032
   
$
794,542
 
Delta Seaboard
    52,508       66,871       98,945       (1,438,313
AITP     -       -       (697     -  
Corporate
    (968,994     (406,551     (2,335,353     (1,109,269
Gain (loss) on sale of assets     3,513,824       (20,662     3,513,824       760,542  
Operating income (loss) from continuing operations
    3,019,024       325,292    
 
1,669,751
   
 
(992,498
Other income (expense) from continuing operations
    (404,309     (139,442    
(931,781
    1,951,628  
Net income from continuing operations before income tax
  $ 2,614,715     $ 185,850    
$
737,970
   
$
959,130
 
                                 
Depreciation and amortization:
                               
Northeastern Plastics
  $ 14,543     $ 14,859    
$
 43,665    
$
44,550  
Delta Seaboard
     98,444       97,014       302,829        297,325  
Corporate
     1,506       1,951       4,669        7,398  
Total depreciation and amortization
  $  114,493     $ 113,824    
$
351,163    
$
349,273  
                                 
Interest expense:
                               
Northeastern Plastics
  $  50,383     $ 31,440    
$
 153,176    
$
82,343  
Delta Seaboard
     38,802        31,726       114,336        116,991  
Corporate
     16,582        50,598        82,608        143,387  
Total interest expense
  $  105,767     $ 113,764    
$
 350,120    
$
342,721  
                                 
 
 
21

 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Capital expenditures:
                               
Northeastern Plastics
  $ 836     $ 433     $ 3,133     $ 1,559  
Delta Seaboard
     85,078       37,036        302,822       130,218  
Total capital expenditures
  $  85,914     $ 37,469     $  305,955     $ 131,777  
                                 
Non-cash investing and financing transactions:
                 
Delta
             
 
 
   Accounts payable and dividends payable assumed in Delta reverse merger transaction
   
$
-
   
$
597,131
 
   Delta dividends declared and unpaid
   
180,000
   
$
180,000
 
   Financing of prepaid insurance     $ 244,970     $ 250,753  
   Fixed assets placed in service reclassified from other assets     48,009     $ -  
   Financing of fixed assets     $ 75,952     $ -  
   VOMF settlement recorded as deemed dividend for Delta     $ 250,000     $ -  
BOG                  
   Issuance of BOG stock for oil & gas properties     $ 8,400     $ -  
   Contingent consideration for issuance of BOG stock for oil & gas properties     $ 8,400     $ -  
Corporate
                 
   Unrealized loss on available for sale securities     $ 121,550     $ 320,000  
   Receipt of common stock to convert promissory note due from Delta
   
-
   
872,352
 
   Adjustment to noncontrolling interest in Delta and BOG
   
29,935
   
295,279
 
   Note receivable issued for common stock of DCP     $ -     $ 55,000  
   Real property received in foreclosure on note receivable     $  -     $ 66,304  
   Issuance of note receivable for interest receivable balance     $  -     $ 100,000  
   Note payable issued for lawsuit settlement     $ 400,000     $ -  
   Stock issued to related party for receivable     $ 74,000     $ -  
   Stock issued to related party for real estate     $ 520,382     $ -  
   SET receivable from closure of certificate of deposit     $ 532,500     $ -  
 
   
September 30, 2011
   
December 31, 2010
 
Identifiable assets:
           
Northeastern Plastics
 
$
9,236,595    
$
8,679,492
 
Delta
    6,370,771      
6,112,938
 
AITP      9,733,845       -  
Corporate
     2,254,637      
10,859,051
 
Assets held for sale     -      
239,380
 
   Total identifiable assets
 
$
27,595,848    
$
25,890,861
 
 
Note 15 - Related Party Transactions>
 
During the nine months ended September 30, 2011, American purchased 43,600 common shares as treasury stock for $22,788.  American issued 1,545,216 restricted shares of common stock for cash consideration of $793,000 and a receivable of $26,000 for investment from Dror Charitable Foundation for the Arts and the Dror Family Trust, both of which are related parties to Daniel Dror, CEO.  Mr. Dror is not a trustee of the Dror Charitable Foundation for the Arts nor of the Dror Family Trust and he disclaims any beneficial interest in these trusts. Additionally, American issued 400,000 restricted shares of common stock for cash consideration of $184,000 and a receivable of $48,000 to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother. 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.
 
On January 13, 2011, American entered into a letter of intent with Kemah Development Texas L.P. (“KDT”) which is owned by an entity which is controlled by the brother of Daniel Dror (Daniel Dror disclaims any ownership in or control over KDT), pursuant to which KDT agreed to sell 65 acres of land located in Galveston County, Texas (the “Property”) to American in consideration for restricted shares of common stock. Subsequently, the agreement was amended to provide for the purchase price to be paid by the issuance of 1,460,000 restricted shares of common stock with a fair market value of $919,800. These shares were issued on June 10, 2011, and American recorded a related party receivable for this transaction of $520,382, the original cost to KDT of this property. American has received an appraisal of the Property from an independent third-party appraiser which concluded that the Property had an estimated fair market value of approximately $1,900,000. The purchase of the Property closed on July 9, 2011, and American recorded the land at $520,382 and recorded share-based compensation of $399,418 in July 2011.
 
22

 
Note 16 - Assets held for sale>
 
On September 23, 2010, Joe Hoover, President of Downhole Completion Products, Inc. ("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.  On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities, which are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheets as of December 31, 2010 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  DCP's net loss of $4,410 for the nine months ended September 30, 2011, and net loss of $2,371 and net income of $931 for the three and nine months ended September 30, 2010, respectively, are included in discontinued operations.  During the three months ended September 30, 2011, American received the $5,000 for the purchase.  This is included as income from discontinued operations for the three and nine months ended September 30, 2011.  American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the nine months ended September 30, 2011.
 
The carrying amounts of the major classes of assets and liabilities for DCP at December 31, 2010 are summarized below:
   
   
December 31, 2010
 
Assets held for sale
     
Current assets held for sale:
     
   Cash and cash equivalents
 
$
44,542  
   Accounts receivable
    8,250  
   Accounts receivable from related parties
       
   Inventories
    166,659  
   Prepaid expenses and other current assets     18,546  
     Total current assets held for sale
    237,997  
  
       
Other assets     1,383  
       Total assets held for sale
 
$
239,380  
         
Liabilities associated with assets held for sale        
Current liabilities associated with assets held for sale:
       
   Accounts payable and accrued expenses
 
$
228,554  
     Total current liabilities associated with assets held for sale
    228,554  
Long-term capital lease obligations, less current installments        
     Total liabilities associated with assets held for sale
  $
228,554
 
 
DCP's revenues and net loss before income tax are summarized below:
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
  
  2011     2010      2011    
2010
 
Revenues
                               
    DCP   $ -     $ 303,379     246,131     $ 665,228  
    SET     -       1,485,119       -       4,058,527  
Total revenues from discontinued operations
  $ -     $ 1,788,498     246,131     $ 4,723,755  
Net income (loss) before income tax
                               
    DCP     -       23,037       (4,410     23,968  
    SET     -       (375,058 )     -