10-Q 1 amin10q3q2009.htm AMIN 3RD QUARTER 2009 10-Q

 
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, 2009
 
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 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 13, 2009, the Registrant had 8,825,615 shares of common stock outstanding.

TABLE OF CONTENTS
 
Item
Description
Page
 
PART I - FINANCIAL INFORMATION
  
 
    
ITEM 1.
3
ITEM 2.
25
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.
29
 
 
2
PART I - FINANCIAL INFORMATION
 
 
ITEM 1. FINANCIAL STATEMENTS
 
Consolidated Financial Statements
  
4
5
6
8
   
 
 
 
 
 
 
 
3
Consolidated Balance Sheets
(Unaudited)
  
   
September 30, 2009
    
December 31, 2008
  
Assets
            
Current assets:
            
   Cash and cash equivalents
  
$
1,998,424
    
$
3,114,575
  
   Certificate of deposit
    
2,765,000
      
4,315,000
  
   Trading securities
    
707,627
      
718,442
  
   Accounts receivable, less allowance for doubtful accounts
    
 
         
     of $165,592 and $138,217, respectively
    
6,407,552
      
4,956,941
  
   Current portion of notes receivable
    
4,377,729
      
4,392,211
  
   Accounts and notes receivable from related parties
    
-
      
98,606
  
   Inventories
    
4,879,646
      
3,889,052
  
   Real estate held for sale
    
2,647,566
      
2,449,066
  
   Deposits for pipe inventory purchases     1,174,361       2,221,932  
   Prepaid expenses and other current assets
    
294,758
      
205,096
  
     Total current assets
    
25,252,663
      
26,360,921
  
  
                
Long-term notes receivable, less current portion
    
68,558
      
95,522
  
Property and equipment, net of accumulated depreciation and amortization
    
7,295,161
      
7,769,833
  
Goodwill
    
674,539
      
674,539
  
Intangible assets, net of amortization
    
638,060
      
717,817
  
Other assets
     160,000       359,312  
       Total assets
  
$
34,088,981
    
$
35,977,944
  
Liabilities and Stockholders' Equity
                
Current liabilities:
                
   Accounts payable and accrued expenses
  
$
3,607,049
    
$
2,395,721
  
   Short-term notes payable
    
180,633
      
1,213,332
  
   Accounts and notes payable to related parties     66,300       -   
   Current installments of long-term capital lease obligations     79,112       71,680  
   Current installments of long-term debt     6,200,560       4,484,161  
     Total current liabilities
    
10,133,654
      
8,164,894
  
                 
Long-term debt, less current installments
    
7,909,358
      
9,653,598
  
Long-term capital lease obligations, less current installments      106,524       166,762  
     Total liabilities
    
18,149,536
      
17,985,254
  
                 
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: 
                
       9,133,771 and 8,738,771 shares issued, respectively
                
       8,834,415 and 8,676,461 shares outstanding, respectively
    
9,133
      
8,739
  
   Additional paid-in capital
    
33,499,724
      
33,063,687
  
   Accumulated deficit
    
(18,868,787
) 
    
(16,911,758
) 
   Less treasury stock, at cost
               
       299,356 and 62,310 shares, respectively
    
(478,884
) 
    
(253,551
) 
   Total American International Industries, Inc. equity
    
14,161,186
      
15,907,117
  
     Noncontrolling interest     1,778,259        2,085,573  
   Total equity     15,939,445        17,992,690  
   Total liabilities and equity
  
 $
34,088,981
    
$
35,977,944
  
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Consolidated Statements of Operations
(Unaudited)
   
   
Three Months Ended
    
Nine Months Ended
  
  
  
September 30, 2009
    
September 30, 2008
    
September 30, 2009
    
September 30, 2008
  
                         
Revenues
   $ 8,509,019     $
11,830,033
     $ 20,936,148     $
22,416,228
  
Costs and expenses:
                                
   Cost of sales
     6,239,214      
7,536,375
       14,237,738      
13,943,782
  
   Selling, general and administrative
     3,250,212      
3,032,608
       8,649,914      
8,271,535
  
     Total operating expenses
     9,489,426      
10,568,983
       22,887,652      
22,215,317
  
                                 
Operating profit (loss)
     (980,407 )     1,261,050       (1,951,504 )      200,911  
  
                                
Other income (expenses):
                                
   Interest and dividend income
     82,904      
162,676
       325,479      
496,009
  
   Delta lawsuit settlement      -       -        -        (1,450,000 ) 
   Realized gains (losses) on the sale of trading securities     191,740       8,414       (157,491 )      79,553  
   Unrealized gains (losses) on trading securities     8,642       (1,578,551 )      407,516       (4,232,221 ) 
   Interest expense
     (222,985 )      (176,140 )     (705,264 )      (586,632 )
   Texas Emissions Reduction Plan Grant
     -      
-
        -       57,589  
   Gain on property dividend distribution      -       -        -        2,945,133  
   Other income
     7,187      
53,084
       205,534      
79,187
  
     Total other income (expense)
     67,488      
(1,530,517
 )      75,774      
(2,611,382
 ) 
  
                                
     Loss before income tax
     (912,919 )     
(269,467
 )      (1,875,730 )     
(2,410,471
 )
        Income tax expense (benefit)
     13,383       43,951       38,613       (30,489 ) 
     Loss from continuing operations, net of income taxes
     (926,302 )     
(313,418
 )      (1,914,343 )     
(2,379,982
 ) 
     Loss from discontinued operations, net of income taxes
     -      
(995,348
 )      (350,000 )      (2,471,957 ) 
     Net loss
     (926,302 )    
(1,308,766
 )      (2,264,343 )      (4,851,939 )
     Net income (loss) attributable to the noncontrolling interest     14,660       (728,535 )      307,314       (189,909 ) 
     Net loss attributable to American International Industries, Inc.   $  (911,642 )    $  (2,037,301 )    $  (1,957,029 )    $ (5,041,848 ) 
Net loss per common share - basic and diluted:                                
     Continuing operations   $  (0.10 )    $ (0.12 )   $ (0.19 )    $  (0.34 ) 
     Discontinued operations   $  -     $ (0.12 )    $ (0.04 )    $ (0.33 ) 
     Total
   $  (0.10 )    $  (0.24 )    $ (0.23 )    $ (0.67 )
  
                                
Weighted average common shares - basic and diluted
     8,763,043      
8,384,417
       8,661,263      
7,546,963
  
   
The accompanying notes are an integral part of these unaudited consolidated financial statements.
  
Consolidated Statements of Cash Flows
(Unaudited)
 
    Nine Months Ended September 30,
   
2009
    
2008
  
Cash flows from operating activities:
                
   Net loss
  
$
(2,264,343
)
  
$
(4,851,939
 ) 
   Loss from discontinued operations     (350,000 )      (2,471,957 )
   Loss from continuing operations     (1,914,343 )      (2,379,982 ) 
   Adjustments to reconcile net loss from continuing operations to net cash used in operating activities from continuing operations:
                
       Property dividend distribution gain      -        (2,945,133 ) 
       Delta lawsuit settlement      -        1,450,000  
       Depreciation and amortization
    
885,942
      
360,958
  
       Share-based compensation
    
436,430
      
633,064
  
       Realized (gains) losses on the sale of trading securities
    
157,491
      
(79,553
)
       Unrealized (gains) losses on trading securities
    
(407,516
)
    
4,232,221
  
       Texas Emissions Reduction Plan Grant
    
-
 
    
  (57,589
 )
       Change in operating assets and liabilities:
                
         Accounts receivable
    
(1,464,111
 )     
(4,411,164
)
         Trading securities
    
300,840
 
    
14,042
  
         Inventories
    
56,977
 
    
467,281
 
         Deposits for pipe inventory purchases     -       (1,748,601 )
         Prepaid expenses and other current assets
    
(89,662
 )     
(158,956
)
         Other assets
    
27,519
 
    
(7,295
 ) 
         Accounts payable and accrued expenses
    
1,211,328
 
    
2,908,846
 
             Net cash used in operating activities from continuing operations
    
(799,105
)
    
(1,721,861
)
                 
Cash flows from investing activities from continuing operations:
                
   Purchase of property and equipment
    
(159,720
)
    
(171,547
)
   Proceeds from sale of drilling rigs
    
-
      
200,000
  
   Investment in rigs held for sale      -        (14,123 ) 
   Redemption of certificate of deposit
    
4,000,000
      
5,795,421
  
   Investment in certificate of deposit
    
(2,450,000
)
    
(4,575,421
)
   Issuance of note receivable     (300,000 )       (432,424 ) 
   Proceeds from notes receivable
    
116,446
      
144,937
  
   Loans from (to) related parties
    
164,906
 
    
(1,606
)
            Net cash provided by investing activities from continuing operations
    
1,371,632
      
945,237
  
  
                
Cash flows from financing activities from continuing operations:
                
   Principal payments under capital lease obligations
    
(52,805
 )     
-
  
   Proceeds from issuance of debt      283,851       3,567,663  
   Payments on margin loans
    
-
      
(124,312
)
   Capital contributions from noncontrolling interest     -       449,473  
   Dividend distribution to Delta's noncontrolling interest owners     -       (235,200 ) 
   Net borrowings under lines of credit agreements and short-term notes
    
568,479
 
    
1,045,000
 
   Principal payments on debt
    
(1,912,871
)
    
(2,672,901
)
   Payments for acquisition of treasury stock
    
(225,332
)
    
(19,790
) 
            Net cash provided by (used in) financing activities from continuing operations
    
(1,338,678
 )     
2,009,933
  
    Nine Months Ended September 30,
   
2009
    
2008
  
Net increase (decrease) in cash and cash equivalents from continuing operations
  
$
(766,151
 )   
$
1,233,309
  
Net decrease in cash and cash equivalents from discontinued operations      (350,000 )       -  
Cash and cash equivalents at beginning of period from continuing operations
    
3,114,575
      
2,293,795
  
Cash and cash equivalents at end of period from continuing operations
  
$
1,998,424
    
$
3,527,104
  
  
                
Discontinued operations:                 
   Net cash used in operating activities    $
-
      $
(1,587,101
 ) 
   Net cash used in investing activities    
-
      
(272,220
 ) 
   Net cash provided by financing activities    
-
      
365,617
  
Net decrease in cash and cash equivalents from discontinued operations     
-
      
(1,493,704
 ) 
Cash and cash equivalents at beginning of period from discontinued operations    
-
      
1,597,361
  
Cash and cash equivalents at end of period from discontinued operations    $
-
      $
103,657
  
                 
Supplemental schedule of cash flow information:
                
   Interest paid
  
$
706,212
    
$
503,220
  
   Taxes paid
  
$
-
    
$
56,527
  
                 
Non-cash transactions from continuing operations:                 
   Real property received in foreclosure on note receivable   $
198,500
      $
-
  
   Trading securities received in foreclosure on note receivable    $  40,000      $    
   Accrued property dividend payable   $  -      $  654,364  
   Stock dividend    $  -     $  1,431  
                 
 Non-cash transactions from discontinued operations:                
   Acquisition of fixed assets under capital lease obligations   $  -     $  203,516  
   Accrued debt discount for common shares of subsidiary to be issued    $  -      $  29,000  
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
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, 2008. 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 majority-owned subsidiary. American is a diversified corporation with interests in industrial/commercial companies and an oil and gas service business. American's business strategy is to acquire controlling equity interests in businesses that it considers undervalued. American's management takes an active role in providing its subsidiaries with access to capital, leveraging synergies and providing management expertise in order to improve its subsidiaries' growth.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of American and its wholly-owned subsidiaries, Northeastern Plastics, Inc. ("NPI") and Shumate Energy Technologies, Inc. ("SET"), and its majority owned subsidiary, Delta Seaboard Well Service, Inc. ("Delta").  All significant intercompany transactions and balances have been eliminated in consolidation.
 
Certain reclassifications have been made to amounts in prior periods to conform with the current period presentation.  All reclassifications have been applied consistently to the periods presented.
 
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.
 
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 and nine months ended September 30, 2009 and 2008, 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.
8
Fair Value of Financial Instruments
 
Effective January 1, 2008, American adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
 
Basis of Fair Value Measurement
 
Level 1
  
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
     
Level 2
  
Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
     
Level 3
  
Unobservable inputs reflecting American's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
 
American believes that the fair value of its financial instruments comprising cash, certificates of deposit, accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.  The interest rates payable by American on its notes payable approximate market rates.  The fair values of American's Level 1 financial assets, trading securities that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security.  As of September 30, 2009, American did not have any significant Level 2 or 3 financial assets or liabilities.  The following table provides fair value measurement information for American's trading securities:
 
   
As of September 30, 2009
  
                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
   $ 707,627     $ 707,627     $ 707,627     $ -     $ -  
 
Recent Accounting Pronouncements
 
Effective January 1, 2009, American began implementation of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 (ASC 810 Consolidation) required American to:

·  
Recharacterize minority interests, previously classified within liabilities, as noncontrolling interests reported as a component of consolidated equity on the balance sheet,
·  
Include total income in net income, with separate disclosure on the face of the consolidated income statement of the attribution of income between controlling and noncontrolling interests, and
·  
Account for increases and decreases in noncontrolling interests as equity transactions with any difference between proceeds of a purchase or issuance of noncontrolling interests being accounted for as a change to the controlling entity’s equity instead of as current period gains/losses in the consolidated income statement. Only when the controlling entity loses control and deconsolidates a subsidiary will a gain or loss be recognized.

SFAS No. 160 was effective prospectively for fiscal years beginning on or after December 15, 2008 except for its specific transition provisions for retroactive adoption of the balance sheet and income statement presentation and disclosure requirements for existing minority interests that are reflected in these consolidated financial statements for all periods presented.  As a result of the implementation of SFAS No. 160, which required retrospective application of presentation requirements, total equity at December 31, 2008 increased by $2,085,573 representing noncontrolling interest, and total liabilities at December 31, 2008 decreased by $2,085,573 as a result of the elimination of minority interest.  Also as a result of the adoption of SFAS No. 160, for the three and the nine months ended September 30, 2008, respectively, loss from continuing operations, net of income taxes increased by $728,535 and $189,909 and net losses attributable to the noncontrolling interest increased by $728,535 and $189,909.
 
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009, and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact American’s results of operations or financial condition.  The Codification did not change GAAP; however, it did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. American implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
 
In addition to the pronouncements noted above, there were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
 
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 nine months ended September 30, 2009 and 2008, American had unrealized trading gains of $407,516 and losses of $4,232,221, respectively, related to securities held on those dates.  The unrealized losses for the nine months ended September 30, 2008, were due primarily to the decline in value of American's 1,000,000 shares of Rubicon Financial Incorporated's (OTCBB: RBCF.OB) common stock of $3,349,510.  At September 30, 2009 and December 31, 2008, our investment in shares of RBCF common stock, classified as trading securities on the balance sheet, was valued at $139,607, or $0.13 per share, and $311,670, or $0.30 per share, respectively, based upon the closing market prices on those dates, respectively.  American recorded realized losses of $157,491 and realized gains of $79,553 for the nine months ended September 30, 2009 and 2008, 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 pursuing to increase the diversity our securities portfolios.
 
Note 3 - Acquisition of the assets of Shumate Machine Works by Shumate Energy Technologies
 
On October 8, 2008, a subsidiary of American completed the purchase of 100% of the assets and assumed certain liabilities of Shumate Machine Works Corporation, a subsidiary of Shumate Industries, Inc. ("SHMT").  The terms of the agreement provided for a purchase price of $5.0 million funded by the simultaneous closing of a $5.0 million term note by Shumate Machine Works and the receipt of SHMT common stock with a value equivalent to any negative working capital at the closing date of the transaction.  In connection with the negative working capital provision of the agreement, American received 1,401,170 restricted shares of SHMT common stock valued at $0.30 per share for a total value of $420,351.  These shares represented approximately 6.4% of SHMT’s outstanding shares as of October 8, 2008.   The assets are now owned by a wholly-owned American subsidiary, Shumate Energy Technologies, Inc.

American's subsidiary recorded the acquisition using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date. The purchase price of $5,000,000 has been allocated at follows:
 
Current assets
  
$
1,066,864
  
Property and equipment, net
    
4,472,130
  
Intangible assets
    
744,403
  
Trading securities - Restricted common shares of Shumate Industries, Inc. received for negative working capital assumed
    
420,351
  
  Total assets acquired
    
6,703,748
  
         
Current liabilities
    
(1,487,215
)
Equipment notes payable 
    
 (216,533
)
  Total liabilities acquired
    
(1,703,748
 )
         
Net assets acquired
  
$
5,000,000
  
 
10
The $744,403 of acquired intangible assets includes $729,000 assigned to Computer Numerical Control ("CNC") programs and $15,403 assigned to the acquired name and logo.  These intangible assets have a weighted average useful life of 7 years.
 
Revenues and expenses of Shumate Energy Technologies, Inc. are included in American's statements of operations from October 8, 2008 through September 30, 2009.
 
Note 4 - Inventory and Deposits for Pipe Inventory Purchases
 
Inventories consisted of the following:
 
   
September 30, 2009
    
December 31, 2008
  
Work in process
   $ 285,467     $ 549,954  
Finished goods
     4,689,397       3,434,361  
Less reserve
     (95,218 )     (95,263 )
    $ 4,879,646     $ 3,889,052  
 
Periodically, American enters into agreements to purchase pipe inventory from vendors.  At September 30, 2009 and December 31, 2008, American had cash deposits of $1,174,361 and $2,221,932, respectively, for inventory purchases under these agreements that had not been received.
 
Note 5 - Real Estate Transactions
 
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.  American is carrying this property on the balance sheet for $198,500, which represents the portion of the principal and accrued interest allocated to the property received at the time of default, see Note 6. On October 28, 2009, American entered into a settlement with the purchaser of this property.  The title company involved in the purchase transaction will pay $150,000 on or about November 18, 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American will remove the property from its balance sheet and create a receivable for the difference of $48,500.  This receivable is secured by real property from the original $225,000 note receivable.

During the third quarter of 2009, and in connection with the guarantor’s fee described below, American has pledged $250,000 in certificates of deposit for a $3,850,000 loan to Southwest Gulf Coast Properties, Inc. at Texas Community Bank.  Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums with an appraised value of over $3,900,000.

During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County appraised at $540,000 as a guarantor's fee. In connection with this fee, American has pledged $1,750,000 in certificates of deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community Bank. During the third quarter of 2009, the principal balance of the loan was repaid and the bank released the pledged certificates of deposit to American.
 
During 2007, American purchased for investment a 174 acre tract of land in Waller County, Texas for $1,684,066. This property is listed for sale with a real estate broker.  American also owns 287 undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. American is carrying this property on the balance sheet at its historical book value of $225,000.  American has engaged an independent broker on an exclusive basis to sell the property.  These properties are not going to be developed by nor are they being held as inventory by American.
Note 6 - Long-term Notes Receivable
 
Long-term notes receivable consists of the following:
   
September 30, 2009
    
December 31, 2008
  
Net note receivable from sale of real estate, principal balance due on or before July 30, 2009, secured by property lien (a)
  
$
3,020,044
    
$
3,020,044
  
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through June 5, 2012
    
104,201
      
126,617
  
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through July 2012 (b)
    
200,000
      
200,000
  
Unsecured note receivable for sale of drilling rig, principal and interest due monthly through December 31, 2009
    
19,979
      
114,009
  
Unsecured note receivable, principal balance due on April 30, 2008, interest at 6% through maturity and at 10% thereafter (c)    
552,063
      
552,063
  
Unsecured note receivable, principal balance due on December 31, 2008, interest at 10% through maturity and at 15% thereafter (c)    
250,000
      
250,000
  
Note secured by property and shares of stock, interest due monthly at 18%, principal payment due on or before May 9, 2009 (d)    
-
      
225,000
  
Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (e)    
300,000
        -  
Notes receivable
    
4,446,287
      
4,487,733
  
Less current portion
    
(4,377,729
 )     
(4,392,211
 ) 
Long-term notes receivable
  
$
68,558
    
$
95,522
  
 
(a) Net note receivable from sale of real estate, principal payment due on or before July 30, 2009.  On July 30, 2004, American sold real estate to an unaffiliated third party for a cash payment equal to the first lien and $250,000 owed to Orion HealthCorp, Inc. and a note receivable in the amount of $5,000,000 secured by a lien on the real estate. The note is being amortized over a 20 year period, with a balloon payment at the end of five years in the amount of $4,012,084, and bears interest of 3% per annum. The note was discounted by $1.6 million to the present value of the lowest level of annual payments required by the sales contract, or $3.4 million, over the maximum period required.  Principal payments have reduced the note balance to $3.0 million as of September 30, 2009.  American recorded a gain, using the reduced profit method for recording the sale of land, in the amount of $1,815,070 on the sale of this real estate based on discounting the $5,000,000 note at a 7.6% interest rate (approximating the market rate for real estate transactions by the buyer).  The borrower did not make the payment due on July 30, 2009.  The borrower and American have tentatively agreed that American will acquire the deed to the property in lieu of payment of the debt.  The property securing this note was appraised for $9,175,000 by an independent appraiser.
 
(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.  New payment terms are being negotiated for this note receivable.  Since the loan is reflected at a $100,000 discount to the original note face value and payments are currently being made on the other note receivable with Marald in accordance with note terms, American believes payment terms will be successfully negotiated and no further discounting of the loan was deemed necessary as of September 30, 2009.

(c) Unsecured notes receivable due April 30 and December 31, 2008.  These delinquent notes were due from Hammonds Industries, Inc. ("Hammonds").  The assets of the Hammonds' companies were sold on April 16, 2009 (see note 19).  On August 13, 2009, Hammonds, American, Delta, and the noncontrolling interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. This agreement includes a provision to issue common shares for these unsecured notes.  American anticipates closing on this transaction by December 31, 2009.
 
(d) Note secured by property and shares of stock, interest due monthly at 18%, 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 has sold all of these shares on the open market for $25,411. On August 5, 2009, American foreclosed on real property valued at $376,000 by the Galveston County Appraisal District.  American is carrying this property on the balance sheet for $198,500, which represents 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 will pay $150,000 on or about November 18, 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American will remove the property from its balance sheet and create a receivable for the difference of $48,500.  This receivable is secured by real property from the original $225,000 note receivable.
(e) Note purchased from Texas Community Bank with a face amount of $300,000.  This delinquent note was purchased on March 31, 2009 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 and nine months ended September 30, 2009 and 2008, American recognized interest income of $44,804, $52,387, $180,436, and $216,014, respectively.
 
Note 7 - Property and Equipment
 
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
 
 
Years
  
September 30, 2009
    
December 31, 2008
  
Land
    
$
892,945
    
$
892,945
  
Building and improvements
20
    
1,003,361
      
933,200
  
Machinery and equipment
7-15
    
7,640,388
      
7,386,789
  
Office equipment and furniture
7
    
388,193
      
384,893
  
Automobiles
5
    
771,712
      
768,151
  
       
10,696,599
      
10,365,978
  
Less accumulated depreciation and amortization
      
  (3,401,438
) 
    
(2,596,145
) 
Net property and equipment
    
$
7,295,161
    
$
7,769,833
  
 
During the nine months ended September 30, 2009, $171,793 of equipment that was classified as other assets as of December 31, 2008, was placed in service and reclassified to property and equipment.

Depreciation expense for the three and nine months ended September 30, 2009 and 2008 was $267,871, $123,559, $806,185, and $360,958, 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:
 
   
September 30, 2009
  
Machinery and equipment
  
$
301,000
  
Less accumulated depreciation and amortization
    
(30,100
) 
Net property and equipment
  
$
270,900
  
 
Principal repayment provisions of this long-term capital lease are as follows at September 30, 2009:
 
2009
   $
18,874
  
2010
    
81,758
  
2011
    
85,004
  
Total
  
$
185,636
  
Note 8 - Intangible Assets
 
Intangible assets at September 30, 2009 consisted of the following:
 
   
Gross Carrying Amount
    
Accumulated Amortization
      
Intangibles, net
  
Average Weighted Lives
Goodwill                   $   674,539   N/A 
                           
CNC Programs
  
$
729,000
    
$
104,143
    
$
624,857
  
7 years
Name and logo
    
15,403
      
2,200
      
13,203
  
7 years
Intangible assets
  
$
744,403
    
$
106,343
    
$
638,060
  
7 years
 
Intangible assets at December 31, 2008 consisted of the following:
 
   
Gross Carrying Amount
    
Accumulated Amortization
      
Intangibles, net
  
Average Weighted Lives
Goodwill                   $   674,539   N/A 
                           
CNC Programs
  
$
729,000
    
$
26,036
    
$
702,964
  
7 years
Name and logo
    
15,403
      
550
      
14,853
  
7 years
Intangible assets
  
$
744,403
    
$
26,586
    
$
717,817
  
7 years
 
Amortization expense for the three and nine months ended September 30, 2009 and 2008 was $26,586, $0, $79,757, and $0, respectively.
 
Note 9 - Short-term Notes Payable
 
   
September 30, 2009
    
December 31, 2008
  
Delta lawsuit settlement with no interest,  principal due in monthly payments of $25,000 through August 1, 2009   $  -     $ 175,000  
Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $25,805 through May 1, 2010      180,633        -  
Insurance note payable with interest at 5.24%, principal and interest due in monthly payments of $31,288 through May 1, 2009     -       125,150  
Note payable with interest at 6%, principal and interest due monthly, with a balloon payment due April 2009       -       913,182  
   
$
180,633
    
$
1,213,332
  
 
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, 2009 and December 31, 2008, the average annual interest rates of our short-term borrowings were approximately 4.99% and 5.91%, respectively.
14
Note 10 - Long-term Debt
 
Long-term debt consisted of the following:
 
   
September 30, 2009
    
December 31, 2008
  
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.
  
$
4,861,362
    
$
5,000,000
  
Note payable to a bank, interest due quarterly at prime plus 1%, principal balance due August 26, 2009, secured by real property. (a)
      1,000,000        1,000,000  
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. (b)
    
1,369,907
      
1,379,106
  
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 quarterly installments of interest only at 7%, with a principal balance due on October 8, 2010, secured by a certificate of deposit.    
500,000
      
500,000
  
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.    
356,765
      
625,087
  
Note payable to a bank, due in monthly installments of $6,170, including interest at 6.6% through May 2018, secured by real property.
    
483,694
      
514,165
  
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. (d)
    
1,965,000
      
 
1,119,000
  
Note payable to a bank, due in quarterly installments of interest only at 7.5%, with a principal balance due February 2009, secured by a certificate of deposit.
    
-
      
1,000,000
  
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
      
1,740,000
  
Note payable due in monthly payments of $19,373, including interest at 6%, through March 2013, secured by assets of Delta. (c)     808,256        -  
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.
    
189,530
      
 
226,929
  
Other secured notes with various terms
    
65,904
      
89,972
  
     
14,109,918
      
14,137,759
  
Less current portion
    
  (6,200,560
) 
    
(4,484,161
) 
   
$
7,909,358
    
$
9,653,598
  
 
(a) The balance due on this note was paid to the bank in October 2009.
(b) Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months.  Management plans to renew this line of credit upon expiration.
(c) During the nine months ended September 30, 2009, the due dates for these notes were extended and the balances have been reclassified to long-term.
(d) 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 September 30, 2009, NPI’s line of credit balance was $1,965,000 and as of this filing, the balance has been reduced by $470,000 to $1,495,000.  NPI’s current assets at September 30, 2009 were $6,606,233, and included $3,633,821 and $2,685,384 in accounts receivable and inventory, respectively.
15
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, 2009:
 
2009
  
$
1,140,534
  
2010
    
5,705,922
  
2011
    
2,168,343
  
2012
    
598,124
  
2013
    
4,219,255
  
Thereafter
    
277,740
  
Total
  
$
14,109,918
  
 
Note 11 - Capital Stock and Stock Options
 
American is authorized to issue up to 1,000,000 shares of Preferred Stock, $0.001 par value per share, of which no shares are presently outstanding. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions.
 
American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 1,036,800 are reserved for issuance pursuant to the exercise of options pursuant to an employment agreement with American's Chairman and CEO.
 
During the nine months ended September 30, 2009, American purchased 237,046 common shares as treasury stock for $225,332.
 
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 during the nine months ended September 30, 2009.
 
On March 30, 2008, American issued 172,800 stock options to American's Chairman and CEO, with an exercise price of $5.83 per share, expiring in 2 years, valued at of $88,063 and recorded as share-based compensation.  In connection with American's 20% stock dividend to all shareholders on July 16, 2008, the terms of these options were adjusted to reflect the dividend, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share.
 
American estimated the fair value of each stock option at the grant date 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
  
 
A summary of the status of American's stock options to employees as of September 30, 2009 is presented below:
 
   
Shares
    
Weighted Average Exercise Price
September 30, 2009
  
Outstanding at beginning of period
    
414,720
    
$
4.86
  
Granted
    
-
      
N/A
  
Exercised
    
-
      
N/A
  
Canceled / Expired
    
(207,360
 )     
4.86
  
Outstanding and exercisable at end of period
    
207,360
    
$
4.86
  
                 
Weighted average fair value of options granted during the period
    
207,360
     $ 
4.86
  
16
The following table summarizes information about fixed stock options to employees outstanding at September 30, 2009:
 
Exercise Price
    
Number Outstanding and Exercisable
at September 30, 2009
  
$
4.86
      
207,360
  
 
Stock-based compensation consists of the following:
 
   
Nine Months Ended September 30,
  
   
2009
    
2008
  
Common shares issued for services
   $ 436,430     $ 545,001  
Stock options issued for services
     -       88,063  
   Stock-based compensation
   $  436,430     $ 633,064  
 
Note 12 - Concentration of Credit Risk
 
American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. Although the financial institutions are considered creditworthy, at September 30, 2009, American's cash and certificates of deposit balances held in banks exceeded the limit covered by the Federal Deposit Insurance Corporation by approximately $3.2 million. The terms of these deposits are on demand to minimize risk. American has not incurred losses related to these deposits.
 
Trade accounts receivable subject American to the potential for credit risk with customers in the retail and distribution sectors. To reduce credit risk, American performs ongoing evaluations of its customer’s financial condition but generally does not require collateral. As of and during, the nine months ended September 30, 2009, American had one customer that accounted for 37% of trade accounts receivable and 22% of revenues on a consolidated basis.  Additionally, American had one other customer that accounted for 20% of revenues on a consolidated basis.
 
Note 13 - Texas Emissions Reduction Plan Grant
 
Delta is the recipient of a Texas Emissions Reduction Plan ("TERP") grant from the Texas Commission on Environmental Quality in the amount of $1,157,273. TERP is a comprehensive set of incentive programs aimed at improving air quality in Texas. Through this grant, Delta’s rig engines are being replaced with engines certified to emit 25% less nitrogen oxide (“NOx”) than required under the current federal standard for the horsepower of the engines. The old engines must be destroyed or rendered permanently inoperable.
 
International Accounting Standard No. 20 (IAS 20): Accounting for Government Grants and Disclosure of Government Assistance provides guidance on recognizing, measuring and disclosing government grants, which requires that grants related to assets be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. However, IAS 20 is under review because it is inconsistent with the "Framework" for International Accounting Standards. The "Framework" states that "Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets . . ., other than those relating to contributions from equity participants." The International Accounting Standards Board (IASB) noted that recognizing an amount in the balance sheet as a deferred credit is inconsistent with the "Framework" in that the entity has no liability. The IASB has decided to replace the guidance in IAS 20 for accounting for government grants with the guidance in IAS 41: Agriculture. Also, the IASB noted that SFAS No. 116: Accounting for Contributions Received and Contributions Made, while exempting government grants to business entities from its scope, provides an accounting model that can be applied to government grants and that is consistent with the "Framework." In both IAS 41 and SFAS No. 116, the guidance calls for establishing an asset and recording the grant (contribution) as income. American applied this guidance and during the nine months ended September 30, 2008, Delta increased machinery and equipment and recognized other income for this grant in the amount of $57,589.
 
TERP grant recipients are required to monitor and track the total NOx emission reductions and cost-effectiveness. The grant contract includes provisions for the return of a prorated share of the grant if the NOx emission reductions originally projected are not achieved. American has not recorded any liabilities in connection with this matter because management has determined that return of any grant receipts is not likely.  Based on the advice of the State of Texas authorities who administer the grant, the taxability of this grant has not been determined and the advice of the Internal Revenue Service has been inconsistent.  American is still determining the effect this will have, but believes it will not materially affect American because of the tax loss carryforwards explained in Note 14 below.
17
Note 14 - Income Taxes
 
The provision for income taxes consists of the following:
 
   
Nine Months Ended
    
 Nine Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
             
Current taxes
   $ (2,006,212 )    $ (94,118 ) 
Deferred tax benefit
     2,006,212       105,059  
Benefits of operating loss carryforwards
     -       -  
   Current Federal Taxes
     -       10,941  
Refund due Delta for 2005 overpayment of Federal Taxes      -        (93,616 ) 
Prior year taxes paid      -       15,289  
Texas Margin Tax - actual vs. estimate for prior year     (2,600 )      (9,954 ) 
Texas Margin Tax - current year estimate
     41,213       46,851  
   Income tax expense (benefit)
   $  38,613     $ (30,489 ) 
 
The tax provision differs from amounts that would be calculated by applying federal statutory rates to income before income taxes primarily because:
- American consolidates subsidiaries for financial statements which cannot be consolidated for income tax purposes; therefore, some subsidiaries may pay federal income tax despite the accumulated net operating losses of American as a whole;
- no tax benefits have been recorded for nondeductible expenses totaling $154,247 and
- the valuation allowance for deferred tax assets increased by $4,828,288.
 
The following table sets forth a reconciliation of statutory income taxes:

    Three Months Ended September 30,       Nine Months Ended September 30,  
   
2009
    
2008
      
2009
     2008  
Net loss before taxes
  
$
(912,919
)
  
$
(296,467
)
  
$
(1,875,730
 )  $
(2,410,471
 ) 
                               
Income tax benefit computed at statutory rate
  
$
(310,392
)
  
$
(326,816
)
   $
(756,748
 )  $
(883,926
 ) 
Permanent differences
    
30,383
      
259,755
      
(34,040
 )   
112,605
 
Net effects of temporary differences
    
-
      
-
 
    
-
    
 105,059
  
Effect of federal graduated rates
    
280,009
      
428,521
      
790,788
    
2,171,939
  
Tax credits    
-
        (36,622 )     
-
    
(736,731
 ) 
Increase in valuation allowance     
-
        (313,897 )     
-
    
(758,005
)
Refund due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal Taxes      
-
       -        -    
(93,616
 ) 
Texas Margin - prior year payments and estimate adjustments    
(2,600
 )      8,928       (2,600 )   
 5,335
  
Texas Margin Tax - current year estimate
    
15,983
      
24,082
      
41,213
    
46,851
  
   Income tax expense (benefit)
  
$
13,383
    
$
43,951
     $
38,613
   $
(30,489
 ) 
 
American has loss carryforwards totaling $18,178,874 available at September 30, 2009 that may be offset against future taxable income.  If not used, the carryforwards will expire as follows:

Operating Losses
Amount
  
Expires
$
$1,761,086
  
2013
$
$1,462,959
  
2014
$
$2,086,064
  
2015
$   $860,006   2017 
$   $566,409   2018 
$   $1,028,302   2019 
$
$1,551,019
  
2020
$  $73,187   2021 
$
$288,855
  
2022
$   $3,626,977  
 2023 
$  $4,874,010   2024
18
Note 15 - Loss Per Share
 
Basic loss per share is calculated on the basis of the weighted average number of common shares outstanding. Diluted loss per share, in addition to the weighted average determined for basic loss per share, includes common stock equivalents, which would arise from the conversion of the preferred stock to common shares.

    Three Months Ended September 30,       Nine Months Ended September 30,  
   
2009
    
2008
      
2009
     2008  
Basic loss per share:    
 
              
 
    
 
  
Loss from continuing operations, net of income taxes
  
$
(926,302
 )    $ 
(313,418
 )    $ 
(1,914,343
 )  $ 
(2,379,982
)
Loss from discontinued operations, net of income taxes    
-
       (995,348 )      (350,000 )   
(2,471,957
 ) 
  Net loss    
(926,302
 )       (1,308,766 )       (2,264,343 )   
(4,851,939
 ) 
Net income (loss) attributable to the noncontrolling interest    
14,660
        (728,535 )      307,314    
(189,909
 ) 
Net loss attributable to American International Industries, Inc.   $
(911,642
 )    $  (2,037,301 )    $  (1,957,029 )  $
(5,041,848
 ) 
Weighted average common shares outstanding - basic and diluted
    
8,763,043
       8,384,417      
8,661,263
    
7,546,963
  
Net loss per share - basic and diluted:    
 
              
 
    
 
  
  Continuing operations   $ 
(0.10
 )    $  (0.12 )    $
(0.19
 )  $
(0.34
 ) 
  Discontinued operations   $
-
     $  (0.12 )    $
(0.04
 )  $
(0.33
 ) 
Total
  
$
(0.10
 )   
$
(0.24
 )    $
(0.23
 )  $
(0.67
 ) 
 
Note 16 - Commitments and Contingencies
 
Various key officials of American have entered into employment agreements with American. In July 2009, the CEO of American entered into a three-year employment agreement which provides for a monthly salary of $10,000 plus a bonus as determined by the Board of Directors. Also, the agreement provides for the grant of 200,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement.  Additionally, the CEO will receive the equivalent of $10,000 in restricted shares of American common stock on a monthly basis for the remaining term of the agreement.  The CFO of American entered into a three-year employment agreement in July 2009, which provides for an annual salary of $110,000 plus a bonus as determined by the Board of Directors. Also, the agreement provides for the grant of 50,000 restricted shares of American common stock on July 13, 2009, as an incentive to extend the employment agreement.  The president of NPI previously entered into an at-will employment agreement that provides an annual salary of $195,000 plus a bonus based upon operating results of this subsidiary. The employment agreement also grants the president of NPI an option to purchase NPI common stock equal to 5% of NPI's equity at an exercise price of 5% of the total stockholder's equity, if NPI conducts an initial public offering of its common stock during the time of his employment. Delta’s president and vice president entered into employment agreements that provide for an annual base salary of $150,000 each.  On October 7, 2008, Larry C. Shumate entered into a three-year employment agreement with SET to serve as President of SET, which provides for an annual salary of $185,000 plus a bonus as determined by the Board of Directors.  The employment agreement provides for health and life insurance coverage and a vehicle allowance of $800 per month.  After two consecutive years of Earnings Before Interest, Depreciation and Amortization (EBITDA) of greater than $1,000,000 for the years ended December 31, 2009 and 2010, based on the financial statements of SET included in the American's audited consolidated financial statements, Mr. Shumate shall be entitled to a non-qualified option to purchase for $100 unencumbered shares of common stock of SET equal to 10% percent of all shares outstanding of SET, which option would be exercisable 30 days after the issuance of the December 31, 2010 audited financial statements of American.
 
On July 23, 2008, Delta, our 51% owned subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. After noncontrolling interest, the net impact of this settlement on American's net income is $739,500. Management believes that the settlement amount will be recoverable 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”). Delta is in negotiations to settle its claims in the Broker Lawsuit for approximately $2,400,000, including $1,600,000 of actual damages plus interest, attorney’s fees, and statutory damages. Delta had a CGL insurance policy with Gemini Insurance Company ("Gemini") for 2003, naming Delta as an insured, which policy was in effect at such time as Delta began the plugging operation referenced in the Fort Apache Lawsuit. Delta made a claim under the policy for a defense in the Fort Apache case.  In October 2008, in the Gemini Insurance Company v. Delta Seaboard Well Service, Inc. case, the court granted Gemini's motion for summary judgment and declared that the insurance policy provides no coverage for the claims made against Delta in the Fort Apache case.  Delta’s position is that its broker failed to obtain appropriate insurance coverage and misrepresented the coverage it did obtain.  Delta is aggressively pursuing its claims in the Broker Lawsuit.
 
As part of the attorney’s work on the Broker Lawsuit, Delta filed a claim for coverage with American Specialty Lines Insurance Company (AISLIC). Delta is suing AISLIC for denying coverage for the Fort Apache Lawsuit, seeking $445,000 plus interest and attorney’s fees.  Delta is vigorously pursuing the AISLIC Lawsuit.
 
Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs are claiming an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. The attorneys for Delta’s insurance company have filed a motion to disregard certain jury findings and for a judgment notwithstanding the verdict, on the basis that there is no evidence to support the jury’s findings that Delta was negligent or to support the jury’s damage awards. In the event that this motion is denied, the attorneys plan a motion for a new trial. The attorneys believe that there will be an opportunity to enter into a settlement agreement. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available liability insurance coverage to fund any settlement that might be reached in this case, or to respond to any judgment that might be entered. Delta intends to vigorously defend this case, unless some reasonable settlement can be reached before then. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
 
American International Industries, Inc. v. William W. Botts.  American filed this lawsuit against William W. Botts (“Botts”) seeking damages as a result of a Stock Purchase Agreement and Consulting Agreement that American entered into with Botts on September 12, 2007.  Under the Stock Purchase Agreement, American gave Botts $1,000,000 in cash and 288,000 shares of restricted AMIN stock (240,000 original shares plus a 20% stock dividend) for 170,345 shares of OI Corporation.  As part of the original agreement, Botts had the right to sell the 288,000 shares back to American for $4.17 per share.  Under the Consulting Agreement, American agreed to pay Botts $14,000 per month, plus expenses for performing consulting services.  On or about November 5, 2008, American paid Botts $100,000 to terminate the Consulting Agreement to stop the accrual of monthly consulting payments to Botts.  In this suit, American has sued Botts for $2,500,000 in damages, alleging fraud-misrepresentation, fraud-failure to disclose material information, violation of Section 27.01 of the Texas Business and Commerce Code – fraud in a stock transaction, and breach of fiduciary duty.  Botts has filed a breach of contract counter-claim against American, alleging damages of $78,000 for consulting fee payments and expenses, $1,200,000 for stock purchase guarantee option payments, and an unspecified amount of attorneys fees.  The parties attempted to settle this matter during December 2008, but were unable to do so.  If the outcome of this case is unfavorable, then the value of the 288,000 shares of AMIN stock and of the 576,000 shares of Hammonds Industries, Inc. stock that Botts is entitled to receive as a stock dividend will be credited against any loss incurred by American, and American's common shares outstanding will be reduced by 288,000 shares, or approximately 3%.  Because the case is very new, an evaluation of the outcome of this case cannot be made at this time.  American expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
 
Delta is the recipient of a TERP grant from the Texas Commission on Environmental Quality in the amount of $1,157,273, of which $781,728 has been recognized through September 30, 2009. TERP grant recipients are required to monitor and track the total NOx emission reductions and cost-effectiveness. The grant contract includes provisions for the return of a prorated share of the grant if the NOx emission reductions originally projected are not achieved. American has not recorded any liabilities in connection with this matter because management has determined that return of any grant receipts is not likely.
 
Delta leases space under a commercial lease which expires in 2010, SET leases space under a commercial lease which expires in 2013, and American leases space under a commercial lease which expires in 2012. SET entered into a capital lease agreement for the acquisition of machinery and equipment which expires in 2011. Future minimum lease payments are as follows:
 
Year December 31,
  
Amount
  
2009
  
$
124,276
  
2010      447,866  
2011      395,612  
2012      306,824  
2013
    
221,000
  
  Total  
$
1,495,578
  
20
Note 17 - Segment Information
 
We have three reporting segments and corporate overhead:
 
·Northeastern Plastics (NPI) - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
·Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.

·Delta Seaboard Well Service (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;

·Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.  Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on American's balance sheet at $0.  Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves.  American is seeking to enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by American, to assist them with the resources required to develop their reserves.


The accounting policies of the segments are the same as those described in the summary of significant accounting policies. American evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.  American's reportable segments are strategic business units that offer different technology and marketing strategies. Most of the businesses were acquired as subsidiaries and the management at the time of the acquisition was retained.  American's areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.
 
Consolidated revenues from external customers, operating income (loss), identifiable assets, depreciation and amortization expense, and capital expenditures were as follows:
 
   
Three months ended September 30,
    
Nine Months ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Revenues:
                        
Northeastern Plastics
   $
4,123,329
     $
5,160,059
     $
7,761,016
     $
8,493,456
  
Shumate Energy Technologies
     2,234,510       -       6,228,827       -  
Delta Seaboard
     2,151,180       6,669,974       6,946,305       13,922,772  
   Total revenues   $
8,509,019
     $
11,830,033
     $
20,936,148
     $
22,416,228
  
                                 
Operating income (loss) from continuing operations:
                                
Northeastern Plastics
   $
194,632
     $
311,368
     $
131,204
     $
66,765
  
Shumate Energy Technologies
     (109,367 )      -       130,908       -  
Delta Seaboard
     40,994       1,606,713       (333,299 )      2,006,489  
Corporate
    
(1,106,666
 )      (657,031 )      (1,880,317 )      (2,274,165 ) 
Operating profit (loss) from continuing operations
     (980,407 )      1,261,050       (1,951,504 )      200,911  
Other income (expenses) from continuing operations
     67,488       (1,530,517 )      75,774       (2,611,382 ) 
Net loss from continuing operations before income tax
   $
(912,919
 )    $
(269,467
 )    $
(1,875,730
 )    $
(2,410,471
 ) 
                      September 30, 2009      
 
December 31, 2008
  
Identifiable assets:
                                
Northeastern Plastics
                   $
8,172,725
     $
5,836,635
  
Shumate Energy Technologies
                     5,830,834       6,871,304  
Delta Seaboard
                     6,856,064      
7,771,609
  
Corporate
                     13,229,358      
15,498,396
  
   Total identifiable assets                   $
34,088,981
     $
35,977,944
  
   
Three months ended September 30,
    
Nine Months ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Depreciation and amortization:
                        
Northeastern Plastics
   $
15,755
     $
16,780
     $
47,065
     $
49,086
  
Shumate Energy Technologies
     163,231       -       489,599       -  
Delta Seaboard
     113,250       103,266       342,456       301,602  
Corporate
     2,221       3,513       6,822       10,270  
Depreciation and amortization from continuing operations     294,457       123,559       885,942       360,958  
Depreciation and amortization from discontinued operations      -       233,638        -       687,874  
Total depreciation and amortization   $
294,457
     $
357,197
     $
885,942
     $
1,048,832
  
                                 
Capital expenditures:
                                
Northeastern Plastics
   $
-
     $
190
     $
1,209
     $
26,148
  
Shumate Energy Technologies
     2,219       -       3,847       -  
Delta Seaboard
     24,403       28,619       117,844       143,123  
Corporate
     (723 )      544       36,819       2,276  
Capital expenditures for continuing operations 
     25,899       29,353       159,720       171,547  
Capital expenditures for discontinued operations  
     -       51,508       -       229,250  
Total capital expenditures
   $
25,899
     $
80,861
     $
159,720
     $
400,797
  
 
Note 18 - Property Dividend Distribution Gain
 
On April 16, 2008, American declared a special dividend of shares of common stock of its subsidiary, Hammond Industries, Inc. (OTCBB: “HMDI”) to American's shareholders, of one share of HMDI common stock for each share of American's common stock owned and held on the record date.  As a result of this declaration, American recorded a property dividend distribution gain of $2,945,133. The amount of the gain was determined as the difference between the market price of HMDI common stock of $0.42 per share on April 16, 2008, and American's book value per share of $0.076 for 8,570,231 shares of HMDI common stock to be distributed.
22
Note 19 - Discontinued operations
 
On December 31, 2008, the board of directors of American approved the deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from American. To effect the deconsolidation of Hammonds, American was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 17.4 million shares of Hammonds’ common stock to American's shareholders of record on December 31, 2008, American's ownership is approximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to American. As a result, the majority of Hammonds’ board of directors is no longer controlled by American. Additionally, a reduction of American's guarantee of Hammonds’ debt to $1,000,000 was obtained from Texas Community Bank.
 
The consolidated statement of operations for the three and nine months ended September 30, 2008 has been restated to reflect the discontinued operations of Hammonds as summarized below:
 
   
Three Months Ended
September 30, 2008
    
Nine Months Ended
September 30, 2008
  
             
Loss from continuing operations, net of income taxes
   $ (313,418 )    $ (2,379,982 ) 
Loss from discontinued operations, net of income taxes
     (995,348 )      (2,471,957 ) 
   Net loss      (1,308,766 )       (4,851,939 ) 
Net loss attributable to the noncontrolling interest     (728,535 )      (189,909 ) 
Net loss attributable to American International Industries, Inc.
   $ (2,037,301 )    $ (5,041,848 ) 
Weighted average common shares outstanding - basic and diluted
     8,384,417       7,546,963  
Net loss per share - basic and diluted:
                
   Continuing operations   $  (0.12 )    $   (0.34 ) 
   Discontinued operations
   $ (0.12 )    $ (0.33 ) 
Total
   $  (0.24 )    $ (0.67 ) 
 
Hammonds' revenues and loss before income tax for the nine months ended September 30, 2008 are summarized below:
 
   
Three Months Ended
September 30, 2008
    
Nine Months Ended
September 30, 2008
  
             
Revenues
   $ 1,802,229     $ 6,428,157  
Loss before income tax
   $  (994,421 )    $ (2,491,944 ) 
 
On April 16, 2009, Hammonds entered into an Asset Purchase Agreement with FabCorp, Inc., a Houston-based manufacturing company, pursuant to which Hammonds sold all of its assets to a newly formed Texas company, Hammonds Technologies, LLC., a wholly owned subsidiary of FabCorp, Inc. Pursuant to the Asset Purchase Agreement, FabCorp purchased all of the assets in consideration for the payment of Hammonds’ debt owed to Texas Community Bank in the amount of $2.6 million.  The balance of Hammonds’ bank debt in the amount of $350,000 was paid by American and was recorded as a net loss from discontinued operations for the three and nine months ended September 30, 2009.  American was relieved of its $1,000,000 guarantee of Hammonds’ debt.
 
23
Note 20 - Subsequent Events
 
From October 1, 2009 through November 5, 2009, American paid $11,323 to repurchase 8,800 shares of its common stock.
 
On October 28, 2009, American entered into a settlement with the purchaser of the foreclosed property it obtained, which was security for a note receivable owed to American as discussed in Note 5.
 
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 as discussed in Note 10.
 
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
 
Forward-Looking Statements; Market Data
 
As used in this Quarterly Report, the terms "we", "us", "our" and the "Company" means American International Industries, Inc., a Nevada corporation, and its subsidiaries. To the extent that we make any forward-looking statements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report, we emphasize that forward-looking statements involve risks and uncertainties and our actual results may differ materially from those expressed or implied by our forward-looking statements. Our forward-looking statements in this Quarterly Report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties. Generally, forward-looking statements include phrases with words such as "expect", "anticipate", "intend", "plan", "believe", "seek", "estimate" and similar expressions to identify forward-looking statements.
 
Overview
 
American International Industries, Inc., organized under the laws of the State of Nevada in September 1994, is a diversified corporation with interests in industrial companies, oil and gas interests, oilfield supply and service companies, and interests in undeveloped real estate in the Galveston Bay, TX area. The Company’s business strategy is to acquire controlling equity interests in undervalued companies and take an active role in its new subsidiaries to improve their growth, by providing its subsidiaries with access to capital, leveraging synergies and providing its subsidiaries with the Company's management expertise. The Company is sometimes referred to as "we", "us", "our", and other such phrases as provided in Regulation F-D (Fair Disclosure).
 
American International Industries, Inc. is a holding company and has three reporting segments and corporate overhead:
 
·Northeastern Plastics (NPI) - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
·Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.
·Delta Seaboard Well Service (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
·Corporate overhead - the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.  Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on the Company's balance sheet at $0.  Through Brenham Oil & Gas, the Company is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves.  The Company is seeking to enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by the Company, to assist them with the resources required to develop their reserves.
 
The historical financial statements of the Company include the acquisitions of acquired companies as of the effective dates of the purchases, and the results of those companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.
 
We intend to continue our efforts to grow through the acquisition of additional and complimentary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complimentary businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples and which present opportunity for growth and profitability. These efforts will include the application of improved access to financing and management expertise afforded by synergistic relationships between the Company and its subsidiaries. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with our expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity. Periodically as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to the holding company and our shareholders and to enable the Company to acquire larger companies.
 
The Company’s real estate investment policy historically has been to acquire real estate for resale based upon our view of market conditions. Such properties are listed on the balance sheet as real estate acquired for resale.  Real estate is not a segment of the Company's business.
25
We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and may lead to higher acquisition prices. There can be no assurance that we will be able to identify, acquire or manage profitably of additional businesses or to integrate any acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Further, acquisitions involve a number of risks, including possible adverse effects on our operating results, diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities. Some or all of which could have a material adverse effect on our business, financial condition and results of operations. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. It is our current intention to finance future acquisitions by using shares of our common stock and other forms of financing as the consideration to be paid. In the event that the common stock does not have and maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept common stock as part of the consideration for the sale of their businesses, we may be required to seek other forms of financing in order to proceed with our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional equity or debt financing at terms acceptable to the Company.

On December 31, 2008, the board of directors of the Company approved the deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from the Company. To effect the deconsolidation of Hammonds, the Company was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 17.4 million shares of Hammonds’ common stock to the Company’s shareholders of record on December 31, 2008, the Company’s ownership is proximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to the Company. As a result, the majority of Hammonds’ board of directors is no longer controlled by the Company. Additionally, a reduction of the Company’s guarantee of Hammonds’ debt was obtained from Texas Community Bank.
 
Corporate overhead includes our investment activities for financing current operations and expansion of our current holdings, as well as evaluating the feasibility of acquiring additional businesses.
 
Results of Operations
 
Three and Nine Months Ended September 30, 2009 Compared to Three and Nine Months Ended September 30, 2008.
 
The following is derived from, and should be read in conjunction with, our unaudited consolidated financial statements, and related notes for the three and nine months ended September 30, 2009 and 2008.
 
Net revenues. For the three months ended September 30, 2009, revenues from continuing operations were $8,509,019, compared to $11,830,033 for the three months ended September 30, 2008, representing a decrease of $3,321,014, or 28%.  Revenues from continuing operations were $20,936,148 for the nine months ended September 30, 2009, compared to $22,416,228 for the nine months ended September 30, 2008, representing a decrease of $1,480,080, or 7%.
 
Delta reported revenues of $2,151,180 for the three months ended September 30, 2009, compared to $6,669,974 for the same period in 2008, representing a decrease of $4,518,794, or 68%. For the nine months ended September 30, 2009, Delta's revenues were $6,946,305, compared to $13,922,772 for the nine months ended September 30, 2008, representing a decrease of $6,976,467, or 50%.  The decrease in revenues at Delta is due to a decrease in pipe sales for the three and nine months of $4,346,732 and $7,123,501, respectively, to the oil field service industry.  Pipe sales revenues have decreased due to a decline in drilling activity creating a decline in demand for pipe.
 
The results of SET for the three and nine months ended September 30, 2009 are included in our results of operations. SET began operations on October 8, 2008.  For the three and nine months ended September 30, 2009, SET's revenues were $2,234,510 and $6,228,827, respectively. For the three and nine months ended September 30, 2009, SET's net operating loss was $109,367 and net operating income was $130,908, respectively.
 
Revenues at NPI during the three months ended September 30, 2009 were $4,123,329, compared to $5,160,059 for the three months ended September 30, 2008, representing a decrease of $1,036,730, or 20%.  NPI's revenues were $7,761,016 for the nine months ended September 30, 2009, compared to $8,493,456 for the nine months ended September 30, 2008, representing a decrease of $732,440, or 9%.  NPI's strategic plan for 2009 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.  During the second quarter of 2009, NPI added two large accounts and began making shipments to these customers.  NPI is highly reliant upon a small customer base, with approximately 60% of its sales being generated through one principal customer. There is significant risk in having such a large portion of revenues concentrated to this extent and the loss of one or more principal customers could result in a reduction in NPI’s revenues.  The sales of NPI have historically been subject to sharp seasonal variations.
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Income / loss from operations. Our operating loss for the three months ended September 30, 2009 was $980,407, compared to operating income of $1,261,050 for the three months ended September 30, 2008.  Our operating loss for the nine months ended September 30, 2009 was $1,951,504, compared to the operating income of $200,911 for the nine months ended September 30, 2008.  For the nine months ended September 30, 2009, selling, general and administration costs increased as a percentage of revenues to 41%, compared to 37% for the same period in 2008.  Additionally, margins declined to 32% for the nine months ended September 30, 2009, compared to 38% for the same period in 2008, primarily due to the decline in pipe sales at Delta.  The margins on pipe sales are historically greater than the margins on our other revenue components.
 
Total other income/expenses. Other income was $67,488 for the three months ended September 30, 2009, compared to other expense of $1,530,517 for the three months ended September 30, 2008.  Other income was $75,774 for the nine months ended September 30, 2009, compared to other expense of $2,611,382 for the nine months ended September 30, 2008.  Net realized/unrealized gains on trading securities were $200,382 for the three months ended September 30, 2009, compared to net losses of $1,570,137 for the three months ended September 30, 2008.  Net realized/unrealized gains on trading securities were $250,025 for the nine months ended September 30, 2009, compared to net losses of $4,152,668 for the nine months ended September 30, 2008.  The net unrealized losses on trading securities of $4,232,221 for the nine months ended September 30, 2008, were due primarily to the decline in the market value of our investment in Rubicon Financial Incorporated of $3,349,510 (see note 2).  Other expense for the nine months ended September 30, 2008 included $2,945,133 for recognition of the property dividend distribution gain associated with the declaration of the Hammonds’ stock dividend (see note 18) and the recognition of $1,450,000 for the Delta lawsuit settlement (see note 16).  After noncontrolling interest, the net impact of this settlement on our net income was $739,500.   For the nine months ended September 30, 2009, American recognized other income in the amount of $205,534, of which $175,000 was for providing right-of-way access on the 287 acres in Galveston County.  Interest expense was $705,264 for the nine months ended September 30, 2009, compared to $586,632 for the nine months ended September 30, 2008.  The increase in interest expense was due primarily to the $5 million in debt used to fund the acquisition of the assets of Shumate Machine Works.
 
Net loss. We had a net loss from continuing operations of $926,302 for the three months ended September 30, 2009, compared to a net loss of $313,418 for the same period in 2008.  We had a net loss from discontinued operations of $995,348, or $0.12 per share for the three months ended September 30, 2008.  Our net loss was $911,642, or $0.10 per share, for the three months ended September 30, 2009, compared to a net loss of $2,037,301, or $0.12 per share, for the three months ended September 30, 2008.  We had a net loss from continuing operations of $1,914,343 for the nine months ended September 30, 2009, compared to a net loss of $2,379,982 for the same period in 2008.  We had a net loss from discontinued operations of $350,000, or $0.04 per share, for the nine months ended September 30, 2009, compared to a net loss of $2,471,957, or $0.33 per share, for the same period in 2008.  Our net loss was $1,957,029, or $0.23 per share, for the nine months ended September 30, 2009, compared to a net loss of $5,041,848, or $0.67 per share, for the nine months ended September 30, 2008.
 
Liquidity and Capital Resources
 
Total assets/working capital. Total assets at September 30, 2009 were $34,088,981, compared to $35,977,944 at December 31, 2008, representing a decrease of $1,888,963.  The primary reason for the decrease in total assets resulted from the use of cash and the redemption of certificates of deposit to reduce our debt by $1,344,392 and to pay for operating expenses.  At September 30, 2009, our working capital surplus was $15,119,009, compared to a working capital surplus of $18,196,027 at December 31, 2008, representing a decrease in working capital of $3,077,018.  Delta's and NPI's lines of credit with their banks of $1,369,907 and $1,965,000, respectively, were reclassified from long-term to current during the period.  These lines of credit have historically been renewed prior to the due date for a period of 18 to 24 months.
 
Cash flow from operations. For the nine months ended September 30, 2009, cash flow used in operations was $799,105, compared to cash flow used in operations of $1,721,861 during the same period in 2008.  Our net loss of $1,914,343 for the nine months ended September 30, 2009 included non-cash expenses of $1,322,372, including depreciation and amortization of $885,942 and share-based compensation of $436,430.  Our net loss of $2,379,982 for the nine months ended September 30, 2008 included non-cash income of $2,945,133 for recognition of the property dividend distribution gain associated with the declaration of the Hammonds’ stock dividend (see note 18) and non-cash expenses of $6,676,243, including unrealized losses on trading securities of $4,232,221, recognition of $1,450,000 for the Delta lawsuit settlement (see note 16), depreciation and amortization of $360,958, share-based compensation of $633,064.  Our inventories decreased by $56,977 for the nine months ended September 30, 2009, compared to a decrease of $467,281 during the nine months ended September 30, 2008.  We decreased our investments in trading securities by $300,840 during the nine months ended September 30, 2009, compared to a decrease of $14,042 during the same period in 2008.  Accounts receivable increased by $1,464,111 during the nine months ended September 30, 2009, compared to an increase of $4,411,164 during the same period in 2008.  Prepaid expenses increased by $89,662, other assets decreased by $27,519, and accounts payable increased by $1,211,328 for the nine months ended September 30, 2009.  For the nine months ended September 30, 2008, prepaid expenses increased by $158,956, deposits for pipe inventory purchases increased by $1,748,601, other assets increase by $7,295, and accounts payable increased by $2,908,846.
Cash flow from investing activities. Our investing activities provided cash of $1,371,632 during the nine month period ended September 30, 2009, as a result of a net decrease in investments in certificates of deposit of $1,550,000, offset by the issuance of a note receivable of $300,000.  This is compared to cash provided by investing activities during the same period in the prior year in the amount of $945,237, as a result of a net decrease in investments in certificates of deposit of $1,220,000 and proceeds from the sale of drilling rig equipment of $200,000, offset by the issuance of notes for $432,424 and the purchase of property and equipment of $171,547.
 
Cash flow from financing activities. During the nine months ended September 30, 2009, our financing activities used cash of $1,338,678 compared to cash provided of $2,009,933 during the same period in 2008.  During the nine month period ended September 30, 2009, we received net proceeds from the issuance of debt of $283,851 and from line-of-credit agreements of $568,479.  We made payments of $1,912,871 on debt, and purchased 237,046 shares of treasury stock at a cost of $225,332.  During the 2008 period, we received net proceeds from the issuance of debt of $3,567,663 and from line-of-credit agreements of $1,045,000. We made payments of $2,797,213 on debt and margin loans during the nine month period ended September 30, 2008.
 
Real estate. During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County appraised at $540,000 as a guarantor's fee.  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 continues to own 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 CBRE on an exclusive basis to sell the property for an increased listing price of $25,000,000.
 
NPI's line of credit. On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia.  The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of its debt and interest payments since the inception of the line of credit.  The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required.  Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group review NPI for a new loan.  This group declined the loan and the bank has recommended another lender.  NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. NPI has a consistent and growing base of business with large seasonal sales received in the third and fourth quarters.  Historically, during this period every year, NPI receives a large order from its primary customer and briefly exceeds its borrowing base to make the inventory purchases necessary to fill that order.  For the past 10 years, this has not been a problem and NPI's representative at the bank has always been willing to work with NPI.  At September 30, 2009, NPI’s line of credit balance was $1,965,000 and as of this filing, the balance has been reduced by $470,000 to $1,495,000.  NPI’s current assets at September 30, 2009 were $6,606,233, and included $3,633,821 and $2,685,384 in accounts receivable and inventory, respectively.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
Not applicable.
 
ITEM 4T. CONTROLS AND PROCEDURES
 
Evaluation of disclosure controls and procedures. As of September 30, 2009, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
 
Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs are claiming an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. The attorneys for Delta’s insurance company have filed a motion to disregard certain jury findings and for a judgment notwithstanding the verdict, on the basis that there is no evidence to support the jury’s findings that Delta was negligent or to support the jury’s damage awards. In the event that this motion is denied, the attorneys plan a motion for a new trial. The attorneys believe that there will be an opportunity to enter into a settlement agreement. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available liability insurance coverage to fund any settlement that might be reached in this case, or to respond to any judgment that might be entered. Delta intends to vigorously defend this case, unless some reasonable settlement can be reached before then. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
 
ITEM 1A. RISK FACTORS
 
There have been no material changes from Risk Factors as previously disclosed in the Registrant’s annual report for the year ended December 31, 2008.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
ITEM 5. OTHER INFORMATION
 
None.
 
ITEM 6. EXHIBITS
 
(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
 
Exhibit No.
Description
31.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
 
(b) Reports on Form 8-K During the Period Covered by this Report: None.
 
 
 
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SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
 
 
/s/ DANIEL DROR
   CEO, PRESIDENT AND CHAIRMAN
   Dated:  November 13, 2009
 
 
/s/ SHERRY L. COUTURIER
   CHIEF FINANCIAL OFFICER
   Dated:  November 13, 2009