What Is Wrong With American International Industries, Inc. (AMIN.OB)

February 7, 2011

American International Industries, Inc. (AMIN.OB – $0.59*) is a mini conglomerate with interests in oil and gas services, consumer products, real estate and other investments. The company’s stock has collapsed over the last couple of years. The stock was trading at $4.00 per share in June 2008 and now trades at only $0.59 per share. What is intriguing about this penny stock is that it does own some real assets. The company has been busy lately refinancing loans, spinning off subsidiaries, and selling subsidiaries stating that it intends to focus its efforts in the oil and gas industry. With that in mind, let’s take a closer look at the company’s current subsidiaries and investments.

The Subsidiaries

Northeastern Plastics, Inc. is a supplier of automotive after-market and consumer durable electrical products. It markets its products under the NPI Motor Trend and Good Choice brand names. This unit has shown significant improvement recently and accounted for 72% of the total revenues for the quarter ended September 30, 2010 and was the primary reason the company had positive operating income for the quarter. If the company intends to focus on the oil and gas industry, they may consider shopping or spinning off this company and with the recent operating improvements, the timing may be right.

Delta Seaboard International, Inc. (HMDI.OB) is a 48.1% owned subsidiary that primarily provides well site services to the oil and gas industry. Delta was a wholly own subsidiary until it was taken public through a reverse merger with a shell company that was previously spun off from company. Delta provided 25% of the revenue for the quarter ended September 30, 2010 and had a small operating profit.

Downhole Completion Products, Inc. is an 80% owned subsidiary that provides high quality proprietary threaded downhole and completion products to major oil and gas service industry end-users. This company is still in the startup stage and just started producing revenues in 2010. Currently its revenue production is not material, but it appears to be gaining some momentum and reported a small operating profit in the quarter ended September 30, 2010.

Brenham Oil & Gas Corp. is a 54.7% owned subsidiary that is partially being spun off to shareholders. The Company recently amended its S-1 filing with the SEC, but it is still unclear when the spinoff will take place. Brenham’s contribution is negligible. Its only asset is a mineral royalty interest in Washington County, Texas. However, Brenham claims to be in negotiations with financial institutions to finance oil and gas assets in North America and Africa. If the company is able to complete the spinoff and the Brenham has some success financing oil and gas assets, it could add some value to company. I am not holding my breath.

Subsea Oil Technologies, Inc. is involved in the design, testing, and producing operational, safety, and emergency equipment for the underwater oil and gas industry. The company has also assembled a small portfolio of intellectual property in the form of patent applications. The company did not produce any revenues for the quarter ended September 30, 2010 and at this time; I am not placing any value on this subsidiary.

The Investments

The company owns a handful of investments in other companies and real estate. It was the real estate that attracted me to the company originally as they have a potentially valuable piece of real estate located on the Dickinson Bayou near Houston, Texas. Below is a list of known investments.

1. 287 acres (6,600 linear feet of water frontage) located on the Dickinson Bayou/Galveston Bay. The property is currently listed for $25 million and is only on the books for $250K. If the Company is able to even get 50% of the listed price, it would add significantly to book value. It should be noted that the property has been listed for several years and at one time was under contract at a much lower price than the currently listing which fell through. The Company recently announced it has been provided a list of potential developers and users interested in purchasing the property by its broker. The Company also noted that if a sale does not materialize, that they will consider auctioning off the property. Stay tuned.
2. 174 acres in Waller County, Texas listed for $3.5 million.
3. 34 acres on Airport Boulevard in Houston, Texas listed for $2.5 million.
4. 36 acres on Interstate 59 in Houston, Texas listed for $9.1 million.
5. 1.705 acre property in Galveston County.
6. The sale of a prior subsidiary Shumate Energy Technologies, Inc. I have included this under investments as it appears the sale has consummated and according to the Company, they should realize a $0.25 per share gain in the fourth quarter of 2010.
7. 1,000,000 shares of ADB International Group, Inc. (ADBI.PK) awarded to the company for consulting services valued at $1.37 per share at the time of the award. The stock recently traded for $0.08 per share so they will be taking a big write down in the fourth quarter of 2010.
8. 1,000,000 shares of Rubicon Financial, Inc. (RBCF.OB) which most recently traded at $0.40 per share.

The Conclusion

This company has struggled for the last several years with apparent poor investment decisions amplified by a bad economy and a depressed real estate market. Even with the decline in the real estate market I believe the stock price does not reflect that value of the real estate assets held, however it seems most investors lost patience with management when they were unable to monetize this real estate. While my faith in management has certainly been shaken, I do believe they may be starting to make the right moves.

Selling the Shumate Energy subsidiary should be an overall improvement by reducing debt and allowing the company to become more focused. Strong energy prices, especially in oil should benefit both the Delta Seaboard and Downhole Completion Products subsidiaries. Brenham is still a wildcard and I currently do not figure it into the equation. However, if they are able to get some successful projects financed it could certainly be catalyst for the stock. Finally the company is making some moves regarding its valuable real estate portfolio. As mentioned earlier, the company appears to be becoming more aggressive with its interest in selling the 287 acre parcel including the possible auction of the property. In addition, the company announced just this morning that it is forming a real estate subsidiary and conveying its real estate portfolio to this subsidiary. This may be a step towards creating another spinoff to make the real estate portfolio more visible to the investment community. The company has a total of $40 million in real estate holdings listed with brokers. If they were able to sell the property for a number anywhere near the listed prices, it would significantly change the balance sheet and make true book value more evident.

So what is wrong with the stock? Investors have totally lost faith in the ability of management to execute. A very valid concern as the recent track record is not impressive. However, they may be getting a much needed kick in the derriere as on Friday, February 4, 2011 Ephraim Fields filed a 13D stating ownership of 6.4% of the outstanding shares. While it is too soon to tell what the intentions of Mr. Fields may be; I believe his intentions are to create shareholder value at a faster pace than management has been able to do.

Disclaimer: The author is long AMIN.OB at the time of this writing.

*Most recent closing price at the time the article was published.

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