PINX:AMIND Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012


 
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 June 30, 2012
 
OR
 
 
¨                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________
 
Commission File No.: 1-33640
 
AMERICAN INTERNATIONAL INDUSTRIES, INC.
 
(Exact Name Of Registrant As Specified In Its Charter)
 
Nevada
88-0326480
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
601 Cien Street, Suite 235, Kemah, TX
77565-3077
(Address of Principal Executive Offices)
(ZIP Code)
 
 Registrant's Telephone Number, Including Area Code: (281) 334-9479
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes 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
 
The number of shares outstanding of each of the issuer’s classes of equity as of August 14, 2012 is 15,445,445 shares of common stock and 1,000 shares of preferred stock.
 
 

 
 
Item
Description
Page
 
PART I - FINANCIAL INFORMATION
 
 
   
ITEM 1.
3
ITEM 2.
23
ITEM 3.
27
ITEM 4.
27
 
   
 
PART II - OTHER INFORMATION
 
 
   
ITEM 1.
28
ITEM 1A.
28
ITEM 2.
28
ITEM 3.
29
ITEM 4.
29
ITEM 5.
29
ITEM 6.
29
 
 
2
 

 
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
 
 
 
3
 

 
(Unaudited)
   
June 30, 2012
   
December 31, 2011
 
Assets
           
Current assets:
           
   Cash and cash equivalents
 
$
2,076,690    
$
869,246
 
   Trading securities
    144,744      
155,600
 
   Accounts receivable from related parties     6,494       -  
   Accounts receivable, less allowance for doubtful accounts
               
     of $30,555 and $24,290, respectively
    1,047,660      
1,211,000
 
   Short-term notes receivable     -       62,500  
   Current portion of notes receivable
    525,349      
320,359
 
   Inventories, net
    2,323,303      
1,905,015
 
   Real estate held for sale
    7,385,031      
7,915,512
 
   Prepaid expenses and other current assets
    141,021      
77,782
 
   Assets held for sale     -       3,577,340  
     Total current assets
    13,650,292      
16,094,354
 
  
               
Long-term notes receivable, less current portion
    1,470,951      
296,300
 
Oil & gas properties - unproved     8,400       8,400  
Property and equipment, net of accumulated depreciation and amortization
    2,001,824      
2,028,532
 
Goodwill
   
674,539
     
674,539
 
Patents & trademarks, net of accumulated amortization     105,184       44,910  
Marketable securities - available for sale     13,000       7,800  
Other assets
    4,005      
4,005
 
Assets held for sale     -       1,707,686  
       Total assets
 
$
17,928,195    
$
20,866,526
 
Liabilities and Equity
               
Current liabilities:
               
   Accounts payable and accrued expenses
 
$
913,058    
$
1,933,212
 
   Bank overdrafts     23,908       26,596  
   Short-term notes payable
   
65,719
     
145,719
 
   Accounts and notes payable to related parties
    6,545      
6,497
 
   Current installments of long-term debt
    37,862      
2,045,359
 
   Liabilities associated with assets held for sale     -       2,763,857  
     Total current liabilities
    1,047,092      
6,921,240
 
                 
Accrued pension expense     51,143       56,277  
Long-term debt, less current installments
    4,346,898      
1,374,955
 
Liabilities associated with assets held for sale     -       49,843  
     Total liabilities
    5,445,133      
8,402,315
 
                 
Commitments and contingencies 
   
-
     
 -
 
                 
 
 
4
 
 
 
   
June 30, 2012
   
December 31, 2011
 
Equity:
               
   Preferred stock, $0.001 par value, 1,000,000 authorized, 1,000 shares
   
 
     
 
 
       issued and outstanding     1       1  
   Common stock, $0.001 par value, 50,000,000 authorized;
               
       16,097,142 and 16,017,142 shares issued, respectively and
               
       15,359,945 and 15,364,711 shares outstanding, respectively
    16,097      
16,017
 
   Additional paid-in capital
    38,001,830      
36,938,146
 
   Stock subscription receivable     (72,000     (72,000 )
   Accumulated deficit
   
(23,723,570
   
(23,066,214
   Accumulated other comprehensive loss     (1,392,000     (1,397,200
   Less treasury stock, at cost; 737,197 and 652,431 shares, respectively
   
(649,730
   
(628,694
   Total American International Industries, Inc. equity
    12,180,628      
11,790,056
 
       Noncontrolling interest
    302,434      
674,155
 
   Total equity
    12,483,062      
12,464,211
 
   Total liabilities and equity
 
 $
17,928,195    
$
20,866,526
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
  
 
2012
   
2011
   
2012
   
2011
 
                             
Revenues
  $ 979,027     2,419,031     $ 2,132,441     $ 4,021,340  
Costs and expenses:
                               
   Cost of sales
    699,483       1,762,961       1,500,299       2,925,013  
   Selling, general and administrative
    1,079,870       1,048,047       2,062,715       2,619,542  
     Total operating expenses
    1,779,353       2,811,008       3,563,014       5,544,555  
                                 
   Loss on sale of assets     (55,272     -       (68,010     -  
                                 
Operating loss
    (855,598     (391,977     (1,498,583     (1,523,215 )
  
                               
Other income (expenses):
                               
   Interest and dividend income
    19,057       8,101       19,434       13,697  
   Botts lawsuit settlement     (49,281     -       (49,281 )     -  
   Realized gains (losses) on the sale of trading securities, net     12,764       (401,655     12,764       (256,843
   Unrealized gains (losses) on trading securities, net      (78,604     316,112        (8,458     (83,433 )
   Interest expense
    (58,504     (89,300     (117,512     (168,819 )
   Other income (expense)
    218       (4,700     18,549       (6,402
     Total other expenses
    (154,350     (171,442     (124,504     (501,800
  
                               
     Loss before income tax
    (1,009,948     (563,419     (1,623,087     (2,025,015 )
     Income tax expense (benefit)
    13,640       2,895       (26,558     5,010  
     Loss from continuing operations, net of income taxes
    (1,023,588     (566,314     (1,596,529    
(2,030,025
     Gain (loss) on disposal of discontinued operations     1,498,327       5,000       1,498,327       (50,000
     Income (loss) from discontinued operations, net of income taxes
    -       (7,167     (922,517     132,623  
     Net income (loss)
    474,739       (568,481     (1,020,719     (1,947,402 )
     Net (income) loss attributable to the noncontrolling interest     (166,194     22,530       363,363       22,501  
     Net income (loss) attributable to American International Industries, Inc.   308,545     (545,951   $ (657,356   $ (1,924,901
Net income (loss) per common share - basic and diluted:                                
     Continuing operations   (0.07   (0.04   $ (0.10   (0.17
     Discontinued operations     0.10        (0.00     0.04       0.01  
     Noncontrolling interest     (0.01     (0.00     0.02       (0.00
     Total
  $ 0.02     (0.04   $ (0.04   $ (0.16
  
                               
Weighted average common shares outstanding - basic and diluted
    15,332,114       12,947,596       15,332,282       12,177,693  
                                 
Comprehensive income (loss):                                
     Net income (loss)   474,739     (568,481   $ (1,020,719   (1,947,402
     Unrealized gain (loss) on marketable securities     7,540       6,500       5,200       (110,500 )
Total comprehensive income (loss)     482,279       (561,981     (1,015,519     (2,057,902
     Comprehensive (income) loss attributable to the noncontrolling interests     (166,194     22,530       363,363       22,501  
Comprehensive income (loss) attributable to American International Industries, Inc.   $ 316,085     (539,451   $ (652,156   $ (2,035,401
   
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
6

 
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended June 30,
   
2012
   
2011
 
Cash flows from operating activities:
               
   Net loss
 
$
(1,020,719
)
 
$
(1,947,402
)
   Income from discontinued operations, net of income taxes     575,810       82,623  
   Net loss from continuing operations     (1,596,529     (2,030,025
   Adjustments to reconcile net loss from continuing operations to net cash used in operating activities from continuing operations:
               
       Depreciation and amortization
    37,908      
32,285
 
       Share-based compensation
    22,600       771,308  
       Amortization of guarantor fee     17,027       -  
       Other income from forgiveness of debt     (15,000     -  
       Loss on sale of assets     68,010       -  
       Realized (gains) losses on the sale of trading securities, net
    (12,764
)
   
256,843
 
       Unrealized losses on trading securities, net
    8,458       83,433
 
       Change in operating assets and liabilities:
               
          Accounts receivable
    163,340      
768,158
 
          Inventories
    (418,288    
(425,237
)
          Prepaid expenses and other current assets
    (80,266    
(78,622
          Other assets
    -      
10,999
 
          Accounts payable and accrued expenses
    56,850
 
   
(2,041,389
             Net cash used in operating activities from continuing operations
    (1,748,654    
(2,652,247
                 
Cash flows from investing activities from continuing operations:
               
   Investment in certificate of deposit     (50,000     (4,617
   Redemption of certificate of deposit     50,000       -  
   Purchase of trading securities     (9,069     (951,427 )
   Sale of trading securities     24,231       1,157,022  
   Proceeds from sale of subsidiary     1,600,000       -  
   Proceeds from sale of real estate     462,471       -  
   Purchase of property and equipment
    (3,510
)
   
(2,297
)
   Costs of securing patents and trademarks     (67,964 )     -  
   Proceeds from notes receivable
    82,859      
19,106
 
            Net cash provided by investing activities from continuing operations
    2,089,018
 
    217,787
 
  
               
Cash flows from financing activities from continuing operations:
               
   Proceeds from issuance of common stock
    -      
903,000
 
   Net borrowings under line of credit agreements
    1,094,000
 
   
645,463
 
   Bank overdrafts     (2,688     -  
   Proceeds from margin loans     -       156,328  
   Principal payments on debt
    (194,554
)
   
(252,594
)
   Loans to related parties     (6,446     (85
   Payments for acquisition of treasury stock of subsidiary     (2,196     -  
   Payments for acquisition of treasury stock
    (21,036
)
   
(13,767
            Net cash provided by financing activities from continuing operations
    867,080      
1,438,345
 
                 
Net increase (decrease) in cash and cash equivalents from continuing operations
    1,207,444       (996,115 )
Cash and cash equivalents at beginning of period
    869,246       1,446,690  
Cash and cash equivalents at end of period
  $ 2,076,690     450,575  
 
 
 
7

 
 
 
Six Months Ended June 30,
   
2012
   
2011
 
Discontinued operations:                
   Net cash provided by operations   $ 300,902     331,351  
   Net cash used in investing activities     (125,399     (114,056 )
   Net cash used in financing activities     (186,158     (113,343
Net decrease in cash and cash equivalents from discontinued operations     (10,655     103,952  
Cash and cash equivalents at beginning of period from discontinued operations     10,655       24,672  
Cash and cash equivalents at end of period from discontinued operations   $ -     128,624  
                 
                 
Supplemental cash flow information:                
   Interest paid    110,271     $ 158,561  
   Income taxes paid   -      $ -  
                 
Non-cash investing and financing transactions:
               
   Unrealized gains on marketable securities   $ 5,200     $ -  
   Unrealized loss on marketable securities   -     $ 110,500  
   Note payable issued for lawsuit settlement   $ -     $ 400,000  
   Adjustment to noncontrolling interest in Delta and BOG   $ 565,113     $ 33,262  
   Delta preferred dividends declared and unpaid
 
$
20,000    
$
120,000  
   Reversal of preferred dividends of Delta   1,055,000     $ -  
   Stock issued to related party for receivable   $ -     $ 568,382  
   Preferred stock issued to officer as guarantor fee   $ -     $ 49,463  
   Note receivable received from sale of subsidiary   $ 1,400,000     $ -  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements
 
 
8

 
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, 2011. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Form 10-K have been omitted.

Organization, Ownership and Business

American, a Nevada corporation, operates as a diversified holding company with a number of wholly-owned subsidiaries and some partially owned subsidiaries. American is a diversified corporation with interests in industrial/commercial companies and an oil and gas service business. American's business strategy is to acquire controlling equity interests in businesses that it considers undervalued. American's management takes an active role in providing its subsidiaries with access to capital, leveraging synergies and providing management expertise in order to improve its subsidiaries' growth.

Principles of Consolidation

The consolidated financial statements include the accounts of American International Industries, Inc. ("American") and its wholly-owned subsidiaries Northeastern Plastics, Inc. ("NPI") and American International Texas Properties, Inc. ("AITP"), Delta Seaboard International, Inc. ("Delta"), in which American holds a 86.8% shareholder interest, and Brenham Oil & Gas Corp. (“BOG”), in which American holds a 53.2% interest.  All significant intercompany transactions and balances have been eliminated in consolidation.
 
On April 3, 2012, Delta entered into an Asset Purchase Agreement with Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, Delta's president and director and vice-president and director, respectively, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and a wholly-owned subsidiary of Delta, and American.
 
The agreement provided, among other things, that: (i) Delta sell, transfer and assign the assets and liabilities of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resign as executive officers and as members of Delta’s board of directors; and (iii) Messrs. Derrick and Burleigh transfer and assign all of their 31,925,832 Delta shares valued at $624,704 to American. In consideration for the sale, transfer and assignment of the DSWSI net assets to Purchaser, Purchaser paid $1,600,000 in cash at the closing and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000.  Total consideration for the sale was $3,000,000.  The note is personally guaranteed by Messrs. Derrick and Burleigh and is secured by the 3.2 acre parcel on which the business of DSWSI is located (the "DSWSI Property"). Notwithstanding its 5 year term, the Note expressly provides that the principal and interest shall be prepaid in full upon the sale of the DSWSI Property. Delta will receive additional consideration equal to the amount that Delta LLC receives from the planned sale of the 3.2 acre property in excess of $3 million. This property is currently being offered for sale for $4.25 million, which both Delta and American believe is the fair market value of the property.
 
The assets of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheet as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673 (Note 7).  DSWSI's net loss of $922,517 for the six months ended June 30, 2012, and a net loss of $7,167 and net income of $137,033 for the three and six months ended June 30, 2011, respectively, are included in discontinued operations.
 
 
 
9
 

 
Currently, corporate overhead includes BOG, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas and an oil field in Abilene, Texas.  Through BOG, the Company is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves.  The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. In April 2010, American entered into a Separation and Distribution Agreement to spin off Brenham Oil & Gas, Inc., which was 100% owned by American. In conjunction with this transaction, American formed Brenham Oil & Gas, Corp. with authorized common stock of 200,000,000 shares and authorized preferred stock of 10,000,000 shares. BOG issued 64,977,093 shares of common stock to American for all shares of Brenham Oil & Gas, Inc., of which American issued as a dividend 10,297,019 shares to the existing stockholders of American. American maintains control of Brenham through ownership of 58,680,074 shares of Brenham's common stock, representing about 53.2% of the outstanding shares as of December 31, 2011.
The resale registration statement of Brenham was declared effective by the SEC on May 16, 2011. This registration statement registered 10,279,019 shares of Brenham common stock issued to American shareholders as a dividend on July 21, 2010. BOG is a separate reporting company, and BOG's common stock is quoted on the Over-The-Counter Bulletin Board beginning in August 2011.
 
Reclassifications
 
Certain reclassifications have been made to amounts in prior periods to conform with the current period presentation.  All reclassifications have been applied consistently to the periods presented.

Net Income (Loss) Per Share

The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities.  For the three and six months ended June 30, 2012, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net income (loss) per common share. These securities include 100,000 options to purchase shares of common stock that were not "in the money".  No dilutive securities were outstanding for the three and six months ended June 30, 2011.
 
Management's Estimates and Assumptions

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
 
Fair Value of Financial Instruments

Effective January 1, 2008, American adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
 
Basis of Fair Value Measurement
 
Level 1    Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
Level 2    Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
Level 3   Unobservable inputs reflecting American's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
 
American believes that the fair value of its financial instruments comprising cash, accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.  The interest rates payable by American on its notes payable approximate market rates.  The fair values of American's Level 1 financial assets, trading securities and marketable securities - available for sale that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security. As of June 30, 2012 and December 31, 2011, American did not have any significant Level 2 or 3 financial assets or liabilities.
10
 

 
The following tables provide fair value measurement information for American's trading securities and marketable securities - available for sale:
 
   
As of June 30, 2012
 
               
 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
 
$
144,744    
$
144,744
   
$
144,744
   
$
-
   
$
-
 
  Marketable Securities - available for sale   $ 13,000     $ 13,000     $ 13,000      -      -  
 
   
As of December 31, 2011
 
               
 Fair Value Measurements Using:
 
   
Carrying
Amount
   
Total
Fair Value
   
Quoted Prices
in Active Markets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Financial Assets:
                             
  Trading Securities
 
$
155,600
   
$
155,600
   
$
155,600
   
$
-
   
$
-
 
  Marketable Securities - available for sale   $ 7,800     $ 7,800     $ 7,800      -      -  
 
Subsequent Events
 
American has evaluated all transactions from June 30, 2012 through the financial statement issuance date for subsequent event disclosure consideration.
 
New Accounting Pronouncements
 
There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.
 
Note 2 - Concentrations of Credit Risk
 
American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. The FDIC no longer has limits on non-interest bearing accounts. Although the financial institutions are considered creditworthy, at June 30, 2012, American's cash and certificates of deposit balances held in banks in interest bearing accounts exceeded the limit covered by the Federal Deposit Insurance Corporation by approximately $7,200. The terms of these deposits are on demand to minimize risk. American has not incurred losses related to these deposits.
 
Trade accounts receivable subject American to the potential for credit risk with customers in the retail and distribution sectors. To reduce credit risk, American performs ongoing evaluations of its customer’s financial condition but generally does not require collateral. As of and during the six months ended June 30, 2012, NPI had one customer that accounted for 21% of revenues and 21% of trade accounts receivable, one customer that accounted for 16% of revenues and 10% of trade accounts receivable, one customer that accounted for 11% of revenues, and one customer that accounted for 11% of revenues on a consolidated basis.
 
 
 
11
 

 
Note 3 - Trading Securities and Marketable Securities - Available for Sale
 
Investments in equity securities primarily include shares of common stock in various companies that are bought and held principally for the purpose of selling them in the near term with the objective of generating profits on short-term differences in price. These investments are classified as trading securities and, accordingly, any unrealized changes in market values are recognized in the consolidated statements of operations.  For the three months ended June 30, 2012 and 2011, American had net unrealized trading losses of $78,604 and gains of $316,112, respectively, related to securities held on those dates.  American recorded net realized gains of $12,764 and losses of $401,655 for the three months ended June 30, 2012 and 2011, respectively.  For the six months ended June 30, 2012 and 2011, American had net unrealized trading losses of $8,458 and $83,433, respectively, related to securities held on those dates.  American recorded net realized gains of $12,764 and losses of $256,843 for the six months ended June 30, 2012 and 2011, respectively.
 
On June 21, 2010, American received as compensation for consulting services 1,000,000 restricted shares of ADB International Group, Inc. ("ADBI") common stock valued at $1,370,000, based on the closing market price of $1.37 per share on that date.  On December 8, 2010, American purchased an additional 300,000 shares for $35,000. This investment is classified as marketable securities - available for sale and, accordingly, any unrealized changes in market values are recognized as other comprehensive loss.  At June 30, 2012, this investment was valued at $13,000, based on the closing market price of $0.01 per share on that date.  American recognized other comprehensive gains for the three months ended June 30, 2012 and 2011, of $7,540 and 6,500, respectively, for the unrealized changes in market values for this investment.  American recognized other comprehensive gains of $5,200 for the six months ended June 30, 2012 and losses of $110,500 for the six months ended June 30, 2011 for the unrealized changes in market values for this investment.
 
Equity markets can experience significant volatility and therefore are subject to changes in value. Based upon the current volatile nature of the U.S. securities markets and the decline in the U.S. economy, we believe that it is possible, that the market values of our equity securities could decline in the near term. We have a policy in place to review our equity holdings on a regular basis. Our policy includes, but is not limited to, reviewing each company’s cash position, earnings/revenue outlook, stock price performance, liquidity and management/ownership. American seeks to manage exposure to adverse equity returns in the future by potentially increasing the diversity of our securities portfolios.
 
Note 4 - Notes receivable
 
Short-term notes receivable consists of the following:
   
June 30, 2012
   
December 31, 2011
 
Unsecured note receivable, interest at 3%, principal and interest due on March 30, 2012 (a)   $
-
    $
 62,500
 
 
(a) Unsecured note receivable due March 30, 2012.  This note replaced the $120,000 note previously owed by Lakeland Partners III, L.P.  In September 2011, American and Shell entered into an agreement whereby the $120,000 note was paid in full for the consideration of $62,500 in cash and a new note agreement for $62,500, due in full with interest on March 30, 2012.  On June 15, 2012, Shell paid the balance due on this note.
 
Long-term receivables consists of the following:
   
June 30, 2012
   
December 31, 2011
 
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through September 5, 2012
  $ -     $
20,359
 
Unsecured note receivable for sale of former subsidiary, Marald, Inc., due in monthly payments of $3,074, including interest at 4%, beginning July 1, 2012 through June 1, 2022 (a)
   
300,000
     
300,000
 
Note receivable for the sale of DSWSI, interest due monthly at 5%, principal due on or before April 3, 2017, or upon sale of the 3.2 acre property securing the note (Note 1)     1,400,000       -  
Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (b)    
-
      300,000  
Unsecured note receivable, interest at 3% due in semi-annual payments, principal due on or before October 1, 2014 (c)     596,300       596,300  
Total notes receivable
    2,296,300      
1,216,659
 
Reserve due to uncertainty of collectability      (300,000     (600,000
      1,996,300       616,659  
Less current portion
   
(525,349
   
(320,359
Long-term notes receivable
 
$
1,470,951    
$
296,300
 
12
 

 
(a) Sale of former subsidiary, Marald, Inc., principal and interest due monthly through July 2012.  The original note was for $300,000 and was discounted to $200,000 for the receipt of full payment on or before October 25, 2007.  On May 4, 2010, a new promissory note was executed in the amount of $300,000 for the note balance plus accrued interest, with the payment terms indicated above.  As of June 30, 2012, the other note receivable with Marald has been paid in full and payments began on this note under a new extension and renewal agreement in July 2012.
 
(b) Note purchased from Texas Community Bank with a face amount of $300,000.  This delinquent note owed by Las Vegas Premium Gold was purchased on September 30, 2009 for $300,000.  This note was purchased as an investment to receive the interest income from the note.  During the three months ended June 30, 2012, American wrote this note off against the notes receivable reserve.
 
(c) Unsecured note receivable due October 1, 2014. This note was issued for $601,300. This note was previously owed by Southwest Gulf Coast Properties, Inc. ("SWGCP") resulting from closing costs, principal and interest paid by American on the SWGCP loan at TXCB. In February, SWGCP obtained a judgment against Kentner Shell ("Shell"), who personally guaranteed the note, for $4,193,566 for matters related to these condominiums.  On June 30, 2011, SWGCP assigned all of its interests in this judgment to American in exchange for this note and $10.  In September 2011, American and Shell entered into an agreement whereby Shell will make quarterly payments in the amount of $100,000, beginning April 1, 2012.  Further, in the event that Shell pays $400,000 on or before October 1, 2012, the debt will be considered paid in full.  In the event that Shell pays $500,000 on or before October 1, 2013, the debt will be considered paid in full. Shell previously owed a short-term note of $62,500 that was due in full with interest on March 30, 2012. On June 15, 2012, Shell paid the balance due on this note. Management believes that because Shell has paid the short-term note and has sufficient assets to pay the balance of this note that this note is fully collectible. American has not specifically discounted this note due to the $300,000 reserve due to uncertainty of collectability which has been recorded for notes receivable.
 
American has reserved a total of $300,000 due to uncertainty of collectability. American believes this reserve remains appropriate at June 30, 2012.
 
Interest income on notes receivable is recognized principally by the simple interest method.  During the three and six months ended June 30, 2012 and 2011, American recognized interest income of $18,890, $19,187, $815, and $4,965, respectively.
 
Note 5 - Inventories
 
Inventories consisted of the following:
   
June 30, 2012
   
December 31, 2011
 
Finished goods
  $ 2,343,348     $ 1,906,947  
Less reserve
    (20,045 )     (1,932 )
    $ 2,323,303     $ 1,905,015  
 
Note 6 - Real Estate Held for Sale
 
Real estate held for sale consisted of the following:
   
June 30, 2012
   
December 31, 2011
 
65 acres in Galveston County, Texas   $ 520,382     $ 520,382  
1.705 acres in Galveston County, Texas     460,000      
460,000
 
Two residential lots in Galveston County, Texas     95,861       95,861  
Dawn Condominium units on the waterfront in Galveston, Texas; 11 units and 15 units as of June 30, 2012 and December 31, 2011, respectively (a)     1,344,328       1,874,809  
14 acres - vacant commercial use land in Houston, Texas     160,925       160,925  
5 acres - vacant commercial use land in Houston, Texas      1,303,905       1,303,905  
19 acres - vacant mixed use land in Houston, Texas      1,072,833       1,072,833  
12 acres - vacant mixed use land in Houston, Texas      742,731       742,731  
174 acres in Waller County, Texas    
1,684,066
     
1,684,066
 
   
$
7,385,031    
$
7,915,512
 
 
(a) Dawn Condominium units on the waterfront in Galveston, Texas - During the three months ended June 30, 2012, one Dawn Condominium unit was sold for $122,269, resulting in a loss on sale of assets of $55,272. During the six months ended June 30, 2012, four Dawn Condominium units were sold for $462,471, resulting in a loss on sale of assets of $68,010.
 
 
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American reviewed the accounting standards Real Estate - General (ASC 970-10) and Property, Plant, and Equipment (ASC 360-10) to determine the appropriate classification for these properties.  According to ASC 970-10, real estate that is held for sale in the ordinary course of business is classified as inventory, which is a current asset.  ASC 360-10 provides the following criteria for property to be classified as held for sale:
  • Management with the appropriate authority commits to a plan to sell the asset;
  • The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
  • An active program to locate a buyer and other actions required to complete the plan of sale have been initiated;
  • The sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale;
  • The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
  • Actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Management consulted with the real estate brokers for these properties and reviewed the recent interest for each property.  Based on our consultations and review, we believe that the sale of these properties within one year is probable.  We concluded that all of these criteria have been met for these properties and that they are appropriately classified as held for sale in current assets.
 
Note 7 - Assets held for sale
 
On April 3, 2012, Delta sold the assets and liabilities of DSWSI as discussed in Note 1
 
The assets and liabilities of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheet as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673.  DSWSI's net loss of $922,517 for the six months ended June 30, 2012, and a net loss of $7,167 and net income of $137,033 for the three and six months ended June 30, 2011, respectively, are included in discontinued operations.
 
On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover, President of Downhole Completion Products, Inc. ("DCP), purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities. DCP's net loss of $4,410 for the six months ended June 30, 2011 is included in discontinued operations. During the three months ended June 30, 2011, American received the $5,000 for the purchase. This is included as income from discontinued operations for the three and six months ended June 30, 2011. American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the six months ended June 30, 2011.
 
The carrying amounts of the major classes of assets and liabilities for DSWSI at December 31, 2011 are summarized below:
   
   
December 31, 2011
 
Assets held for sale
     
Current assets:
     
   Cash and cash equivalents
 
$
10,655
 
   Trading securities
   
105
 
   Accounts receivable, less allowance for doubtful accounts
       
     of $55,087
   
1,469,406
 
   Inventories
   
1,862,098
 
   Prepaid expenses and other current assets
   
235,076
 
     Total current assets held for sale
   
3,577,340
 
  
       
Property and equipment, net of accumulated depreciation
   
1,701,186
 
Other assets
   
6,500
 
       Total assets held for sale
 
$
5,285,026
 
 
 
 
 
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December 31, 2011
 
Liabilities associated with assets held for sale
       
Current liabilities:
       
   Accounts payable and accrued expenses
 
$
486,684
 
   Bank overdrafts     81,392  
   Short-term notes payable
   
89,080
 
   Current installments of long-term debt
   
2,106,701
 
     Total current liabilities associated with assets held for sale
    2,763,857  
         
Long-term debt, less current installments
   
49,843
 
     Total liabilities associated with assets held for sale
  $
2,813,700
 
 
The gain on disposal of DSWSI is summarized below:
   
   
April 3, 2012
 
 
     
Cash
 
$
1,600,000
 
Note receivable
   
1,400,000
 
  Total consideration
   
3,000,000
 
DSWSI's assets less associated liabilities     1,501,673  
  Gain on disposal of DSWSI
 
$
1,498,327
 
 
DSWSI's and DCP's revenues and net income (loss) before income tax are summarized below:
 
    Three Months Ended June 30,     Six Months Ended June 30,  
  
  2012    
2011
     2012    
2011
 
Revenues
                               
    DSWSI   -     2,586,998     3,598,374     $ 5,209,697  
    DCP     -       -       -       246,131  
Total revenues from discontinued operations
  -     2,586,998     3,598,374     $ 5,455,828  
Net income (loss) before income tax
                               
    DSWSI     -       (2,306     (883,373     148,270  
    DCP     -       -       -       (4,410
Net loss before income tax
  $ -     (2,306   (883,373   $ 143,860  
Gain (loss) on disposal of discontinued operations                                
   DSWSI   $
1,498,327
      -      
1,498,327
      -  
   DCP     -       5,000       -       (50,000
Gain (loss) on disposal of discontinued operations   $
1,498,327
    5,000    
1,498,327
    $ (50,000 )
 
Note 8 - Property and Equipment
 
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
 
 
Years
 
June 30, 2012
   
December 31, 2011
 
Land
-  
$
1,663,020
   
$
1,663,020
 
Building and improvements
20
   
922,945
     
922,945
 
Machinery and equipment
7-15
    112,991      
112,991
 
Office equipment and furniture
7
   
150,900
     
147,390
 
        2,849,856      
2,846,346
 
Less accumulated depreciation
     
(848,032
   
(817,814
Net property and equipment
   
$
2,001,824    
$
2,028,532
 
 
Depreciation expense for the three and six months ended June 30, 2012 and 2011 was $15,168, $30,218, $16,179, and $32,285, respectively.
 
15
 

 
Note 9 - Intangible Assets
 
Intangible assets at June 30, 2012 consisted of the following:
 
   
Gross Carrying Amount
   
Accumulated Amortization
     
Intangibles, net
 
Average Weighted Lives
Goodwill related to the acquisition of NPI                    674,539   N/A 
                           
Patents for new NPI products
 
$
115,991
   
$
10,807    
$
105,184  
3-10 years
 
Intangible assets at December 31, 2011 consisted of the following:
 
   
Gross Carrying Amount
   
Accumulated Amortization
     
Intangibles, net
 
Average Weighted Lives
Goodwill related to the acquisition of NPI                    674,539   N/A 
                           
Patents for new NPI products
 
$
48,027
   
$
3,117    
$
44,910  
3-10 years
 
Amortization expense for the three and six months ended June 30, 2012 and 2011 was $5,544, $7,690, $0, and $0, respectively.
 
Note 10 - Short-term Notes Payable
 
   
June 30, 2012
   
December 31, 2011
 
Note payable with interest at 0.00%, principal due in monthly payments of $20,000 through April 20, 2012 (a)
  $ -     $ 80,000  
Note payable with interest at 5% due monthly, principal due in monthly payments of $20,000, with a final principal balance due on February 1, 2012, secured by trading securities (b)     65,719       65,719  
   
$
65,719    
$
145,719
 

(a) On June 29, 2011, Delta entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of Delta’s outstanding preferred stock, into 3,769,626 shares of common stock and also agreed to waive all accrued dividends payable on the preferred stock. In consideration for the conversion, Delta agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder is due and payable at the rate of $20,000 per month. On February 23, 2012, Delta completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of Delta's preferred stock were converted into 3,769,626 shares of Delta's common stock.
 
(b) On July 31, 2012, a settlement was reached in the Botts lawsuit and the balance of this note was paid in full.
 
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 June 30, 2012 and December 31, 2011, the average annual interest rates of our short-term borrowings were approximately 5.00% and 2.25%, respectively.
 
 
 
 
 
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Note 11 - Long-term Debt
 
Long-term debt consisted of the following:
   
June 30, 2012
   
December 31, 2011
 
Note payable to a bank, due in monthly installments of $11,549, including interest at 7.25% with a principal balance due in November 2013, secured by real property. (a)
  $ 1,391,797     $  1,411,351  
Revolving line of credit to a bank, which allows NPI to borrow up to $2,250,000, interest due monthly at the greater of prime (3.25%) plus one or 5%, principal balance due in April 2013, secured by assets of NPI. (a)
    1,692,963       598,963  
Note payable to a bank, due in quarterly payments of interest only, with interest at 5%, with a principal balance due in May 2014, secured by real property.
   
1,300,000
     
1,410,000
 
      4,384,760      
3,420,314
 
Less current portion
   
(37,862
   
(2,045,359
   
$
4,346,898    
$
1,374,955
 
 
(a) Daniel Dror, Chairman and CEO of American, is a personal guarantor of these notes payable.
 
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 June 30, 2012:
 
2012
 
$
18,589  
2013
    3,066,171  
2014
    1,300,000  
Total
 
$
4,384,760  
 
Note 12 - Commitments and Contingencies
 
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. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note (note 10) with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 288,000 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 1,100,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts.
 
On July 1, 2012, the parties reached another settlement, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note.  The remaining $49,281 was accrued and recorded as Botts lawsuit settlement expense as of and during the six months ended June 30, 2012.
 
American International Industries, Inc. v. Rubicon Financial IncorporatedOn March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 200,000 restricted shares of American's common stock, valued at $4.90 per common share based upon the closing market price on the date of acquisition.
 
17
 

 
On August 19, 2011, American was granted a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus attorney's fees and accrued interest at 5% per annum by the 281st District Court, following which American, through California counsel, commenced a separate proceeding seeking to enforce the judgment against Rubicon in a court of competent jurisdiction in Orange County, CA.
 
Rubicon has filed a separate action with the same District Court in Harris County, TX, seeking to have the judgment vacated and seeking sanctions against American. On May 1, 2012, the default judgment was vacated by the District Court but Rubicon's demand for sanctions was denied. The District Court determined that American would not suffer injury.

On May 24, 2012, American filed a motion seeking an order in effect rescinding its May 1, 2012 order that had vacated the default judgment against Rubicon. On July 12, 2012, the Court granted American's motion and ordered a new trial on the issue of whether Rubicon was negligent in failing to appear before the Court in the proceeding that resulted in the grant of the $2 million default judgment on August 19, 2011.

As a result of the July 12, 2012 order, American has been informed by its Texas counsel that the default judgment against Rubicon remains in full force and effect. American has also been informed by its California counsel that it plans to file a motion seeking a stay in the California proceeding pending the final determination of the District Court in Harris County, TX.  American believes that it will prevail on the merits in this proceeding against Rubicon in the District Court, Harris County, and that it will be able to successfully enforce a final judgment of approximately $2 million plus interest in California.
 
Note 13 - Capital Stock and Stock Options
 
American is authorized to issue up to 1,000,000 shares of Preferred Stock, $0.001 par value per share, of which 1,000 shares are presently outstanding. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions.
 
On June 9, 2011, the Board of Directors of American approved the issuance to Daniel Dror, CEO, of 1,000 shares of the Company’s Series A Preferred Stock. Mr. Dror has personally guaranteed the following loans of American, and without such guarantees, American would not have been able to receive such funding: (1) a $1,450,000 loan to Northeastern Plastics (“NPI”) at Icon Bank; (2) a $3,000,000 loan to Delta Seaboard at Trustmark National Bank; (3) a $1,850,000 loan to the Company, Rob Derrick and Ron Burleigh at Texas Community Bank (which has since been repaid); and (4) a $3,250,000 loan to NPI at Trustmark National Bank (collectively the “loans”); which the Company has received and continues to receive significant value.  Based on 1% of the outstanding balances of these loans at June 9, 2011, American valued these preferred shares and recorded a guarantor fee of $49,463 to prepaid expenses.  This amount is being amortized to expense over the remaining terms of these loans.  During the three and six months ended June 30, 2012, American recorded amortization of $4,995 and $17,027, respectively.
 
The Series A Preferred Stock, as amended, has the right to vote in aggregate, on all shareholder matters votes equal to 30% of the total shareholder vote on any and all shareholder matters. The Series A Preferred Stock will be entitled to this 30% voting right no matter how many shares of common stock or other voting stock of American are issued or outstanding in the future. For example, if there are 10,000 shares of American’s common stock issued and outstanding at the time of a shareholder vote, the holder of the Series A Preferred Stock (Mr. Dror), voting separately as a class, will have the right to vote an aggregate of 4,286 shares, out of a total number of 14,286 shares voting.  Additionally, American shall not adopt any amendments to American’s Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.
 
American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 1,036,800 are reserved for issuance pursuant to the exercise of options pursuant to an employment agreement with American's Chairman and CEO.
 
During the year ended December 31, 2011, American issued 1,545,216 restricted shares of common stock for cash consideration of $795,000 and a receivable of $24,000 for investment from Dror Charitable Foundation for the Arts and the Dror Family Trust, both of which are related parties to Daniel Dror, CEO.  Mr. Dror is not a trustee of the Dror Charitable Foundation for the Arts nor of the Dror Family Trust and he disclaims any beneficial interest in these trusts. Additionally, American issued 400,000 restricted shares of common stock for cash consideration of $184,000 and a receivable of $48,000 to International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother. Mr. Dror is not an officer, director or shareholder of International Diversified Corporation, Ltd., and he disclaims any beneficial interest in the shares owned by Mr. Faiwuszewicz or his corporation.  As of June 30, 2012, both subscription receivables totaling $72,000 were still outstanding.
 
18
 

 
On January 13, 2011, American entered into a letter of intent with Kemah Development Texas L.P. (“KDT”) which is owned by an entity which is controlled by the brother of Daniel Dror (Daniel Dror disclaims any ownership in or control over KDT), pursuant to which KDT agreed to sell 65 acres of land located in Galveston County, Texas to American in consideration for restricted shares of common stock. Subsequently, the agreement was amended to provide for the purchase price to be paid by the issuance of 1,460,000 restricted shares of common stock with a fair market value of $919,800. These shares were issued on June 10, 2011. American has received an appraisal of the property from an independent third-party appraiser which concluded that the property had an estimated fair market value of approximately $1,900,000. The purchase of the property closed on July 9, 2011, and American recorded the land at $520,382, the original cost to KDT of this property, and recorded share-based compensation of $399,418 in July 2011. American's present intention is that the property will be held by its wholly-owned real estate subsidiary, American International Texas Properties, Inc.
 
On June 24, 2011, American issued 100,000 stock options to American's President, Mr. S. Scott Gaille, with an exercise price of $0.60 per share, expiring in 2 years, valued at $46,559 and recorded as share-based compensation.  American estimated the fair value of each stock option at the grant date as $0.47 by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2011 as follows:
   
June 24, 2011
 
Dividend yield
    0.00
Expected volatility
     104.50
Risk free interest
    0.75 %
Expected lives
 
2 years
 
 
A summary of the status of American's stock options to employees for the six months ended June 30, 2012 is presented below:
 
   
Shares
   
Weighted Average Exercise Price
    Intrinsic Value  
Outstanding and exercisable as of December 31, 2011
    100,000    
$
0.60
       
Granted     -       N/A        
Exercised     -       N/A        
Canceled / Expired     -       N/A        
Outstanding and exercisable as of June 30, 2012
   
100,000
   
$
0.60
  $ -  
 
Stock-based compensation consisted of the following:
 
    Three Months Ended June 30,     Six Months Ended June 30,  
  
  2012    
2011
     2012    
2011
 
Common shares issued for services
  22,600     217,200     22,600     $ 724,749  
Stock options issued for services     -       46,559       -       46,559  
   Stock-based compensation
  22,600     263,759     22,600     $ 771,308  
 
During the three and six months ended June 30, 2012, American and its subsidiaries issued the following shares for services:
  • American issued 80,000 shares of common stock valued at $17,600 to a third party.
  • Brenham issued 100,000 shares of its common stock with a value of $5,000 to a third party.
During the three and six months ended June 30, 2011, American and its subsidiaries issued the following shares for services:
  • American issued 350,000 and 926,601 shares of common stock valued at $217,200 and $597,249, respectively, to employees, directors and third parties.
  • Delta issued 0 and 2,550,000 shares of its common stock with a value of $0 and $127,500, respectively, to employees.
 
19

On July 22, 2011, Brenham Oil & Gas Corp., entered into an Asset Purchase and Sale Agreement with Doug Pedrie, Davis Pedrie Associates, LLC and Energex Oil, Inc. (“Sellers”), pursuant to which Brenham acquired 700 acres of unproved property located in the Permian Basin near Abilene, Texas. The agreement provides for the Sellers to complete all oil lease assignments by August 15, 2011. The purchase consideration for the acquisition is the issuance to Sellers of 2,000,000 restricted shares of Brenham common stock valued at $8,400, with an additional 2,000,000 restricted shares to be issued contingent upon realization of certain production targets in 2012. On March 8, 2012, this agreement was rescinded and replaced with an agreement that in consideration for the Brenham share issuance, Brenham has a 2.5% overriding royalty interest in all of the leases associated with this property and any properties acquired or renewed in the future within a ten-mile radius. In addition, the contingency to issue additional shares was removed. This property is on the balance sheet as "Oil & gas properties - unproved" for $8,400.
 
During the six months ended June 30, 2012 and 2011, Delta declared preferred dividends of $20,000 and $120,000, respectively, which were accrued and unpaid.  On June 29, 2011, Delta entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of Delta’s outstanding preferred stock, into 3,769,626 shares of common stock and also agreed to waive all accrued dividends payable on the preferred stock upon the payment of $250,000. In consideration for the conversion, Delta agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder is due and payable at the rate of $20,000 per month. On February 23, 2012, Delta completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of Delta's preferred stock were converted into 3,769,626 shares of Delta's common stock and accrued dividends of $1,055,000 were forgiven.
 
Note 14 - Segment Information
 
We have three reporting segments and corporate overhead:
 
   · Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
   · Delta Seaboard International ("Delta") - a 86.8% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry; As of June 30, 2012, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation was a wholly-owned subsidiary of Delta. On April 3, 2012, Delta entered into an Asset Purchase Agreement to sell the assets and liabilities of DSWSI (notes 1 and 7). The assets and liabilities of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheet as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673 (Note 7).  DSWSI's net loss of $922,517 for the six months ended June 30, 2012, and a net loss of $7,167 and net income of $137,033 for the three and six months ended June 30, 2011, respectively, are included in discontinued operations.
   · American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
   · Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.  Corporate overhead also includes Brenham Oil & Gas ("BOG"), a division that currently owns minimal oil, gas and mineral royalty interests. Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 58,680,074 shares of common stock, representing 53.2% of BOG’s total outstanding shares.
 
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. American evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.  American's reportable segments are strategic business units that offer different technology and marketing strategies. Most of the businesses were acquired as subsidiaries and the management at the time of the acquisition was retained.  American's areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.
 
 
 
 
 
 
20

 
Consolidated revenues from external customers, operating income (loss), depreciation and amortization expense, interest expense, capital expenditures, non-cash transactions, and identifiable assets were as follows:
 
    Three Months Ended June 30,    
Six Months Ended June 30,
 
    2012     2011    
2012
   
2011
 
Revenues:
                               
Northeastern Plastics
  $ 964,906     $ 2,418,810    
$
2,110,560    
$
4,020,669  
Brenham Oil & Gas     132       221       411       671  
AITP      13,989       -       21,470       -  
   Total revenues
  $ 979,027     $ 2,419,031    
$
2,132,441    
$
4,021,340  
                                 
Operating income (loss) from continuing operations:
                               
Northeastern Plastics
  $ (229,187   $ 103,402    
$
(431,541  
$
(28,654
)
Delta Seaboard
     (54,877     (5     (76,877     (127,505
AITP     (260,986     (697     (287,947     (697
Corporate
    (310,548 )     (494,677     (702,218     (1,366,359
Operating loss from continuing operations
    (855,598     (391,977  
 
(1,498,583  
 
(1,523,215
)
Other expenses from continuing operations
    (154,350     (171,442     (124,504     (501,800
Net loss from continuing operations before income tax
  $ (1,009,948   $ (563,419  
$
(1,623,087  
$
(2,025,015
)
                                 
Depreciation and amortization:
                               
Northeastern Plastics
  $ 19,436     $ 14,621    
$
35,280    
$
 29,122  
Corporate
    1,276       1,558       2,628       3,163  
Total depreciation and amortization   $ 20,712     $ 16,179     $ 37,908     $ 32,285  
                                 
Interest expense:
                               
Northeastern Plastics
  $  40,620     $ 51,071     $ 77,032     $ 102,793  
Corporate
     17,884       38,229       40,480       66,026  
Total interest expense
  $  58,504     $ 89,300     $ 117,512     $ 168,819  
 
Capital expenditures:
                               
Northeastern Plastics
  $ -     $ 541     $ 3,510     $ 2,297  
Total capital expenditures
 
$
-     $ 541     $ 3,510     $ 2,297  
                                 
Non-cash investing and financing transactions:
                               
Delta
                           
 
 
   Delta dividends declared and unpaid
                 
20,000    
$
120,000  
   Reversal of preferred dividends of Delta                   $ 1,055,000     $ -  
   Note receivable received from sale of subsidiary                   $ 1,400,000     $ -  
Corporate
                               
   Unrealized gain on marketable securities                   $ 5,200     $ -  
   Unrealized loss on marketable securities                   $ -     $ 110,500  
   Note payable issued for lawsuit settlement                   $ -     $ 400,000  
   Adjustment to noncontrolling interest in Delta and BOG
                 
565,113    
33,262  
   Stock issued to related party for receivable
                  $ -     $ 568,382  
   Preferred stock issued to officer as guarantor fee                   $ -     $ 49,463  
 
   
June 30, 2012
   
December 31, 2011
 
Identifiable assets:
           
Northeastern Plastics
 
$
7,201,350    
$
6,725,241
 
AITP     7,759,354       8,042,142  
Delta Seaboard
    2,967,491      
-
 
Corporate     -       814,117  
Assets held for sale      -      
5,285,026
 
   Total identifiable assets
 
$
17,928,195    
$
20,866,526
 
 
 
21

 
Note 15 - Subsequent Events
 
From July 1, 2012 through August 14, 2012, American paid $2,817 to repurchase 14,500 shares of its common stock for treasury and issued 100,000 shares valued at $20,000 to a third parties for services.
 
On July 1, 2012, American entered into a settlement agreement in the Botts lawsuit, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note payable to Botts (note 10).  The remaining $49,281 was accrued and recorded as Botts lawsuit settlement expense as of and during the six months ended June 30, 2012.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22

 
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". "American" 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, Texas 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.
 
American International Industries, Inc. is a holding company and has three reporting segments and corporate overhead:
 
   · Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
   · Delta Seaboard International ("Delta") - a 86.8% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry; As of June 30, 2012, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation was a wholly-owned subsidiary of Delta.
   · American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
   · Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.  Corporate overhead also includes Brenham Oil & Gas ("BOG"), a division that currently owns minimal oil, gas and mineral royalty interests. Through Brenham Oil & Gas, American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 58,680,074 shares of common stock, representing 53.2% of BOG’s total outstanding shares.
 
On April 3, 2012, Delta entered into an Asset Purchase Agreement to sell the assets and liabilities of DSWSI (Notes 1 and 7). The assets and liabilities of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheet as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). DSWSI's net loss of $922,517 for the six months ended June 30, 2012, and a net loss of $7,167 and net income of $137,033 for the three and six months ended June 30, 2011, respectively, are included in discontinued operations.
 
On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover, President of Downhole Completion Products, Inc. ("DCP), purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities. DCP's net loss of $4,410 for the six months ended June 30, 2011 is included in discontinued operations. During the three months ended June 30, 2011, American received the $5,000 for the purchase. This is included as income from discontinued operations for the three and six months ended June 30, 2011. American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the six months ended June 30, 2011.
 
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.
 
 
 
23

 
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.
 
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.
 
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 Six Months Ended June 30, 2012 Compared to the Three and Six Months Ended June 30, 2011.
 
The following is derived from, and should be read in conjunction with, our unaudited consolidated financial statements, and related notes for the three and six months ended June 30, 2012 and 2011.
 
Net revenuesRevenues from continuing operations were $979,027 for the three months ended June 30, 2012, compared to $2,419,031 for the three months ended June 30, 2011, representing a decrease of $1,440,004, or 59.5%.  Revenues from continuing operations were $2,132,441 for the six months ended June 30, 2012, compared to $4,021,340 for the six months ended June 30, 2011, representing a decrease of $1,888,899, or 47.0%. NPI's revenues decreased by $1,453,904, or 60.1%, to $964,906 for the three months ended June 30, 2012, compared to $2,418,810 for the same period in the prior year.  NPI's revenues decreased by $1,910,109, or 47.5%, to $2,110,560 for the six months ended June 30, 2012, compared to $4,020,669 for the same period in the prior year.  NPI's revenues decreased primarily because of lower revenues with one of its principal customers.  NPI has added several new customers to replace this business and expects to add additional medium to large customers during in the year 2012.  For the three and six months ended June 30, 2012 and June 30, 2011, Brenham's revenues were $132, $411, $221, and $671, respectively.  For the three and six months ended June 30, 2012, AITP's revenues were $13,989 and $21,470, respectively.
 
Cost of sales and margins.  Cost of sales for the three months ended June 30, 2012 was $699,483, compared to $1,762,961 for the three months ended June 30, 2011. Cost of sales for the six months ended June 30, 2012 was $1,500,299, compared to $2,925,013 for the six months ended June 30, 2011. Our gross margins for the three and six months ended June 30, 2012 were 28.6% and 29.6%, respectively, compared to gross margins for the three and six months ended June 30, 2011 of 27.1% and 27.3%. The increase in margins was primarily due to a better product mix at NPI.  NPI has been able to move away from commodity-based products and toward more unique items, for which NPI receives higher margins.
 
 
24

 
Selling, general and administrativeConsolidated selling, general and administrative expenses for the three months ended June 30, 2012 were $1,079,870, compared to $1,048,047 in the prior year, representing an increase of $31,823, or 3.0%.  Consolidated selling, general and administrative expenses for the six months ended June 30, 2012 were $2,062,715, compared to $2,619,542 in the prior year, representing a decrease of $556,827, or 21.3%.  General and administrative expenses for the three and six months ended June 30, 2012 decreased from the same periods in the prior year primarily due to a decrease in stock-based compensation.  General and administrative expenses for the three and six months ended June 30, 2012 and June 30, 2011 included non-cash stock-based compensation of $22,600, $22,600, $263,759, and $771,308, respectively.  Selling, general and administrative expenses for the three and six months ended June 30, 2011 included higher than normal legal costs related to the Botts lawsuit settlement and one-time costs incurred for Brenham to become a public company.
 
Gain (loss) on sale of assets. Loss on sale of assets for the three and six months ended June 30, 2012 was $55,272 and $68,010, respectively, compared to $0 and $0, respectively, for the three and six months ended June 30, 2011.  During the three months ended June 30, 2012, one Dawn Condominium unit was sold for $122,269, resulting in a loss on sale of assets of $55,272. During the six months ended June 30, 2012, four Dawn Condominium units were sold for $462,471, resulting in a loss on sale of assets of $68,010.  (see Note 6 to the consolidated financial statements).
 
Income (loss) from operations. We had an operating loss of $855,598 and $1,498,583, respectively, for the three and six months ended June 30, 2012, compared to an operating loss of $391,977 and $1,523,215, respectively, for the three and six months ended June 30, 2011.
 
Total other income/expenses. Other expenses were $154,350 for the three months ended June 30, 2012, compared to $171,442 for the three months ended June 30, 2011.  Other expenses were $124,504 for the six months ended June 30, 2012, compared to other expenses of $501,800 for the six months ended June 30, 2011.  Other expenses for the three and six months ended June 30, 2012 included an expense of $49,281 for the Botts lawsuit settlement entered into on July 31, 2012.  Other expenses for the three months ended June 30, 2012 included non-cash unrealized losses on trading securities of $78,604, compared to gains of $316,112 for the three months ended June 30, 2011.  Realized gains on trading securities for the three months ended June 30, 2012 were $12,764 compared to losses of $401,655 for the three months ended June 30, 2011.  Interest expense was $58,504 during the three-month period ended June 30, 2012, compared to $89,300 during the same period in the prior year.  Other expenses for the six months ended June 30, 2012 included non-cash unrealized losses on trading securities of $8,458, compared to losses of $83,433 for the six months ended June 30, 2011.  Realized gains on trading securities for the six months ended June 30, 2012 were $12,764 compared to losses of $256,843 for the six months ended June 30, 2011.  Interest expense was $117,512 during the six-month period ended June 30, 2012, compared to $168,819 during the same period in the prior year. 
 
Net loss.  We had a net loss from continuing operations of $1,023,588, or $0.08 per share, for the three months ended June 30, 2012, compared to a net loss of $566,314, or $0.04 per share, for the three months ended June 30, 2011.  We had a net loss from continuing operations of $1,596,529, or $0.08 per share, for the six months ended June 30, 2012, compared to a net loss of $2,030,025, or $0.17 per share, for the six months ended June 30, 2011.  We had net income from discontinued operations of $1,498,327, or $0.10 per share, for the three months ended June 30, 2012, compared to a net loss of $2,167, or $0.00 per share, for the three months ended June 30, 2011.  We had net income from discontinued operations of $575,810, or $0.04 per share, for the six months ended June 30, 2012, compared to net income of $82,623, or $0.01 per share, for the six months ended June 30, 2011.  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673 (see Note 7).  Net income from discontinued operations for the six months ended June 30, 2012 and 2011 includes DSWSI's net loss of $922,517 and net income of $137,033, respectively.  Net loss from discontinued operations for the three months ended June 30, 2011 includes DSWSI's net loss of $7,167.  DCP's net loss of $4,410 for the six months ended June 30, 2011 is included in discontinued operations. During the three months ended June 30, 2011, American received the $5,000 for the purchase of DCP. This is included as income from discontinued operations for the three and six months ended June 30, 2011. American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the six months ended June 30, 2011.
 
Our net income was $308,545, or $0.02 per share, for the three months ended June 30, 2012, compared to a net loss of $545,951, or $0.04 per share, for the three months ended June 30, 2011.  Our net loss was $657,356, or $0.04 per share, for the six months ended June 30, 2012, compared to a net loss of $1,924,901, or $0.16 per share, for the six months ended June 30, 2011.
 
 
25

 
Liquidity and Capital Resources
 
Liquidity is our ability to generate sufficient cash flows to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently, our liquidity needs arise primarily from working capital requirements, debt service on indebtedness, and capital expenditures. We have funded these liquidity requirements from proceeds from the sale of Delta of $1,600,000, proceeds from net borrowings under lines of credit agreements of $1,094,000, and proceeds from the sale of real estate held for sale of $462,471.
 
Capital expenditures for the six months ended June 30, 2012 were $3,510 compared to $2,297 for the same period in the prior year. The Company has no major capital expenditure commitments for the next 12 months.
 
Net cash used in operating activities from continuing operations was $1,748,654 for the six months ended June 30, 2012, compared to $2,652,247 for the six months ended June 30, 2011.  Net cash used in operating activities for the six months ended June 30, 2012 was derived primarily from our net loss from continuing operations of $1,596,529, an increase in inventories at NPI of $418,288, offset by a decrease in accounts receivable of $163,340, due to collections of the higher seasonal revenues at NPI during the fourth quarter of 2011.  Net cash used in operating activities for the six months ended June 30, 2011 includes a one-time lump sum payment of $1,250,000 for a lawsuit settlement that was accrued as of December 31, 2010. Additionally, accounts payable decreased significantly due to payments made in the six months ended June 30, 2011 for expenses incurred during the six months ended December 31, 2010 in support of higher revenues at NPI.
 
The Company's prospects for selling real estate from its portfolio have improved significantly due to infrastructure developments in close proximity to these properties. Management believes that demand and prices for real estate will increase during the next 12 to 24 months from the date of this report. The appraised values of the Company's portfolio of real estate are significantly higher than the value recorded on the books.
 
For the six months ended June 30, 2012, our investing activities provided cash of $2,089,018, compared to $217,787 during the six months ended June 30, 2011. Our financing activities provided cash of $867,080 during the six months ended June 30, 2012, compared to $1,438,345 during the six months ended June 30, 2011.
 
NPI has a line of credit from Trustmark Bank in the amount of $2,250,000, which had a maturity date in April 2013.
 
We believe that our cash on hand, operating cashflows, and credit facilities will be sufficient to fund our operations, service our debt, and fund planned capital expenditures for at least 12 months from the date of this report.
 
Total assets at June 30, 2012 were $17,928,195, compared to $20,866,526 at December 31, 2011, representing a decrease of $2,938,331.  At June 30, 2012, consolidated working capital was $12,603,200, compared to working capital of $9,173,114 at December 31, 2011, representing an increase of $3,430,086.  Total assets as of June 30, 2012, included real estate held for sale of $7,385,031 (see Note 6), inventories of $2,323,303, accounts receivable of $1,047,660, cash and cash equivalents of $2,076,690, $144,744 of trading securities, $1,996,300 in notes receivable, and $2,001,824 of property and equipment.
 
 
26

 
We had total liabilities of $5,445,133 as of June 30, 2012, which included $1,047,092 of current liabilities, mainly consisting of $913,058 of accounts payable and accrued expenses, $37,862 of current installments of long-term debt, and long-term liabilities of $4,398,041, consisting of long-term debt (less current installments) of $4,346,898 and accrued pension expense of $51,143.
  
Cash flow from operations.  Net cash used in operating activities from continuing operations was $1,748,654 for the six months ended June 30, 2012, compared to $2,652,247 for the six months ended June 30, 2011. Net cash used in operating activities for the six months ended June 30, 2012 was derived from our net loss from continuing operations of $1,596,529, which included non-cash expenses of $77,535, including depreciation and amortization of $37,908, share-based compensation of $22,600, and amortization of guarantor fee of $17,027.  Net cash used in operating activities for the six months ended June 30, 2011 includes a one-time lump sum payment of $1,250,000 for a lawsuit settlement.  Our net loss from continuing operations of $2,030,025 for the six months ended June 30, 2011 included non-cash expenses of $803,593, including depreciation and amortization of $32,285 and share-based compensation of $771,308. Accounts receivable decreased by $163,340 during the six months ended June 30, 2012, compared to a decrease of $768,158 during the same period in 2011.  NPI collected accounts receivable during the six months ended June 30, 2011, which resulted from significantly higher revenues during the three months ended December 31, 2010.  Our inventories increased by $418,288 for the six months ended June 30, 2012, compared to an increase of $425,237 during the six months ended June 30, 2011.  Accounts payable increased by $56,850 during the six months ended June 30, 2012, compared to a decrease of $2,041,389 during the same period in 2011.  The decrease in accounts payable during the six months ended June 30, 2011 included a one-time lump sum payment of $1,250,000 for a lawsuit settlement.  The remainder of the decrease in accounts payable was primarily due to payments made in the six months ended June 30, 2011 for expenses incurred during the three months ended December 31, 2010 in support of higher revenues at NPI.
 
Cash flow from investing activities. For the six months ended June 30, 2012, our investing activities provided cash of $2,089,018 primarily as a result of proceeds from the sale of the assets of DSWSI of $1,600,000, proceeds from the sale of real estate held for sale of $462,471, and proceeds from notes receivable of $82,859, offset by the costs of securing patents and trademarks of $67,964. Our investing activities provided cash of $217,787 during the six months ended June 30, 2011, primarily as a result of proceeds from the sale of trading securities of $1,157,022, offset by the purchase of trading securities of $951,427.
 
Cash flow from financing activities. Our financing activities provided cash of $867,080 during the six months ended June 30, 2012, primarily as a result of net borrowings under lines of credit agreements of $1,094,000, offset by payments on debt of $194,554.  During the six months ended June 30, 2011, our financing activities provided cash of $1,438,345, primarily as a result of proceeds from the issuance of common stock of $903,000, net borrowings under lines of credit agreements of $645,463 and proceeds from margin loans of $156,328, offset by payments on debt of $252,594.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
Not applicable.
 
 
Evaluation of disclosure controls and procedures. As of June 30, 2012, 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.
 
 
 
27
 
PART II - OTHER INFORMATION
 
 
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. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note (note 10) with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. On July 1, 2012, the parties reached another settlement, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note.  The remaining $49,281 was accrued and recorded as Botts lawsuit settlement expense as of and during the six months ended June 30, 2012. The 288,000 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 1,100,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts.
 
American International Industries, Inc. v. Rubicon Financial IncorporatedOn March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 200,000 restricted shares of American's common stock, valued at $4.90 per common share based upon the closing market price on the date of acquisition.

On August 19, 2011, American was granted a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus attorney's fees and accrued interest at 5% per annum by the 281st District Court, following which American, through California counsel, commenced a separate proceeding seeking to enforce the judgment against Rubicon in a court of competent jurisdiction in Orange County, CA.
  
Rubicon has filed a separate action with the same District Court in Harris County, TX, seeking to have the judgment vacated and seeking sanctions against American. On May 1, 2012, the default judgment was vacated by the District Court but Rubicon's demand for sanctions was denied. The District Court determined that American would not suffer injury.

On May 24, 2012, American filed a motion seeking an order in effect rescinding its May 1, 2012 order that had vacated the default judgment against Rubicon. On July 12, 2012, the Court granted American's motion and ordered a new trial on the issue of whether Rubicon was negligent in failing to appear before the Court in the proceeding that resulted in the grant of the $2 million default judgment on August 19, 2011.

As a result of the July 12, 2012 order, American has been informed by its Texas counsel that the default judgment against Rubicon remains in full force and effect. American has also been informed by its California counsel that it plans to file a motion seeking a stay in the California proceeding pending the final determination of the District Court in Harris County, TX.

American believes that it will prevail on the merits in this proceeding against Rubicon in the District Court, Harris County, and that it will be able to successfully enforce a final judgment of approximately $2 million plus interest in California.
 
 
There have been no material changes from Risk Factors as previously disclosed in the Registrant’s annual report for the year ended December 31, 2011.
 
 
None.
 
 
28

 
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
None.
 
 
None.
 
 
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 CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
31.2
Certification of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
32.1
Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2
Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
 
 
 
29

 
 
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 AND CHAIRMAN
  DatedAugust 14, 2012
 
/s/ SHERRY L. MCKINZEY
  CHIEF FINANCIAL OFFICER
  Dated:  August 14, 2012

PINX:AMIND Quarterly Report 10-Q Filling

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