amin10q1q2010.htm 10-Q 1 amin10q1q2010.htm AMIN 1ST QUARTER
 
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 March 31, 2010
 
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
 
AMERICAN INTERNATIONAL INDUSTRIES, INC.
 
(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 ¨ 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 May 17, 2010, the Registrant had 10,025,069 shares of common stock outstanding.
 
 
 
2
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
3

 
 
 
(Unaudited)
 
   
   
March 31, 2010
    
December 31, 2009
  
Assets
            
Current assets:
            
   Cash and cash equivalents
  
$
2,576,808
    
$
1,727,388
  
   Certificate of deposit
    
1,205,428
      
1,199,187
  
   Trading securities
    
989,690
      
1,490,472
  
   Accounts receivable, less allowance for doubtful accounts
                
     of $244,121 and $244,121, respectively
    
3,090,407
      
3,268,141
  
   Current portion of notes receivable
    
371,909
      
1,173,334
  
   Accounts and notes receivable from related parties
    
325,712
      
194,609
  
   Inventories
    
5,089,590
      
4,446,215
  
   Real estate held for sale
    
7,060,299
      
7,060,299
  
   Deposits for pipe inventory purchases
    
-
      
1,336,244
  
   Prepaid expenses and other current assets
    
245,854
      
247,304
  
     Total current assets
    
20,955,697
      
22,143,193
  
  
                
Long-term notes receivable, less current portion
    
249,781
      
259,252
  
Property and equipment, net of accumulated depreciation and amortization
    
7,088,720
      
7,144,218
  
Goodwill
    
674,539
      
674,539
  
Intangible assets, net of amortization
    
584,888
      
611,474
  
Other assets
    
177,843
      
179,493
  
       Total assets
  
$
29,731,468
    
$
31,012,169
  
Liabilities and Equity
                
Current liabilities:
                
   Accounts payable and accrued expenses
  
$
2,884,947
    
$
2,300,007
  
   Short-term notes payable
    
1,804,494
      
1,881,908
  
   Accounts and notes payable to related parties
    
-
      
296,300
  
   Current installments of long-term capital lease obligations
    
108,863
      
81,819
  
   Current installments of long-term debt
    
4,308,282
      
4,441,708
  
     Total current liabilities
    
9,106,586
      
9,001,742
  
                 
Long-term debt, less current installments
    
7,096,488
      
7,264,562
  
Long-term capital lease obligations, less current installments 
    
180,584
      
85,004
  
     Total liabilities
    
16,383,658
      
16,351,308
  
                 
Commitments and contingencies 
    
-
      
 -
  
                 
Equity:
                
   Preferred stock, $0.001 par value, 1,000,000 authorized; none issued
    
-
      
 -
  
   Common stock, $0.001 par value, 50,000,000 authorized;
                
       10,291,325 and 9,191,325 shares issued, respectively
                
       9,969,069 and 8,871,369 shares outstanding, respectively
    
10,291
      
9,192
  
   Additional paid-in capital
    
33,795,725
      
33,571,064
  
   Common stock subscription receivable     (262,600 )       -  
   Accumulated deficit
    
(20,968,255
) 
    
(19,863,846
) 
   Less treasury stock, at cost
                
       293,857 and 291,557 shares, respectively
    
(509,048
) 
    
(505,774
) 
   Total American International Industries, Inc. equity
    
12,066,113
      
13,210,636
  
       Noncontrolling interest
    
1,281,697
      
1,450,225
  
   Total equity
    
13,347,810
      
14,660,861
  
   Total liabilities and equity
  
 $
29,731,468
    
$
31,012,169
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended March 31,
   
2010
    
2009
  
             
Revenues
  
$
4,996,513
    
$
6,195,014
  
Costs and expenses:
                
   Cost of sales
    
3,560,171
      
3,994,002
  
   Selling, general and administrative
    
3,424,379
      
2,653,086
  
     Total operating expenses
    
6,984,550
      
6,647,088
  
                 
Operating loss
    
(1,988,037
)
    
(452,074
)
  
                
Other income (expenses):
                
   Interest and dividend income
    
20,411
      
131,438
  
   Delta lawsuit settlement
    
700,000
      
-
  
   Realized gains (losses) on trading securities
    
104,311
      
(82,941
) 
   Unrealized gains (losses) on trading securities
    
(62,081
)
    
96,815
  
   Interest expense
    
(220,516
)
    
(218,608
)
   Other income
    
14,381
      
195,146
  
     Total other income
    
556,506
      
121,850
  
  
                
     Loss before income tax
    
(1,431,531
)
    
(330,224
)
     Income tax expense
    
16,212
      
12,684
  
    Net loss
    
(1,447,743
)
    
(342,908
)
    Net income attributable to the noncontrolling interest
    
343,334
      
149,769
  
Net loss attributable to American International Industries, Inc.
  
  $
(1,104,409
)
  
  $
(193,139
) 
  
                
Net loss per common share - basic and diluted 
  
$ 
   (0.12 )   
$ 
(0.02
) 
                 
Weighted average common shares - basic and diluted
       9,329,142      
8,689,074
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
5
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended March 31,
   
2010
    
2009
  
Cash flows from operating activities:
                
   Net loss
  
$
(1,447,743
)
  
$
(342,908
) 
   Adjustments to reconcile net loss to net cash provided by operating activities:
                
       Depreciation and amortization
    
287,326
      
293,557
  
       Share-based compensation
    
962,770
      
41,250
  
       Realized (gains) losses on the sale of trading securities
    
(104,311
)
    
82,941
  
       Unrealized (gains) losses on trading securities
    
62,081
      
(96,815
) 
       Change in operating assets and liabilities:
                
          Accounts receivable
    
107,445
      
353,624
  
          Trading securities
    
543,012
      
95,443
  
          Inventories and deposits for pipe inventory purchases
    
692,869
      
(268,216
) 
          Prepaid expenses and other current assets
    
1,450
      
49,060
  
          Other assets
    
1,650
      
17,970
  
          Accounts payable and accrued expenses
    
(114,322
)
    
144,109
  
             Net cash provided by operating activities
    
992,227
      
370,015
  
                 
Cash flows from investing activities:
                
   Purchase of property and equipment
    
(61,241
)
    
(25,546
)
   Redemption of certificate of deposit
    
-
      
1,000,000
  
   Investment in certificate of deposit
    
(6,242
)
    
(700,000
)
   Purchase of note receivable from bank
    
-
      
(300,000
)
   Proceeds from notes receivable
    
8,832
      
33,306
  
   Loans to related parties
    
(427,402
)
    
(241,200
)
            Net cash used in investing activities
    
(486,053
)
    
(233,440
) 
  
                
Cash flows from financing activities:
                
   Proceeds from issuance of common stock
    
746,810
      
-
  
   Net borrowings (repayments) under lines of credit agreements and short-term notes
    
(144,709
)
    
3,112
  
   Principal payments on debt
    
(234,205
)
    
(1,283,122
)
   Principal payments under capital lease obligations
    
(21,376
)
    
(16,985
) 
   Payments for acquisition of treasury stock
    
(3,274
)
    
(41,237
) 
            Net cash provided by (used in) financing activities
    
343,246
      
(1,338,232
) 
                 
Net increase (decrease) in cash and cash equivalents from operations
  
 
849,420
    
 
(1,201,657
) 
Cash and cash equivalents at beginning of period
    
1,727,388
      
3,114,575
  
Cash and cash equivalents at end of period
  
 $
2,576,808
    
 $
1,912,918
  
                 
Supplemental schedule of cash flow information:
                
   Interest paid
  
$
222,014
    
$
185,076
  
   Taxes paid
  
$
6,149
    
$
-
  
                 
Non-cash transactions:
                
   Stock issued to related party for receivable   $   262,600     $  -  
   Acquisition of fixed assets under capital lease obligations   $ 144,000     $  -  
   Receipt of common stock to convert promissory note due from Delta
  
$
   872,352    
 $
   -  
   Accounts payable and dividends payable assumed in Delta reverse merger transaction   $ 597,131     $  -  
   Adjustment to noncontrolling interest in Delta as a result of the reverse merger transaction    $ 310,906     $  -  
   Delta dividends declared and unpaid
  
$
   60,000    
$
   -  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
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, 2009. 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 one 48.2% owned subsidiary. American is a diversified corporation with interests in industrial/commercial companies and an oil and gas service business. American's business strategy is to acquire controlling equity interests in businesses that it considers undervalued. American's management takes an active role in providing its subsidiaries with access to capital, leveraging synergies and providing management expertise in order to improve its subsidiaries' growth.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of American International Industries, Inc. ("American") and its wholly-owned subsidiaries, Northeastern Plastics, Inc. ("NPI") and Shumate Energy Technologies, Inc. ("SET"), and Delta Seaboard International, Inc. ("Delta"), in which American holds a 48.2% shareholder interest.  All significant intercompany transactions and balances have been eliminated in consolidation.
 
On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed the reverse merger pursuant to which Delta Seaboard was merged with and into Hammonds. In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. 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 48.2% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,924,353 shares of Common Stock, representing 45.4% of the Delta's total outstanding shares. All other stockholders of Delta own 4,357,962 shares of Common Stock, representing 6.4% of Delta's total 68,142,250 outstanding shares.
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.  SET receives purchase orders for machining of oil field drilling parts, components and tools.  Customers have the right to inspection and acceptance for generally up to five days after taking delivery.  Returns are not accepted due to the custom specifications of each product, but rework on items is necessary if the product was not within the original order specifications.  Customer requests for rework and customer rejection of shipments has been historically low.  NPI has purchase orders for all sales, of which many of the items are requested to be container shipped and shipped directly to the end users. All sales are recorded when the inventory items are shipped. Taxes assessed by a governmental authority that are incurred as a result of a revenue transaction are not included in revenues. American has no significant sales returns or allowances.
7
 
Net Loss Per Share
 
The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three months ended March 31, 2010 and 2009, potential dilutive securities 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".
 
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.
     
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 that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security.  As of March 31, 2010, 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:
 
   
As of March 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
  
$
989,690
    
$
989,690
    
$
989,690
    
$
-
    
$
-
  
 
 
Subsequent Events
 
American has evaluated all transactions 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.
 
8 
Note 2 - Trading Securities
 
Investments in marketable securities primarily include shares of common stock in various companies that are bought and held principally for the purpose of selling them in the near term with the objective of generating profits on short-term differences in price. These investments are classified as trading securities and, accordingly, any unrealized changes in market values are recognized in the consolidated statements of operations.  For the three months ended March 31, 2010 and 2009, American had unrealized trading losses of $62,081 and gains of $96,815, respectively, related to securities held on those dates.  American recorded realized gains of $104,311 and realized losses of $82,941 for the three months ended March 31, 2010 and 2009, respectively.
 
Equity markets can experience significant volatility and therefore are subject to changes in value. Based upon the current volatile nature of the U.S. securities markets and the decline in the U.S. economy, we believe that it is possible, that the market values of our marketable equity securities could decline in the near term. We have a policy in place to review our equity holdings on a regular basis. Our policy includes, but is not limited to, reviewing each company’s cash position, earnings/revenue outlook, stock price performance, liquidity and management/ownership. American seeks to manage exposure to adverse equity returns in the future by potentially increasing the diversity of our securities portfolios.
 
Note 3 - Inventory and Deposits for Pipe Inventory Purchases
 
Inventories consisted of the following:
   
March 31, 2010
    
December 31, 2009
  
Work in process
   $ 276,583     $ 171,506  
Finished goods
     4,869,118       4,370,730  
Less reserve
     (56,111 )     (96,021 )
    $ 5,089,590     $ 4,446,215  
 
Periodically, American enters into agreements to purchase pipe inventory from vendors.  At December 31, 2009, American had cash deposits of $1,336,244 for inventory purchases under these agreements that had not been received.  At March 31, 2010, these pipe purchases are included in inventory. 
 
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.  American is carrying this property on the balance sheet for $4,611,233, which represents $3,332,543 in principal and accrued interest allocated to the property received at the time of default and the assumption of a $1,278,690 note payable secured by the property by another lien holder, see Note 8.  This property consists of seven tracts, of which several are under contract for sale and the remainder are listed for sale with a broker.
 
During the third quarter of 2009, and in connection with the guarantor’s fee described below, American has pledged $250,000 in certificates of deposit for a $3,850,000 loan to Southwest Gulf Coast Properties, Inc. at Texas Community Bank.  Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums with an appraised value of over $3,900,000.

During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County valued at $540,000 as a guarantor's fee. In connection with this fee, American pledged $1,750,000 in certificates of deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community Bank. During the third quarter of 2009, the principal balance of the loan was repaid and the bank released the pledged certificates of deposit to American.  This property is listed for sale with a broker.
 
During 2007, American purchased for investment a 174 acre tract of land in Waller County, Texas for $1,684,066. This property is listed for sale with a real estate broker.  American also owns 287 undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. American is carrying this property on the balance sheet at its historical book value of $225,000.  American has engaged an independent broker on an exclusive basis to sell the property.  These properties are not going to be developed by nor are they being held as inventory by American.  These properties are listed for sale with a broker.
 
American reviewed the accounting standards Real Estate - General (ASC 970-10) and Property, Plant, and Equipment (ASC 360-10) to determine the appropriate classification for these properties.  According to ASC 970-10, real estate that is held for sale in the ordinary course of business is classified as inventory, which is a current asset.  ASC 360-10 provides the following criteria for property to be classified as held for sale:
 
9
  • 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 - Long-term Notes Receivable
 
Long-term notes receivable consists of the following:
   
March 31, 2010
    
December 31, 2009
  
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through June 5, 2012
   $
86,690
     $
95,523
  
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 (a)
    
200,000
      
200,000
  
Unsecured note receivable, principal balance due on April 30, 2008, interest at 6% through maturity and at 10% thereafter (b)    
-
      
552,063
  
Unsecured note receivable, principal balance due on December 31, 2008, interest at 10% through maturity and at 15% thereafter (b)    
-
      
250,000
  
Note secured by property and shares of stock, interest due monthly at 18%, principal payment due on or before May 9, 2009 (c)    
35,000
      
35,000
  
Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (d)    
300,000
       300,000  
Notes receivable
    
621,690
      
1,432,586
  
Less current portion
    
(371,909
 )     
(1,173,334
 ) 
Long-term notes receivable
  
$
249,781
    
$
259,252
  
 
(a) Sale of former subsidiary, Marald, Inc., principal and interest due monthly through July 2012.  The original note was for $300,000 and was discounted to $200,000 for the receipt of full payment on or before October 25, 2007.  Marald is currently in default on its payments.  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 March 31, 2010.

(b) Unsecured notes receivable due April 30 and December 31, 2008.  These delinquent notes were due from Hammonds Industries, Inc. ("Hammonds").  The assets of the Hammonds' companies were sold on April 16, 2009.  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.
 
(c) Note secured by property and shares of stock, interest due monthly at 18%, per annum principal payment due on or before May 9, 2009. This note is in default and American has obtained the shares of stock and a portion of the real property securing this note. On July 13, 2009, American received title to 2,000,000 shares of Momentum Biofuels, Inc., valued at $40,000, or $0.02 per share. As of November 4, 2009, American had sold all of these shares on the open market for $25,411. During the third quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default.  At September 30, 2009, American carried this property on the balance sheet for $198,500, which represented the portion of the principal and accrued interest allocated to the property received at the time of default. On October 28, 2009, American entered into a settlement with the purchaser of this property.  The title company involved in the purchase transaction paid $150,000 in November 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American removed the property from its balance sheet and recorded the difference of $48,500 to the note and accrued interest.  This receivable is secured by real property from the original $225,000 note receivable.
 
10
(d) Note purchased from Texas Community Bank with a face amount of $300,000.  This delinquent note was purchased on March 31, 2009 for $300,000 and new payment terms are being negotiated for this note receivable with the debtors, Las Vegas Premium Gold.  This note was purchased as an investment to receive the interest income from the note.  Management has assessed this note for impairment and feels that collectability is reasonably possible based on the personal guarantees of the principals.
 
Interest income on notes receivable is recognized principally by the simple interest method.  During the three months ended March 31, 2010 and 2009, American recognized interest income of $9,195 and $72,812, respectively.
 
Note 6 - Property and Equipment
 
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
 
 
Years
  
March 31, 2010
    
December 31, 2009
  
Land
    
$
892,945
    
$
892,945
  
Building and improvements
20
    
1,003,870
      
1,003,870
  
Machinery and equipment
7-15
    
7,951,523
      
7,698,256
  
Office equipment and furniture
7
    
390,539
      
438,565
  
Automobiles
5
    
771,712
      
771,712
  
       
11,010,589
      
10,805,348
  
Less accumulated depreciation and amortization
      
  (3,921,869
) 
    
(3,661,130
) 
Net property and equipment
    
$
7,088,720
    
$
7,144,218
  
 
Depreciation expense for the three months ended March 31, 2010 and 2009 was $260,740, and $266,971, respectively.
 
SET has entered into a capital lease agreement for the acquisition of machinery and equipment.  The assets acquired under such financing arrangement included in property and equipment is as follows:
 
   Years  
March 31, 2010
        December 31, 2009  
Machinery and equipment
  10  
$
  
482,296
     $ 301,000  
Less accumulated depreciation and amortization
        
(46,661
 )
 
    (37,625 ) 
Net property and equipment
    
$
  
435,635
     $  263,375  
 
Principal repayment provisions of this long-term capital lease are as follows at March 31, 2010:
 
2010
   $
80,415
  
2011       110,908  
2012       28,194  
2013       30,686  
2014       33,398  
2015
    
5,846
  
Total
  
$
289,447
  
 
Note 7 - Intangible Assets
 
Intangible assets at March 31, 2010 consisted of the following:
 
   
Gross Carrying Amount
    
Accumulated Amortization
      
Intangibles, net
  
Average Weighted Lives
Goodwill                   $   674,539   N/A 
                           
CNC Programs
  
$
729,000
    
$
156,215
    
$
572,785
  
7 years
Name and logo
    
15,403
      
3,300
      
12,103
  
7 years
Intangible assets
  
$
744,403
    
$
159,515
    
$
584,888
  
7 years
 
11
Intangible assets at December 31, 2009 consisted of the following:
 
   
Gross Carrying Amount
    
Accumulated Amortization
      
Intangibles, net
  
Average Weighted Lives
Goodwill                   $   674,539   N/A 
                           
CNC Programs
  
$
729,000
    
$
130,179
    
$
598,821
  
7 years
Name and logo
    
15,403
      
2,750
      
12,653
  
7 years
Intangible assets
  
$
744,403
    
$
132,929
    
$
611,474
  
7 years
 
Amortization expense for the three months ended March 31, 2010 and 2009 was $26,586 and $26,586, respectively. 
 
Note 8 - Short-term Notes Payable
   
March 31, 2010
    
December 31, 2009
  
Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $25,805 through May 1, 2010    $ 25,804     $ 103,218  
Note payable to a bank, due in monthly installments of interest only at 6.34%, with a principal balance due on October 29, 2010, secured by a certificate of deposit.      500,000       500,000  
Note payable with interest at 12%, interest due monthly, with a principal balance due on July 1, 2010, secured by real property (a)      1,278,690       1,278,690  
   
$
1,804,494
    
$
1,881,908
  
 
(a)  This note was assumed as part of the foreclosure on property that was security for a note receivable owed to American.  See Note 4.
 
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 March 31, 2010 and December 31, 2009, the average annual interest rates of our short-term borrowings were approximately 10.33% and 10.11%, respectively.
 
Note 9 - Long-term Debt
 
Long-term debt consisted of the following:
   
March 31, 2010
    
December 31, 2009
  
Note payable to a bank, due in monthly installments of interest only of $25,000 for the first three months, principal and interest of $44,000 due in monthly installments thereafter, interest at the greater of prime plus 1% or 6%, but no greater than 7%, with a principal balance due on September 30, 2013, secured by the assets of SET.
  
$
4,742,703
    
$
4,802,877
  
Revolving line of credit to a bank, which allows Delta to borrow up to $2,000,000, due in monthly payments of interest only, with interest at prime floating rate, with the principal balance due in April 2010, secured by assets of Delta. (a)
    
1,339,106
      
1,369,907
  
Note payable to a bank, due in monthly installments of interest only, principal balance due June 13, 2010 with interest at 1% above the prime rate secured by real property.
    
943,500
      
943,500
  
Note payable to a bank, due in monthly installments of interest only at the greater of prime plus 1% or 6%, but no greater than 7%, with a principal balance due on September 30, 2010, secured by the assets of SET.
    
493,343
      
457,253
  
Note payable to a bank, due in monthly installments of $6,170, including interest at 6.6% through May 2018, secured by real property.
    
462,526
      
473,285
  
Note payable to a bank, which allows NPI to borrow up to $5,000,000, interest due monthly at the prime rate, principal balance due July 31, 2010, secured by assets of NPI. (b)
    
949,000
      
 
1,099,000
  
Note payable to a bank, due in quarterly payments of interest only, with interest at 6%, with a principal balance due on May 2011, secured by real property. (c)
    
1,566,000
      
1,566,000
  
Note payable due in monthly payments of $19,373, including interest at 6%, through March 2013, secured by assets of Delta. (c)
    
699,703
      
761,982
  
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.
    
160,122
      
 
174,990
  
Other secured notes with various terms
    
48,767
      
57,476
  
     
11,404,770
      
11,706,270
  
Less current portion
    
  (4,308,282
) 
    
(4,441,708
) 
   
$
7,096,488
    
$
7,264,562
  
 
12
(a) Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months.  This line of credit came due in April 2010.  Management is currently working to renew this line of credit.
 
(b) On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia.  The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of its debt and interest payments since the inception of the line of credit.  The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required.  Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group review NPI for a new loan.  This group declined the loan and the bank has recommended another lender.  NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. At March 31, 2010, NPI’s line of credit balance was $949,000 and as of this filing, the balance has been increased by $31,000 to $980,000.  NPI’s current assets at March 31, 2010 were $3,936,880 and included $967,918 and $2,447,917 in accounts receivable and inventory, respectively.
 
(c) During the year ended December 31, 2009, the due dates for these notes were extended and the balances have been reclassified to long-term.
 
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 March 31, 2010:
 
2010
  
$
4,160,911
  
2011
    
2,169,549
  
2012
    
599,389
  
2013
    
4,196,951
  
2014
    
57,407
  
Thereafter
    
220,563
  
Total
  
$
11,404,770
  
 
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 three months ended March 31, 2010, American purchased 2,300 common shares as treasury stock for $3,274.  American issued 1,000,000 restricted shares of common stock for cash consideration of $746,810 and a subscription receivable of $262,600 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.
 
On March 30, 2007, American issued 144,000 stock options to American's Chairman and CEO, with an exercise price of $7.00 per share, expiring in 2 years.  In connection with American's 20% stock dividends to all shareholders on September 19, 2007 and July 16, 2008, the terms of these options were adjusted to reflect the dividends, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share.  These options expired on March 30, 2009.
 
On March 30, 2008, American issued 172,800 stock options to American's Chairman and CEO, with an exercise price of $5.83 per share, expiring in 2 years, valued at of $88,063 and recorded as share-based compensation.  In connection with American's 20% stock dividend to all shareholders on July 16, 2008, the terms of these options were adjusted to reflect the dividend, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share.  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:
   
March 30, 2008
  
Dividend yield
     0.00 % 
Expected volatility
      38.64 % 
Risk free interest
      2.5 %
Expected lives
  
2 years
  
 
13
A summary of the status of American's stock options to employees for the three months ended March 31, 2009 and 2010 is presented below:
 
   
Shares
    
Weighted Average Exercise Price
  
Outstanding and exercisable as of March 31, 2009
    
207,360
    
$
4.86
  
Granted     -       N/A  
Exercised
      -        N/A  
Canceled / Expired
      (207,360 )      4.86  
Outstanding and exercisable as of March 31, 2010
    
-
    
$
N/A
  
Stock-based compensation consists of the following: