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 req