American Internationial Industries: Activist Investors Knocking On The Door

June 6, 2011

I last wrote about American International Industries (AMIN.OB) in February of 2011 in an article titled What is Wrong with American International Industries, Inc. Since that time the stock has barely moved trading near $0.60 per share other then a few gyrations on either side that are common with penny stocks. At that time, I discussed the poor performance of the stock over the last couple of years and went into some detail about the assets the company owns. Therefore, please refer to the previous article if you would like that background.

Since February of this year, the company has made several announcements and a new major shareholder has emerged. Below I discuss those announcements and the new shareholder.

Year End 2010 and First Quarter 2011 Results

Revenues for 2010 increased 31% to $24.3 million primarily as a result of increased revenues at the company’s Northeastern Plastics unit which saw a 49.5% increase to $14.5 million. The company had several special items that impacted earnings and therefore the earnings number on the surface is not very relevant. The company settled its lawsuit with William H. Botts to the tune of $1.65 million which it expensed in its entirety and also wrote down the value of its ADB International, Inc. (ADBI.OB) holding by $1.275 million. However, this was offset by the consulting service income of $1.37 million which was paid in ADB International stock. The company also recorded a gain $700K from a lawsuit involving Delta of which AMIN owns 48.1 percent as well as a gain on the sale of assets of $764K. Finally, the company recorded a realized loss of $1.23 million and an unrealized gain of 1.66 million on trading securities. Excluding these items the company reported an operating loss of $3.3 million which was slightly worse than the operating loss of $3.1 million reported in the prior year.

The only real positive in 2010 is the company expensed a handful of troubling items before year-end and they are now off the books. Those items included expensing the settlement cost of the lawsuit with William Botts and the write-down of securities received for consulting services. As mentioned before, these securities were from ADB International, Inc. (ADBI.OB) which any common observer could see had no current value. The stock is now essentially worthless trading at $0.02 per share as opposed to the $1.37 per share when the stock was received. It makes you wonder why they would even accept a payment of this type when they had to of known the stock would have no value in a short amount of time and they would then have to publicly display their incompetence when they took the write down. What makes this even look worse is the company actually bought more ADB stock after it collapsed. Boggles the mind…

Hopefully with these special items behind the company, 2011 will have much cleaner financial statements.

In the first quarter ended March 31, 2011 the company reported a 13.4% increase in revenues to $4.23 million and the operating loss dropped substantially to $956K from $1.72 million in 2009.

Real Estate Activity

On February 7, 2011 the company announced it had formed a new wholly owned subsidiary, American International Texas Properties, Inc. In addition, the company announced its intention to convey the company’s current properties to the new subsidiary and purchase additional properties. It is unknown if the current properties have been conveyed to the subsidiary.

On April 7, 2011 the company announced the news that every AMIN investor has been waiting to hear. The company announced the receipt of an offer for the 287 acres of waterfront property in Galveston County, Texas. However, as good as the headline sounded, the details were very disappointing. The offer was for $15 million which was $10 million below the marketed price and it involves the company receiving a $12 million promissory note at 4% interest to be paid over six years. Then the real disappointment was revealed. The other $3 million to be received at closing was to be cash or “other valuable consideration”. It is the “other valuable consideration” that frightens any investor who has followed this company for any length of time. All you have to do is look at the $1.37 million in stock it received from ADB International from consulting services. It is now worth just $20,000. Maybe the consulting services they provided were only worth $5,000 and AMIN management is simply genious, but I doubt it.

On April 12, 2011 the company announced an agreement to sell 34.58 acres it owns through a subsidiary on Airport Blvd. in Houston for $1.5 million in cash. The deal is expected to close prior to the end of 2011.

Activist Shareholders

In my last article, I mention that Ephraim Fields had acquired a 6.4% stake in AMIN. Of course that stake has since been diluted by the issuance of 1.1 million shares to the largest shareholder in order to pay for the Botts lawsuit settlement. In addition the company also registered another 600K shares of common stock under its 2011 Employee Benefit Plan. Then on May 16, 2011 it was revealed that Baker Street Capital Management, LLC had taken a 7.4% ownership position in the company. This is key in the fact that Mr. Fields is currently a shareholder in Tix Corporation which Baker Street has made an offer to acquire for $2.10 per share. Tix is an example of another company with an overpaid CEO and very poor stock performance. Both Mr. Fields and Baker Street have sent open letters to the board requesting various actions be taken in order to improve shareholder value. Of course management and the Board of Tix have responded by scrambling to put in place defensive measures to further entrench themselves. I would look for AMINs Board and management to do the same.

Conclusion

I do not believe investors like Ephraim Fields and Vadim Perelman of Baker Street Capital will have much patience for the management of American International Industries. This management team has totally destroyed shareholder value over the last few years and the economy cannot take all of the blame. The CEO has continued to take home a large salary even during times of poor performance. Does this sound anything like Tix? I believe Baker Street will continue to accumulate shares and attempt to force the hand of management. The company does have potentially valuable real estate assets that are not reflected in the current stock price. In addition, improved performance at its Northeastern Plastics subsidiary may make the time right to monetize that asset as well. This could be the best time I have seen to accumulate shares of AMIN, but be careful. If Mr. Fields and Baker Street decide to walk away, it could be lights out for AMIN and its stock price.

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