10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

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. 000-24575

AMERICAN ELECTRIC TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Florida	59-3410234
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1250 Wood Branch Park Drive, Suite 600, Houston TX 77079

(Address of principal executive offices)

(713) 644-8182

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.001 par value per share	The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    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 (S. 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, 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. Rule 12b-2 of the Exchange Act. (Check one):

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 aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $33,648,000 based on the closing sale price on June 28, 2013 as reported by the NASDAQ Stock Market.

The number of shares of common stock outstanding on March 17, 2014 was 8,271,714.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the 2014 Annual Meeting of Stockholders to be held May 14, 2014 (Proxy Statement)	Part III

FORWARD-LOOKING STATEMENTS

The Description of Business section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any current or historical fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” under Part I, Item 1A of this Form 10-K. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

Company Background and Corporate Structure

American Electric Technologies, Inc. (the “Company”, “AETI”, “our”, “us” or “we”) was incorporated on October 21, 1996 as a Florida corporation under the name American Access Technologies, Inc. On May 15, 2007, we completed a business combination (the “M&I Merger”) with M&I Electric Industries, Inc. (“M&I”), a Texas corporation, and changed our name to American Electric Technologies, Inc. Our principal executive offices are located at 1250 Wood Branch Park Drive, Suite 600, Houston Texas 77079 and our telephone number is 713-644-8182. Prior to the M&I Merger, our business consisted of the operations of the American Access segment described below.

Our corporate structure currently consists of American Electric Technologies, Inc., which owns 100% of both M&I Electric Industries, Inc. and American Access Technologies, Inc. (“AAT”). The Company reports financial data for three operating segments: the Technical Products and Services (“TP&S”) segment and the Electrical and Instrumentation Construction (“E&I”) segment; which together encompass the operations of M&I, including its wholly-owned subsidiary, South Coast Electric Systems, LLC and its interest in international joint ventures’ operations in China, Singapore and Brazil; and the American Access (“AAT”) segment which encompasses the operations of our wholly-owned subsidiary, American Access Technologies, Inc.,  including its Omega Metals division.

The Company is a leading provider of power delivery solutions to the global energy industry.

The principal markets that we serve include:

· Oil & gas – the Company provides turnkey power delivery solutions for the upstream, midstream and downstream oil and natural gas markets.

· Upstream relates to the exploration and production of oil and natural gas. The Company serves customers in the land drilling, offshore drilling, land-based production, and offshore production segments of the market.

· Midstream, which is primarily related to oil & gas transportation, including oil & gas pipelines and compression and pumping stations. The Company also has a strong business in natural gas fractionation (separation) plants.

· Downstream, which includes oil refining and petrochemical plants, as well as Liquefied Natural Gas (LNG) plants, export facilities, and storage facilities.

· Power generation and distribution– the Company also provides turnkey power delivery solutions for the generation and distribution of power.

· Distributed power generation includes on-site power generation, co-generation and independent power production customers.

· Renewable power generation includes utility-scale solar power, as well as biomass power generation, geothermal power generation and other renewable energy related businesses.

· Power distribution includes utility distribution markets such as substations.

· Marine and Industrial

· Marine includes vessels such as platform supply vessels (PSV), offshore supply vessels (OSV), tankers and other various work boats, typically up to 300 ft. in length.

· Industrial, including non-oil & gas industrial markets such as steel, paper, heavy commercial, and other non-oil & gas segments

A key component of our Company’s strategy is our international focus. We have two primary models for conducting our international business. First, we sell directly and through foreign sales agents that we have appointed. Many of those international partners also provide local service and support for our products in those overseas markets. Second, where local market conditions dictate, we have expanded internationally by forming joint venture operations with local partners in key markets such as China, Brazil and Singapore, where we can partner with the primary end-customer in that market, or there are local content requirements or a competitive advantage using local manufacturing.

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Our business strategy is to grow through organic growth in our current key energy markets, expand our solution set to our current markets, continue our international expansion, and accelerate those efforts with acquisitions, while at the same time increasing earnings and cash flow per share to enhance overall stockholder value.

The Company is uniquely positioned to be the “turn-key” supplier for power delivery projects for our customers, where we are able to offer custom-designed power distribution and power conversion systems, power services, and electrical and instrumentation construction, all from one company.

Technical Products and Services

Our M&I Electric business has provided sophisticated custom-designed power distribution, power conversion, automation and control systems for the energy industry since 1946. Our products are used to safely distribute and control the flow of electricity from the source of the power being generated (e.g. a diesel generator or the utility grid) to whatever mechanical device needs to use the power (drilling machinery, motors, other process equipment, etc.) at low and medium voltages.

Our power distribution products include low and medium voltage switchgear that provide power distribution and protection for electrical systems from electrical faults. Our products include both traditional low voltage and medium voltage switchgear, as well as a variety of arc-managed and arc-resistant switchgear to increase end-user safety in case of an arc-flash explosion. Our products are suitable for both ANSI (“American National Standards Institute”) and IEC (“International Electrotechnical Commission”) markets. Other power distribution products in our solution set include low voltage and medium voltage motor control centers, powerhouses, bus ducts, fuse and switch products, and other related power distribution equipment.

Our power conversion solutions include Analog, Digital SCR (“silicon controlled rectifier”) and Alternating Current Variable Frequency Drive (“AC VFD”) systems, that are used to adjust the speed and torque of an electric motor to match various user applications, primarily in the land and offshore drilling and marine vessel markets. Our Integrated Solar Inversion Station (ISIS™) is a 1 MW (megawatt) and 1.5MW integrated platform that includes an AC variable speed inverter, packaged with switchgear and a transformer, enabling quick set-up and reliable operation of utility-scale solar farms.

Our packaged solutions include power control rooms, eHouses, and other packaged electrical buildings that incorporate our power distribution and power conversion products for land or offshore deployment.  Our packaged solutions also include Drillers Cabins for deployment in land and offshore drilling rigs.

Our automation and control solutions include PLC-based systems for the management of power in a user’s application. Our DrillAssist for land and offshore drilling and our vessel management system for marine vessels, are complete systems that enable the management of the drilling rig. DrillAssist includes auto-drill capabilities and a driller’s chair where the drilling rig operator manages the rig. DrillAssist and our vessel management system are based on technology from our March 2012 acquisition of the assets of Amnor Technologies, Inc.

We have the technical expertise to provide these solutions in compliance with a number of applicable industry standards such as NEMA (“National Electrical Manufacturers Association”) and ANSI or IEC equipment to meet ABS (“American Bureau of Shipping”), USCG (“United States Coast Guard”), Lloyd’s Register, a provider of marine certification services, and Det Norske Veritas (a leading certification body/registrar for management systems certification services) standards.

Our power distribution and control products are generally custom-designed to our customers’ specific requirements, and we do not maintain an inventory of such products.

Our technical services group provides low, medium and high voltage services to commission and maintain our customers’ electrical controls. We also provide low, medium and high voltage start-up/commissioning, preventative maintenance, emergency call out services, and breaker and switchgear refurbishment services to the Gulf Coast industrial market. We have expanded our services business to provide start-up and maintenance services for renewable projects, including wind and solar. We also provide power services to support our power distribution and power conversion products globally.

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Technical Products and Services net sales:

Year	Amount(in thousands)		Percent ofConsolidated Net Sales
2013	$	49,150		75	%
2012	$	38,973		72	%
2011	$	28,929		56	%

Foreign Joint Ventures

We primarily use foreign joint ventures to drive growth in key international markets. We believe our foreign joint ventures provide a prudent way to diversify and reduce the risk of international expansion, capitalize on the strengths and the relationships of our foreign joint venture partners with potential customers, and achieve competitive advantages. Our interests in foreign joint ventures are accounted for under the equity method of accounting. Sales made to the foreign joint ventures are made with terms and conditions similar to those of our other customers.

China. In March 2006, M&I Electric entered into a joint venture agreement with Baoji Oilfield Machinery Co., Ltd., (“BOMCO”), a wholly-owned subsidiary of the China National Petroleum Corporation, and AA Energies, Inc. of Houston, Texas, which markets oilfield equipment, to form BOMAY Electric Industries Co., Ltd. (“BOMAY”), as an equity joint venture limited liability company organized in China. M&I is a 40% interest owner in BOMAY with 51% being owned by BOMCO and the remaining 9% owned by AA Energies, Inc. BOMAY manufactures power and control systems for land drilling rigs. M&I has invested 16 million Yuan (approximately $2 million) in this joint venture in which M&I provides technology and services to BOMAY. Each of the BOMAY investors may be required to guarantee the bank loans of BOMAY in proportion to their investment. No guarantees have been provided by AETI at this time.

Singapore. In 1994, the Company formed a joint venture in Singapore to provide sales, engineering, manufacturing and technical support for our products in Southeast Asia called M & I Electric Far East PTE Ltd. (“MIEFE”). The Company currently owns 41% of the joint venture with our joint venture partner, Sonepar, owning 51% and MIEFE’s general manager owning the remaining 8%.   In October 2013, Oakwell Distribution, including their interest in MIEFE, was acquired by Sonepar (private company) of France, who is now the owner of the controlling interest in MIEFE.

Brazil. During 2010, the Company entered into a joint venture agreement with Five Star Services, a Brazilian corporation, and formed AETI Alliance Group do Brazil Sistemas E Servicos Em Energia LTDA (“AAG”), a Brazilian Limited Liability Company, in which the Company holds a 49% interest. AAG began operations mid-year 2010, and provides electrical products and services to the Brazilian energy industries. Currently, Beppe Hans Eddy Askerbo, of Brazil, holds the 51% interest previously held by Five Star Services.  

Investment in Foreign Joint Ventures:

	Year Ended December 31, 2013								Year Ended December 31, 2012
	BOMAY**		MIEFE			AAG			BOMAY		MIEFE		AAG
	(in thousands)								(in thousands)
Investment as of end of year	$	10,609	$	1,138		$	1,286		$	9,531	$	1,063	$	814
Equity income (loss)*		2,066		115			843			2,569		16		503
Distributions received from joint ventures*		1,321		—			23			1,008		—		—
Foreign currency translation*		333		(40	)		(168	)		58		61		(49	)
AETI sales to joint ventures		325		225			4			415		65		49
Accounts receivable due from joint ventures		119		—			8			73		25		8

* Numbers are already reflected in the investment balance as of end of year.

** Each of the BOMAY investors may be required to guarantee the bank loans of BOMAY in proportion to their investment. The limit of BOMAY’s loan amount shall be determined by the BOMAY Board of Directors subject to certain operating requirements. At this time, no guarantees have been provided by AETI.

AAG paid a dividend to its joint venture partners in March 2014. The Company’s share of the dividend was $830,000.

During 2013 and 2012, the Company recognized approximately $267,000 and $343,000, respectively, for employee joint venture related expenses which are included in Foreign Joint Ventures Operation’s Related Expenses in the accompanying statements of operations.

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Electrical and Instrumentation Construction

The Electrical and Instrumentation Construction (“E&I”) segment provides a full range of electrical and instrumentation construction and installation services to the Company’s markets. The Company’s E&I construction business is primarily generated from the installation (“rig up”) of our power delivery solutions into our packaged power control systems. The remainder of the segment’s business includes new construction as well as electrical and instrumentation renovation projects.

Electrical and Instrumentation Construction net sales:

Year	Amount(in thousands)		Percent of ConsolidatedNet Sales
2013	$	10,089		16	%
2012	$	9,196		17	%
2011	$	15,478		30	%

American Access Technologies

This segment manufactures and markets zone cabling enclosures and manufactures custom formed metal products. The zone cabling product line provides state-of-the-art flexible cabling and wireless solutions for the high-speed communication networks found throughout office buildings, hospitals, schools, industrial complexes and government buildings. Our patented enclosures mount in ceilings, walls, raised floors, and certain modular furniture to facilitate the routing of telecommunication network cabling, fiber optics and wireless solutions in a streamlined, flexible, and cost effective fashion. Omega Metals operates a precision sheet metal fabrication and assembly operation and provides services such as precision CNC (Computer Numerical Controlled) punching, laser cutting, bending, assembling, painting, powder coating and silk screening to a diverse client base including, engineering, technology and electronics companies, primarily in the Southeast region of the United States. Representative customers of AAT include Chatsworth Products, Inc., Tyco Electronics and Panduit.

American Access Technologies net sales:

Year	Amount(in thousands)		Percent of ConsolidatedNet Sales
2013	$	6,091		9	%
2012	$	5,896		11	%
2011	$	7,533		14	%

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Segment Financial Data

Segment Information:

The table below represents segment results for the years ended December 31, 2013 and 2012 (in thousands).

	2013			2012
Net sales:
Technical Products and Services	$	49,150		$	38,973
Electrical and Instrumentation Construction		10,089			9,196
American Access Technologies		6,091			5,896
	$	65,330		$	54,065
Gross profit:
Technical Products and Services	$	9,072		$	6,649
Electrical and Instrumentation Construction		2,095			513
American Access Technologies		648			961
	$	11,815		$	8,123
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations:
Technical Products and Services	$	8,061		$	6,012
Electrical and Instrumentation Construction		2,095			513
American Access Technologies		(712	)		(484	)
Corporate and other unallocated expenses		(6,994	)		(5,622	)
Income (loss) from domestic operations		2,450			419
Equity income from BOMAY		2,066			2,569
Equity income from MIEFE		115			16
Equity income (loss) from AAG		843			503
Foreign operations expenses		(267	)		(343	)
Net equity income from foreign joint ventures’ operations		2,757			2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations	$	5,207		$	3,164

International Sales

During 2013, approximately 16% of the Company’s consolidated revenue were systems sold or shipped into international markets, principally from the TP&S segment. These sales are generally made in U.S. dollars and settled prior to shipment or are collateralized by irrevocable letters of credit. Substantially all of AAT sales are made in the United States.

Marketing

We market our Technical Products and Services and E&I construction in the United States through direct contact with potential customers by our internal sales organization consisting of 15 full-time sales and sales support employees. We also exhibit at a variety of industry trade shows each year. We have appointed several sales agents and distributors in the United States and in a number of foreign countries.

Our business is generally obtained through a competitive bid process where the lowest bid from pre-qualified suppliers is awarded the project. Depending on the market segment, we either sell directly to the end user or owner, or sell to an Engineering, Procurement and Construction (“EPC”) firm.

Our AAT segment markets its zone cabling products through an exclusive marketing agreement with Chatsworth Products, Inc. (“CPI”) which began under an original agreement in May, 2003 that was extended to April, 2018. Under this agreement, CPI markets and American Access manufactures our zone cabling products and select products are co-branded with both CPI and American Access trademarks. We also have primary responsibility for sales of zone cabling products to original equipment manufacturers. Our Omega Metals division utilizes geographically based independent manufacturers’ representatives to generate sheet metal fabrication sales.

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Manufacturing

Manufacturing processes at our various facilities include machining, fabrication, wiring, subassembly, system assembly and final testing. We have invested in various automated and semi-automated equipment for the fabrication and machining of various parts and assemblies that we incorporate into our products. Our quality assurance program includes various quality control measures from inspection of raw material, purchased parts and assemblies through on-line inspection. We perform system design, assembly and testing in-house. Our manufacturing operations in Beaumont, Texas and Keystone Heights, Florida are ISO 9001:2008 certified.

Raw Materials and Suppliers

The principal raw materials for our products are copper, steel, aluminum and various manufactured electrical components. We obtain these products from a number of domestic and foreign suppliers. The market for most of the raw materials and parts we use is comprised of numerous participants and we believe that we can obtain each of the raw materials we require from more than one supplier. We do not have any long-term contractual arrangements with the suppliers of our raw materials.

Competition

Our products and services are sold in highly competitive markets. We compete in all of our segments and regions with a number of companies, some of which have financial and other resources comparable to or greater than us. Due to the demanding operating conditions in the energy sector and the high costs associated with project delays and equipment failure, we believe customers in this industry prefer suppliers with a track record of proven, reliable performance in their specific energy related project type. We seek to build strong long-term relationships with our customers by providing high-quality, efficient and reliable products and services, developing new products and services and responding promptly to our customers’ needs.

The principal competitive factors in our markets are product and service quality and reliability, lead time, price, technical expertise and reputation.

We believe our principal competitive strengths include the following:

Our power delivery, control and drive systems are custom-designed and are built to meet our customers’ specific requirements. We specialize in projects that are complex, require industry certification, have short lead times or other non-standard elements, such as systems that must be deployed in harsh environments or need to meet tight space or weight requirements. Our ability to provide custom-designed technical products, electrical and instrumentation construction services, and electrical startup and preventative maintenance services is unique, enabling us to provide customers total system responsibility for their electrical power control and distribution needs. We have a history of innovation in developing and commercializing new technologies into our products. Examples include digitally controlled drives, liquid-cooled high horsepower AC VFDs which are optimized for space-constrained offshore and marine applications and American Access’ zone cabling solutions. We have also expanded the market for our products both internationally and to additional end-user markets.

Our commitment to providing quality products and services, fair pricing, innovation and customer service is the foundation to the long-standing customer relationships that we enjoy with an attractive customer base. Since 1946, we have provided over 10,000 power delivery systems to many of the leading companies involved in oil and gas exploration, drilling, production, pipelines, shipbuilding, oil refineries, petrochemicals, power generation, and steel industries in the Gulf Coast region of the United States.

We are led by an experienced management team with a proven track record. We believe the experience of our management team provides us with an in-depth understanding of our customers’ needs and enhances our ability to deliver customer-driven solutions. We believe our management has fostered a culture of loyalty, resulting in high employee retention rates for our professional and technical employees.

The company has multiple competitive advantages for our products:

- Custom design

- Quick delivery time

- Able to use best of breed components and mix and match subsystems from a variety of vendors versus an all one supplier solution

- Ability to provide integrated solution by self-performing our Technical Products and E&I construction work.

We have identified our largest competitors, by product line as follows:

Power Distribution/Switchgear Systems—Powell Industries, Siemens, Eaton, GE, ABB and Volta.

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Power Conversion/Drive Systems—Omron Oilfield, National Oilwell Varco (NOV), ABB, and Siemens. We also compete against solar inverter manufacturers including SMA and Advanced Energy.

Power Services—Quanta Services, Tidal Power, Coastal Power, Eaton, and Group Schneider.

Construction—Jefferson Electric, Golderest Electronics, Newtron Electrical Services, M&D Electric Co., and Triple “S” Industrial Corp.

AAT—Earnest Metal Fabrication Exact. Inc. and Swift Atlanta.

Backlog

Backlog represents the dollar amount of net sales that we expect to realize in the future as a result of performing work under multi-month contracts. Backlog is not a measure defined by generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. Backlog may not be indicative of future operating results. Not all of our potential net sales are recorded in backlog for a variety of reasons, including the fact that some contracts begin and end within a short-term period. Many contracts are subject to modification or termination by the customer. The termination or modification of any one or more sizeable contracts or the addition of other contracts may have a substantial and immediate effect on backlog. This backlog number does not include any backlog in place at our foreign joint ventures’ operations.

We generally include total expected net sales in backlog when a contract for a definitive amount of work is entered into. We generally expect our backlog to become net sales within a year from the signing of a contract. Backlog as of December 31, 2013 and 2012 totaled $23.6 million and $15.5 million, respectively.

Intellectual Property

We have a number of patents related to the technology of our zone cabling enclosures as well as trademarks and trade names utilized with our products and services. While proprietary intellectual property is important to the Company, management believes the loss or expiration of any intellectual property right would not materially impact the Company or any of its segments.

Environmental Laws

We are subject to various federal, state, and local laws enacted for the protection of the environment. We believe we are in compliance with such laws. Our compliance has, to date, had no material effect on our capital expenditures, earnings, or competitive position.

Research and Development Costs

Total expenditures for research and development were $499,000 and $103,000 for the fiscal years ended December 31, 2013 and 2012. We incurred research costs to develop new products for our oil & gas markets including new power distribution, power conversion and automation and control products.

Employees

As of December 31, 2013, we had 310 employees. No employees are covered by a collective bargaining agreement, and we consider our relations with our employees to be satisfactory.

ITEM 1A. RISK FACTORS

You should carefully consider each of the following risks associated with an investment in our common stock and all of the other information in this 2013 Annual Report on Form 10-K. Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial. If any of the events contemplated by the following discussion of risks should occur, our business, prospects, financial condition and results of operations may suffer.

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Customers in the oil and gas industry account for a significant portion of our sales. Reduced expenditures by customers in this industry are likely to reduce our net sales, profitability and cash flows.

Customers related to the oil and gas industry accounted for approximately 62% and 68% of our sales in 2013 and 2012, respectively. The oil and gas industry is a cyclical commodity business, with product demand and prices based on numerous factors such as general economic conditions and local, regional and global events and conditions that affect supply, demand and profits. Demand for our products and services benefits from strong oil and gas markets, a decline in demand or prices for oil and gas will likely cause a decrease in demand for our products and services and result in a decline in our net sales, profit margins and cash flows.

Our products include complex systems for energy and industrial markets which are subject to operational and liability risks.

We are engaged in the manufacture and installation of complex power distribution and control systems for the energy and industrial markets. These systems are frequently complex and susceptible to unique engineering elements that are not tested in the actual operating environment until commissioned. As a result, we may incur unanticipated additional operating and warranty expenses that were not anticipated when the fixed-price contracts were estimated and executed resulting in reduced profit margins on such projects.

The industries in which we operate are highly competitive, which may result in a loss of market share or decrease in net sales or profit margin.

Our products and services are provided in a highly competitive environment and we are subject to competition from a number of similarly sized or larger businesses which may have greater financial and other resources than are available to us. Factors that affect competition include timely delivery of products and services, reputation, manufacturing capabilities, price, performance and dependability. Any failure to adapt to a changing competitive environment may result in a loss of market share and a decrease in net sales and profit margins.

We often utilize fixed-price contracts which could adversely affect our financial results.

We currently generate, and expect to continue to generate, a significant portion of our net sales under fixed-price contracts. We must estimate the costs of completing a particular project to bid for such fixed-price contracts. The cost of labor and materials, however, may vary from the costs we originally estimated. These variations, along with other risks inherent in performing fixed-price contracts, may result in actual costs and gross profits for a project differing from those we originally estimated and could result in reduced profitability and losses on projects. Depending upon the size of fixed-price contracts, variations from estimated contract costs can have a significant impact on our operating results for any fiscal quarter or year.

Our use of percentage-of-completion accounting could result in a reduction or elimination of previously reported profit.

A portion of our net sales is recognized on the percentage-of-completion method of accounting. The percentage-of-completion method of accounting practice we use results in recognizing contract net sales and earnings ratably over the contract term in proportion to our incurrence of contract costs. The earnings or losses recognized on individual contracts are based on estimates of contract net sales, costs and profitability. Contract losses are recognized in full when determined, and contract profit estimates are adjusted based on ongoing reviews of contract profitability. Actual collection of contract amounts or change orders could differ from estimated amounts and could result in a reduction or elimination of previously recognized earnings. In certain circumstances, it is possible that such adjustments could be significant.

We may not be able to fully realize the net sales value reported in our backlog.

Orders included in our backlog are represented by customer purchase orders and contracts. Backlog develops as a result of new business which represents the net sales value of new project commitments received by us during a given period. Backlog consists of projects which have either (1) not yet been started or (2) are in progress and are not yet complete. In the latter case, the net sales value reported in backlog is the remaining value associated with work that has not yet been completed. From time to time, projects that were recorded as new business are cancelled. In the event of a project cancellation, we may be reimbursed for certain costs but typically have no contractual right to the total net sales included in our backlog. In addition to being unable to recover certain direct costs, we may also incur additional costs resulting from underutilized assets if projects are cancelled.

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We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to our business.

Our continued success is dependent on the continuity of several key management, operating and technical personnel. The loss of these key employees would have a negative impact on our future growth and profitability. We have entered into written employment agreements with our Chief Executive Officer, Chief Financial Officer, and Executive Chairman, who is responsible for managing several of our international joint venture operations relationships.

Our results of operations and financial condition may be adversely impacted by global recession.

The consequences of a prolonged recession could include a lower level of economic activity and uncertainty regarding commodity and capital markets. During early 2012 we experienced a reduction in the demand for our products as a result of a reduction in economic activity. The lack of a sustained recovery could have an adverse effect on our results of operations, cash flows or financial position.

Our failure to attract and retain qualified personnel could lead to a loss of net sales or profitability.

Our ability to provide high-quality products and services on a timely basis requires that we employ an adequate number of skilled personnel. Accordingly, our ability to increase our productivity and profitability will be limited by our ability to employ, train and retain skilled personnel necessary to meet our requirements. We cannot be certain that we will be able to maintain an adequate skilled labor force necessary to operate efficiently and to support our growth strategy or that our labor expenses will not increase as a result of a shortage in the supply of skilled personnel.

Natural disasters, terrorism, acts of war, international conflicts or other disruptions could harm our business and operations.

Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other governments in response to such events could cause damage to or disrupt our business operations or those of our customers, any of which could have an adverse effect on our business.

We manufacture products and operate plants in Mississippi, Texas and Florida. Operations were disrupted in 2008 due to Hurricanes Gustav and Ike and in 2005 due to Hurricanes Katrina and Rita. Although we did not suffer a material loss as a result of these disruptions due to our insurance coverage and advance preparations, it is not possible to predict future similar events or their consequences, any of which could decrease demand for our products, make it difficult or impossible for us to deliver products, or disrupt our supply chain.

We generate a significant portion of our net sales from international operations and are subject to the risks of doing business outside of the United States.

Approximately 16% of our net sales in 2013 were generated from projects and business operations outside of the United States, primarily provided to the oil and gas drilling and marine industries in the following countries: Mexico, Canada, United Arab Emirates, Oman, Ecuador and Brazil. This percentage was approximately 26% in 2012. The oil and gas industry operates in both remote and potentially politically unstable locations, and numerous risks and uncertainties affect our non-United States operations. These risks and uncertainties include changes in political, economic and social environments, local labor conditions, changes in laws, regulations and policies of foreign governments, as well as United States laws affecting activities of United States companies abroad, including tax laws and enforcement of contract and intellectual property rights. In addition, the costs of providing our services can be adversely and/or unexpectedly impacted by the remoteness of the locations and other logistical factors.

We maintain a significant investment in a joint venture with a Chinese energy company. We may encounter unforeseen or unexpected operating, financial, political or cultural factors that could impact its business plans and the expected profitability from such investment. We will face risks if China loses normal trade relations with the United States and it may be adversely affected by the diplomatic and political relationships between the United States and China. As a result of the relatively weak Chinese legal system, in general, and the intellectual property regime, in particular, we may face additional risk with respect to the protection of our intellectual property in China. Changes in China’s political and economic policies could adversely affect our investment and business opportunities in China.

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The marketplace may not accept and utilize our newly developed solar products and services, the effect of which would prevent us from successfully commercializing any proposed products or services and adversely affect our level of future net sales for these solar products.

Our ability to market and commercialize our products and services for the manufacture and distribution of the newly developed solar products directly depends on the acceptance of such products and services by the industry. The development of many solar projects is also dependent upon the availability of governmental subsidies and tax benefits which may be reduced or eliminated due to fiscal or political considerations.

Joint Venture Limited Life Risk

The joint venture (“JV”), BOMAY was formed in 2006 in China. It was formed with a term of 12 years. The JV may be terminated earlier for valid business reasons including Force Majeure. In the event the JV is to be terminated either party may acquire the other parties’ interests and continue the operations of the JV. Additionally, the term of the JV may be extended upon agreement of all parties. In such case, the JV shall apply for the extension to the relevant Chinese authority six months before expiry of the venture. At this time, AETI has no indication that the JV will not be extended beyond 12 years.

Joint Venture Centralized Government Risks

Additionally, since the centralized government of China controls most of the petroleum industry and related manufacturing through annual planning and budgets, and the financial results realized will reflect the government’s decisions on oil and gas, manufacturing and related segment production levels. The Company understands that the value of assets including inventory may not be fully realized if demand for these products is reduced significantly because of economic policy decisions or other organizational changes in the Chinese Petroleum industry.

Foreign Currency Transaction Risk

AETI maintains equity method investments in its Singapore, Chinese and Brazilian joint ventures, MIEFE, BOMAY, and AAG, respectively. The functional currencies of the joint ventures are the Singapore Dollar, the Chinese Yuan and the Brazilian Real, respectively. Investments are translated into United States Dollars at the exchange rate in effect at the end of each reporting period. The resulting translation adjustment is recorded as accumulated other comprehensive income, net of deferred taxes in AETI’s consolidated balance sheet. This item increased from $900,000 at December 31, 2012 to $983,000 at December 31, 2013 due to the weakness of the United States Dollar against the Chinese Yuan and Singapore Dollar partially offset by weakness of the Brazilian Real to the United States Dollar.

Other than the aforementioned items, we do not believe we are exposed to significant foreign currency exchange risk because most of our net sales and purchases are denominated in United States Dollars.

Commodity Price Risk

We are subject to market risk from fluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We endeavor to recoup any price increases from our customers on an individual contract basis to avoid operating margin erosion. Although historically we have not entered into any contracts to hedge commodity risk, we may do so in the future.

Commodity price changes can have a material impact on our prospective earnings and cash flows. Copper, steel and aluminum represent a significant element of our material cost. Significant increases in the prices of these materials could reduce our estimated operating margins if we are unable to recover such increases from customer net sales.

Interest Rates

Our market risk sensitive items do not subject us to material risk exposures. Our revolving credit facility remains available through October 1, 2015. At December 31, 2013, the Company had $0.5 million of variable-rate debt outstanding under the facility. At this borrowing level, a hypothetical relative increase of 50% in interest rates would have had an insignificant, unfavorable impact on the Company’s pretax earnings and cash flows. The primary interest rate exposure on variable-rate debt is based on the 30 day LIBOR rate (0.2% at December 31, 2013) plus 3.25% per year. The agreement is collateralized by trade accounts receivable, inventory, work-in-process, equipment and real property located in Beaumont, TX.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The following table describes the material facilities of AETI and its subsidiaries, including foreign joint ventures, as of December 31, 2013:

Location	General Description	Approximate Acres	Approximate Square Feet of Building	Owned/Leased
Houston, Texas *	Company and M&I headquarters, TP&S and E&I service center and storage	3.0	26,000	Leased
Beaumont, Texas	TP&S manufacturing and storage	9.0	85,000	Owned
Bay St. Louis, Mississippi	M&I manufacturing	3.0	11,000	Owned
Keystone Heights, Florida	AAT offices and manufacturing	9.7	67,500	Owned
Foreign joint ventures’ operations:
Xian, Shaanxi, China	BOMAY Electric Industries offices and manufacturing	4.1	100,000 80,000	Owned Leased
Singapore	M&I Electric Far East offices and manufacturing	0.3	15,000	Leased
Brazil - Macae	AETI Alliance Group Brazil offices and manufacturing	1.0	7,500	Leased
Rio	AETI Alliance Group Brazil offices	0.1	2,500	Leased
Angra	AETI Alliance Group Brazil offices	0.1	500	Leased

* See Note 5 in the Notes to Consolidated Financial Statements for more information on the Houston, Texas location.

ITEM 3. LEGAL PROCEEDINGS.

The Company becomes involved in various legal proceedings and claims in the normal course of business. In management’s opinion, the ultimate resolution of these matters is not expected to have a material effect on our consolidated financial position or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock trades on The NASDAQ Stock Market under the symbol “AETI”.

The following table sets forth quotations for the high and low sales prices for the Company’s common stock, as reported by NASDAQ, for the periods indicated below:

	Year Ended December 31, 2013				Year Ended December 31, 2012
	High		Low		High		Low
First Quarter	$	5.23	$	4.66	$	5.75	$	4.12
Second Quarter		7.27		5.12		4.96		3.58
Third Quarter		9.00		6.26		4.85		4.01
Fourth Quarter		10.22		6.75		5.21		4.38

As of March 17, 2014, there were 48 shareholders of record.

The Company did not declare or pay cash dividends on common shares in either fiscal year 2013 or 2012. Dividends were paid on our Series A Convertible Preferred Stock. The Company anticipates that, for the foreseeable future, it will retain any earnings for use in the operation of its business. Our amended bank loan agreement restricts the payment of cash dividends on our common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In conjunction with the issuance of common stock to employees upon conversion of vested restricted stock units under the 2007 Employee Stock Incentive Plan, on February 28, 2013 the Company purchased 29,641 of such shares for cash of $146,000 in accordance with the Plan’s provision that the employees may sell sufficient shares to fund their liability for tax withholdings. These shares remained as treasury stock at December 31, 2013.

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ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes our consolidated financial data for the periods presented. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this annual report. The information set forth below is not necessarily indicative of results of future operations. Amounts are in thousands of dollars except share and per share data.

	2013		2012		2011			2010			2009
Net sales	$	65,330	$	54,065	$	51,940		$	38,964		$	52,163
Net income (loss) attributable to common stockholders	$	4,209	$	2,084	$	(5,888	)	$	(1,694	)	$	678
Earnings (loss) per common share:
Basic	$	0.53	$	0.26	$	(0.75	)	$	(0.22	)	$	0.09
Diluted	$	0.48	$	0.25	$	(0.75	)	$	(0.22	)	$	0.09
Cash dividends declared per common share		—		—		—			—			—
Shares used in computing earnings (loss) per common share:
Basic		7,990,690		7,901,225		7,813,587			7,741,594			7,689,915
Diluted		9,472,506		8,258,742		7,813,587			7,741,594			7,827,531
Cash and cash equivalents	$	4,148	$	4,477	$	3,749		$	1,364		$	1,497
Total assets		45,836		38,974		36,231			34,027			33,522
Long-term debt (including current maturities)		500		500		5,211			4,365			3,511
Total liabilities		15,565		13,789		18,710			11,101			9,608
Redeemable preferred stock (net of discount)		4,236		4,194		—			—			—
Total stockholders’ equity		26,035		20,991		17,521			22,926			23,914

Note: * In 2011 the Company recorded a net valuation reserve of $6.7 million related to its net operating loss carry forwards and other related deferred tax assets resulting in a $5.4 million non-cash tax expense. For further information see Note 7 to the consolidated financial statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements, based on current expectations related to future events and AETI’s future financial performance that involves risks and uncertainties. AETI’s actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth in the section entitled “Risk Factors” in this Form 10-K.

Overview

Our corporate structure currently consists of American Electric Technologies, Inc., which owns 100% of both M&I and AAT. We report financial data for three operating segments: the TP&S segment and the E&I segment which together encompass the operations of M&I including its South Coast Electric Systems, LLC subsidiary and the AAT segment which encompasses the operations of American Access Technologies, Inc. including its wholly-owned Omega Metals division. In addition, M&I holds a 40%, 41%, and 49% interest in China, Singapore, and Brazil foreign joint ventures’ operations, respectively. Prior to December 31, 2011, the Company owned 49% of the Singapore’s joint venture with our joint venture partner, Oakwell Engineering, Ltd., owning the remaining 51%. At December 31, 2011, we exchanged 8% of our MIEFE ownership for satisfaction of amounts owed to MIEFE’s general manager, under a deferred compensation arrangement for approximately $190,000. In October 2013, Oakwell Distribution was acquired by Sonepar (private company) of France, who is now the owner of the controlling interest in MIEFE. These ventures are stand-alone operating companies and enhance our ability to provide products to these markets. Results from these ventures are reported using the equity method of accounting.

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We are a leading provider of power delivery solutions to the global energy industry. Our customers are in the following industries:

· Oil & gas

· Upstream which includes land and offshore drilling, and offshore production, all primarily related to exploration and production (E&P)

· Midstream which includes oil & gas pipelines along with fractionation plants

· Downstream which includes refining and petrochemical, as well as Liquefied Natural Gas (LNG) plants

· Power generation and distribution

· Distributed power generation such as remote power stations, co-generation,

· Renewable power generation including solar power, geothermal, biomass,

· Power distribution including substations

· Marine and Industrial

· Marine vessel including platform supply vessels (PSV), offshore supply vessels (OSV), tankers and other various work boats

· Industrial including non-oil & gas industrial markets such as steel, heavy commercial, and other non-oil & gas segments

· A key component of our Company’s strategy is our international focus. We have two primary models for conducting our international business. First, we sell directly and through foreign sales agents and distributors that we have appointed. Many of those international partners also provide local service and support for our products in those overseas markets. Second, where local market conditions dictate, we have expanded internationally by forming joint venture operations with local parties in key markets such as China, Brazil and Singapore, where there are local content requirements or we need to do local manufacturing.

· Our business strategy is to grow through organic growth in our key energy markets, expand our solution set to our current market segments, continue our international expansion, and accelerate those efforts with acquisitions. While at the same time increasing earnings and cash flow per share to enhance overall stockholder value.

· The Company is uniquely positioned to be the “turn-key” supplier for power delivery projects for our customers, where we are able to offer custom-designed power distribution and power conversion systems, power services, and electrical and instrumentation construction, all from one company.

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Non-U.S. GAAP Financial Measures

A non-U.S. GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this report, we define and use the non-U.S. GAAP financial measure EBITDA as set forth below.

EBITDA

Definition of EBITDA

We define EBITDA as follows:

Net income (loss) before:

· provision (benefit) for income taxes;

· non-operating (income) expense items;

· depreciation and amortization; and

· dividends on redeemable preferred stock.

Management’s Use of EBITDA

We use EBITDA to assess our overall financial and operating performance.  We believe this non-U.S. GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations.  This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance.  It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as dividends required on preferred stock, depreciation and amortization, taxation and interest expense associated with our capital structure.  This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a regular basis. EBITDA is also used by research analysts and investors to evaluate the performance and value of companies in our industry.

Limitations of EBITDA

EBITDA has limitations as an analytical tool.  It should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings.  Material limitations in making the adjustments to our earnings to calculate EBITDA, and using this non-U.S. GAAP financial measure as compared to U.S. GAAP net income (loss), include:

· the cash portion of dividends, interest expense and income tax (benefit) provision generally represent charges (gains), which may significantly affect our financial results; and

· depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our fixed assets and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position.  We use non-U.S. GAAP financial measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S. GAAP.  You should not rely on EBITDA as a substitute for any such U.S. GAAP financial measure.  We strongly urge you to review the reconciliation of EBITDA to U.S. GAAP net income (loss) attributable to common stockholders, along with our consolidated financial statements included herein.

We also strongly urge you to not rely on any single financial measure to evaluate our business.  In addition, because EBITDA is not a measure of financial performance under U.S. GAAP and is susceptible to varying calculations, the EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

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The table below shows the reconciliation of net income (loss) attributable to common stockholders to EBITDA for the years ended December 31, 2013 and 2012 (dollars in thousands):

	Years ending December 31,
	2013			2012
Net income (loss) attributable to common stockholders	$	4,209		$	2,084
Add: Dividends on redeemable preferred stock		342			225
Depreciation and amortization..		872			877
Interest expense and other (income), net		(57	)		148
Provision (benefit) for income taxes		713			707
EBITDA	$	6,079		$	4,041

Foreign Joint Ventures:

Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2013 and 2012 (in thousands):

	BOMAY				MIEFE				AAG
	2013		2012		2013		2012		2013		2012
	(in thousands)
Assets:
Total current assets	$	94,220	$	91,926	$	3,855	$	3,894	$	2,572	$	2,241
Total non-current assets		5,122		5,116		114		116		1,550		776
Total assets	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,017
Liabilities and equity:
Total liabilities	$	72,644	$	73,293	$	1,197	$	1,422	$	1,291	$	1,511
Total joint ventures equity		26,698		23,749		2,772		2,588		2,831		1,505
Total liabilities and equity	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,016
Gross sales	$	86,332	$	84,639	$	7,997	$	6,996	$	10,658	$	7,625
Gross profit	$	12,130	$	14,348	$	2,066	$	1,547	$	4,282	$	2,965
Net income (loss)		5,165		6,422		279		39		1,721		1,104

The Company’s investments in and advances to its foreign joint ventures’ operations were as follows as of December 31, 2013 and 2012:

	2013												2012
	BOMAY*			MIEFE			AAG			TOTAL			BOMAY*			MIEFE		AAG			TOTAL
	(in thousands)												(in thousands)
Investment in joint ventures:
Balance, beginning of year	$	2,033		$	14		$	234		$	2,281		$	2,033		$	14	$	284		$	2,331
Amounts invested and advanced (repayments)		—			—			(180	)		(180	)		—			—		(50	)		(50	)
Balance, end of year		2,033			14			54			2,101			2,033			14		234			2,281
Undistributed earnings:
Balance, beginning of year		6,400			755			661			7,816			4,839			739		158			5,736
Equity in earnings (loss)		2,066			115			843			3,024			2,569			16		503			3,088
Dividend distributions		(1,321	)		—			(23	)		**(1,344	)		(1,008	)		—		—			(1,008	)
Balance, end of year		7,145			870			1,481			9,496			6,400			755		661			7,816
Foreign currency translation
Balance, beginning of year		1,098			294			(81	)		1,311			1,040			233		(32	)		1,241
Change during the year		333			(40	)		(168	)		125			58			61		(49	)		70
Balance, end of year		1,431			254			(249	)		1,436			1,098			294		(81	)		1,311
Investments, end of year	$	10,609		$	1,138		$	1,286		$	13,033		$	9,531		$	1,063	$	814		$	11,408

* Accumulated statutory reserves in equity method investments of $1.9 million and $1.6 million at December 31, 2013 and 2012, respectively, are included in AETI’s consolidated retained earnings. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership

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required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

** See Note 17 on recent dividend from AAG as noted in Investment in Foreign Joint Ventures on page 5.

The Company accounts for its investments in foreign joint ventures’ operations using the equity method of accounting. Under the equity method, the Company’s share of the joint ventures’ operations’ earnings or loss is recognized in the consolidated statements of operations as equity income (loss) from foreign joint ventures’ operations. Joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value. Dividends received from the joint ventures reduce the carrying value.

The equity income for the Company’s interest in the three joint ventures for 2013 and 2012 was: BOMAY $2,066 vs. $2,569, AAG $843 vs. $503 and MIEFE $115 vs. $16. These results reflect the relative size and activity in the three distinct markets of China, Brazil and Singapore. BOMAY’s results reflects the market for land rigs in China with increasing exports to international markets. Recent slowing of the highly centralized petroleum industry in China and changes in senior management at high levels has resulted in a BOMAY loss in the fourth quarter of 2013.

Historically, the operating results of BOMAY have appeared almost seasonal as budgets were established for new years in March and the companies worked to complete production to meet targets. After annual targets were met in the second or third quarter, only minimal new production results were reported in the fourth quarter. Most of BOMAY’s production is for BOMCO for the Chinese National Petroleum Corporation for land drilling in China. We believe the situation in the CNPC management structure will stabilize and will result in a return to profitability for 2014. It can be expected that quarterly results will continue to vary.

At December 31, 2013 there were inventories and work in progress at BOMAY of approximately $60 million compared to approximately $45 million at December 31, 2012. We expect much of this will be invoiced in 2014 after new budgets are established and products accepted. Additionally new international orders will be completed and recognized. The 2014 level may approach recent years’ results. BOMAY has addressed downturns with reduced staff and other cost cutting measures.

Results of Operations

The table below summarizes our consolidated net sales and profitability for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):

	2013			2012			2011
Net sales	$	65,330		$	54,065		$	51,940
Gross profit		11,815			8,123			7,155
Gross profit %		18	%		15	%		14	%
Research and development expenses		(499	)		(103	)		(577	)
Selling and marketing expenses		(2,693	)		(2,455	)		(2,508	)
General and administrative expenses		(6,173	)		(5,146	)		(5,780	)
Income (loss) from domestic operations		2,450			419			(1,710	)
Equity income from foreign joint ventures’ operations		3,024			3,088			1,917
Foreign joint ventures’ operations related expenses		(267)			(343	)		(437	)
Net equity income from foreign joint ventures’ operations		2,757			2,745			1,480
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations		5,207			3,164			(230	)
Other income (expense), net		57			(148	)		(216	)
Net income (loss) before income taxes		5,264			3,016			(446	)
(Provision for) benefit from income taxes		(713	)		(707	)		(5,442	)
Net income (loss) before redeemable preferred dividends		4,551			2,309			(5,888	)
Dividends on redeemable preferred stock		(342)			(225	)		—
Net income attributable to common stockholders	$	4,209		$	2,084		$	(5,888	)

Year ended December 31, 2013 compared to year ended December 31, 2012

Consolidated net sales increased $11.3 million or 21%, to $65.3 million for the year ended December 31, 2013 as compared to 2012. The Company’s net sales growth from the comparative prior year period was driven primarily by increased demand from new

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customers for our Technical Products coupled with lesser increases in Electrical Instrumentation (E&I) and Construction. The increase in E&I reflects increased work in strategic markets replacing lower revenues from exiting the water/wastewater construction business.

Consolidated gross profit increased $3.7 million to $11.8 million and increased as a percentage of net sales from 15% to 18%. This increase was mainly attributable to the TP&S segment’s increased net sales and direct margin compared to the previous period in 2012 as well as a strong increase in E&I due to the exit from non-core business in 2012. This performance reflects the improved business environment and increased activity in the Company’s strategic markets. The Company’s gross profit reported each quarter in 2013 was $3.0 million in the first quarter, $2.4 million in the second quarter and $3.5 million in the fourth quarter.  

Segment Comparisons

The TP&S segment’s net sales increased $10.2 million from $39.0 million for the year ended December 31, 2012, to $49.2 million for the year ended December 31, 2013, a 26% improvement.  Gross profit for the segment for the year ended December 31, 2013 was $9.1 million, an increase of $2.5 million over the prior year gross profit of $6.6 million.  The increase in Technical Products and Services results was driven in large part by increased midstream and offshore drilling demand for our products and services during 2013 which more than offset a slowdown in the domestic land rig markets.

The E&I segment’s reported net sales of $10.1 million for the year ended December 31, 2013, an increase of $0.9 million, or 10%, compared to the year ended December 31, 2012. Gross profit for the E&I segment during the year ended December 31, 2013 was $2.1 million, compared to $0.5 million in the corresponding prior year period.  Gross profit as a percentage of net sales increased to 21% from 6% in the comparable prior period, due to the 2012 winding down of existing contractual arrangements in business we exited with water waste-water customers and the consolidation of our Beaumont and Houston construction resources.

The AAT segment reported net sales of $6.1 million for the year ended December 31, 2013, up $0.2 million, from the comparable prior year period, a 3% increase. Gross profit decreased by $0.3 million in 2013, from $0.9 million in the prior year. Gross profit as a percentage of net sales decreased to 11% in 2013 from 16% in the comparable prior period. This segment continues to be challenged by competitive pricing due to weakness in the industrial sector and the loss of a key account in 2012. The Company is evaluating strategic options for AAT segment.

Research and development costs for the year ended December 31, 2013 were up $0.4 million from $0.1 million in the previous period, most of which related to the continued development of the Company’s Automation and Arc-Resistant products.We anticipate increased research and development expenditures in 2014 as we develop new products to meet the needs of our customers.

Selling and marketing expenses for the year ended December 31, 2013 were $2.7 million, or 4% of net sales and essentially unchanged when compared to 2012.  

General and administrative expenses were up for the year ended December 31, 2013 over the same period in 2012 by $1.0 million from $5.2 million in 2012 to $6.2 million in 2013 primarily due to $0.7 million related to increase bonus and stock compensation on improved results and increased wages of $0.3 million to remain competitive.

Net equity income from foreign joint ventures was unchanged for the year ended December 31, 2013 at $2.8 million level when compared to the period ended December 31, 2012. This reflected a downturn primarily from BOMAY of $0.5 million from China’s slowing economy, which was offset by improvement in Brazil due to time and materials based jobs with good margins.

Consolidated other expense, net was $0.1 million income for the year ended December 31, 2013, a decrease of $0.2 million expense from the comparable prior year, primarily due to a gain on sale of Houston office facilities and reduction of long-term debt outstanding during the year 2013 compared to 2012.  Long-term debt was unchanged from $0.5 million at the end of 2012 to $0.5 million at December 31, 2013.

The (provision for) benefit from income taxes for the year ended December 31, 2013 was a non-cash expense of $0.7 million which reflects the valuation allowance related to the Company’s net deferred tax assets related to its U.S. operations. See Note 7 to the Consolidated Financial Statements included in this report for further details. The 2013 and 2012 tax accrual represents U.S. taxes on the foreign joint ventures’ equity income less dividends received.

Year ended December 31, 2012 compared to year ended December 31, 2011

Consolidated net sales increased $2.1 million or 4%, to $54.1 million for the year ended December 31, 2012 as compared to 2011. The Company’s net sales growth from the comparative prior year period was driven primarily by increased demand for its Technical Products which was partially offset by declines in Electrical Instrumentation and Construction.  These declines in the E&I

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segment relate primarily to the Company’s decision in 2012 to exit the water/wastewater construction business to focus its E&I efforts on more strategic segments including oil & gas, power generation and distribution, and marine and non-oil & gas industrial.

Consolidated gross profit increased $1.0 million to $8.1 million and increased as a percentage of net sales from 14% to 15%. This increase was mainly attributable to the TP&S segment’s increased net sales and direct margin compared to the previous period in 2011. This performance reflects the improved business environment and benefits of the cost reduction efforts implemented in late 2010. The Company’s gross profit reported each quarter in 2012 was $1.8 million in the first quarter, $2.2 million in the second quarter, $1.6 million in the third quarter and $2.5 million in the fourth quarter.

Segment Comparisons

The TP&S segment’s net sales increased $10.0 million from $28.9 million for the year ended December 31, 2011, to $39.0 million for the year ended December 31, 2012, a 35% improvement.  Gross profit for the segment for the year ended December 31, 2012 was $6.6 million, an increase of $2.1 million over the prior year gross profit of $4.6 million.  The increase in Technical Products and Services results was driven in large part by increased mid and downstream oil and gas demand for our products and services during 2012 which more than offset a slowdown in the domestic land and offshore rig markets.

The E&I segment’s reported net sales of $9.2 million for the year ended December 31, 2012, a decrease of $6.3 million, or 41%, compared to the year ended December 21, 2011.  The results reflect our decision to exit the water/wastewater business and focus our Electrical and Instrumentation construction efforts on markets that are more closely aligned with our overall strategy. Gross profit for the E&I segment during the year ended December 31, 2012 was $0.5 million, compared to $1.2 million in the corresponding prior year period.  Gross profit as a percentage of net sales decreased to 6% from 8% in the comparable prior period, due to the winding down of existing contractual arrangements and the consolidation of our Beaumont and Houston construction resources.

The AAT segment reported net sales of $5.9 million for the year ended December 31, 2012, down $1.6 million, from the comparable prior year period, a 22% decrease. Gross profit decreased by $0.4 million in 2012, from $1.3 million in the prior year. Gross profit as a percentage of net sales decreased to 16% in 2012 from 18% in the comparable prior period.  The decline in the AAT segments revenue and profitability primarily relates to the loss of a key contract. This segment continues to be challenged by competitive pricing due to weakness in the industrial sector and the loss of a key account.  

Research and development costs for the year ended December 31, 2012 were down to $0.1 million from $0.6 million in the previous period, all of which related to the continued development of the Company’s ISIS products.We anticipate increased research and development expenditures in 2013 as we develop new products to meet the needs of our customers.

Selling and marketing expenses for the year ended December 31, 2012 were $2.5 million, or 5% of net sales and essentially unchanged when compared to 2011.  

General and administrative expenses were down for the year ended December 31, 2012 over the same period in 2011 by $0.6 million from $5.8 million in 2011 to $5.2 million in 2012 primarily due to a legal expense of $0.4 million in 2011 related to the E&I segment’s arbitration dispute, from which the Company received a favorable determination from the binding arbitrator. In addition, the Company recorded an additional audit expense accrual of $252,000 in 2011.

Net equity income from foreign joint ventures increased for the year ended December 31, 2012 by $1.3 million to $2.8 million when compared to the period ended December 31, 2011.  The increased equity income resulted primarily from BOMAY, which increased from $1.7 million in 2011 to $2.6 million in 2012 as a result of increased activity in China.

Consolidated other income (expense), net was an expense of $148,000 for the year ended December 31, 2012, a decrease of $68,000 from the comparable prior year, primarily due to a reduction of long-term debt.  Long-term debt decreased from $5.1 million at the end of 2011 to $0.5 million at December 31, 2012 as a result of a $5 million preferred stock issuance.

The (provision for) benefit from income taxes for the year ended December 31, 2011 was a non-cash expense of $5.4 million which reflects the valuation allowance related to the Company’s net deferred tax assets related to its U.S. operations. The deferred tax asset was primarily related to the net operating loss carry forwards of $9.8 million generated by AAT prior to the Company’s merger in 2007. Subsequently, the Company generated additional net operating losses and foreign tax credit carry forwards. It was determined in the fourth quarter of 2011 that due to the Internal Revenue’s Section 382 limitations on our ability to utilize the net operating losses and due to three years of cumulative losses, a full valuation allowance was warranted and as such, an expense was recorded. See Note 7 to the Consolidated Financial Statements included in this report for further details. The 2012 tax accrual represents U.S. taxes on the equity income less dividends received.

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LIQUIDITY AND CAPITAL RESOURCES

	December 31, 2013			December 31, 2012
	(in thousands except percentages and ratios)
+Working capital	$	15,282		$	12,239
Current ratio		2.4 to 1			2.2 to 1
Total debt	$	500		$	500
Debt as a percent of total capitalization		2	%		2	%
Consolidated net worth (per amended loan agreement *)	$	30,271		$	25,185

* “Consolidated Net Worth” represents the Company’s consolidated total assets less consolidated total liabilities.

AETI’s long-term debt as of December 31, 2013 was $0.5 million on which payments are current.  

Notes Payable

On November 30, 2013, the Company entered into a $10.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A.  The agreement replaced in its entirety the company’s prior credit agreement, as amended, originally entered into with JPMorgan Chase Bank, N.A. in October of 2007.

The 2013 agreement has a maturity date of October 1, 2015.   Under the agreement, the credit facility’s interest rate is LIBOR plus 3.25% per annum and a commitment fee of 0.3% per annum on the unused portion of the credit limit each quarter.

The 2013 agreement provides for usual and customary covenants and restrictions  including that the borrower must maintain a fixed charge coverage ratio of no less than 1.25 to 1.00, and will not permit the ratio of consolidated total liabilities to consolidated net worth to exceed 1.00.   Additionally, the borrower will not permit, at the end of each calendar quarter, for its net income for the most recently ended six month period to be less than $1.00.

The agreement is collateralized by the Company’s real estate in Beaumont, Texas, trade accounts receivable, equipment, inventories, and work-in-process, and the Company’s U.S. subsidiaries are guarantors of the borrowing.

The Company had $0.5 million of borrowings outstanding under the JPMorgan Chase N.A. credit agreement at both December 31, 2013 and December 31, 2012.  The company had additional borrowing capacity of $7.9 million and $6.9 million at December 31, 2013 and December 31, 2012 respectively.Prior to July 27, 2012, the interest rate on the Company’s borrowings was 30 day LIBOR rate plus 2.75% per year.

Sources and Use of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor. Accordingly, cash flow is subject to market fluctuations and conditions. A substantial portion of our business, primarily construction and products, is characterized by long-term contracts. Most of our long-term contracts allow for several progress billings that provide us with cash receipts as costs are incurred throughout the project, rather than upon contract completion, thereby reducing working capital requirements. We also utilize borrowings under our revolving credit agreement, discussed in the preceding section, for our cash needs.

Operating Activities

During the twelve months ended December 31, 2013, the Company generated cash flows from operations of $0.3 million as compared to generating $0.8 million for the same period in 2012. The impact on cash from operating activities was negatively impacted by the use of cash in working capital of $0.4 million for the year ended December 31, 2013 and benefited by $2.4 million for the same period in 2012. The decrease in cash generated from working capital is a result of increases in account receivables partially offset by decreases in inventory, primarily in the TPS segment.

Investing Activities

During the twelve months ended December 31, 2013, the Company used $0.2 million in cash from investing activities compared to using $0.2 million for the comparable period in 2012. This is mainly attributable to increased capital expenditures partially offset by dividends received from joint ventures, amounting to $1.4 million in 2013 and $1.0 million in 2012 respectively. Capital expenditures in 2013 totaled $2.3 million and $1.5 million in 2012.  

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Financing Activities

During the twelve months ended December 31, 2013, the Company used $0.5 million in cash from financing activities as compared to $0.1 million provided in the comparable period in 2012. The main use of cash was the purchase of treasury stock for $147,000 and payment of preferred stock dividends of $300,000.

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of debt requirements and operating cash needs. To meet our short and long-term liquidity requirements, we rely primarily on cash from operations. Beyond cash generated from operations, we have a credit facility of $10 million with $7.9 million available at December 31, 2013 and $4.1 million of unrestricted cash at December 31, 2013.

Operating Lease Commitments

The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2013:

Year Ending December 31,	Amount
	(In thousands)
2014		443
2015		438
2016		423
2017		347
2018		348
2019		175
	$	2,174

Contractual Obligations

Payments due under contractual obligations at December 31, 2013, are as follows:

	Within 1 Year		2 - 3 years		3 - 5 years		More Than 5 Years		Total
	(in thousands)
Long-term debt obligations	$	—	$	500	$	—	$	—	$	500
Interest on long-term debt		18		13		—		—		31
Total	$	18	$	513	$	—	$	—	$	531

Interest is estimated based on the current rate of approximately 3.5%

Outlook for Fiscal 2014

AETI enters 2014 with a backlog of $23.6 million which is up from the prior year because of improved Technical Products orders at year end. We do see some additional growth opportunities, particularly in the second half of 2014.

We closely monitor our backlog and order activity and continue to adjust our cost structure and expenditures accordingly as conditions require. We expect increased benefit from our recent product and business development activities, including our drilling control systems technology acquisition. We expect to expand our initiatives in these markets. We are optimistic for the coming year for our Chinese foreign joint venture’s operations will return to profitability in early 2014.

The Company believes its existing cash, working capital and unused credit facility combined with operating earnings will be sufficient to meet its working capital needs for the next twelve months. The Company continues to review growth opportunities and depending on cash needs may raise cash in the form of debt, equity, or a combination of both.

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Effects of Inflation

We experienced minimal increases in our material prices in 2013. The Company has been generally successful in recovering these increases from its customers in the form of increased prices. As a result, AETI has not experienced material margin erosion in 2013 due to inflationary pressures. Future inflationary pressures will likely be largely dependent on the worldwide demand for these basic materials which cannot be predicted at this time.

Commitments and Contingencies

On September 1, 1999, the Company created a group medical and hospitalization minimum premium insurance program. For the policy year ended August 2013 and the subsequent policy, the Company is liable for all claims each year up to $60,000 per insured, or $1.3 million in the aggregate. An outside insurance company insures any claims in excess of these amounts. The Company’s annual expense for this minimum premium insurance program totaled $879,000 and $845,000 during the years ended December 31, 2013 and 2012, respectively. Insurance reserves included in accrued payroll and benefits in the accompanying consolidated balance sheets were approximately $254,000 and $225,000 at December 31, 2013 and 2012, respectively.

Critical Accounting Policies and Estimates

We have adopted various critical accounting policies that govern the application of accounting principles generally accepted in the United States of America (“U.S. GAAP”) in the preparation of our consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Certain accounting policies involve significant estimates and assumptions by us that have a material impact on our consolidated financial condition or operating performance. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of our consolidated financial statements. We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”, nor do we have any “variable interest entities”.

Inventories – Inventories are stated at the lower of cost or market, with material value determined using an average cost method. Inventory costs for finished goods and work-in-process include direct material, direct labor, production overhead and outside services. TP&S and E&I indirect overhead is apportioned to work in process based on direct labor incurred. AAT production overhead, including indirect labor, is allocated to finished goods and work-in-process based on material consumption, which is an estimate that could be subject to change in the near term as additional information is obtained and as our operating environment changes.

Allowance for Obsolete and Slow-Moving Inventory – The Company regularly reviews the value of inventory on hand using specific aging categories, and records a provision for obsolete and slow-moving inventory based on historical usage and estimated future usage. As actual future demand or market conditions may vary from those projected, adjustments to our inventory reserve may be required.

Allowance for Doubtful Accounts – The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The estimate is based on management’s assessment of the collectability of specific customer accounts and includes consideration for credit worthiness and financial condition of those specific customers. The Company also reviews historical experience with the customer, the general economic environment and the aging of receivables. The Company records an allowance to reduce receivables to the amount that is reasonably believed to be collectible. Based on this assessment, management believes the allowance for doubtful accounts is adequate.

Revenue Recognition – The Company reports earnings from fixed-price and modified fixed-price long-term contracts on the percentage-of-completion method. Earnings are accrued based on the ratio of costs incurred to total estimated costs. However, for TP&S, we have determined that labor incurred provides an improved measure of percentage-of-completion. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined. A contract is considered complete when all costs, except insignificant items, have been incurred and the facility has been accepted by the customer. Revenue from non-time and material jobs of a short-term nature (typically less than one month) is recognized on the completed-contract method after considering the attributes of such contracts. This method is used because these contracts are typically completed in a short period of time and the financial position and results of operations do not vary materially from those which would result from use of the percentage-of-completion method. The asset, “Work-in-process,” which is included in inventories, represents the cost of labor, material, and overhead on jobs accounted for under the completed-contract method. For contracts accounted for under the percentage-of-completion method, the asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenue recognized in excess of amounts billed and the liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenue recognized.

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Foreign Currency Gains and Losses – Foreign currency translations are included as a separate component of comprehensive income. The Company has determined the local currency of foreign joint ventures to be the functional currency. In accordance with ASC 830, the assets and liabilities of the foreign equity investees, denominated in foreign currency, are translated into United States dollars at exchange rates in effect at the consolidated balance sheet date and net sales and expenses are translated at the average exchange rate for the period. Related translation adjustments are reported as comprehensive income, net of deferred income taxes, which is a separate component of stockholders’ equity, whereas gains and losses resulting from foreign currency transactions are included in results of operations.

Federal Income Taxes – The liability method is used in accounting for federal income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company’s tax returns.

Contingencies – The Company records an estimated loss from a loss contingency when information indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. Contingencies are often resolved over long time periods, are based on unique facts and circumstances, and are inherently uncertain. The Company regularly evaluates the current information that is available to determine whether such accruals should be adjusted or other disclosures related to contingencies are required. The Company is a party to a number of legal proceedings in the normal course of business for which appropriate provisions have been made if it is believed an ultimate loss is probable. The ultimate resolution of these matters, individually or in the aggregate, is not likely to have a material impact on the Company’s consolidated financial position or results of operations.

Equity Income from Foreign Joint Ventures’ Operations – The Company accounts for its investments in foreign joint ventures’ operations using the equity method. Under the equity method, the Company records its pro-rata share of foreign joint ventures’ operations income or losses and adjusts the basis of its investment accordingly. Dividends received from the joint ventures, if any, are recorded as reductions to the investment balance.

Carrying Value of Joint Venture Investments – The Company evaluates the carrying value of equity method investments as to whether an impairment adjustment may be necessary. In making this evaluation, a variety of quantitative and qualitative factors are considered including international, national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors.

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 was issued to provide enhanced disclosures that will enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments under ASU No. 2011-11 require enhanced disclosures by requiring entities to disclose both gross information and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU No. 2011-11 is effective retrospectively for annual periods beginning on or after January 1, 2013, and interim periods within those periods. The adoption of ASU No. 2011-11 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In July 2012, the FASB issued ASU No. 2012-02, Intangible - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely than not threshold is defined as having a likelihood of more than 50 percent. Under ASU No. 2012-02, an entity is not required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines it is more likely than not that its fair value is less than its carrying value. ASU No. 2012-02 is effective for annual periods beginning after September 15, 2012. The adoption of ASU No. 2012-02 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU No. 2013-01 was issued to clarify that ordinary trade receivables and receivables are not within the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netter arrangement or similar agreement. ASU No. 2013-01 is effective for annual

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periods beginning on or after January 1, 2013 and interim periods within those periods. The adoption of ASU No. 2013-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU No. 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, ASU No. 2013-05 provides guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisition. ASU No. 2013-05 is effective on a prospective basis for annual periods beginning after December 15, 2013 and interim periods within those periods. Management is currently evaluating the effects of ASU No. 2013-05 on the Company’s consolidated financial position and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

Our variable interest rate items do not subject us to material risk exposures. Our revolving credit facility remains available through October 1, 2015. At December 31, 2013, the Company had $0.5 million of variable-rate debt outstanding. At this borrowing level, a hypothetical relative increase of 50% in interest rates would have had an insignificant, unfavorable impact on the Company’s pre-tax earnings and cash flows. The primary interest rate exposure on variable-rate debt is based on the 30 day LIBOR rate (0.2% at December 31, 2013) plus 3.25% per year. The agreement is collateralized by real estate, trade accounts receivable, equipment, inventory and work-in-process, and guaranteed by our operating subsidiaries.

Foreign Currency Transaction Risk

AETI maintains equity method investments in its Singapore, Chinese and Brazilian joint ventures, MIEFE, BOMAY, and AAG, respectively. The functional currencies of the joint ventures are the Singapore Dollar, the Chinese Yuan and the Brazilian Real, respectively. Investments are translated into United States Dollars at the exchange rate in effect at the end of each quarterly reporting period. The resulting translation adjustment is recorded as accumulated other comprehensive income net of taxes in AETI’s consolidated balance sheets. In the current period this item increased from $900,000 at December 31, 2012 to $983,000 at December 31, 2013 due principally to the weakness of the United States Dollar against the Chinese Yuan.

Other than the aforementioned items, we do not believe we are exposed to foreign currency exchange risk because most of our net sales and purchases are denominated in United States Dollars.

Commodity Price Risk

We are subject to market risk from fluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We endeavor to recoup these price increases from our customers on an individual contract basis to avoid operating margin erosion. Although historically we have not entered into any contracts to hedge commodity risk, we may do so in the future. Commodity price changes can have a material impact on our prospective earnings and cash flows. Copper, steel and aluminum represent a significant element of our material cost. Significant increases in the prices of these materials could reduce our estimated operating margins if we are unable to recover such increases from our customers.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Index on page F-2 of our Consolidated Financial Statements and Notes thereto contained herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES

Disclosure controls and procedures

Under the direction of our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures as of December 31, 2013. Our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2013.

Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2013 based on these criteria. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to section 404(c) of the Sarbanes-Oxley Act of 2002, as amended that permits the Company, as a smaller reporting company, to provide only management’s report in this annual report.

Changes in internal control over financial reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

Information required by this item is incorporated by reference to the information contained in the Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed within 120 days after our December 31, 2013 fiscal year end.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes information about outstanding equity plans as of December 31, 2013. The table includes additional shares that may be issuable pursuant to the amendment to add an additional 300,000 shares to the 2007 Employee Stock Incentive Plan that was approved at the Annual Meeting in June 2012.

Plan Category	Number of securities to be issued upon exercise of outstanding options and rights (a)(1)		Weighted-average exercise price of outstanding options(b)(2)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (3)
Equity compensation plans approved by security holders		488,574	$	4.09		349,176
Equity compensation plans not approved by security holders		—		—		—
Total		488,574	$	4.09		349,176

· Includes shares of common stock issuable upon vesting of outstanding restricted stock units (RSUs) and the exercise of outstanding stock options.

· The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding RSUs, which convert to common stock on a one-to-one basis.

· Consists of the shares available for future issuance under 2007 Employee Stock Incentive Plan for services by eligible employees, independent contractors and consultants.

· As of March 28, 2014, 217,628 shares were available for issuance under the 2007 Employee Stock Incentive Plan due to awards and vesting which occurred subsequent to December 31, 2013.

See Note 10 to the consolidated financial statements included in this 10-K for the year ended December 31, 2013 for further information.

Additional information required by this Item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the “Director Independence” and “Certain Relationships and Related Transactions” sections of our Proxy Statement for the 2014 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm

See Index on page F-2.

2. Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and Notes thereto.

3. Exhibits

A list of exhibits filed or furnished with this report on Form 10-K (or incorporated by reference to exhibits previously filed or furnished by us) is provided in the Exhibit Index immediately following the signature pages of this report. We will furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request. Stockholders may request exhibit copies by contacting: Rachel Acree, Assistant Corporate Secretary, American Electric Technologies, Inc., 1250 Wood Branch Park Drive, Suite 600, Houston, Texas 77079.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 28, 2014
AMERICAN ELECTRIC TECHNOLOGIES, INC.
By:	/s/ Charles M. Dauber
	Charles M. Dauber
	President and Chief Executive Officer
	(Principal Executive Officer)

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 dates indicated.

Signature	Title(s)	Date
/s/ Charles M. Dauber	President, Chief Executive Officer, Director	March 28, 2014
Charles M. Dauber	(Principal Executive Officer)
/s/ Andrew L. Puhala	Chief Financial Officer	March 28, 2014
Andrew L. Puhala	(Principal Financial Officer)
/s/ Don W. Boyd	Controller	March 28, 2014
Don W. Boyd	(Principal Accounting Officer)
/s/ Arthur G. Dauber
Arthur G. Dauber	Executive Chairman and Director	March 28, 2014
/s/ Neal M. Dikeman
Neal M. Dikeman	Director	March 28, 2014
/s/ Peter Menikoff
Peter Menikoff	Director	March 28, 2014
/s/ J. Hoke Peacock II
J. Hoke Peacock II	Director	March 28, 2014
/s/ Casey Crenshaw
Casey Crenshaw	Director	March 28, 2014
/s/ Edward Kuntz
Edward Kuntz	Director	March 28, 2014

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AMERICAN ELECTRIC TECHNOLOGIES, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

With Report of Independent Registered Public Accounting Firm

December 31, 2013 and 2012

F-1

American Electric Technologies, Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2013 and 2012

Table of Contents

Report of Independent Registered Public Accounting Firm	F-3
Consolidated Financial Statements:
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Comprehensive Income (Loss)	F-6
Consolidated Statements of Stockholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

American Electric Technologies, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of American Electric Technologies, Inc. and Subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, other comprehensive income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 and, accordingly, we do not express an opinion thereon.

/s/ Ham, Langston & Brezina, L.L.P.

Houston, Texas

March 28, 2014

F-3

American Electric Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

	Year Ended December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	4,148		$	4,477
Accounts receivable-trade, net of allowance of $288 and $225 at December 31, 2013 and December 31, 2012		11,480			9,731
Inventories, net		5,216			5,616
Cost and estimated earnings in excess of billings on uncompleted contracts		5,312			2,205
Prepaid expenses and other current assets		439			318
Total current assets		26,595			22,347
Property, plant and equipment, net		6,040			4,922
Advances to and investments in foreign joint ventures		13,033			11,408
Other assets		168			297
Total assets	$	45,836		$	38,974
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,850		$	4,438
Accrued payroll and benefits		1,911			1,519
Other accrued expenses		411			513
Billings in excess of costs and estimated earnings on uncompleted contracts		3,021			3,576
Short-term notes payable	-				54
Other current liabilities		120			9
Total current liabilities		11,313			10,109
Notes payable		500			500
Deferred income taxes		3,541			3,058
Deferred compensation		211			122
Total liabilities		15,565			13,789
Commitments and contingencies (see note 15)
Convertible preferred stock:
Redeemable convertible preferred stock, Series A, net of discount of $764 at December 31, 2013 and $806 at December 31, 2012; $0.001 par value, 1,000,000 shares authorized, issued and outstanding at December 31, 2013, and 2012		4,236			4,194
Stockholders’ equity:
Common stock; $0.001 par value, 50,000,000 shares authorized, 8,008,759 and 7,919,032 shares issued and outstanding at December 31, 2013 and December 31, 2012		8			8
Treasury stock, at cost (49,863 shares at December 31, 2013 and 20,222 shares at December 31, 2012)		(238	)		(92	)
Additional paid-in capital		10,494			9,597
Accumulated other comprehensive income		983			900
Retained earnings; including accumulated statutory reserves in equity method investments of $1,857 and $1,620 at December 31, 2013 and December 31, 2012		14,788			10,578
Total stockholders’ equity		26,035			20,991
Total liabilities, preferred stock and stockholders’ equity	$	45,836		$	38,974

The accompanying notes are an integral part of the consolidated financial statements.

F-4

American Electric Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share data)

	Year Ended December 31,
	2013			2012
Net sales	$	65,330		$	54,065
Cost of sales		53,515			45,942
Gross profit		11,815			8,123
Operating expenses:
Research and development		499			103
Selling and marketing		2,693			2,455
General and administrative		6,173			5,146
Total operating expenses		9,365			7,704
Income (loss) from domestic operations		2,450			419
Net equity income from foreign joint ventures' operations:
Equity income from foreign joint ventures' operations		3,024			3,088
Foreign joint ventures' operations related expenses		(267	)		(343	)
Net equity income from foreign joint ventures' operations:		2,757			2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures' operations		5,207			3,164
Other income (expense):
Interest expense		(28	)		(111	)
Other, net		85			(37	)
Total other income (expense), net		57			(148	)
Income (loss) before income taxes		5,264			3,016
Provision for income taxes		(713	)		(707	)
Net income (loss) before dividends on redeemable preferred stock		4,551			2,309
Dividends on redeemable preferred stock		(342	)		(225	)
Net income (loss) attributable to common stockholders	$	4,209		$	2,084
Earnings (loss) per common share:
Basic	$	0.53		$	0.26
Diluted	$	0.48		$	0.25
Weighted - average number of common shares outstanding:
Basic		7,990,690			7,901,225
Diluted		9,472,506			8,258,742

The accompanying notes are an integral part of the consolidated financial statements.

F-5

American Electric Technologies, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Year Ended December 31,
	2013		2012
Net income (loss)	$	4,551	$	2,309
Other comprehensive income:
Foreign currency translation gain, net of deferred income taxes of $42 and $19 for the years ended December 31, 2013 and 2012		83		51
Total comprehensive income (loss)	$	4,634	$	2,360

The accompanying notes are an integral part of the consolidated financial statements.

F-6

American Electric Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders’ Equity
	Shares			Amount
Balance at December 31, 2011		7,828,509		$	7.829	$	8,171		$	849		8,493		17,521
Common stock issued to ESPP		4,839			0.005		25			—		—		25
Options Exercised		4,850			0.005		20			—		—		20
Issued for Acquisition		11,000			0.011		218			—		—		218
Treasury stock purchase		(20,222	)		—		(92	)		—		—		(92	)
Warrants issued with preferred stock		—			—		840			—		—		840
Transaction costs of new preferred		—			—		(45	)		—		—		(44	)
Restricted stock units (1)		90,056			0.090		368			—		—		368
Net income to common stockholders*		—			—		—			—		2,084		2,084
Foreign currency translation		—			—		—			51		—		51
Balance at December 31, 2012		7,919,032			7.940		9,505			900		10,578		20,991
Common stock issued to ESPP		4,697			0.005		25			—		—		25
Options Exercised		3,827			0.004		22			—		—		22
Issued for Acquisition		11,000			0.011		—			—		—		—
Treasury stock purchase		(29,641	)		—		(146	)		—		—		(146)
Warrants issued with preferred stock		—			—		—			—		—		—
Transaction costs of new preferred		—			—		—			—		—		—
Restricted stock units (1)		99,844			0.100		850			—		—		850
Net income to common stockholders*		—			—		—			—		4,209		4,209
Foreign currency translation		—			—		—			83		—		83
Balance at December 31, 2013		8,008,759		$	7.960	$	10,256		$	983	$	14,788	$	26,035

* Net of preferred dividends of $225 and $342 in 2012 and 2013 respectively.

(1) Converted to common stock.

F-7

American Electric Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	4,551		$	2,309
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax provision (benefit)		593			659
Equity income from foreign joint ventures' operations		(3,024	)		(3,088	)
Depreciation and amortization		871			877
Stock based compensation		850			326
Provision for bad debt		65			90
Allowance for obsolete inventory		32			110
Gain on sale of property and equipment		(143	)		(24	)
Deferred compensation costs		89			6
Change in operating assets and liabilities:
Accounts receivable		(1,713	)		1,479
Income taxes payable		111			(11	)
Inventories		368			(781	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(3,107	)		(179	)
Prepaid expenses and other current assets		(373	)		(43	)
Accounts payable and accrued liabilities		1,702			(1,553	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(555	)		668
Net cash provided by (used in) operating activities		317			845
Cash flows from investing activities:
Purchases of property, plant and equipment and other assets		(2,292	)		(1,455	)
Proceeds from disposal of property, plant and equipment		575			177
Repayments of amounts advanced to foreign joint ventures' operations		180			50
Proceeds from foreign joint ventures' operations dividends		1,344			1,008
Net cash provided by (used in) from investing activities		(193	)		(220	)
Cash flows from financing activities:
Proceeds from sale of common stock, preferred stock, and warrants		47			5,042
Treasury stocks purchase		(146	)		(92	)
Preferred stock cash dividend		(300	)		(191	)
Advances from (repayment of) credit facility	-				(4,500	)
Capital lease obligation payment		(54	)		(156	)
Net cash provided by (used in) financing activities		(453	)		103
Net increase (decrease) in cash and cash equivalents		(329	)		728
Cash and cash equivalents, beginning of year		4,477			3,749
Cash and cash equivalents, end of year	$	4,148		$	4,477
Supplemental disclosures of cash flow information:
Interest paid	$	27		$	111
Income taxes paid	$	179		$	132

The accompanying notes are an integral part of the consolidated financial statement.

F-8

American Electric Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1) Organization and Nature of Business

American Electric Technologies, Inc. (“AETI” or the “Company”) is the surviving financial reporting entity from a reverse acquisition of an 80% interest in American Access Technologies, Inc. by the shareholders of M&I Electric Industries, Inc.(“M&I”) on May 17, 2007. Immediately upon the completion of the reverse acquisition, American Access Technologies, Inc. changed its name to American Electric Technologies, Inc. AETI is a Florida corporation and M&I, AETI’s wholly-owned subsidiary, a Texas corporation. M&I has a wholly-owned subsidiary, South Coast Electric Systems, LLC (“SC”), a Mississippi based company, and joint venture interests in China, Singapore and Brazil. On January 1, 2008, AETI established a wholly- owned subsidiary through which it conducts its American Access Technology segment’s business.

The Company has facilities and sales offices in Texas, Mississippi and Florida and in foreign joint ventures’ operations that have facilities in Singapore, Xian, China and Macae, Brazil. The Company owns the Beaumont, Texas facilities, comprised of 9 acres and 85,000 square feet, the Mississippi facility, comprised of 3 acres and 11,000 square feet and the Florida facility, comprised of a 67,500 square foot manufacturing facility situated on 9.7 acres of land. At December 31, 2013, the current Houston office was sold and is being leased with 3 acres and 26,000 square feet of office and shop.

American Electric Technologies, Inc. is comprised of three segments: Technical Products and Services (“TP&S”), Electrical and Instrumentation Construction (“E&I”) and American Access Technologies (“AAT”). The TP&S segment designs, manufactures, markets and provides products designed to distribute the flow of electricity and protect electrical equipment such as motors, transformers and cables, and also provides variable speed drives to both AC (“alternating current”) and DC (“direct current”) motors. Products offered by this segment include low and medium voltage switchgear, generator control and distribution switchgear, motor control centers, powerhouses, bus duct, variable frequency AC drives, variable speed DC drives, program logic control (“PLC”) based automation systems, human machine interface (“HMI”) and specialty panels. The products are built for application voltages from 480 volts to 40,000 volts and are used in a wide variety of industries, including renewable energy. Services provided by TP&S include electrical equipment retrofits, upgrades, startups, testing and troubleshooting of substations, switchgear, drives and control systems.

The E&I segment provides a full range of electrical and instrumentation construction and installation services to both land and marine based markets of the oil and gas industry and other commercial and industrial markets. The E&I segment provides services on both a fixed-price and a time-and-materials basis. The segment’s services include electrical and instrumentation turnarounds, maintenance, renovation and new construction. Applications include installation of switchgear, AC and DC motors, drives, motor controls, lighting systems, high voltage cable, and data centers. Marine based oil and gas services include complete electrical system rig-ups, modifications, start-ups and testing for vessels, drilling rigs, and production modules. These services can be manufactured and installed utilizing NEMA and ANSI or IEC equipment to meet ABS, USCG, Lloyd’s Register, a provider of marine certification services, and DNV standards.

The AAT segment manufactures and markets zone cabling enclosures and manufactures formed metals products. The zone cabling product line develops and manufactures patented “zone cabling” and wireless telecommunication enclosures. These enclosures mount in ceilings, walls, raised floors, and certain modular furniture to facilitate the routing of telecommunications network cabling, fiber optics and wireless solutions to the workspace environment. AAT also operates a precision sheet metal fabrication and assembly operation and provides services such as precision “CNC” (“Computer Numerical Controlled”) stamping, bending, assembling, painting, powder coating and silk screening to a diverse client base including, but not limited to, engineering, technology and electronics companies, primarily in the Southeast region of the United States.

M&I’s wholly-owned subsidiary, SC, is a Delaware Limited Liability Company organized on February 20, 2003. With the exception of electrical contracting, it is engaged in the same lines of business as M&I, but it participates in different market segments.

M&I has foreign joint ventures’ interests in M&I Electric Far East PTE Ltd. (“MIEFE”), BOMAY Electrical Industries Company, Ltd. (“BOMAY”) and AETI Alliance Group do Brazil Sistemas E Servicos Em Energia LTDA (“AAG”). MIEFE is a Singapore company that provides sales, manufacturing and technical support internationally. BOMAY provides electrical systems primarily for land and marine based drilling rigs in China. AAG provides electrical products and services to the Brazilian energy industries. These ventures are accounted for using the equity method of accounting.

F-9

(2) Summary of Significant Accounting Policies

Principles of Consolidation  

The accompanying consolidated financial statements include the accounts of AETI and its wholly-owned subsidiaries, M&I and AAT, and M&I’s wholly-owned subsidiary SC. Significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by management include:

· Percentage-of-completion estimates on long-term contracts

· Estimates of the provision for doubtful accounts

· Estimated useful lives of property and equipment

· Valuation allowances related to deferred tax assets

Financial Instruments

The Company includes fair value information in the notes to the consolidated financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made, which is the case for financial instruments outstanding as of December 31, 2013 and 2012. The Company assumes the book value of those financial instruments that are classified as current approximates fair value because of the short maturity of these instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments.

Cash and Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash balances routinely exceed FDIC limits however all cash is maintained in JP Morgan Chase and believed to be secure.

Accounts Receivable and Provision for Bad Debts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The estimate is based on management’s assessment of the collectability of specific customer accounts and includes consideration for credit worthiness and financial condition of those specific customers. The Company also reviews historical experience with the customer, the general economic environment and the aging of its receivables. The Company records an allowance to reduce receivables to the amount it reasonably believes to be collectible. Based on this assessment, management believes the allowance for doubtful accounts is adequate.

Inventories

Inventories are stated at the lower of cost or market, with material value determined using an average cost method. Inventory costs for finished goods and work-in-process include direct material, direct labor, production overhead and outside services. TP&S and E&I indirect overhead is apportioned to work in process based on direct labor incurred. AAT production overhead, including indirect labor, is allocated to finished goods and work-in-process based on material consumption, which is an estimate that could be subject to change in the near term as additional information is obtained and as the operating environment changes.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred while renewals and betterments are capitalized. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets after giving effect to salvage values.

F-10

If events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests property and equipment for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. Events that would trigger an impairment test include the following:

· A significant decrease in the market price of a long-lived asset.

· A significant change in the use of long-lived assets or in its physical condition.

· A significant change in the business climate that could affect an assets value.

· An accumulation of cost significantly greater than the amount originally expected to acquire or construct a long-lived asset.

· A current period operating or cash flow loss combined with a history of such losses or a forecast demonstrating continued losses associated with the use of a long-lived asset.

· An expectation to sell or otherwise dispose of a long-lived asset significantly before the end of its estimated useful life.

Based on management’s reviews during each of the years ended December 31, 2013 and 2012, there were no events or circumstances that caused management to believe that impairments were necessary.

Other Assets

Intangible Assets at December 31, 2013	Useful Lives (Years)		Cost		Accumulated Amortization		Net Value
	(in thousands)
Patents		18	$	95	$	77	$	18
Customer agreements		10		173		148		25
Intellectual property		3		322		197		125
			$	590	$	422	$	168

Amortization expense related to intangible assets held by the Company for the year ended December 31, 2013 was approximately $130,000 and was approximately $113,000 in 2012. Estimated amortization expense for the next five years is as follows:

For the Year Ending December 31,	Amount
	(in thousands)
2014	$	132
2015		31
2016		5
2017		-
2018		-
	$	168

On March 8, 2012, the Company acquired certain technology from Amnor Technologies, Inc. for cash of $100,000 plus 44,000 shares of the Company’s common stock valued at $4.95 per share (the closing price on that date). One fourth of the shares were issued initially with the balance to be issued one third annually on the anniversaries over the subsequent 3 years. The purchase price was valued at $322,000 (including $4,000 of transaction costs) at March 8, 2012 and is recorded as an intangible asset and included in other assets in the consolidated balance sheet at December 31, 2012. This cost is being amortized over its estimated useful life of 3 years. Amortization expense of $108,000 and $90,000 was recognized during the years ended December 31, 2013 and 2012 respectively and is included in general and administrative expenses in the consolidated statements of operations.

The technology provides automation and control system technologies for land and offshore drilling monitoring and control (auto-driller); marine automation including ballast control and tank monitoring and machinery plant control and monitoring systems; IP-based CCTV systems; and military vessel security and safety systems, all proven in multiple installations.

F-11

Income Taxes

The Company uses the asset and liability method to account for income taxes. Under this method of accounting for income taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reported to the taxing authority. The Company also records any financial statement recognition and disclosure requirements for uncertain tax positions taken or expected to be taken in its tax return. Financial statement recognition of the tax position is dependent on an assessment of a 50% or greater likelihood that the tax position will be sustained upon examination, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions are recorded as interest expense in the accompanying consolidated statements of operations.

Foreign Currency Gains and Losses

Foreign currency translations are included as a separate component of comprehensive income. We have determined the local currency of our foreign joint ventures’ operations to be the functional currency. In accordance with ASC 830, the assets and liabilities of our foreign equity investees, denominated in foreign currency, are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date; net sales and expenses are translated at the average exchange rate for the period. Related translation adjustments are reported as other comprehensive income, net of taxes, which is a separate component of stockholders’ equity, whereas gains and losses resulting from foreign currency transactions are included in results of operations.

Net Sales Recognition

The Company reports earnings from fixed-price and modified fixed-price long-term contracts on the percentage-of-completion method. Earnings are accrued based on the ratio of costs incurred to total estimated costs. However, for TP&S, we have determined that labor incurred provides an improved measure of percentage-of-completion. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined. A contract is considered complete when all costs except insignificant items have been incurred and the facility has been accepted by the customer. Net sales from non-time and material jobs of a short-term nature (typically less than one month) are recognized on the completed-contract method after considering the attributes of such contracts. This method is used because these contracts are typically completed in a short period of time and the financial position and results of operations do not vary materially from those which would result from use of the percentage-of-completion method.

The Company records net sales from its field and technical service and repair operations on a completed service basis after customer acknowledgement that the service has been completed and accepted. Approximately 8% of the Company’s consolidated net sales are recorded on this basis. In addition, the Company sells certain purchased parts and products. These net sales are recorded when the product is shipped and title passes to the customer. Approximately 3% of the Company’s consolidated net sales are recorded on this basis. AAT generally recognizes net sales when manufactured products are shipped and right of ownership passes.

The asset, “Work-in-process,” which is included in inventories, represents the cost of labor, material, and overhead in excess of amounts billed on jobs accounted for under the completed-contract method. For contracts accounted for under the percentage-of-completion method, the asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents net sales recognized in excess of amounts billed and the liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of net sales recognized. Any billed net sale that has not been collected is reported as accounts receivable. The timing of when we bill our customers is generally dependent upon advance billing terms or completion of certain phases of the work. At December 31, 2013 and 2012, accounts receivable included contract retentions expected to be collected within one year totaling $10,000 and $424,000, respectively. This decline reflects the exit from water/wastewater contracts. At December 31, 2013 and 2012, the Company had no contract retentions expected to be collected beyond one year.  

On occasion, the Company enters into long-term contracts that include services performed by more than one operating segment particularly TP&S contracts which include electrical and instrumentation construction services performed by our E&I segment. The Company segments net sales, costs and gross profit related to these contracts if they meet the contract segmenting criteria in ASC 605-35, including that the terms and scope of the project clearly call for separate elements, the separate elements are often bid or negotiated by the Company separately and the total economic returns and risks of the separate elements are similar to the economic returns and risks of the overall contract. For segmented contracts, the Company recognizes net sales as if they were separate contracts over the performance periods of the individual elements.

F-12

Contract net sales recognition inherently involves estimation, including the contemplated level of effort to accomplish the tasks under the contract, the cost of the effort, and an ongoing assessment of progress toward completing the contract. From time to time, as part of the normal management processes, facts develop that requires revisions to estimated total cost or net sales expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on contracts are recognized in the period in which they become known.

Shipping and Handling Fees and Costs

Shipping and handling fees, if billed to customers, are included in net sales. Shipping and handling costs associated with inbound freight are expensed as incurred. Shipping and handling costs associated with outbound freight are classified as cost of sales.

Concentration of Market Risk and Geographic Operations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company’s market risk is dependent primarily on the strength of the oil and gas and energy related industries. The Company grants credit to customers and generally does not require security except in the case of certain international contracts. Procedures are in effect to monitor the credit worthiness of its customers. During 2012, one customer accounted for approximately 13% of net sales and 1% of net accounts receivable trade. During 2013, one customer accounted for approximately 17% of net sales and 9% of net accounts receivable trade.

The Company sells its products and services in domestic and international markets; however, significant portions of the Company’s sales are concentrated with customers located in the Gulf Coast region of the United States. The Gulf Coast region accounts for approximately 9% of the Company’s net sales during the year ended December 31, 2013 and 17% during 2012.

Reclassification

Certain items are reclassified in the 2012 consolidated financial statements to conform to the 2013 presentation.

Recently Issued Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 was issued to provide enhanced disclosures that will enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments under ASU No. 2011-11 require enhanced disclosures by requiring entities to disclose both gross information and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU No. 2011-11 is effective retrospectively for annual periods beginning on or after January 1, 2013, and interim periods within those periods. The adoption of ASU No. 2011-11 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In July 2012, the FASB issued ASU No. 2012-02, Intangible - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely than not threshold is defined as having a likelihood of more than 50 percent. Under ASU No. 2012-02, an entity is not required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines it is more likely than not that its fair value is less than its carrying value. ASU No. 2012-02 is effective for annual periods beginning after September 15, 2012. The adoption of ASU No. 2012-02 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU No. 2013-01 was issued to clarify that ordinary trade receivables and receivables are not within the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netter arrangement or similar agreement. ASU No. 2013-01 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those periods. The adoption of ASU No. 2013-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.

F-13

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU No. 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, ASU No. 2013-05 provides guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisition. ASU No. 2013-05 is effective on a prospective basis for annual periods beginning after December 15, 2013 and interim periods within those periods. Management is currently evaluating the effects of ASU No. 2013-05 on the Company’s consolidated financial position and results of operations.

(3) Inventories

Inventories consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Raw materials	$	1,493		$	1,596
Work-in-process		2,834			3,173
Finished goods		1,126			1,052
		5,453			5821
Less: Allowance		(237	)		(205	)
Total inventories	$	5,216		$	5,616

(4) Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts

Contracts in progress at December 31, 2013 and 2012 consisted of the following:

	2013			2012
	(in thousands)
Costs incurred on uncompleted contracts	$	7,271		$	7,743
Estimated earnings		2,172			2,247
		9,443			9,990
Billings on uncompleted contracts		(7,152	)		(11,361	)
	$	2,291		$	(1,371	)

Costs, estimated earnings, and related billing on uncompleted contracts consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Cost and estimated earnings in excess of billings on uncompleted contracts	$	5,312		$	2,205
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,021	)		(3,576	)
	$	2,291		$	(1,371	)

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(5) Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31, 2013, and 2012:

Category	Estimated Useful Lives (years)		2013		2012
		(in thousands)
Buildings and improvements	15 – 25	$	3,756	$	4,426
Office equipment and furniture	2 – 7		2,476		1,766
Automobiles and trucks	2 – 5		226		219
Machinery and shop equipment	2 – 10		4,895		4,523
Construction in progress			2,475		1,299
			13,828		12,233
Less: accumulated depreciation and amortization			8,026		7,660
			5,802		4,573
Land			238		349
		$	6,040	$	4,922

During the years ended December 31, 2013 and 2012, depreciation charged to operations amounted to $742,000 and $765,000 respectively. Of these amounts, $580,000 and $605,000 was charged to cost of sales while $162,000 and $160,000 was charged to selling, general and administrative expenses for the years ended December 31, 2013 and 2012, respectively.

In late 2012, management made a decision to sell the Houston, Texas headquarters and consolidate all TP&S and E&I service centers in Beaumont, Texas. The Company and M&I headquarters plan to stay in Houston at leased premises as described in Note 9.

On October 9, 2013, the Company sold the property and improvements at 6410 Long Drive, Houston, Texas. The proceeds were received in cash and resulted in a gain of $128,000 included in other income in the accompanying consolidated statements of operations. The facility was leased by the Company until March 14, 2014 when it relocated to its new leased facilities discussed in Note 9.

(6) Advances to and Investments in Foreign Joint Ventures’ Operations

The Company has a foreign joint venture agreement and holds a 40% interest in a Chinese company, BOMAY, which builds electrical systems for sale in China. The majority partner in this foreign joint venture is a subsidiary of a major Chinese oil company. M&I made an initial investment of $1.0 million in 2006 and made an additional $1.0 million investment in 2007. The Company’s equity in the income of the foreign joint venture was $2.1 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $325,000 and $415,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from BOMAY were $119,000 and $73,000 at December 31, 2013 and 2012.

The Company owns a 41% interest in MIEFE which provides additional sales and technical support in Asia. The Company’s equity in the income of the foreign joint venture was $115,000 and $16,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $225,000 and $65,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from MIEFE was none and $25,000 at December 31, 2013 and 2012, respectively.

The company owns a 49% interest in AAG, a Brazilian Limited Liability Company, formed in 2010. The Company’s equity in the income of the foreign joint venture was $843,000 and $503,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $4,000 and $49,000 for the years ended December 31, 2013 and 2012. Accounts receivable from AAG was $8,000 at December 31, 2013 and 2012.

The Company’s equity in income of the foreign joint ventures before our foreign operations expenses, totaled $3.0 million and $3.1 million for the years ended December 31, 2013 and 2012, respectively.

During 2013 and 2012, the Company also recognized approximately $267,000 and $343,000, respectively, for employee related expenses directly attributable to the foreign joint ventures.

Sales to foreign joint ventures’ operations are made on an arm’s length basis and intercompany profits, if any, are eliminated in consolidation. Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2013 and 2012:

F-15

	BOMAY				MIEFE				AAG
	2013		2012		2013		2012		2013		2012
	(in thousands)
Assets:
Total current assets	$	94,220	$	91,926	$	3,855	$	3,894	$	2,572	$	2,241
Total non-current assets		5,122		5,116		114		116		1,550		776
Total assets	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,017
Liabilities and equity:
Total liabilities	$	72,644	$	73,293	$	1,197	$	1,422	$	1,291	$	1,511
Total joint ventures equity		26,698		23,749		2,772		2,588		2,831		1,505
Total liabilities and equity	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,016
Gross sales	$	86,332	$	84,639	$	7,997	$	6,996	$	10,658	$	7,625
Gross profit		12,130		14,348		2,066		1,547		4,282		2,965
Net income		5,165		6,422		279		39		1,721		1,104

The Company’s investments in and advances to its foreign joint ventures’ operations were as follows as of December 31, 2013 and 2012:

	2013												2012
	BOMAY*			MEIFE			AAG			**TOTAL			BOMAY*			MIEFE		AAG			TOTAL
	(in thousands)												(in thousands)
Investment in joint ventures:
Balance, beginning of year	$	2,033		$	14		$	234		$	2,281		$	2,033		$	14	$	284		$	2,331
Additional amounts invested and advanced		—			—			(180	)		(180	)		—			—		(50	)		(50	)
Balance, end of year		2,033			14			54			2,101			2,033			14		234			2,281
Undistributed earnings:
Balance, beginning of year	$	6,400		$	755		$	661		$	7,816		$	4,839		$	739	$	158		$	5,736
Equity in earnings (loss)		2,066			115			843			3,024			2,569			16		503			3,088
Dividend distributions		(1,321	)		—			(23	)		(1,344	)		(1,008	)		—		—			(1,008	)
Balance, end of year		7,145			870			1,481			9,496			6,400			755		661			7,816
Foreign currency translation:
Balance, beginning of year	$	1,098		$	294		$	(81	)	$	1,311		$	1,040		$	233	$	(32	)	$	1,240
Change during the year		333			(40	)		(168	)		125			58			61		(49	)		70
Balance, end of year		1,431			254			(249	)		1,436			1,098			294		(81	)		1,311
Investments, end of year	$	10,609		$	1,138		$	1,286		$	13,033		$	9,531		$	1,063	$	814		$	11,408

* Accumulated statutory reserves in equity method investments of $1,857,000 and $1,620,000 at December 31, 2013 and 2012, are included in AETI’s consolidated retained earnings. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

The Company accounts for its investments in foreign joint ventures’ operations using the equity method of accounting. Under the equity method, the Company’s share of the joint ventures’ operations’ earnings or loss is recognized in the consolidated statements of operations as equity income (loss) from foreign joint ventures’ operations. Joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value. Dividends received from the joint ventures reduce the carrying value. Each reporting period, the Company evaluates the carrying value of these equity method investments as to whether an impairment adjustment may be necessary. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary.

** See Note 17 for dividends from AAG in 2014.

F-16

(7) Income Taxes

The components of income (loss) before income taxes for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
United States	$	2,240	$	(72	)
Foreign		3,024		3,088
	$	5,264	$	3,016

The components of the provision (benefit) for income taxes by taxing authority for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
Current provision:
Federal	$	—	$	—
Foreign		—		101
States		141		—
Total current provision		141		101
Deferred provision (benefit):
Federal		536		671
Foreign		—		(101	)
States		36		36
Total deferred provision (benefit):		572		606
	$	713	$	707

Significant components of the Company’s deferred federal income taxes were as follows:

	At December 31,
	2013					2012
	Current		Non-Current			Current			Non-Current
	(in thousands)					(in thousands)
Deferred tax assets:
Accrued liabilities	$	413	$	—		$	159		$	—
Deferred compensation		—		686			—			363
Allowance for doubtful accounts		120		—			101			—
Inventory		270		—			388			—
Long-term contracts		149		—			80			—
Net operating loss		—		2,909			—			4,205
Intangible assets		—		86			—			111
Foreign tax credit carry forward		—		1,153			—			1,017
Valuation allowance		—		(5,385	)		(728	)		(5,750	)
Deferred tax assets		952		(551	)		—			(54	)
Deferred tax liabilities:
Equity in foreign investments		—		(3,233	)		—			(2,756	)
Property and equipment		—		(147	)		—			61
Intangible assets		—		(9	)		—			(9	)
Translation gain		—		(553	)		—			(411	)
Deferred tax liabilities		—		(3,942	)		—			(3,115	)
Net deferred tax assets (liabilities)	$	952	$	(4,493	)	$	—		$	(3,169	)

The provision for income taxes for the year ended December 31, 2013 was primarily a non-cash expense of $0.7 million which reflects deferred taxes associated with the Company’s foreign joint ventures. The Company’s deferred tax assets are primarily related to net operating loss carry forwards.  These net operating losses include losses generated by American Access Technologies. Inc. (“AAT”), prior to the Company’s merger in 2007, additional net operating losses, and foreign tax credit carry

F-17

forwards. A valuation allowance was established at December 31, 2013 and 2012 due to uncertainty regarding future realization of deferred tax assets.   Our total valuation allowance as of December 31, 2013 and 2012 is $5.6 million and $6.4 million, respectively.  

The Company has federal net operating loss carry forwards of approximately $7.4 million which include $7.4 million acquired from AAT that are subject to the utilization limitation under Section 382 of the Internal Revenue Code. The Company has state net operating losses of $11 million.  These tax loss carry forwards are available to offset future taxable income and expire if unused during the federal tax year ending December 31, 2019 through 2031.

The Company’s 2008 U.S. federal income tax return was examined by the Internal Revenue Service (“IRS”). In the fourth quarter 2011, the IRS concluded its audit which adjusted the annual net operating loss carry forward limitation under Sec. 382 related to AAT’s pre-acquisition net operating loss carry forwards to $299,000 per year through 2027.  The Company has adopted the provisions of ASC Topic 740-10 “Income Taxes” to assess tax benefits claimed on a tax return should be recorded in the financial statements.  The Company has assessed all open tax years and has recorded no uncertain tax positions related to the open tax years.  

The difference between the effective income tax rate reflected in the provision for income taxes and the amounts, which would be determined by applying the statutory income tax rate of 34%, is summarized as follows:

	2013			2012
	(in thousands)
(Provision for) benefit from U.S federal statutory rate	$	(1,798	)	$	(1,032	)
Effect of state income taxes		(141	)		(49	)
Non-deductible business meals and entertainment expenses		(18	)		(95	)
Foreign income taxes included in equity in earnings		551			—
Adjustment of net operating loss carry forwards based on IRS audit, accrual to return adjustments and other		(153	)		—
Change in valuation allowance		846			469
Total (Expense)	$	(713	)	$	(707	)

The Company files income tax returns in the United States. Federal jurisdiction and various state jurisdictions.

(8) Notes Payable

The components of notes payable at December 31, 2013 and 2012 are as follows:

	2013		2012
	(In thousands)
Revolving credit agreement	$	500	$	500
Capital lease obligation (Note 9)		—		54
Total notes payable		500		554
Less current portion of capital lease obligation		—		(54	)
Non-current notes payable	$	500	$	500

Revolving Credit Agreement

On November 30, 2013, the Company entered into a $10.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A.  The agreement replaced in its entirety the company’s prior credit agreement, as amended, originally entered into with JPMorgan Chase Bank, N.A. in October of 2007.

The 2013 agreement has a maturity date of October 1, 2015.   Under the agreement, the credit facility’s interest rate is LIBOR plus 3.25% per annum and a commitment fee of 0.3% per annum on the unused portion of the credit limit each quarter.

The 2013 agreement provides for usual and customary covenants and restrictions  including that the borrower must maintain a fixed charge coverage ratio of no less than 1.25 to 1.00, and will not permit the ratio of consolidated total liabilities to consolidated net worth to exceed 1.00.   Additionally, the borrower will not permit, at the end of each calendar quarter, for its net income for the most recently ended six month period to be less than $1.00.

The agreement is collateralized by the Company’s real estate in Beaumont, Texas, trade accounts receivable, equipment, inventories, and work-in-process, and the Company’s U.S. subsidiaries are guarantors of the borrowing.

The Company had $0.5 million of borrowings outstanding under the JPMorgan Chase N.A. credit agreement at both December 31, 2013 and December 31, 2012.  The company had additional borrowing capacity of $7.9 million and $6.9 million at

F-18

December 31, 2013 and December 31, 2012 respectively. Prior to July 27, 2012, the interest rate on the Company’s borrowings was 30 day LIBOR rate plus 2.75% per year.

On May 1, 2012 the Company and Chase executed consent and amendment to the credit agreement to allow for the $5 million convertible preferred stock transaction as discussed in Note 11.

(9) Leases

New Corporate Office Lease

In late December 2013 the Company executed a new lease for office space at 1250 Wood Branch Park Drive, Houston, Texas. The lease covers approximately 13,000 square feet.

The term of the lease is 64 months and commences upon completion of tenant improvements, which were completed in March 2014.

The Company leases equipment (principally trucks and forklifts) under operating lease agreements that expire at various dates to 2016. Rental expense relating to operating leases and other short-term leases for the years ended December 31, 2013 and 2012, amounted to approximately $0.3 million and $0.5 million, respectively.

The following is a schedule of future lease payments:

Year Ending December 31,	Amount
	(In thousands)
2014	$	443
2015		438
2016		423
2017		347
2018		348
2019		175
	$	2,174

(10) Stock and Stock-based Compensation

Employee Stock Purchase Plan

The Company issued 4,697 and 4,839 shares of Company stock during 2013 and 2012, respectively, in connection with an Employee Stock Purchase Plan that commenced in April 2008.

Restricted Stock Units

During 2013 and 2012, the Board of Directors approved the grants of approximately 235,000 and 285,000 restricted stock units (“RSU”s) to members of management and key employees as part of the 2007 Employee Stock Incentive Plan. In May 2010, the stockholders of the Company approved amendments to the 2007 Employee Stock Incentive Plan to increase the number of shares available for issuance under the plan from 300,000 shares to 800,000 shares of stock. In June 2012, the stockholders of the Company approved amendments to the 2007 Employee Stock Incentive Plan to increase the number of shares available for issuance under the plan from 800,000 shares to 1,100,000 shares of stock. The number of RSUs awarded is generally subject to the substantial achievement of budgeted performance and other individual metrics in the year granted. The RSUs do not have voting rights of the common stock, and the shares of common stock underlying the RSUs are not considered issued and outstanding until actually vested and issued. In general, the awards convert to common stock on a one to one basis in 25% increments over four years from the grant date subject to a continuing employment obligation.

F-19

The following table summarizes the activity for unvested restricted stock units for the years ended December 31, 2013 and 2012:

	Units			Weighted Average Fair Value Per RSU
Unvested restricted stock units at December 31, 2011		321,064		$	2.71
Awarded		283,998		$	4.35
Vested		(90,056	)	$	2.52
Forfeited		(123,593	)	$	2.17
Unvested restricted stock units at December 31, 2012		391,413		$	4.11
Awarded		234,525		$	5.00
Vested		(99,844	)	$	3.15
Forfeited		(54,464	)	$	3.40
Unvested restricted stock units at December 31, 2013		471,630		$	4.77

Compensation expense of approximately $818,000 and $342,000 was recorded in general administrative expense for the years ended December 31, 2013 and 2012, respectively, to reflect the fair value of the original RSU’s granted or anticipated to be granted less forfeitures, amortized over the portion of the vesting period occurring during the period. The fair value of the RSUs was based on the closing price of our common stock as reported on the NASDAQ Stock Market (“NASDAQ”) on the grant date. Based upon the fair value on the grant date of the number of shares awarded or expected to be awarded, it is anticipated that approximately $2.0 million of additional compensation cost will be recognized in future periods through 2017. The weighted average period over which this additional compensation cost will be expensed is 2 years.

During February 2014, the Board of Directors approved the grants of approximately 168,000 RSUs in conjunction with the Plan, of which, approximately 150,000 units are subject to 2014 fiscal performance measures.

Stock Options

The Company recognizes compensation expense related to stock options in accordance with ASC 718 and has measured the share-based compensation expense for stock options granted during the year ended December 31, 2008 based upon the estimated fair value of the award on the date of grant and recognizes the compensation expense over the award’s requisite service period. The weighted average fair values were calculated using the Black Scholes-Merton option pricing model. There were no options issued in 2013 or 2012.

Details of stock option activity during the years ended December 31, 2013 and 2012 follows:

	2013			2013 Weighted Average Exercise Price		2012			2012 Weighted Average Exercise Price
Outstanding at beginning of year		25,778		$	4.23		55,855		$	4.31
Options granted		—			—		—			—
Options exercised		(3,827	)		4.09		(4,850	)		4.09
Options forfeited		(5,007	)		5.11		(11,848	)		4.82
Options expired		—			—		(13,379	)		4.09
Outstanding at end of year		16,944			4.09		25,778			4.23
Exercisable at end of year		16,944		$	4.09		25,778		$	4.23

A summary of outstanding stock options as of December 31, 2013 follows:

Number of Options	Expires	Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
16,944	2014		0.1 years	$	4.09	$	—
16,944				$	4.09

Compensation expense of approximately $20,000 and $16,000 was recorded in the years ended December 31, 2013 and 2012, respectively, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2013, there was no unrecognized compensation cost related to stock option awards.

F-20

Board of Directors Compensation

Directors who are not employees of the Company and who do not have a compensatory agreement providing for service as a director of the Company receive a retainer fee payable quarterly. Eligible directors may elect to defer 50% to 100% of their retainer fee, which may be used to acquire common stock of the Company at the fair market value on the date the retainer fee would otherwise be paid, acquire stock units equivalent to the fair market value of the Company’s common stock on the date the retainer fee would otherwise be paid, or be paid in cash. During the years ended December 31, 2013 and 2012, directors of the Company elected to defer retainer fees to acquire approximately 6,000 and 6,000, respectively, stock units. Compensation expense of approximately $32,000 and $27,000 was recorded in the years ended December 31, 2013 and 2012 respectively, which is included in general and administrative expenses in the consolidated statements of operations.

(11) Redeemable Convertible Preferred Stock

On April 13, 2012, the Company signed a securities purchase agreement (the “Securities Purchase Agreement”) with a private investor for the sale (the “Preferred Stock Financing”) of 1,000,000 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”) at $5.00 per share and 325,000 warrants to purchase shares of the Company’s common stock expiring in May 2020. The Series A Convertible Preferred Stock shares are initially convertible into 1,000,000 shares of the Company’s common stock at a conversion price of $5.00 per share. The warrants were issued in two tranches with 125,000 of such warrants at an initial exercise price of $6.00 per share and 200,000 of such warrants at an initial exercise price of $7.00 per share. On May 2, 2012, the Company completed the issuance of the Series A Convertible Preferred Stock and warrants.

On April 30, 2012, the Company filed an Articles of Amendment to its Articles of Incorporation designating 1,000,000 shares of the Company’s authorized preferred stock as Series A Convertible Preferred Stock. The Company also entered into a Registration Rights Agreement and Investor Rights Agreement with the private investor.

The Series A Convertible Preferred Stock ranks senior to all other equity instruments of the Company, including the Company’s common stock. The Series A Convertible Preferred Stock accrues cumulative dividends at a rate of 6% per annum, whether or not dividends have been declared by the Board of Directors and whether or not there are profits, surplus or other funds available for the payment of such dividends. The Company may pay such dividends in shares of the Company’s common stock based on the then current market price of the common stock. At any time following a material default by the Company, as defined in the Securities Purchase Agreement, or April 30, 2017, the holders of a majority of the outstanding shares of the Series A Convertible Preferred Stock may require the Company to redeem the Series A Convertible Preferred Stock at a redemption price equal to the lessor of (i) the liquidation preference per share (initially $5.00 per share, subject to adjustments for certain future equity transactions defined in the Securities Purchase Agreement) and (ii) the fair market value of the Series A Convertible Preferred Stock per share, as determined in good faith by the Company’s Board of Directors. The redemption price, plus any accrued and unpaid dividends, shall be payable in 36 equal monthly installments plus interest at an annual rate of 6%.

On May 1, 2012, the Company and Chase executed a consent and amendment to our revolving credit agreement, whereby Chase as lender agreed to consent to the Securities Purchase Agreement; the issuance and sale of the Series A Convertible Preferred Stock and warrants; the payment of the preferred dividends required; and the redemption of the Series A Convertible Preferred Stock, all subject to the terms and conditions set forth in the agreements and the associated Amended Articles of Incorporation.

The preferred stock and warrants were issued for a total of $5.0 million. This amount was allocated to the preferred stock and warrants based on their relative fair values. The fair value of the warrants was calculated using the Black Scholes-Merton pricing model using the following weighted average assumptions:

Number of warrants		325,000
Exercise price	$	6.62
Expected volatility of underlying stock		74	%
Risk-free interest rate		1.62	%
Dividend yield		0	%
Expected life of warrants		8 years
Weighted-average fair value of warrants	$	3.11
Expiration date		May 2, 2020

Based on these calculations and the actual consideration, the warrants were valued at $840,000 and the Series A Convertible Preferred Stock was valued at $4,160,000.

F-21

The initial values allocated to the warrants were recognized as a discount on the Series A Convertible Preferred Stock, with a corresponding charge to additional paid-in capital. The discount related to the warrants is accreted to retained earnings through the scheduled redemption date of the mandatorily redeemable Series A Convertible Preferred Stock. Discount accretion for the year 2013 totaled $42 and $34 in 2012.

(12) Employee Benefit and Bonus Plans

The employees of the Company are eligible to participate in a 401(k) plan sponsored by the Company. The plan is a defined contribution 401(k) Savings and Profit Sharing Plan (the “Plan”) that covers all full-time employees who meet certain age and service requirements. Employees may contribute up to 20% of their annual gross pay through salary deferrals. The Company may provide discretionary contributions to the Plan as determined by the Board of Directors. For the years ended December 31, 2013 the Company contributed $201,000 to the plan and $81,000 in 2012.

The Company maintains an “Executive Performance” bonus plan, which covers approximately 45 key employees. Under the plan, the participants receive a percentage of a bonus pool based primarily on pre-tax income in relation to budget. The Board of Directors approves the Executive Performance plan at the beginning of each year. During the years ended December 31, 2013 and 2012, the Company recorded approximately $813,000 and $650,000 under the plan, respectively, all of which was included in accrued payroll and benefits expenses as of the respective year end.

(13) Related Party Transactions

During 2013 and 2012, the Company received legal advice on various Company matters from a law firm related to a director of the Company. The Company incurred expenses totaling approximately $89,000 and $70,000 related to these services during 2013 and 2012, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2013 and 2012, there were no outstanding amounts owed to this law firm for services provided.

In August 2009, the Company entered into an employment agreement (amended in 2012 and 2013) with the Executive Chairman of the Board of Directors (“Executive Chairman”), whereby the Company compensated the Executive Chairman $130,000 and $120,000 during 2013 and 2012, respectively. Under the terms of the agreement, the Executive Chairman will assist in international joint venture relations and operations, technical developments, manufacturing and transformative business development projects and other special projects assigned by the Company. In November 2013, the Company amended the agreement to extend the term through 2015 with annual compensation of $130,000 and $130,000 for 2014 and 2015. In addition, the amendment included a bonus equal to 1% of the amount reported by the Company as equity income from foreign joint ventures’ operations in the consolidated statements of operations. During 2013 and 2012, the Company paid compensation of $157,570 and $150,878, respectively, under the terms of the agreement, which is included in general and administrative expenses in the accompanying consolidated statements of operations.

(14) Segment Reporting

The Company follows the guidance prescribed by ASC Topic 280, Segment Reporting, which governs the way the Company reports information about its operating segments.

Management has organized the Company around its products and services and has three reportable segments: Technical Products and Services (“TP&S”), Electrical and Instrumentation Construction (“E&I”) and American Access Technologies (“AAT”). TP&S develops, manufactures, provides and markets switchgear and variable speed drives. The service component of this segment includes retrofitting equipment upgrades, startups, testing and troubleshooting electrical substations, switchgear, drives and control systems. Equity income from foreign joint ventures and joint venture management related expenses are reported in the section net equity income (loss) from foreign operations. The E&I segment installs electrical equipment for the energy, water, industrial, marine and commercial markets. The AAT segment manufacturers and markets zone cabling products and manufactures formed metal products of varying designs.

F-22

The table below represents segment results for the years ended December 31, 2013, and 2012.

	2013			2012
Net sales:
Technical Products and Services	$	49,150		$	38,973
Electrical and Instrumentation Construction		10,089			9,196
American Access Technologies		6,091			5,896
	$	65,330		$	54,065
Gross profit (loss):
Technical Products and Services	$	9,072		$	6,649
Electrical and Instrumentation Construction		2,095			513
American Access Technologies		648			961
	$	11,815		$	8,123
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations
Technical Products and Services	$	8,061		$	6,012
Electrical and Instrumentation Construction		2,096			513
American Access Technologies		(712	)		(484	)
Corporate and other unallocated expenses		(6,995	)		(5,622	)
Income (loss) from domestic operations		2,450			419
Equity income from BOMAY		2,066			2,569
Equity income from MIEFE		115			16
Equity income (loss) from AAG		843			503
Foreign operations expenses		(267	)		(343	)
Net equity income from foreign joint ventures’ operations		2,757			2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations	$	5,207		$	3,164

The Company’s management does not separately review and analyze its assets on a segment basis for TP&S, E&I, and AAT and all assets for the segments are recorded within the corporate segment’s records. Corporate and other unallocated general and administrative expenses include compensation costs and other expenses that cannot be meaningfully associated with the individual segments. With the exception of equity income from foreign joint ventures and joint venture management related expenses, all other costs, expenses and other income have been allocated to their respective segments.

The following table reflects the quarterly information for the applicable time periods.

	2013
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,430	$	15,169	$	17,585	$	18,146	$	65,330
Gross Profit		2,980		2,396		2,867		3,572		11,815
Net income (loss)		1,653		1,063		901		592		4,209
Earnings (loss) per share:
Basic	$	0.21	$	0.13	$	0.11	$	0.07	$	0.53

	2012
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,432	$	12,872	$	11,725	$	15,035	$	54,065
Gross Profit		1,772		2,172		1,689		2,490		8,123
Net income (loss)		334		761		500		487		2,084
Earnings (loss) per share:
Basic	$	0.04	$	0.10	$	0.06	$	0.06	$	0.26

F-23

(15) Commitments and Contingencies

On September 1, 1999, the Company created a group medical and hospitalization minimum premium insurance program. For the policy year ended August 2013, the Company is liable for all claims each year up to $60,000 per insured, or $1.3 million in the aggregate. An outside insurance company insures any claims in excess of these amounts. The Company’s expense for this minimum premium insurance totaled $879,000 and $845,000 during the years ended December 31, 2013 and 2012. Insurance reserves included in accrued payroll and benefits in the accompanying consolidated balance sheets were approximately $254,000 and $225,000 at December 31, 2013 and 2012.

(16) Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding for the year ended December 31, 2013 and 2012. Diluted earnings (loss) per common share is based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options and other units subject to anti-dilution limitations.

The following table sets forth the computation of basic and diluted earnings (loss) per common share (in thousands, except share and per share data):

	Year Ended December 31,
		2013		2012
Net income (loss)	$	4,209	$	2,084
Weighted average basic shares		7,990,690		7,901,225
Dilutive effect of stock options, restricted stock units, preferred stock and warrants		1,481,816		357,517
Total weighted average diluted shares with assumed conversions		9,472,506		8,258,742
Earnings loss per common share:
Basic	$	0.53	$	0.26
Dilutive	$	0.48	$	0.25

(17) Subsequent Event Brazil Dividend

The Company received a dividend distribution from its AAG JV of approximately $830,000 on March 20, 2014 on its 49% share.  It is not expected that the distribution will reoccur in 2015.

F-24

EXHIBIT INDEX

3.1	Restated Articles of Incorporation of the Registrant. (Incorporated by Reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed May 12, 2008)
3.2	Articles of Amendment to Registrant’s Articles of Incorporation filed April 30, 2012. (Incorporated by Reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed May 4, 2012)
3.3	Amended and Restated Bylaws of the Registrant. (Incorporated by Reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed February 9, 2009)
4.1	Warrant to purchase 125,000 shares of Registrant’s common stock dated May 2, 2012. (Incorporated by reference to Exhibit 4.1 to Registrant’s Quarterly Report of Form 10-Q filed on August 14, 2012)
4.2	Warrant to purchase 200,000 shares of Registrant’s common stock dated May 2, 2012. (Incorporated by reference to Exhibit 4.2 to Registrant’s Quarterly Report of Form 10-Q filed on August 14, 2012)
4.3	Investors Rights Agreement between Registrant and JCH Crenshaw Holdings, LLC dated May 2, 2012. (Incorporated by reference to Exhibit 4.3 to Registrant’s Quarterly Report of Form 10-Q filed on August 14, 2012)
4.4	Registration Rights Agreement between Registrant and JCH Crenshaw Holdings, LLC dated May 2, 2012. (Incorporated by reference to Exhibit 4.4 to Registrant’s Quarterly Report of Form 10-Q filed on August 14, 2012)
10.3	Amended 2007 Employee Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed August 22, 2012)*
10.4	Non-Employee Directors’ Deferred Compensation Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s report on Form 10-QSB filed November 14, 2007)*
10.5	2007 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.5 to the Registrant’s report on Form 10-QSB filed November 14, 2007)*
10.8	Manufacturing and Marketing Agreement dated May 8, 2003 between registrant and Chatsworth Products, Inc. (portions omitted pursuant to a request for confidentiality.) (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-QSB, filed August 11, 2003.)
10.9	Stock Purchase and Sale Agreement dated May 8, 2003 between registrant and Chatsworth Products, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-QSB, filed August 11, 2003.)
10.15	Summary of Non-Employee Director compensation effective January 1, 2014.
10.18	Amended and Restated Credit Agreement between Registrant and JP Morgan Chase Bank, N.A. dated November 30, 2013.
10.21	Form of Employee Stock Option Award Agreement under 2007 Employee Stock Incentive Plan. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed March 31, 2008) *
10.22	Form of Restricted Stock Unit Award Agreement under 2007 Employee Stock Incentive Plan. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed March 31, 2008) *
10.23	Securities Purchase Agreement between Registrant and JCH Crenshaw Holdings, LLC dated April 13, 2012. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed April 19, 2012)
10.25	Deferred Compensation Plan for executives. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed March 27, 2009.)*
10.27	Notification of annual salary and target for performance bonus compensation. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed March 27, 2009.)*
10.28	Outline of Supplemental Senior Management Performance Bonus Program for Fiscal 2010. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Current Report on Form 8-K filed March 4, 2010)*
10.29	Employment Agreement with Arthur G. Dauber dated August 25, 2009. (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed August 27, 2009)*
10.33	Amendment No. 1 to Employment Agreement with Arthur G. Dauber. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 30, 2010)*

F-25

10.34	Amendment to Employment Agreement with Arthur G. Dauber. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 13, 2012)*
10.35	Employment Agreement with Charles M. Dauber dated November 6, 2013. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 13, 2013) *
10.36	Employment Agreement with Andrew L. Puhala. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 23, 2013) *
10.37	Summary of Compensation for Named Executive Officers 2014.*
14	Code of Ethics. (Incorporated by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-KSB filed March 21, 2004.)
21	Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K filed March 31, 2008)
23.1	Consent of Ham, Langston & Brezina, LLP
31.1	Rule 13a-14(a) / 15d-14(a) Certifications of the Principal Executive Officer.
31.2	Rule 13a-14(a) / 15d-14(a) Certifications of the Principal Accounting Officer.
32.1	Section 1350 Certifications of the Principal Executive Officer and Principal Accounting Officer.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	XBRL Extension Presentation Linkbase Document.

* Indicates a management contract or compensatory plan or arrangement.

** Appointment of Edward L. Kuntz, a director of the Board and member of the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee as of September 15, 2013. (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed September 19, 2013).

F-26

EX-10

Exhibit 10.15

Non-Employee Director Compensation Effective January 1, 2014

Eligibility

Directors who are not employees of the Company or any of its subsidiaries and who do not have a compensatory agreement providing for service as a director of the Company or any of its subsidiaries.

Annual Retainer Schedule (paid quarterly in advance on January 1, April 1, July 1 and October 1)

Retainer for each Director	$	35,000.
Additional retainer for Chair of Compensation Committee and Nominating and Governance Committee	$	5,000.
Additional retainer for Chair of the Audit Committee	$	15,000.

Expenses

Company pays directors’ reasonable travel, lodging, meals and other expenses connected with their Board service.

Director Deferred Compensation

Independent outside directors are eligible to voluntarily defer 50% or 100% of their retainer fees and to participate in the Non-Employee Director Deferred Compensation Plan:

· First election to participate must be made within 30 days of initial eligibility for the plan. Subsequent elections must be made before the end of the year in which services are to be performed. Once made, elections are irrevocable for such year. Election in each year to be Alternative 1, 2 or 3:

Alternative 1:

· Retainer fees are used to purchase company stock at market price at time that retainer fee is payable. Stock is subject to restriction on transfer until separation from service as a director.

Alternative 2:

· Retainer fees are credited towards stock units equivalent to value of company common stock at market price at time that retainer fee is payable. Stock units are exchanged for equivalent shares of stock six months after separation from service as a director.

Alternative 3:

· Retainer fees are payable in cash but deferred until separation from service as a director.

EX-10

Exhibit 10.18

EXECUTION VERSION

¹¹.JPMorgan

AMENDED AND RESTATED

CREDIT AGREEMENT

dated as of

November 30, 2013

between

AMERICAN ELECTRIC TECHNOLOGIES, INC.,

as Borrower

and

JPMORGAN CHASE BANK, N.A.,

as Lender

TABLE OF CONTENTS

	Page
ARTICLE I Definitions	1
Section 1.01 Defined Terms	1
Section 1.02 Terms Generally	10
Section 1.03 Accounting Terms; GAAP	10
ARTICLE II The Credits	10
Section 2.01 The Commitment	10
Section 2.02 Loans and Borrowings	10
Section 2.03 Requests for Borrowings	11
Section 2.04 Funding of Loans	11
Section 2.05 Interest Elections	11
Section 2.06 Letters of Credit	12
Section 2.07 Teimination and Reduction of Commitment	13
Section 2.08 Repayment of Loans; Evidence of Debt	13
Section 2.09 Prepayment of Loans	13
Section 2.10 Interest	13
Section 2.11 Alternate Rate of Interest	14
Section 2.12 Increased Costs	14
Section 2.13 Break Funding Payments	14
Section 2.14 Taxes	15
Section 2.15 Fees	15
Section 2.16 Payments Generally	15
ARTICLE III Representations and Warranties	16
Section 3.01 Organization	16
Section 3.02 Authorization; Enforceability	16
Section 3.03 Governmental Approvals; No Conflicts	16
Section 3.04 Financial Statements; No Material Adverse Change	16
Section 3.05 Properties	16
Section 3.06 Litigation and Environmental Matters	17
Section 3.07 Compliance with Laws and Agreements	17
Section 3.08 Investment Status	17
Section 3.09 Taxes	17
Section 3.10 ERISA	17
Section 3.11 Labor Matters	17
Section 3.12 Insurance	17
Section 3.13 Solvency	17
Section 3.14 Disclosure	17
Section 3.15 Margin Stock	18
Section 3.16 Use of Proceeds	18
Section 3.17 No Undisclosed Liabilities	18
Section 3.18 USA Patriot Act	18
Section 3.19 Embargoed Person	18
ARTICLE IV Conditions	19
Section 4.01 Effective Date	19
Section 4.02 Each Credit Event	19

-i-

ARTICLE V Affirmative Covenants	20
Section 5.01 Financial Statements and Other Information	20
Section 5.02 Notices of Material Events	20
Section 5.03 Existence; Conduct of Business	21
Section 5.04 Payment of Obligations	21
Section 5.05 Maintenance of Properties	21
Section 5.06 Insurance	21
Section 5.07 Books and Records; Inspection and Audit Rights	21
Section 5.08 Compliance with Laws	21
Section 5.09 Use of Proceeds and Letters of Credit	21
Section 5.10 Maintenance of Deposit Relationship	21
Section 5.11 Additional Guarantees and Security Documents	21
Section 5.12 Further Assurances	22
ARTICLE VI Negative Covenants	22
Section 6.01 Indebtedness	22
Section 6.02 Liens	22
Section 6.03 Fundamental Changes	23
Section 6.04 Investments, Loans, Advances, Guarantees and Acquisitions	23
Section 6.05 Asset Sales	23
Section 6.06 Sale and Leaseback Transactions	23
Section 6.07 Swap Agreements	23
Section 6.08 Dividends	24
Section 6.09 Transactions with Affiliates	24
Section 6.10 Restrictive Agreements	24
Section 6.11 Change in Fiscal Year	24
Section 6.12 Fixed Charge Coverage Ratio	24
Section 6.13 Total Liabilities to Net Worth Ratio	24
Section 6.14 Net Profit	24
ARTICLE VII Events of Default and Remedies	24
Section 7.01 Events of Default	24
ARTICLE VIII Miscellaneous	26
Section 8.01 Notices	26
Section 8.02 Waivers; Amendments	26
Section 8.03 Expenses; Indemnity; Damage Waiver	26
Section 8.04 Successors and Assigns	27
Section 8.05 Survival	27
Section 8.06 Counterparts; Integration; Effectiveness	28
Section 8.07 Severability	28
Section 8.08 Right of Setoff	28
Section 8.09 Governing Law; Consent to Service of Process	28
Section 8.10 WAIVER OF JURY TRIAL	28
Section 8.11 Headings	29
Section 8.12 Confidentiality	29
Section 8.13 Interest	29
Section 8.14 USA Patriot Act	29
Section 8.15 Amendment and Restatement; Consent of M&I	29
Section 8.16 FINAL AGREEMENT OF THE PARTII-,S	30

-ii-

SCHEDULES:

Schedule 1.01	Guarantee Agreements, Mortgages and Security Agreements
Schedule 3.01	Organization
Schedule 3.06	Disclosed Matters
Schedule 3.12	Insurance
Schedule 3.17	Liabilities
Schedule 6.01	Existing Indebtedness
Schedule 6.02	Existing Liens
Schedule 6.04	Existing Investments
Schedule 6.10	Restrictive Agreements

EXHIBITS:

Exhibit 1.01A	Form of Borrowing Base Report
Exhibit 1.01B	Form of Borrowing Request
Exhibit 1.01C	Form of Guarantee Agreement
Exhibit 1.01D	Form of Interest Election Request
Exhibit 1.01E	Foi in of Security Agreement
Exhibit 5.01(d)	Foul,. of Compliance Certificate

-iii-

THIS AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”) dated to be effective as of November 30, 2013 (the “Effective Date”), between American Electric Technologies, Inc., a Florida corporation (the “Borrower”) and JPMorgan Chase Bank, N.A. (the “Lender”).

PRELIMINARY STATEMENT:

WHEREAS, the Borrower is a party to that certain Letter Loan Agreement dated as of October 31, 2007 (as amended, the “Prior Agreement”), among the Borrower, M&I Electric Industries, Inc., a Texas corporation (“M&I”) and the Lender, pursuant to which the Lender agreed to make loans to and other extensions of credit for the benefit of the Borrower; and

WHEREAS, the Borrower, M&I and the Lender mutually desire to amend and restate the Prior Agreement in its entirety;

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein, the parties hereto agree that the Prior Agreement is amended and restated in its entirety as follows:

ARTICLE I

Definitions

Section 1.01 Defined Tetins. As used in this Agreement, the following terms have the meanings specified below:

“Act” has the meaning set forth in Section 8.14.

“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Applicable Margin” means, for any day, (a) with respect to any CBFR Loan, 1.00% per annum and (b) with respect to any Eurodollar Loan, 3.25% per annum.

“Availability Period” means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitment.

“Available Amount” means, at any time, an amount equal to the lesser of (a) the Commitment minus the sum of the outstanding principal balance of the Loans and the LC Obligations at such time and (b) the Borrowing Base minus the sum of the outstanding principal balance of the Loans and the LC Obligations at such time.

“Beaumont Facility” means the real property and improvements owned by the Borrower having an address of 4775 Martin Luther King Parkway, Beaumont, Texas.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Borrower” has the meaning specified in the introduction to this Agreement.

“Borrowing” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

“Borrowing Base” means, for the Borrower and each Guarantor, the amount determined as of the date of the Borrowing Base Report then most recently delivered pursuant to this Agreement, of (a) 80% of the aggregate amount of Eligible Accounts at such date, plus (b) 40% of the aggregate amount of Eligible Inventory at such date up to an amount not to exceed $1,000,000; provided, however, that (i) only Collateral for which the representations and warranties under this Agreement and the other Loan Documents are true and correct at the time of calculation shall be included in the Borrowing Base, (ii) upon notice to the Borrower, the Lender at any time and from time to time may adjust the preceding percentage(s) or modify or add categories of eligibility, (iii) if the Lender at any time determines any method of valuation overstates the actual fair market value at the time, upon notice to the Borrower, the Lender may recalculate those values to fair market value, and (iv) in no event shall the Borrower Base ever exceed the Commitment.

-1-

“Borrowing Base Report” means a report in the form of Exhibit 1.01A attached hereto, appropriately completed, together with the following attachments: a detailed aged schedule of all aged Eligible Accounts as of the date specified in such report, listing face amounts and dated of invoices of each such Eligible Account, and the name of each account debtor obligated on such Eligible Account (and, upon request of the Lender, the address of an account debtor, copies of invoices, credit reports and any other matters and information relating to the Eligible Accounts), a schedule of Eligible Inventory, setting forth the location of all such Eligible Inventory (other than Eligible Inventory in transit), including Eligible Inventory not in the possession of the Borrower and the name of the person in possession thereof and whether and how much of such Eligible Inventory consists of raw material, finished goods or otherwise and a summary aged listing of the Borrower’s and Guarantors’ accounts payable and an aged list of the ten (10) largest accounts payable.

“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03, substantially in the form of Exhibit 1.01B hereto.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP and any obligations of such Person under any synthetic lease financing whether or not such obligation is classified as a capital lease under GAAP.

“CB Floating Rate” means the Prime Rate; provided that the CB Floating Rate shall never be less than the Adjusted LIBO Rate plus 2.50% per annum. Any change in the CB Floating Rate due to a change in the Prime Rate or the Adjusted LIBO Rate shall be effective from and includiqg the effective date of such change in the Prime Rate or Adjusted LIBO Rate, respectively.

“CB1⁴R”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the CB Floating Rate.

“Change in Control” means the occurrence of any of the following events: (a) any Person or two or more Persons acting as a group shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Act of 1934, as amended, and including holding proxies to vote for the election of director other than proxies held by the Borrower’s management or their designees to be voted in favor of Persons nominated by the Borrower’s board of directors) of 35% or more of the outstanding voting securities of the Borrower, measured by voting power (including both common stock and any preferred stock or other equity securities entitling the holders thereof to vote with the holders of common stock in elections for directors of the Borrower) or (b) one-third or more of the directors of the Borrower shall consist of Persons not nominated by the Borrower’s board of directors (not including as board nominees any directors which the Board is obligated to nominate pursuant to shareholders agreements, voting trust arrangements or similar arrangements).

“Change in Law” means the occurrence, after the Effective Date, of any of the following: (a) the adoption or taking into effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall, in each case, be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means any and all Collateral as defined in any applicable Security Document.

“Commitment” means the commitment of the Lender to make Loans and issue Letters of Credit hereunder in a maximum aggregate amount of $10,000,000, as such commitment may be reduced from time to time pursuant to the terms and provisions hereof.

-2-

“Consolidated” refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person’s Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.

“Consolidated Net Worth” means the book value, as shown on its financial statements, of all of the Borrower’s and its Subsidiaries’ assets less Consolidated Total Liabilities.

“Consolidated Total Liabilities” means, as of any date, the liabilities of the Borrower and its Consolidated Subsidiaries that would be reflected on a Consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as “liabilities” in accordance with GAAP.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Default” means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Default Rate” means (a) with respect to the Loans, the rate otherwise applicable to such Loans plus 3% and (b) with respect to all other amounts, the rate otherwise applicable to CBFR Loans plus 3%.

“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.

“Dividend” means (a) any dividend or other distribution made by the Borrower or a Subsidiary of the Borrower on or in respect of any Equity Interests in the Borrower or any of its Subsidiaries, or (b) any payment made by the Borrower or a Subsidiary to purchase, redeem, acquire or retire any Equity Interest in the Borrower or such Subsidiary.

“Dollars” or “i” refers to lawful money of the United States of America.

“Domestic Subsidiary” means any Subsidiary of the Borrower that is not a Foreign Subsidiary.

“Effective Date” has the meaning in the preamble of this Agreement.

“Eligible Account” means all Accounts except the following:

(a) any Account which arises out of a sale to an Account Debtor which is an Affiliate of the Borrower;

(b) any Account which has not yet been invoiced or any Account the goods giving rise to which have not been delivered or the services giving rise to which have not been performed, or which otherwise does not represent a completed sale or performance;

(c) any Account balances due or unpaid more than 90 days after its original invoice date or which has an original due date which is more than 90 days after its original invoice date;

(d) any Account owed by an Account Debtor which is also a creditor or supplier of the Borrower or by an Account Debtor which has asserted any defense or contested any liability with respect to such Account, or any Account which otherwise is or may become subject to any right of set off by the Account Debtor thereof; provided that to the extent the Account exceeds the amount of the right of set off, the positive balance shall be included as an Eligible Account;

(e) any Account owed by an Account Debtor more than 20% (in dollar amount) of whose Accounts are not Eligible Accounts on account of paragraphs (c) or (d) above;

(f) any Account owed by an Account Debtor that has commenced a voluntary case under the bankruptcy or insolvency laws of any jurisdiction, or made an assignment for the benefit of creditors, or against which a decree or order for relief has been entered by a court in an involuntary case under any bankruptcy or insolvency laws of any jurisdiction, or against which any other petition or other application for relief under any bankruptcy or insolvency laws of any jurisdiction has been filed, or which has suspended business or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs;

(g) except for an amount of up to $500,000 in respect of foreign Eligible Accounts owed by Account Debtors that are Subsidiaries of Persons incorporated or organized under the laws of the United States and rated at least Baa3 by Moody’s or BBB- by S&P, any Account which (i) arises out of a sale made or services performed outside of the United States or which is owed by an Account Debtor located outside the United States and (ii) is not either secured by a commercial letter of credit satisfactory, in all respects, to the Lender or such Account Debtor has not otherwise been approved by the Lender;

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(h) any Account the sale for which is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or otherwise contingent on or subject to the fulfillment of any condition;

(i) any Account the Account Debtor of which is the United States or any department, agency or instrumentality thereof;

(j) any Account to the extent that, but for this paragraph (j), the Eligible Accounts owed by any Account Debtor and its Affiliates would exceed 15% of the outstanding aggregate principal balance of all Eligible Accounts;

(k) any Account owed by an Account Debtor which is also an employee or sales agent or independent contractor of the Borrower or any of the Borrower’s Affiliates;

(1) any Account subject to a lien or security interest other than a Peimitted Lien;

(m) any Account not valid, binding and enforceable against the Account Debtor thereof in accordance with its terms; and

(n) any Account not subject to an enforceable and duly perfected first priority security interest in favor of Lender.

As used in this definition, “Accounts” means all present and future rights of the Borrower to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper), whether now existing or hereafter arising and wherever arising and whether or not earned by performance, and “Account Debtor” means the person which is obligated on any Account.

“Eligible Inventory” means any Inventory which:

(a) is owned by the Borrower or a Guarantor free and clear of all liens and security interests other than those peunitted under this Agreement and, if held or stored on leased premises, is subject to the terms of a lien waiver letter acceptable to the Lender executed by the landlord of such premises if deemed necessary by Lender in its sole discretion; and

(b) is fully and adequately insured with Lender named as loss payee; and

(c) is not on lease or consignment or furnished under any contract of service from or to any person; and

(d) is finished Inventory, ready for sale, and is not, in the opinion of the Lender damaged, obsolete, or otherwise not readily saleable at full value; and

(e) is subject to an enforceable security interest in favor of the Lender which is duly perfected and of first priority, or, if in transit, will be duly perfected and of first priority immediately upon reaching its destination.

As used in this definition, “Inventory” means all goods, now owned or hereafter acquired by the Borrower and wherever located, which are held for sale or lease or are to be furnished under any contract of service, excluding work in process or raw materials in the business of the Borrower or a Guarantor, and including goods the sale or other disposition of which has given rise to accounts receivable and which have been returned to or repossessed or stopped in transit by the Borrower or any Guarantor.

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

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“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned to such term in Article VII.

“Excluded Taxes” means, with respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located, and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located.

“Executive Order” has the meaning assigned to such term in Section 3.19.

“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.

“Fixed Charge Coverage Ratio” means, as of the date of determination, the ratio of (a) the sum of (i) operating profit from the Borrower’s Domestic Subsidiaries, plus (ii) depreciation, plus (iii) cash from foreign joint ventures, minus (iv) non-financed capital expenditures, all for the four quarter period then ended, to (b) the sum of (i) the current portion of long-term Indebtedness, plus (ii) interest expense, plus (iii) Taxes, plus (iv) Dividends, plus (v) payments in respect of Capital Lease Obligations, all for the same period.

“Foreign Subsidiary” means any Subsidiary of the Borrower that is incorporated or organized other than under the laws of the United States of America, any State thereof or the District of Columbia.

“GAAP” means generally accepted accounting principles in the United States of America.

“Governmental Approval” means (a) any authorization, consent, approval, license, waiver, ruling, permit, tariff, rate, certification, exemption, filing, variance, claim, order, judgment, decree, sanction or publication of, by or with, (b) any notice to, (c) any declaration of or with, or (d) any registration by or with, or any other action or deemed action by or on behalf of, any Governmental Authority.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

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“Guarantee Agreements” means those certain guarantee agreements executed in connection with the Prior Agreement and identified in Part 1 of Schedule 1.01, as ratified and amended in connection with this Agreement, and each guarantee agreement executed after the Effective Date pursuant to Section 5.11, which shall be in the form of Exhibit 1.01C.

“Guarantor” means each Person that is a party to a Guarantee Agreement as of the Effective Date and each Person that becomes a Guarantor after the Effective Date pursuant to Section 5.11.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Highest Lawful Rate” means the maximum nonusurious rate of interest that, under applicable law, may be contracted for, taken, reserved, charged or received by the Lender on the Loans or under the Loan Documents at any time or from time to time. If the maximum rate of interest which, under applicable law, the Lender is permitted to charge the Borrower on the Loans shall change after the Effective Date, to the extent permitted by applicable law, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, as of the effective time of such change without notice to the Borrower or any other Person.

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05, substantially in the form of Exhibit 1.01D.

“Interest Payment Date” means the last Business Day of each calendar month.

“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the date that is thirty (30) days thereafter. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Investments” has the meaning set forth in Section 6.04.

“Law” means all laws, statutes, treaties, ordinances, codes, acts, rules, regulations, Government Approvals and Orders of all Governmental Authorities, whether now or hereafter in effect.

“LC Disbursement” means a payment made by the Lender pursuant to a Letter of Credit.

“LC Obligations” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time.

“Lender” has the meaning set forth in the introduction to this Agreement.

“Letter of Credit” means any letter of credit issued pursuant to this Agreement.

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“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Lender from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, or the Lender does not, in good faith, believe that such rate accurately reflects its costs of funds on such advances, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000, for a maturity comparable to such Interest Period, are offered by the principal London office of the Lender in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. For the purposes of this Agreement and the other Loan Documents, the Borrower shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes.

“Loan Documents” means this Agreement, the Note, the Guarantee Agreements, the Security Documents and any other documents executed in connection herewith or therewith.

“Loans” means the loans made by the Lender to the Borrower pursuant to Section 2.01.

“Material Adverse Effect” means any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to pay the Obligations or (c) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Lender.

“Material Indebtedness” means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Agreements, of the Borrower in an aggregate principal amount exceeding $100,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower would be required to pay if such Swap Agreement were terminated at such time.

“Maturity Date” means October 1, 2015.

“Mortgaged Property” means the real property covered by the Mortgages.

“Mortgages” means those certain deeds of trust executed in connection with the Prior Agreement and identified on Part 2 of Schedule 1.01, as amended in connection with this Agreement.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Income” means, for any period, the net income (or loss) of the Borrower and its Consolidated Domestic Subsidiaries for such period taken as a single accounting period determined in accordance with GAAP.

“Note” has the meaning set forth in Section 2.02(b).

“Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Lender under this Agreement and the other Loan Documents, (b) the due and punctual payment and performance of all covenants, agreements, obligations and liabilities of the Borrower and Guarantors, monetary or otherwise, under or pursuant to this Agreement and the other Loan Documents, (c) the due and punctual payment of all obligations of the

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Borrower under each Swap Agreement entered into with any counterparty that is the Lender (or an Affiliate thereof) and (d) the due and punctual payment of all obligations of the Borrower and its Subsidiaries in respect of the following bank services provided to the Borrower or its Subsidiaries by the Lender (or an Affiliate thereof): commercial credit cards, commercial checking accounts, stored value cards and treasury management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

“Order” means an order, writ, judgment, award, injunction, decree, ruling or decision of any Governmental Authority or arbitrator.

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise in with respect to, any Loan Document.

“Participant” has the meaning set forth in Section 9.04.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Permitted Encumbrances” means:

(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 90 days or are being contested in compliance with Section 5.04;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII;

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any of its Subsidiaries;

(g) any obligations or duties affecting any of the property of the Borrower or any of its Subsidiaries to any municipality or public authority with respect to any franchise, grant, license or permit which do not materially impair the use of such property for the purposes for which it is held;

(h) Liens arising from precautionary UCC financing statements regarding operating leases; and

(i) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business;

provided that the tetiii “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Pe’mined Investments” means:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within one year from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;

(c) investments in certificates of deposit, banker’s acceptances and time deposits issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

(d) fully collateralized repurchase agreements for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

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(e) money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s or invest solely in the assets described in clauses (a) through (d) above and (iii) have portfolio assets of at least $5,000,000,000.

“Permitted Liens” means Liens permitted by Section 6.02.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“Prohibited Person” means any Person (a) listed in the Annex to the Executive Order or identified pursuant to Section 1 of the Executive Order; (b) that is owned or controlled by, or acting for or on behalf of, any Person listed in the Annex to the Executive Order or identified pursuant to the provisions of Section 1 of the Executive Order; (c) with whom the Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or anti-laundering law, including the Executive Order; (d) who commits, threatens, conspires to commit, or supports “terrorism” as defined in the Executive Order; (e) who is named as a “Specially designated national or blocked person” on the most current list published by the OFAC at its official website, at http://www.treas.gov/officesienforcement/ofacisdn/t11sdn.pdf or any replacement website or other replacement official publication of such list; or (f) who is owned or controlled by a Person listed above in clause (c) or (e).

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

“Security Agreements” means those certain security agreements executed in connection with the Prior Agreement, as ratified and amended in connection with this Agreement, and identified on Part 3 of Schedule 1.01B attached hereto, and each security agreement executed after the Effective Date pursuant to Section 5.11, which shall be in the form of Exhibit 1.01E.

“Security Documents” means the Security Agreements, the Mortgages and each other security document delivered in accordance with applicable law to grant a valid, perfected security interest in any property, and all UCC or other financing statements or instruments of perfection required by this Agreement or any security agreement to be filed with respect to the security interests in property and fixtures created pursuant to the Security Documents and any other document or instrument utilized to pledge as collateral for the Obligations any property of whatever kind or nature.

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Lender is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to the Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s Consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which Equity Interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more Subsidiaries of the parent or by the parent and one or more Subsidiaries of the parent.

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“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries shall be a Swap Agreement.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Transactions” means the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the CB Floating Rate.

“UCC” means the Uniform Commercial Code as from time to time in effect in the State of Texas or, where applicable as to specific Collateral, any other relevant state.

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof’ and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

Section 1.03 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if any change occurring after the date hereof in GAAP or in the application thereof results in a materially different result for any of the calculations required hereunder, the Borrower and the Lender will negotiate in good faith to determine appropriate changes to such calculations to reflect the original intent of the parties as of the time of this Agreement.

ARTICLE II

The Credits

Section 2.01 The Commitment. Subject to the terms and conditions set forth herein, the Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount not to exceed at any time outstanding the Available Amount. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans.

Section 2.02 Loans and Borrowings.

(a) Subject to Section 2.11, each Borrowing shall be comprised entirely of CBFR Loans or Eurodollar Loans as the Borrower may request in accordance herewith.

(b) The Loans shall be evidenced by a single Revolving Credit Note (the “Note”), which shall be made by the Borrower in the principal amount of the Commitment, shall be in substantially the form attached hereto as Exhibit 2.02(b) with the blanks appropriately filled, shall be payable to the order of the Lender on the Maturity Date and shall bear interest as provided in Section 2.10.

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(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $500,000. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of five Eurodollar Loans outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period for such Borrowing would end after the Maturity Date.

Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Lender of such request by telephone (a) in the case of a Eurodollar Loan, not later than 11:00 a.m., Houston time, three Business Days before the date of the proposed Borrowing or (b) in the case of a CBFR Loan, not later than 10:00 a.m., Houston time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand or electronic delivery to the Lender of a written Borrowing Request signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

(i) the aggregate amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be a CBFR Borrowing or a Eurodollar Borrowing; and

(iv) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a CBFR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

Section 2.04 Funding of Loans. Subject to the provisions of Article IV, the Lender shall make the Loans available to an account of the Borrower maintained with the Lender and designated by the Borrower in the applicable Borrowing Request.

Section 2.05 Interest Elections.

(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section, the Borrower shall notify the Lender of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand or electronic delivery to the Lender of a written Interest Election Request signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; and

(iii) whether the resulting Borrowing is to be a CBFR Borrowing or a Eurodollar Borrowing.

(d) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall continue for a successive Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Lender so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to a CBFR Borrowing at the end of the Interest Period applicable thereto.

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Section 2.06 Letters of Credit.

(a) Subject to the terms and conditions set forth herein, the Lender agrees to issue Letters of Credit for the account of the Borrower from time to time during the Available Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Lender relating to any Letter of Credit, the teinis and conditions of this Agreement shall apply.

(b) To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or transmit by electronic communication to the Lender (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Lender, the Borrower also shall submit a letter of credit application on the Lender’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Obligations shall not exceed $3,000,000 and (ii) the sum of the outstanding principal balance of the Loans plus the LC Obligations shall not exceed the Available Amount.

(c) Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date.

(d) If the Lender shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Lender an amount equal to such LC Disbursement not later than 12:00 noon, Houston time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Houston time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, Houston time, on the Business Day immediately following the day that the Borrower receives such notice; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with a CBFR Borrowing in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting CBFR Borrowing.

(e) The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (d) of this Section shall be absolute, unconditional and irrevocable, and shall be perfoinied strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Lender against presentation of a draft or other document that does not comply with the tennis of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Lender nor any of its Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; provided that the foregoing shall not be construed to excuse the Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Lender’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Lender (as finally determined by a court of competent jurisdiction), the Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(f) If the Lender shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to CBFR Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (d) of this Section, then Section 2.10(c) shall apply.

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(g) The Borrower shall remit to the Lender a Letter of Credit fee equal to the greater of $500.00 and one percent (1%) per annum on the aggregate undrawn face amount of all Letters of Credit outstanding, which fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter. The Borrower shall also pay within three (3) Business Days after receipt of written request therefor, a minimum issuance fee of $500.00 plus the normal and customary administrative charges of the Lender for issuance, amendment, negotiation, renewal or extension of any Letter of Credit.

Section 2.07 Termination and Reduction of Commitment.

(a) Unless previously terminated, the Commitment shall terminate on the Maturity Date.

(b) The Borrower may at any time terminate or from time to time reduce the Commitment without payment of any premium or penalty of any kind; provided that (A) each reduction of the Commitment shall be in an amount that is an integral multiple of $500,000 and (B) the Borrower shall not terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the sum of the outstanding balance of the Loans plus the then outstanding LC Obligations would exceed the Available Amount.

(c) The Borrower shall notify the Lender of any election to terminate or reduce the Commitment under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable. Any termination or reduction of the Commitment shall be permanent.

Section 2.08 Repayment of Loans; Evidence of Debt.

(a) The Borrower hereby unconditionally promises to pay to the Lender the then unpaid principal amount of each Loan on the Maturity Date.

(b) The Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Loan made by the Lender, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder.

(c) The entries made in the accounts maintained pursuant to paragraph (b) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of the Lender maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

Section 2.09 Prepayment of Loans.

(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (c) of this Section.

(b) In the event and on each occasion that the sum of the outstanding principal balance of the Loans and the LC Obligations exceeds the Available Amount, the Borrower shall immediately prepay Borrowings in an aggregate amount equal to such excess.

(c) In the case of any voluntary prepayment under Section 2.09(a), the Borrower shall notify the Lender by telephone (confirmed by electronic means) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., Houston time, three Business Days before the date of prepayment or (ii) in the case of prepayment of a CBFR Borrowing, not later than 11:00 a.m., Houston time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be without premium or penalty of any kind and shall be accompanied by accrued interest to the extent required by Section 2.10 and by any amounts due pursuant to Section 2.13.

Section 2.10 Interest.

(a) The Loans comprising each CBPR. Borrowing shall bear interest at the CB Floating Rate plus the Applicable Margin.

(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.

(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, such overdue amount shall bear interest at the Default Rate.

(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitment; provided that (i) interest accrued pursuant to paragraph (c of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a CBFR Loan prior to the end of the

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Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the CB Floating Rate at times when the CB Floating Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 in a leap year) and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable CB Floating Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Lender, and such determination shall be prima facie evidence of the correct interest rate.

Section 2.11 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a) the Lender determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the Lender determines that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to the Lender of making or maintaining the Loans included in such Borrowing for such Interest Period;

then the Lender shall give notice thereof to the Borrower by telephone or by electronic means as promptly as practicable thereafter and, until the Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as a CBFR Borrowing.

Section 2.12 Increased Costs.

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Lender; or

(ii) impose on the Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by the Lender;

and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to the Lender or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrower will pay to the Lender, as the case may be, such additional amount or amounts as will compensate the Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b) If the Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on the Lender’s capital or on the capital of its holding company, if any, as a consequence of this Agreement or the Loans made by the Lender, to a level below that which the Lender or its holding company could have achieved but for such Change in Law (taking into consideration the Lender’s policies and the policies of its holding company with respect to capital adequacy), then from time to time the Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender or its holding company for any such reduction suffered.

(c) A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay the Lender, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate the Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that the Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of the Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

Section 2.13 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrower shall compensate the Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to the Lender shall be deemed to include an amount determined by the Lender to be the excess, if any, of (i) the amount of interest that

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would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that the Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market A certificate of the Lender setting forth any amount or amounts that the Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof

Section 2.14 Taxes.

(a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Documents shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Law.

(c) The Borrower shall indemnify the Lender within 10 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with respect to any payment by or on account of any obligation of the Borrower hereunder or under any other Loan Documents (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by the Lender shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

(e) If the Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.14, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.14 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Lender agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender in the event the Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

Section 2.15 Fees The Borrower shall pay to the Lender a commitment fee, which shall accrue at a rate equal to 0.30% on the daily amount of the unused Commitment during the period from and including the Effective Date to but excluding the date on which the Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitment terminates, commencing on the first such date to occur after the Effective Date. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.16 Payments Generally. The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, Houston time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at its offices at 712 Main Street, Houston, Texas. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.

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ARTICLE III

Representations and Warranties

The Borrower for itself and each of its Subsidiaries represents and warrants to the Lender that:

Section 3.01 Organization. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the requisite power and authority to conduct its business in each jurisdiction as it is presently being conducted, and (c) is duly qualified and licensed to conduct business and is in good standing in each jurisdiction listed in Schedule 3.01. As of the Effective Date, no proceeding to dissolve the Borrower or any of its Subsidiaries is pending or, to the Borrower’s knowledge, threatened.

Section 3.02 Authorization; Enforceability. The Borrower has the power and authority to execute and deliver this Agreement and the other Loan Documents to which it is a party and to perform its obligations hereunder and thereunder. The Transactions have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement and the other Loan Documents have been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

Section 3.03 Governmental Approvals^., No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect Liens created under the Loan Documents and (iii) those the failure to obtain or make which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon the Borrower or any of its Subsidiaries or any of its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, other than Liens created under the Loan Documents.

Section 3.04 Financial Statements; No Material Adverse Change.

(a) The Borrower has heretofore furnished to the Lender its balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2012 and (ii) as of and for the fiscal quarters and the portion of the current fiscal year ended March 31, 2013, in each case, certified by a Financial Officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(b) Except as disclosed in the financial statements referred to above or the notes thereto and except for the Disclosed Matters, after giving effect to the Transactions, the Borrower does not have, as of the Effective Date, any material contingent liabilities, unusual long-term commitments or unrealized losses.

(c) Since December 31, 2012, there has been no material adverse change in the business, assets, property, condition (financial or otherwise), of the Borrower and its Subsidiaries, taken as a whole.

Section 3.05 Properties.

(a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that (i) do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and (ii) individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower or such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

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Section 3.06 Litigation and Environmental Matters.

(a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any of the Loan Documents or the Transactions.

(b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any peunit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

(c) Since the Effective Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

Section 3.07 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all Laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, material agreements and other material instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.

Section 3.08 Investment Status. Neither the Borrower nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.

Section 3.09 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) any Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.

Section 3.11 Labor Matters. As of the Effective Date, there are no strikes, lockouts or slowdowns against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other Law dealing with such matters in any manner that could reasonably be expected to have a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any of its Subsidiaries is bound.

Section 3.12 Insurance. Schedule 3.12 lists as of the Effective Date all policies or binders of fire, liability, worker’s compensation, vehicular or other insurance held by or for the benefit of the Borrower or any of its Subsidiaries (specifying the insurer, the policy number or covering note number with respect to binders). All insurance is in full force and effect, is with financially sound and reputable insurers and is in amounts and provides coverage that are reasonable and customary for Persons engaged in businesses similar to those conducted by the Borrower and its Subsidiaries.

Section 3.13 Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date, and immediately following the making of each Loan made on the Effective Date and after giving effect to the application of the proceeds of such Loans, (a) the fair market value of the assets of the Borrower and its Subsidiaries will exceed its debts and liabilities, subordinate, contingent or otherwise; (b) the present fair saleable value of the property of the Borrower and its Subsidiaries will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities; (c) the Borrower and its Subsidiaries will be able to pay its debts and liabilities, subordinate, contingent or otherwise as they become absolute and mature; and (d) the Borrower and its Subsidiaries will not have unreasonably small capital with which to conduct its business as such business is now conducted and is proposed to be conducted following the Effective Date.

Section 3.14 Disclosure. The Borrower has disclosed to the Lender all agreements, instruments and corporate or other restrictions to which it is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or any Loan Document or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to

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state any material fact necessary to make the statements therein, taken as a whole in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 3.15 Margin Stock. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U of the Board). The proceeds of the Loans will not be used, directly or indirectly, immediately, incidentally or ultimately, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might cause any of the Loans under this Agreement to be “purpose credit” within the meaning of Regulation U or Regulation X of the Board.

Section 3.16 Use of Proceeds. The proceeds of the Loans shall be used only for working capital and other general corporate purposes. The Borrower represents and warrants to the Lender that all Loans will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in the Texas Finance Code.

Section 3.17 No Undisclosed Liabilities. Except as set forth in Schedule 3.17, neither the Borrower nor any of its Subsidiaries has any material liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise) except for (i) liabilities or obligations reflected or reserved against in the financial statements delivered by the Borrower pursuant to Section 3.04 or in the financial statements most recently delivered by the Borrower pursuant to Section 5.01, (ii) current liabilities incurred in the ordinary course of business since the date of such financial statements, (iii) liabilities or obligations that are not required to be included in financial statements prepared in accordance with GAAP, (iv) liabilities or obligations arising under Governmental Approvals or contracts to which the Borrower or any of its Subsidiaries is a party or otherwise subject and (v) other Indebtedness permitted under Section 6.01.

Section 3.18 USA Patriot Act. Neither the Borrower nor any of its Subsidiaries or, to the knowledge of the Borrower, any of its Affiliates over which any of the foregoing exercises management control (each, a “Controlled Affiliate”) is a Prohibited Person, and the Borrower, its Subsidiaries and, to the knowledge of the Borrower, such Controlled Affiliates are in compliance with all applicable orders, rules and regulations of OFAC. Neither the Borrower nor any of its Subsidiaries or, to the knowledge of the Borrower, any of its Affiliates: (a) is targeted by United States or multilateral economic or trade sanctions currently in force; (b) is owned or controlled by, or acts on behalf of, any Person that is targeted by United States or multilateral economic or trade sanctions currently in force; or (c) is named, identified or described on any list of Persons with whom United States Persons may not conduct business, including any such blocked persons list, designated nationals list, denied persons list, entity list, debarred party list, unverified list, sanctions list or other such lists published or maintained by the United States, including OFAC, the United States Department of Commerce or the United States Department of State.

Section 3.19 Embargoed Person.

(a) None of the Borrower’s or any of its Subsidiaries’ assets constitute property of, or are beneficially owned, directly or indirectly, by any Person targeted by economic or trade sanctions under US law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq. (the “Trading With the Enemy Act”), any of the foreign assets control regulations of the Treasury (31 C.F.R., Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or regulations promulgated thereunder or executive order relating thereto (which includes, without limitation, (i) Executive Order No. 13224, effective as of September 24, 2001, and relating to Blocking Property and Prohibiting Transaction With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (ii) the Act, if the result of such ownership would be that any Loan made by any Lender would be in violation of Law (“Embargoed Person”).

(b) No Embargoed Person has any interest of any nature whatsoever in the Borrower if the result of such interest would be that any Loan would be in violation of Law.

(c) Neither the Borrower nor any of its Subsidiaries has engaged in business with Embargoed Persons if the result of such business would be that any Loan made by any Lender would be in violation of Law.

(d) Neither the Borrower nor any Controlled Affiliate (i) is or will become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (ii) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person”.

For purposes of detemiining whether or not a representation is true or a covenant is being complied with under this Section 3.19, the Borrower shall not be required to make any investigation into (i) the ownership of publicly traded stock or other publicly traded securities or (ii) the beneficial ownership of any collective investment fund.

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ARTICLE IV

Conditions

Section 4.01 Effective Date. The obligations of the Lender to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) The Lender (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Lender (which may include electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b) The Lender shall have received from the Borrower the Note executed by the Borrower.

(c) The Lender shall have received each of the Security Documents or ratification agreements with respect thereto from each party thereto in form and substance reasonably satisfactory to the Lender and the same shall constitute satisfactory security documentation to create first priority security interests in the Collateral free and clear of all Liens, other than Permitted Liens.

(d) The Lender shall have received ratification agreements with respect to the Guarantee Agreements in form and substance reasonably satisfactory to the Lender.

(e) The Lender shall have received such documents and certificates as the Lender or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower and Guarantors, the authorization of the Transactions and any other legal matters relating to the Borrower, the Guarantors, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Lender and its counsel.

(f) The Lender shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including reasonable legal fees) required to be reimbursed or paid by the Borrower hereunder or under any Loan Documents.

(g) All governmental and third party approvals necessary or, in the discretion of the Lender, advisable in connection with the financing contemplated hereby and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect.

(h) The Lender shall have received (i) compiled financial statements of the Borrower for the two most recent fiscal years ended prior to the Effective Date as to which such financial statements are available and (ii) satisfactory unaudited interim financial statements of the Borrower for each fiscal quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available which financial statements shall not be materially inconsistent with the financial statements or forecasts previously provided.

(i) The Lender shall have received reports of UCC, tax and judgment Lien searches conducted by a reputable search firm with respect to the Borrower and each of its Subsidiaries in each location requested by the Lender and the information disclosed in such reports shall be satisfactory to the Lender.

(j) The Lender shall have received evidence of insurance coverage of the Borrower and its Subsidiaries, which coverage shall be satisfactory to the Lender in all respects and shall name the Lender as an additional insured and as a mortgagee/loss payee on the liability and casualty insurance policies covering the Mortgaged Property. In addition, to the extent any portion of the Mortgaged Property is located in an area identified by the Federal Emergency Management Agency or any successor thereto as a 100-year flood zone or special hazard area, the Lender shall have received evidence of flood insurance coverage for such portions of the Mortgaged Property, which coverage shall be satisfactory to the Lender in all respects.

(k) The Lender shall have received a Borrowing Base Report executed by the Borrower, together with such schedules, computations and other information as may be requested by the Lender.

(1) The Lender shall have received all documents that it may request relating to any other matter relevant hereto, all in form and substance satisfactory to Lender.

Section 4.02 Each Credit Event. The obligation of the Lender to make a Lo on the occasion of any Borrowing is subject to the satisfaction of the following conditions:

(a) The representations and warranties of the Borrower set forth in this Agreement or any other Loan Document shall be deemed to have been made as a part of said request for a Borrowing and shall be true and correct in all material respects on and as of the date of such Borrowing except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date;

(b) No Material Adverse Effect shall have occurred since the date of the most

(c) The Lender shall have received a Borrowing Request as required by Section 2.03; and

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(d) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing.

Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (d) of this Section.

ARTICLE V

Affirmative Covenants

Until the Commitment has expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower, for itself and its Subsidiaries, covenants and agrees with the Lender that:

Section 5.01 Financial Statements and Other Information. The Borrower will furnish to the Lender:

(a) within 90 days after the end of each fiscal year of the Borrower, its audited Consolidated balance sheet and related statements of operations, income statements, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, of the Borrower as of such year, all reported on by the Borrower’s independent public accountants as of the Effective Date or such other independent public accountants of recognized national standing selected by the Borrower and satisfactory to the Lender (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a Consolidated basis in accordance with GAAP consistently applied;

(b) within 60 days after the end of each fiscal quarter of the Borrower, its Consolidated balance sheet and related statements of operations, income statements, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, of the Borrower and its Consolidated Subsidiaries as of such year, all certified by a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a Consolidated basis in accordance with GAAP consistently applied, subject to nowial year-end audit adjustments and the absence of footnotes;

(c) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by the Borrower to its equity holders and all registration statements, periodic reports and other statements and schedules filed by the Borrower with any securities exchange, the Securities and Exchange Commission or any similar Governmental Authority;

(d) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer substantially in the form attached hereto as Exhibit 5.01(d);

(e) for each monthly period when, at any time, the aggregate outstanding Loans and LC Obligations during any such month are greater than $500,000, then, as soon as available, and in any event within 30 days after the end of each such calendar month, a Borrowing Base Report;

(f) promptly following any request therefor, a list of the Borrower’s inventory in form and detail satisfactory to the Lender;

(g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower, or compliance with the terms of this Agreement or any other Loan Document, as the Lender may request; and

(h) promptly following any request thereof, all information and/or documentation necessary to comply with the Act or for the Lender to confirm compliance with the Act.

Section 5.02 Notices of Material Events. The Borrower will furnish to the Lender prompt and, in any event, within five Business Days, written notice of the following:

(a) the occurrence of any Default;

(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any of its Subsidiaries that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect or that in any manner questions the validity of the Loan Documents;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;

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(d) the occurrence of any event or any other development by which the Borrower or any of its Subsidiaries (i) fails to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) becomes subject to any Environmental Liability, (iii) receives notice of any claim with respect to any Environmental Liability or (iv) becomes aware of any basis for any Environmental Liability and in each of the preceding clauses, which individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect; and

(e) any other development (including the termination of any material contract) that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.03 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, pelinits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business.

Section 5.04 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its Indebtedness and other obligations, including Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation and (d) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

Section 5.05 Maintenance of Properties. The Borrower will, and will cause each of its Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted.

Section 5.06 Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts (with no greater risk retention) and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (b) all insurance required to be maintained pursuant to the Security Documents. The Borrower shall furnish the Lender, upon request, with certified copies of insurance policies or other appropriate evidence of compliance with this Section.

Section 5.07 Books and Records; Inspection and Audit Rights.

(a) The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all material dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

(b) The Borrower will permit Lender to conduct regular field examinations and audits of the Borrower and its Subsidiaries, with such frequency as Lender shall detelinine to be desirable, such examinations to be at the cost and expense of the Borrower.

Section 5.08 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all Laws (including Environmental Laws) and Orders applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 5.09 Use of Proceeds and Letters of Credit. The proceeds of the Loans will be used only for working capital and other general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. Letters of Credit will be issued only to support working capital needs and general corporate obligations.

Section 5.10 Maintenance of Deposit Relationship. The Borrower will, and will cause each of its Subsidiaries to, maintain the Lender as the Borrower’s and each of its Subsidiary’s primary depository and treasury management services provider for its operational, business deposit accounts.

Section 5.11 Additional Guarantees and Security Documents. The Borrower will at all times cause of its Subsidiaries to be Guarantors. Within thirty (30) days after the Borrower acquires or creates a new Subsidiary, the Borrower will, and will cause such new Subsidiary to, execute a Security Agreement and a Guarantee Agreement and deliver to the Lender such other documents relating to such new Subsidiary as the Lender shall reasonably request in order to comply with the requirements of this Section.

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Section 5.12 Further Assurances. The Borrower will, at its own cost and expense, execute, acknowledge and deliver any and all further documents, financing statements, agreements and instruments and take all such further actions, (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust, and other documents) which may be required under any applicable Law, or which may from time to time be reasonably necessary or as the Lender may from time to time reasonably request in order to carry out the intent and purpose of the Loan Documents and the Transactions, including all such actions to establish, preserve, protect and perfect the estate, right, title and interest of the Lender to the Collateral (including Collateral acquired after the Effective Date) and preserve, protect and perfect first priority Liens (subject to Permitted Liens) in favor of the Lender on any and all assets of the Borrower and Guarantors now owned or hereafter acquired that constitute Collateral and that are not Collateral on the Effective Date.

ARTICLE VI

Negative Covenants

Until the Commitment has expired or terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower, for itself and its Subsidiaries, covenants and agrees with the Lender that:

Section 6.01 Indebtedness. Neither the Borrower nor any of its Subsidiaries will create, incur, assume or permit to exist any Indebtedness, except:

(a) the Obligations;

(b) Indebtedness existing on the Effective Date and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or shorten the maturity or the weighted average life thereof;

(c) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (c) shall not exceed $100,000 at any time outstanding;

(d) Indebtedness incurred by the Borrower to finance the Beaumont Facility and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased average life thereof; provided (i) the terms of such Indebtedness shall be satisfactory to the Lender and (ii) the aggregate principal amount of Indebtedness peunitted by this clause (d) shall not exceed $4,000,000 at any time outstanding; and

(e) Indebtedness owed by the Borrower to a Guarantor or by a Guarantor to the Borrower or another Guarantor.

Section 6.02 Liens. Neither the Borrower nor any of its Subsidiaries will assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a) Liens created under the Loan Documents;

(b) Permitted Encumbrances;

(c) any Lien on any property or asset of the Borrower or any of its Subsidiaries existing on the Effective Date and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any of its Subsidiaries and (ii) such Lien shall secure only those obligations which it secures on the Effective Date, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(d) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any of its Subsidiaries; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition, (ii) such Lien shall not apply to any other property or assets of the Borrower or any of its Subsidiaries and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(e) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any of its Subsidiaries, including Liens deemed to exist in respect of assets subject to Capital Lease Obligations; provided that (i) such security interests secure Indebtedness permitted by clause (c) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any of its Subsidiaries;

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(f) Liens on the Beaumont Facility to secured Indebtedness permitted by Section 6.01(d); provided such Liens shall not apply to any other property or assets of the Borrower or any of its Subsidiaries;

(g) extensions, renewals or replacements of any Lien referred to in clauses (c), (d), (e) and (f) above; provided that the principal amount of the Indebtedness or obligations secured thereby is not increased and that any such extension, renewal or replacement is limited to the assets originally encumbered thereby; and

(h) landlord’s Liens arising by operation of law or by contract in the ordinary course of business; provided that with respect to such Liens arising by contract, the Borrower or such Subsidiary shall have complied with the applicable provisions of the Security Agreement with respect thereto, including, without limitation, Section 4(e) thereof, unless waived by the Lender in its sole discretion.

Section 6.03 Fundamental Changes. Without the prior written consent of the Lender,

(a) neither the Borrower nor any of its Subsidiaries will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired), or liquidate or dissolve; and

(b) neither the Borrower nor any of its Subsidiaries will engage in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the Effective Date and businesses reasonably related thereto.

Section 6.04 Investments, Loans, Advances, Guarantees and Acquisitions. Neither the Borrower nor any of its Subsidiaries will purchase, hold or acquire any Equity Interests in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called “Investments”), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person (other than inventory acquired in the ordinary course of business) constituting a business unit or that are substantial in relation to the assets of the Borrower, except:

(a) Permitted Investments;

(b) Investments existing on the Effective Date and set forth on Schedule 6.04;

(c) guarantees constituting Indebtedness permitted by Section 6.01;

(d) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(e) accounts receivable arising in the ordinary course of business;

(f) Investments by the Borrower to a Subsidiary that is a Guarantor;

(g) additional Investments in any joint venture set forth on Schedule 6.04, for the purpose of such joint venture becoming a Subsidiary of the Borrower, in an aggregate amount for all such Investments not to exceed $2,000,000 during the term of this Agreement;

(h) creation of any new Subsidiaries in compliance with Section 5.11; and

(i) Investments consisting of all the issued and outstanding Equity Interests, or all or substantially all of the assets, of Persons engaged in businesses of the type described in Section 6.03(b) in an aggregate amount not to exceed $1,000,000 during the term of this Agreement.

Section 6.05 Asset Sales. Neither the Borrower nor any of its Subsidiaries will sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest, except (a) sales of inventory, used or surplus equipment, (b) Permitted Investments in the ordinary course of business and (c) the sale on commercially reasonable teens of that certain real property commonly known as 6400 Long Drive, Houston, Texas.

Section 6.06 Sale and Leaseback Transactions. Neither the Borrower nor any of its Subsidiaries will enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.

Section 6.07 Swap Agreements. Neither the Borrower nor any of its Subsidiaries will enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any of its Subsidiaries has actual exposure and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any of its Subsidiaries.

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Section 6.08 Dividends. Neither the Borrower nor any of its Subsidiaries will declare or make directly or indirectly any Dividend, other than (a) Dividends payable to the Borrower or a Guarantor, (b) Dividends by the Borrower or a Subsidiary payable only in the Borrower’s or such Subsidiary’s common stock, so long as Borrower’s interest in any of its Subsidiaries is not thereby reduced and (c) Dividends payable on the Borrower’s preferred stock not to exceed $75,000 in any fiscal quarter.

Section 6.09 Transactions with Affiliates. Neither the Borrower nor any of its Subsidiaries will sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties and (b) any transaction between or among the Borrower and Guarantors.

Section 6.10 Restrictive Agreements. Neither the Borrower nor any of its Subsidiaries will, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of the Borrower or such Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets; provided that (a) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (b) the foregoing shall not apply to restrictions and conditions existing on the Effective Date identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), and (c) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

Section 6.11 Change in Fiscal Year. The Borrower will not change the end of its fiscal year to a date other than December 31st of each year.

Section 6.12 Fixed Charge Coverage Ratio. The Borrower will not permit, as of the end of each calendar quarter, the Fixed Charge Coverage Ratio to be less than 1.25 to 1.00.

Section 6.13 Total Liabilities to Net Worth Ratio. The Borrower will not permit, as of the end of each calendar quarter, the ratio of Consolidated Total Liabilities to Consolidated Net Worth to be greater than 1.00 to 1.00..

Section 6.14 Net Profit. The Borrower will not permit, as of the end of each calendar quarter, its net income for the six month period most recently ending to be less than $1.00.

ARTICLE VII

Events of Default and Remedies

Section 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) above) payable under this Agreement or the other Loan Documents, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) days;

(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Guarantor in or in connection with this Agreement, any Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made (provided such materiality qualifier shall not apply in instances where a specific representation contains a materiality or Material Adverse Effect qualifier);

(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.01, 5.02, 5.04 (with respect to the existence of the Borrower), 5.09, 5.13 or in Article VI;

(e) the Borrower or any Guarantor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article) or in any other Loan Document, and such failure shall continue unremedied for a period of 30 days after the earlier of (i) the Borrower or such Guarantor obtaining knowledge thereof or (ii) written notice thereof from the Lender to the Borrower;

(f) the Borrower shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to any applicable grace period;

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(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;

(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Guarantor or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Guarantor or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 30 days or an order or decree approving or ordering any of the foregoing shall be entered;

(i) the Borrower or any Guarantor shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Guarantor or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(j) the Borrower or any Guarantor shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

(k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against the Borrower or any Guarantor and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed or any attachment or levy shall be entered upon any assets of the Borrower or such Guarantor to enforce such judgment;

(l) an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;

(m) any Loan Document or any material provision thereof shall at any time cease to be in full force and effect, or a proceeding shall be commenced by the Borrower or any Guarantor or any other Person seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation thereof), or the Borrower or any Guarantor shall repudiate or deny that it has any liability or obligation for the payment of principal or interest or other obligations purported to be created under any Loan Document;

(n) any Lien created by any of the Security Documents shall at any time fail to constitute a valid and (to the extent required by the Security Documents) perfected Lien on any material portion of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Loan Documents, or the Borrower or any Guarantor shall so assert in writing; or

(o) a Change in Control or Material Adverse Effect shall occur;

then, and in every such event (other than an event with respect to the Borrower or any Guarantor described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Lender may take any or all of the following actions, at the same or different times: (i) cease making any further Loans, (ii) terminate the Commitment, and thereupon the Commitment shall terminate immediately, (iii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower or any Guarantor described in clause (h) or (i) of this Article, the Commitment shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, (iv) increase the rate of interest charged on all Loans to the Default Rate and (v) exercise any or all of the remedies available to it under the Security Documents, at law or in equity.

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ARTICLE VIII

Miscellaneous

Section 8.01 Notices.

(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i) if to the Borrower:

American Electric Technologies, Inc.

6410 Long Drive

Houston, Texas 77087

Attention: Andrew Puhala

Facsimile No.: 713-644-7805

(ii) if to the Lender, to

JPMorgan Chase Bank, N.A.

712 Main Street

Houston, Texas 77002

Attention: Robert Morgan

Facsimile No.: 713-216-6689

(b) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 8.02 Waivers; Amendments.

(a) No failure or delay by the Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lender are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Lender may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Lender.

Section 8.03 Expenses; Indemnity; Damage Waiver.

(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender and its Affiliates, including the reasonable fees, charges and disbursements of counsel and consultants for the Lender and such Affiliates, in connection with the due diligence undertaken by the Lender with respect to the financing contemplated by this Agreement, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Lender, including the fees, charges and disbursements of any counsel for the Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

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(b) The Borrower shall indemnify the Lender and each of its Related Parties (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by the Borrower, or any Environmental Liability related in any way to the Borrower, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto and whether or not caused by the ordinary, sole or contributory negligence of any Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) To the extent permitted by applicable Law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.

(d) All amounts due under this Section shall be payable within ten (10) days after written demand therefor.

Section 8.04 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person any legal or equitable right, remedy or claim under or by reason of this Agreement, other than rights, remedies or claims in favor of the parties hereto, their respective successors and assigns permitted hereby.

(b) The Lender may, without the consent of the Borrower, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of the Lender’s rights and obligations under this Agreement; provided that (i) the Lender’s obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the perfoirnance of such obligations and (iii) the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation shall provide that the Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement. The Borrower agrees that each Participant shall be entitled to the benefits of Section 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender. A Participant shall not be entitled to receive any greater payment under Section 2.12, 2.13 or 2.14 than the Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent.

(c) The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party hereto.

Section 8.05 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and so long as the Commitment has not expired or terminated. The provisions of Section 2.12, 2.13, 2.14 and 9.03 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, and the Commitment or the termination of this Agreement or any provision hereof.

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Section 8.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts and may be delivered in original or facsimile form (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page of this Agreement by electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 8.07 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 8.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by the Lender or its Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement held by the Lender, irrespective of whether or not the Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of the Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which the Lender may have.

Section 8.09 Governing Law; Consent to Service of Process.

(a) This Agreement and the Loan Documents shall be construed in accordance with and governed by the law of the State of Texas.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the court of the State of Texas sitting in Harris County and of the United States District Court of the Southern District of Texas, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Texas State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

Without limitation of the foregoing, nothing in this Agreement, or in the Note or in any other Loan Document shall be deemed to constitute a waiver of any rights which the Lender, or the holder of the Note may have under applicable federal legislation relating to the amount of interest which the Lender or holder may contract for, take, receive or charge in respect of the Loan and the Loan Documents, including any right to take, receive, reserve and charge interest at the rate allowed by the law of the state where the Lender is located. The Lender and the Borrower further agree that insofar as the provisions of Chapter 303 of the Texas Finance Code, as amended, are applicable to the determination of the Highest Lawful Rate with respect to the Note and the Obligations hereunder and under the other Loan Documents, the indicated rate ceiling of such Article shall be applicable; provided, however, that to the extent permitted by such Article, the Lender may from time to time by notice to the Borrower revise the election of such interest rate ceiling as such ceiling affects the then current or future balances of the Loans. The provisions of Chapter 346 of the Texas Finance Code, as amended, do not apply to this Agreement, the Note or the other Loan Documents.

Section 8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITIED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY I ,F.GAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFTFS THAT NO REPRESENTATIVE, AGENT OR A I^-1 ORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIHCATIONS IN THIS SECTION.

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Section 8.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 8.12 Confidentiality. The Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Section 8.13 Interest. Each provision in this Agreement and each other Loan Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, to the Lender or charged, contracted for, reserved, taken or received by the Lender, for the use, forbearance or detention of the money to be loaned under this Agreement or any Loan Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Loan Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate, and all amounts owed under this Agreement and each other Loan Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid, charged, contracted for, reserved, taken or received which are for the use, forbearance or detention of money under this Agreement or such Loan Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Anything in any Note or any other Loan Document to the contrary notwithstanding, the Borrower shall not be required to pay unearned interest on any Note and the Borrower shall not be required to pay interest on the Obligations at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under such Note and such Loan Documents would exceed the Highest Lawful Rate, or if the holder of such Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Borrower under such Note and the other Loan Documents to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by the Borrower shall be reduced to the amount allowed under applicable law and (b) any unearned interest paid by the Borrower or any interest paid by the Borrower in excess of the Highest Lawful Rate shall in the first instance be credited on the principal of the obligations of the Borrower (or if all such obligations shall have been paid in full, refunded to the Borrower). It is further agreed that, without the limitation of the foregoing, all calculations of the rate of interest contracted for, reserved, taken, charged or received by any Lender under the Notes and the Obligations and under the other Loan Documents are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate, and shall be made, to the extent permitted by usury laws applicable to such Lender, by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Notes and this Agreement and all interest at any time contracted for, charged or received by such Lender in connection therewith.

Section 8.14 USA Patriot Act. The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.

Section 8.15 Amendment and Restatement; Consent of M&I. This Agreement is an amendment and restatement of the Prior Agreement and supersedes the Prior Agreement in its entirety. All references in any Loan Document to the Prior Agreement shall be deemed to refer to this Agreement. By its execution hereof, M&I hereby consents to the amendment and restatement of the Prior Agreement by this agreement.

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Section 8.16 FINAL AGREEMENT OF THE PARTII-S. THIS AGREEMENT (INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND OTHER LOAN DOCUMENTS CONSTITUTE A “LOAN AGREEMENT” AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS AND COMMERCIAL CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWR11 FEN ORAL AGREEMENTS BETWEEN THE PARTIFS.

END OF TEXT

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BORROWER:
AMERICAN ELECTRIC TECHNOLOGIES, INC., a Florida corporation
By:	/s/ Andrew L. Puhala
Name:	Andrew L. Puhala
Title:	SVP, CFO & Secretary
M&I:
M&I ELECTRIC INDUSTRIES, INC.
By:	/s/ Andrew L. Puhala
Name:	Andrew L. Puhala
Title:	Vice President & Secretary

Signature Page to Credit Agreement

LENDER:

JPMORGAN CHASE BANK, N.A.

By:

Name:

Title:

Signature Page to Credit Agreement

EX-10

Exhibit 10.37

Summary of Compensation for Named Executive Officers for Fiscal 2014

The following represents the 2014 salary and target bonus applicable to our executive officers:

Named Executive	2014 Base Salary($)		2014 Target Bonus($)
Arthur G. Dauber		130,000		28,000	(a)
Charles M. Dauber		325,000		150,000
Neal T. Hare		200,000		100,000
James J. Steffek		200,000		100,000
Andrew L. Puhala		200,000		60,000

(a) Estimated based on 2013 performance.

Actual bonus amounts payable to each executive will be based on the achievement of 2014 Company and individual performance goals established for each executive. Targeted performance must be achieved at the 70% to 75% level for that component of the bonus to be earned and must be achieved at the 100% level for the full bonus to be earned. Some of each executive’s individual goals may require a subjective evaluation and judgment with respect to achievement of these goals. Company performance targets make up approximately 75% of total bonus with individual goals encompassing the remainder.

In connection with the 2014 salary and target bonus established our executive officers, the following were awarded restricted stock units under the 2007 Employee Stock Incentive Plan. Each restricted stock unit is issued one share of common stock upon conversion to common stock:

Named Executive	Restricted Stock Units
Charles M. Dauber		80,000
Andrew L. Puhala		14,000

Vesting of all of Mr. Dauber’s 2014 restricted stock unit award and 11,200 of Mr. Puhala’s restricted stock unit award is subject to vesting based on achievement of the 2014 Company and individual performance goals established for each executive. Vesting of 2,800 of the restricted stock units granted to Mr. Puhala are subject to only continuing employment. The vested restricted stock units convert into common stock on a one-to-one basis in four equal annual installments from the date of grant and are subject to a continuing employment obligation through the date of conversion.

EX-23

Exhibit 23.1

CONSENT OF HAM, LANGSTON & BREZINA, LLP

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-183609, 333-167305, 333-149724 and 333-175303) of American Electric Technologies, Inc. (formerly American Access Technologies, Inc.) of our report dated March 28, 2014 with respect to our audit of the consolidated financial statements of American Electric Technologies, Inc. and Subsidiaries as of and for the years ended December 31, 2013 and 2012, which appears in this Annual Report on Form 10-K.

/s/ Ham, Langston & Brezina, LLP

Houston, Texas

March 28, 2014

EX-31

Exhibit 31.1

CERTIFICATIONS

I, Charles M. Dauber, certify that:

1. I have reviewed this annual report on Form 10-K of American Electric Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2014

By:	/s/ Charles M. Dauber
	Charles M. Dauber
	Principal Executive Officer

EX-31

Exhibit 31.2

CERTIFICATIONS

I, Andrew L. Puhala, certify that:

1. I have reviewed this annual report on Form 10-K of American Electric Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2014

By:	/s/ Andrew L. Puhala
	Andrew L. Puhala
	Principal Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles M. Dauber ,certify, pursuant to 18U.S.C.Section1350,as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of American Electric Technologies, Inc. on Form 10-K for the fiscal year ended December 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form l0-K fairly presents in all material respects the financial condition and results of operations of American Electric Technologies, Inc.

Date: March 28, 2014
By:	/s/ Charles M. Dauber
	Charles M. Dauber
	Principal Executive Officer

I, Andrew L. Puhala, certify, pursuant to 18U.S.C.Section1350,as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of American Electric Technologies, Inc. on Form 10-K for the fiscal year ended December 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form l0-K fairly presents in all material respects the financial condition and results of operations of American Electric Technologies, Inc.

Date: March 28, 2014
By:	/s/ Andrew L. Puhala
	Andrew L. Puhala
	Principal Financial Officer

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Earnings (Loss) Per Common Share (Tables)

12 Months Ended

Dec. 31, 2013

Computation of Basic and Diluted Earnings (Loss) Per Common Share

The following table sets forth the computation of basic and diluted earnings (loss) per common share (in thousands, except share and per share data):

	Year Ended December 31,
		2013		2012
Net income (loss)	$	4,209	$	2,084
Weighted average basic shares		7,990,690		7,901,225
Dilutive effect of stock options, restricted stock units, preferred stock and warrants		1,481,816		357,517
Total weighted average diluted shares with assumed conversions		9,472,506		8,258,742
Earnings loss per common share:
Basic	$	0.53	$	0.26
Dilutive	$	0.48	$	0.25

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Income Taxes - Components of Deferred Federal Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets:
Net operating loss	$ 7,400
Valuation allowance	(5,600)	(6,400)
Current
Deferred tax assets:
Accrued liabilities	413	159
Deferred compensation
Allowance for doubtful accounts	120	101
Inventory	270	388
Long-term contracts	149	80
Net operating loss
Intangible assets
Foreign tax credit carry forward
Valuation allowance		(728)
Deferred tax assets	952
Deferred tax liabilities:
Equity in foreign investments
Property and equipment
Intangible assets
Translation gain
Deferred tax liabilities
Net deferred tax assets (liabilities)	952
Noncurrent
Deferred tax assets:
Accrued liabilities
Deferred compensation	686	363
Allowance for doubtful accounts
Inventory
Long-term contracts
Net operating loss	2,909	4,205
Intangible assets	86	111
Foreign tax credit carry forward	1,153	1,017
Valuation allowance	(5,385)	(5,750)
Deferred tax assets	(551)	(54)
Deferred tax liabilities:
Equity in foreign investments	(3,233)	(2,756)
Property and equipment	(147)	61
Intangible assets	(9)	(9)
Translation gain	(553)	(411)
Deferred tax liabilities	(3,942)	(3,115)
Net deferred tax assets (liabilities)	$ (4,493)	$ (3,169)

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Property, Plant and Equipment - Additional Information (Detail) (USD $)	1 Months Ended	12 Months Ended
	Oct. 09, 2013	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment (Textual) [Abstract]
Depreciation charges		$ 742,000	$ 765,000
Gain on sale of property and improvements	128,000	143,000	24,000
Cost of sales
Property, Plant and Equipment (Textual) [Abstract]
Depreciation charges		580,000	605,000
Selling, General and Administrative Expenses
Property, Plant and Equipment (Textual) [Abstract]
Depreciation charges		$ 162,000	$ 160,000

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Segment Reporting - Quarterly Information for the Applicable Time Periods (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013		Dec. 31, 2012
Quarterly information for the applicable time periods
Net sales	$ 18,146	$ 17,585	$ 15,169	$ 14,430	$ 15,035	$ 11,725	$ 12,872	$ 14,432	$ 65,330		$ 54,065
Gross profit	3,572	2,867	2,396	2,980	2,490	1,689	2,172	1,772	11,815		8,123
Net income (loss)	$ 592	$ 901	$ 1,063	$ 1,653	$ 487	$ 500	$ 761	$ 334	$ 4,209	[1]	$ 2,084
Earnings (loss) per common share:
Basic	$ 0.07	$ 0.11	$ 0.13	$ 0.21	$ 0.06	$ 0.06	$ 0.10	$ 0.04	$ 0.53		$ 0.26

[1] Net of preferred dividends of $225 and $342 in 2012 and 2013 respectively.

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Income Taxes - Summary of Difference Between Effective Income Tax Rate Determined by Applying Statutory Income Tax Rate (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Summary of difference between effective income tax rate determined by applying statutory income tax rate
(Provision for) benefit from U.S federal statutory rate	$ (1,798)	$ (1,032)
Effect of state income taxes	(141)	(49)
Non-deductible business meals and entertainment expenses	(18)	(95)
Foreign income taxes included in equity in earnings	551
Adjustment of net operating loss carry forwards based on IRS audit, accrual to return adjustments and other	(153)
Change in valuation allowance	846	469
Total (Expense)	$ (713)	$ (707)

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Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts - Schedule of Costs, Estimated Earnings, and Related Billing on Uncompleted Contracts (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Costs, estimated earnings, and related billing on uncompleted contracts
Cost and estimated earnings in excess of billings on uncompleted contracts	$ 5,312	$ 2,205
Billings in excess of costs and estimated earnings on uncompleted contracts	(3,021)	(3,576)
Total Costs, estimated earnings, and related billing on uncompleted contracts	$ 2,291	$ (1,371)

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Components of income (loss) before income taxes

The components of income (loss) before income taxes for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
United States	$	2,240	$	(72	)
Foreign		3,024		3,088
	$	5,264	$	3,016

Components of provision (benefit) for income taxes by taxing authority

The components of the provision (benefit) for income taxes by taxing authority for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
Current provision:
Federal	$	—	$	—
Foreign		—		101
States		141		—
Total current provision		141		101
Deferred provision (benefit):
Federal		536		671
Foreign		—		(101	)
States		36		36
Total deferred provision (benefit):		572		606
	$	713	$	707

Components of deferred federal income taxes

Significant components of the Company’s deferred federal income taxes were as follows:

	At December 31,
	2013					2012
	Current		Non-Current			Current			Non-Current
	(in thousands)					(in thousands)
Deferred tax assets:
Accrued liabilities	$	413	$	—		$	159		$	—
Deferred compensation		—		686			—			363
Allowance for doubtful accounts		120		—			101			—
Inventory		270		—			388			—
Long-term contracts		149		—			80			—
Net operating loss		—		2,909			—			4,205
Intangible assets		—		86			—			111
Foreign tax credit carry forward		—		1,153			—			1,017
Valuation allowance		—		(5,385	)		(728	)		(5,750	)
Deferred tax assets		952		(551	)		—			(54	)
Deferred tax liabilities:
Equity in foreign investments		—		(3,233	)		—			(2,756	)
Property and equipment		—		(147	)		—			61
Intangible assets		—		(9	)		—			(9	)
Translation gain		—		(553	)		—			(411	)
Deferred tax liabilities		—		(3,942	)		—			(3,115	)
Net deferred tax assets (liabilities)	$	952	$	(4,493	)	$	—		$	(3,169	)

Summary of difference between effective income tax rate determined by applying statutory income tax rate

The difference between the effective income tax rate reflected in the provision for income taxes and the amounts, which would be determined by applying the statutory income tax rate of 34%, is summarized as follows:

	2013			2012
	(in thousands)
(Provision for) benefit from U.S federal statutory rate	$	(1,798	)	$	(1,032	)
Effect of state income taxes		(141	)		(49	)
Non-deductible business meals and entertainment expenses		(18	)		(95	)
Foreign income taxes included in equity in earnings		551			—
Adjustment of net operating loss carry forwards based on IRS audit, accrual to return adjustments and other		(153	)		—
Change in valuation allowance		846			469
Total (Expense)	$	(713	)	$	(707	)

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Earnings (Loss) Per Common Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Earnings (loss) per common share:
Net income (loss)									$ 4,209	$ 2,084
Weighted average basic shares									7,990,690	7,901,225
Dilutive effect of stock options and restricted stock units									1,481,816	357,517
Total weighted average diluted shares with assumed conversions									9,472,506	8,258,742
Earnings loss per common share:
Basic	$ 0.07	$ 0.11	$ 0.13	$ 0.21	$ 0.06	$ 0.06	$ 0.10	$ 0.04	$ 0.53	$ 0.26
Dilutive									$ 0.48	$ 0.25

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Notes Payable - Components of Notes Payable (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Components of notes payable
Total notes payable	$ 500	$ 554
Less current portion of capital lease obligation		(54)
Non-current notes payable	500	500
Revolving Credit Facility
Components of notes payable
Total notes payable	500	500
Capital Lease Obligations
Components of notes payable
Total notes payable		$ 54

XML

Segment Reporting - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2013 Segment
Segment Reporting (Textual) [Abstract]
Number of reportable segments	3

XML

Earnings (Loss) Per Common Share

12 Months Ended

Dec. 31, 2013

Earnings (Loss) Per Common Share

(16) Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding for the year ended December 31, 2013 and 2012. Diluted earnings (loss) per common share is based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options and other units subject to anti-dilution limitations.

The following table sets forth the computation of basic and diluted earnings (loss) per common share (in thousands, except share and per share data):

	Year Ended December 31,
		2013		2012
Net income (loss)	$	4,209	$	2,084
Weighted average basic shares		7,990,690		7,901,225
Dilutive effect of stock options, restricted stock units, preferred stock and warrants		1,481,816		357,517
Total weighted average diluted shares with assumed conversions		9,472,506		8,258,742
Earnings loss per common share:
Basic	$	0.53	$	0.26
Dilutive	$	0.48	$	0.25

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Advances to and Investments in Foreign Joint Ventures' Operations - Schedule of Financial Information of Foreign Joint Ventures (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Liabilities and equity:
Gross profit	$ 3,572	$ 2,867	$ 2,396	$ 2,980	$ 2,490	$ 1,689	$ 2,172	$ 1,772	$ 11,815	$ 8,123
BOMAY
Assets:
Total current assets	94,220				91,926				94,220	91,926
Total non-current assets	5,122				5,116				5,122	5,116
Total assets	99,342				97,042				99,342	97,042
Liabilities and equity:
Total liabilities	72,644				73,293				72,644	73,293
Total joint ventures equity	26,698				23,749				26,698	23,749
Total liabilities and equity	99,342				97,042				99,342	97,042
Gross sales									86,332	84,639
Gross profit									12,130	14,348
Net income									5,165	6,422
MIEFE
Assets:
Total current assets	3,855				3,894				3,855	3,894
Total non-current assets	114				116				114	116
Total assets	3,969				4,010				3,969	4,010
Liabilities and equity:
Total liabilities	1,197				1,422				1,197	1,422
Total joint ventures equity	2,772				2,588				2,772	2,588
Total liabilities and equity	3,969				4,010				3,969	4,010
Gross sales									7,997	6,996
Gross profit									2,066	1,547
Net income									279	39
AAG
Assets:
Total current assets	2,572				2,241				2,572	2,241
Total non-current assets	1,550				776				1,550	776
Total assets	4,122				3,017				4,122	3,017
Liabilities and equity:
Total liabilities	1,291				1,511				1,291	1,511
Total joint ventures equity	2,831				1,505				2,831	1,505
Total liabilities and equity	4,122				3,016				4,122	3,016
Gross sales									10,658	7,625
Gross profit									4,282	2,965
Net income									$ 1,721	$ 1,104

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Summary of Significant Accounting Policies - Amortization Expense Related to Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Amortization expense related to intangible assets
2014	$ 132
2015	31
2016	5
2017
2018
Net Value	$ 168

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Redeemable Convertible Preferred Stock (Tables)

12 Months Ended

Dec. 31, 2013

Preferred Stock and Warrants Calculated Using the Black Scholes Merton Pricing Model

The preferred stock and warrants were issued for a total of $5.0 million. This amount was allocated to the preferred stock and warrants based on their relative fair values. The fair value of the warrants was calculated using the Black Scholes-Merton pricing model using the following weighted average assumptions:

Number of warrants		325,000
Exercise price	$	6.62
Expected volatility of underlying stock		74	%
Risk-free interest rate		1.62	%
Dividend yield		0	%
Expected life of warrants		8 years
Weighted-average fair value of warrants	$	3.11
Expiration date		May 2, 2020

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Income Taxes - Components of Income (Loss) before Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Components of income (loss) before income taxes
United States	$ 2,240	$ (72)
Foreign	3,024	3,088
Income (loss) before income taxes	$ 5,264	$ 3,016

XML

Employee Benefit and Bonus Plans - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013 Employees	Dec. 31, 2012
Employee Benefit and Bonus Plans (Textual) [Abstract]
Percentage of employees contribution	20.00%
Contribution to the plan	$ 201,000	$ 81,000
Number of employees who are covering executive performance of bonus plan	45
Accrued expenses	$ 813,000	$ 650,000

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Stock and Stock-based Compensation - Additional Information (Detail) (USD $)	12 Months Ended						1 Months Ended	12 Months Ended					12 Months Ended				1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Director	Dec. 31, 2012 Director	Dec. 31, 2013 Minimum Director	Dec. 31, 2013 Maximum Director	Feb. 28, 2014 Subsequent Event	Dec. 31, 2013 Restricted Stock Units (RSUs)	Dec. 31, 2012 Restricted Stock Units (RSUs)	May 31, 2010 Restricted Stock Units (RSUs)	Jun. 30, 2012 Maximum Restricted Stock Units (RSUs)	May 31, 2010 Maximum Restricted Stock Units (RSUs)	Dec. 31, 2013 Restricted Stock Units (RSUs)	Dec. 31, 2012 Restricted Stock Units (RSUs)	Dec. 31, 2013 Restricted Stock Units (RSUs) General and Administrative Expense	Dec. 31, 2012 Restricted Stock Units (RSUs) General and Administrative Expense	Feb. 28, 2014 Restricted Stock Units (RSUs) Subsequent Event	Dec. 31, 2013 Stock Options General and Administrative Expense	Dec. 31, 2012 Stock Options General and Administrative Expense	Dec. 31, 2013 Board of Directors Compensation General and Administrative Expense Director	Dec. 31, 2012 Board of Directors Compensation General and Administrative Expense Director
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted restricted stock unit							168,000	235,000	285,000				234,525	283,998			150,000
Shares available for issuance under the plan										300,000	1,100,000	800,000
Conversion of stock RSU to Common, ratio								1
Convert to common stock								25.00%
Stock compensation Expense															$ 818,000	$ 342,000		$ 20,000	$ 16,000	$ 32,000	$ 27,000
Additional compensation cost that will be recognized in future periods	2,000,000
Weighted average period additional compensation cost will be expensed													2 years
Unrecognized compensation cost related to stock option	$ 0
Percentage of retainer fee to acquire common stock					50.00%	100.00%
Stock and Stock Based Compensation (Textual) [Abstract]
Employee Stock Purchase Plan, Stock issued	4,697	4,839
Stock options issued	0	0
Stock units acquired by directors deferred retainer fee			6,000	6,000
Increment period for awards converted into common stock													4 years

XML

Property, Plant and Equipment - Schedule of Property, Plant and Equipment (Detail) (USD $) In Thousands, unless otherwise specified					12 Months Ended				12 Months Ended				12 Months Ended				12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Buildings and improvements	Dec. 31, 2012 Buildings and improvements	Dec. 31, 2013 Buildings and improvements Minimum	Dec. 31, 2013 Buildings and improvements Maximum	Dec. 31, 2013 Office equipment and furniture	Dec. 31, 2012 Office equipment and furniture	Dec. 31, 2013 Office equipment and furniture Minimum	Dec. 31, 2013 Office equipment and furniture Maximum	Dec. 31, 2013 Automobiles and trucks	Dec. 31, 2012 Automobiles and trucks	Dec. 31, 2013 Automobiles and trucks Minimum	Dec. 31, 2013 Automobiles and trucks Maximum	Dec. 31, 2013 Machinery and shop equipment	Dec. 31, 2012 Machinery and shop equipment	Dec. 31, 2013 Machinery and shop equipment Minimum	Dec. 31, 2013 Machinery and shop equipment Maximum	Dec. 31, 2013 Construction in Progress	Dec. 31, 2012 Construction in Progress
Property, plant and equipment
Property, plant and equipment, Estimated Useful Lives (years)					15 years	25 years			2 years	7 years			2 years	5 years			2 years	10 years
Property, plant and equipment, gross	$ 13,828	$ 12,233	$ 3,756	$ 4,426			$ 2,476	$ 1,766			$ 226	$ 219			$ 4,895	$ 4,523			$ 2,475	$ 1,299
Less: accumulated depreciation and amortization	8,026	7,660
Property, plant and equipment gross, excluding land	5,802	4,573
Land	238	349
Property, plant and equipment, net	$ 6,040	$ 4,922

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities:
Net income (loss)	$ 4,551	$ 2,309
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax provision (benefit)	593	659
Equity income from foreign joint ventures' operations	(3,024)	(3,088)
Depreciation and amortization	871	877
Stock based compensation	850	326
Provision for bad debt	65	90
Allowance for obsolete inventory	32	110
Gain on sale of property and equipment	(143)	(24)
Deferred compensation costs	89	6
Change in operating assets and liabilities:
Accounts receivable	(1,713)	1,479
Income taxes payable	111	(11)
Inventories	368	(781)
Costs and estimated earnings in excess of billings on uncompleted contracts	(3,107)	(179)
Prepaid expenses and other current assets	(373)	(43)
Accounts payable and accrued liabilities	1,702	(1,553)
Billings in excess of costs and estimated earnings on uncompleted contracts	(555)	668
Net cash provided by (used in) operating activities	317	845
Cash flows from investing activities:
Purchases of property, plant and equipment and other assets	(2,292)	(1,455)
Proceeds from disposal of property, plant and equipment	575	177
Repayments of amounts advanced to foreign joint ventures' operations	180	50
Proceeds from foreign joint ventures' operations dividends	1,344	1,008
Net cash provided by (used in) from investing activities	(193)	(220)
Cash flows from financing activities:
Proceeds from sale of common stock, preferred stock, and warrants	47	5,042
Treasury stocks purchase	(146)	(92)
Preferred stock cash dividend	(300)	(191)
Advances from (repayment of) credit facility		(4,500)
Capital lease obligation payment	(54)	(156)
Net cash provided by (used in) financing activities	(453)	103
Net increase (decrease) in cash and cash equivalents	(329)	728
Cash and cash equivalents, beginning of year	4,477	3,749
Cash and cash equivalents, end of year	4,148	4,477
Supplemental disclosures of cash flow information:
Interest paid	27	111
Income taxes paid	$ 179	$ 132

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Stock and Stock-based Compensation - Summary of Unvested Restricted Stock Units (Detail) (Restricted Stock Units (RSUs), USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Restricted Stock Units (RSUs)
Summary of unvested restricted stock units
Unvested restricted stock units, Beginning Balance	391,413	321,064
Granted restricted stock unit	234,525	283,998
Vested	(99,844)	(90,056)
Forfeited	(54,464)	(123,593)
Unvested restricted stock units, Ending Balance	471,630	391,413
Weighted Average Fair Value Per RSU, Beginning Balance	$ 4.11	$ 2.71
Awarded	$ 5.00	$ 4.35
Vested	$ 3.15	$ 2.52
Forfeited	$ 3.40	$ 2.17
Weighted Average Fair Value Per RSU, Ending Balance	$ 4.77	$ 4.11

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	0 Months Ended	12 Months Ended
	Mar. 08, 2012	Dec. 31, 2013	Dec. 31, 2012
Summary of Significant Accounting Policies (Textual) [Abstract]
Cash and cash equivalent maturity		three months or less
Amortization expense related to intangible assets		$ 130,000	$ 113,000
Tax position of the company		50% or greater
Percentage net sales recorded after customer acknowledgement that service has been completed and accepted		8.00%
Percentage net sales are recorded when the product is shipped and title passes to the customer		3.00%
Contract retentions expected to be collected within one year, Total		10,000	424,000
Contract retentions collectible beyond one year, Total		0	0
Non-time and material jobs of short term nature duration description		less than one month
Number of Customers		1	1
Amnor Technologies
Summary of Significant Accounting Policies (Textual) [Abstract]
Amortization expense related to intangible assets		108,000	90,000
Cash payment for acquisition	100,000
Shares payment for acquisition	44,000
Common stock, per share	$ 4.95
Equity Interests Issuable Period	3 years
Purchase price	322,000
Transaction cost	$ 4,000
Business acquisition equity interests issued during period, percentage of shares	25.00%
Estimated useful life	3 years
Customer one | Sales
Concentration Risk [Line Items]
Customer accountability percentage		17.00%	13.00%
Customer one | Accounts Receivable
Concentration Risk [Line Items]
Customer accountability percentage		9.00%	1.00%
Gulf Coast region
Concentration Risk [Line Items]
Customer accountability percentage		9.00%	17.00%

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Inventories (Tables)

12 Months Ended

Dec. 31, 2013

Inventories

Inventories consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Raw materials	$	1,493		$	1,596
Work-in-process		2,834			3,173
Finished goods		1,126			1,052
		5,453			5821
Less: Allowance		(237	)		(205	)
Total inventories	$	5,216		$	5,616

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Summary of Other Assets

Other Assets

Intangible Assets at December 31, 2013	Useful Lives (Years)		Cost		Accumulated Amortization		Net Value
	(in thousands)
Patents		18	$	95	$	77	$	18
Customer agreements		10		173		148		25
Intellectual property		3		322		197		125
			$	590	$	422	$	168

Amortization Expense Related to Intangible Assets

Amortization expense related to intangible assets held by the Company for the year ended December 31, 2013 was approximately $130,000 and was approximately $113,000 in 2012. Estimated amortization expense for the next five years is as follows:

For the Year Ending December 31,	Amount
	(in thousands)
2014	$	132
2015		31
2016		5
2017		-
2018		-
	$	168

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Income Taxes - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Taxes (Textual) [Abstract]
Non-cash expense	$ 700,000
Recognition of a valuation allowance against deferred tax assets in the U.S	5,600,000	6,400,000
Net operating loss carryforwards related to business combination	7,400,000		299,000
Net operating loss carry forwards	7,400,000
Reduction in deferred income tax asset	$ 11,000,000
Effective tax rate	34.00%	34.00%

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Inventories - Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Inventory Disclosure [Abstract]
Raw materials	$ 1,493	$ 1,596
Work-in-process	2,834	3,173
Finished goods	1,126	1,052
Inventory, Gross	5,453	5,821
Less: Allowance	(237)	(205)
Total inventories	$ 5,216	$ 5,616

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Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts (Tables)

12 Months Ended

Dec. 31, 2013

Contracts in Progress

Contracts in progress at December 31, 2013 and 2012 consisted of the following:

	2013			2012
	(in thousands)
Costs incurred on uncompleted contracts	$	7,271		$	7,743
Estimated earnings		2,172			2,247
		9,443			9,990
Billings on uncompleted contracts		(7,152	)		(11,361	)
	$	2,291		$	(1,371	)

Schedule of Costs, Estimated Earnings, and Related Billing on Uncompleted Contracts

Costs, estimated earnings, and related billing on uncompleted contracts consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Cost and estimated earnings in excess of billings on uncompleted contracts	$	5,312		$	2,205
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,021	)		(3,576	)
	$	2,291		$	(1,371	)

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Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31, 2013, and 2012:

Category	Estimated Useful Lives (years)		2013		2012
		(in thousands)
Buildings and improvements	15 – 25	$	3,756	$	4,426
Office equipment and furniture	2 – 7		2,476		1,766
Automobiles and trucks	2 – 5		226		219
Machinery and shop equipment	2 – 10		4,895		4,523
Construction in progress			2,475		1,299
			13,828		12,233
Less: accumulated depreciation and amortization			8,026		7,660
			5,802		4,573
Land			238		349
		$	6,040	$	4,922

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Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Net of preferred dividends	$ 342	$ 225
Retained Earnings
Net of preferred dividends	$ 342	$ 225

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Advances to and Investments in Foreign Joint Ventures' Operations (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of Financial Information of Foreign Joint Ventures

Sales to foreign joint ventures’ operations are made on an arm’s length basis and intercompany profits, if any, are eliminated in consolidation. Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2013 and 2012:

	BOMAY				MIEFE				AAG
	2013		2012		2013		2012		2013		2012
	(in thousands)
Assets:
Total current assets	$	94,220	$	91,926	$	3,855	$	3,894	$	2,572	$	2,241
Total non-current assets		5,122		5,116		114		116		1,550		776
Total assets	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,017
Liabilities and equity:
Total liabilities	$	72,644	$	73,293	$	1,197	$	1,422	$	1,291	$	1,511
Total joint ventures equity		26,698		23,749		2,772		2,588		2,831		1,505
Total liabilities and equity	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,016
Gross sales	$	86,332	$	84,639	$	7,997	$	6,996	$	10,658	$	7,625
Gross profit		12,130		14,348		2,066		1,547		4,282		2,965
Net income		5,165		6,422		279		39		1,721		1,104

Schedule of Activity in Investment in Foreign Joint Ventures

The Company’s investments in and advances to its foreign joint ventures’ operations were as follows as of December 31, 2013 and 2012:

	2013												2012
	BOMAY*			MEIFE			AAG			**TOTAL			BOMAY*			MIEFE		AAG			TOTAL
	(in thousands)												(in thousands)
Investment in joint ventures:
Balance, beginning of year	$	2,033		$	14		$	234		$	2,281		$	2,033		$	14	$	284		$	2,331
Additional amounts invested and advanced		—			—			(180	)		(180	)		—			—		(50	)		(50	)
Balance, end of year		2,033			14			54			2,101			2,033			14		234			2,281
Undistributed earnings:
Balance, beginning of year	$	6,400		$	755		$	661		$	7,816		$	4,839		$	739	$	158		$	5,736
Equity in earnings (loss)		2,066			115			843			3,024			2,569			16		503			3,088
Dividend distributions		(1,321	)		—			(23	)		(1,344	)		(1,008	)		—		—			(1,008	)
Balance, end of year		7,145			870			1,481			9,496			6,400			755		661			7,816
Foreign currency translation:
Balance, beginning of year	$	1,098		$	294		$	(81	)	$	1,311		$	1,040		$	233	$	(32	)	$	1,240
Change during the year		333			(40	)		(168	)		125			58			61		(49	)		70
Balance, end of year		1,431			254			(249	)		1,436			1,098			294		(81	)		1,311
Investments, end of year	$	10,609		$	1,138		$	1,286		$	13,033		$	9,531		$	1,063	$	814		$	11,408

· Accumulated statutory reserves in equity method investments of $1,857,000 and $1,620,000 at December 31, 2013 and 2012, are included in AETI’s consolidated retained earnings. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

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Organization and Nature of Business (Detail)	1 Months Ended	12 Months Ended
	May 17, 2007	Dec. 31, 2013 Segment
Organization and Nature of Business (Textual) [Abstract]
Percentage of reverse acquisition interest	80.00%
Number of segments		3
Minimum
Organization and Nature of Business (Textual) [Abstract]
Electrical Transmission Voltage		480
Maximum
Organization and Nature of Business (Textual) [Abstract]
Electrical Transmission Voltage		40,000
Beaumont Texas Facility
Organization and Nature of Business (Textual) [Abstract]
Area of Land		9
Company owns facility		85,000
Mississippi facility
Organization and Nature of Business (Textual) [Abstract]
Area of Land		3
Company owns facility		11,000
Florida facility
Organization and Nature of Business (Textual) [Abstract]
Area of Land		9.7
Company owns facility		67,500
Houston Office
Organization and Nature of Business (Textual) [Abstract]
Area of Land		3
Company owns facility		26,000

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Income Taxes - Components of Provision (Benefit) for Income Taxes by Taxing Authority (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Current provision:
Federal
Foreign		101
States	141
Total current provision	141	101
Deferred provision (benefit):
Federal	536	671
Foreign		(101)
States	36	36
Total deferred provision (benefit):	572	606
Total (Expense)	$ 713	$ 707

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Commitments and Contingencies - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Commitments and Contingencies (Textual) [Abstract]
Liable for all claims per insured annual amount	$ 60,000
Liable for all claims per insured aggregate amount	1,300,000
Minimum insurance premium	879,000	845,000
Insurance reserves	$ 254,000	$ 225,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 4,148	$ 4,477
Accounts receivable-trade, net of allowance of $288 and $225 at December 31, 2013 and December 31, 2012	11,480	9,731
Inventories, net	5,216	5,616
Cost and estimated earnings in excess of billings on uncompleted contracts	5,312	2,205
Prepaid expenses and other current assets	439	318
Total current assets	26,595	22,347
Property, plant and equipment, net	6,040	4,922
Advances to and investments in foreign joint ventures	13,033	11,408
Other assets	168	297
Total assets	45,836	38,974
Current liabilities:
Accounts payable	5,850	4,438
Accrued payroll and benefits	1,911	1,519
Other accrued expenses	411	513
Billings in excess of costs and estimated earnings on uncompleted contracts	3,021	3,576
Short-term notes payable		54
Other current liabilities	120	9
Total current liabilities	11,313	10,109
Notes payable	500	500
Deferred income taxes	3,541	3,058
Deferred compensation	211	122
Total liabilities	15,565	13,789
Commitments and contingencies (see note 15)
Convertible preferred stock:
Redeemable convertible preferred stock, Series A, net of discount of $764 at December 31, 2013 and $806 at December 31, 2012; $0.001 par value, 1,000,000 shares authorized, issued and outstanding at December 31, 2013, and 2012	4,236	4,194
Stockholders’ equity:
Common stock; $0.001 par value, 50,000,000 shares authorized, 8,008,759 and 7,919,032 shares issued and outstanding at December 31, 2013 and December 31, 2012	8	8
Treasury stock, at cost (49,863 shares at December 31, 2013 and 20,222 shares at December 31, 2012)	(238)	(92)
Additional paid-in capital	10,494	9,597
Accumulated other comprehensive income	983	900
Retained earnings; including accumulated statutory reserves in equity method investments of $1,857 and $1,620 at December 31, 2013 and December 31, 2012	14,788	10,578
Total stockholders’ equity	26,035	20,991
Total liabilities, preferred stock and stockholders’ equity	$ 45,836	$ 38,974

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Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts - Contracts in Progress (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Contracts in progress
Costs incurred on uncompleted contracts	$ 7,271	$ 7,743
Estimated earnings	2,172	2,247
Total cost and earnings of unbilled contracts	9,443	9,990
Billings on uncompleted contracts	(7,152)	(11,361)
Total Costs, estimated earnings, and related billing on uncompleted contracts	$ 2,291	$ (1,371)

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Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Foreign currency translation gain, deferred income taxes	$ 42	$ 19

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Leases (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Schedule of future minimum rental payments under operating leases
2014	$ 443
2015	438
2016	423
2017	347
2018	348
2019	175
Total	$ 2,174

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Lease (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of Future Lease Payments

The following is a schedule of future lease payments:

Year Ending December 31,	Amount
	(In thousands)
2014	$	443
2015		438
2016		423
2017		347
2018		348
2019		175
	$	2,174

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Redeemable Convertible Preferred Stock - Preferred Stock and Warrants Calculated Using the Black Scholes Merton Pricing Model (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013
Preferred stock and warrants calculated using the Black Scholes Merton pricing model
Number of warrants	325,000
Expiration date	May 02, 2020
Warrant
Preferred stock and warrants calculated using the Black Scholes Merton pricing model
Exercise price	$ 6.62
Expected volatility of underlying stock	74.00%
Risk-free interest rate	1.62%
Dividend yield	0.00%
Expected life of warrants	8 years
Weighted-average fair value of warrants	$ 3.11

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Related Party Transactions

12 Months Ended

Dec. 31, 2013

Related Party Transactions

(13) Related Party Transactions

During 2013 and 2012, the Company received legal advice on various Company matters from a law firm related to a director of the Company. The Company incurred expenses totaling approximately $89,000 and $70,000 related to these services during 2013 and 2012, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2013 and 2012, there were no outstanding amounts owed to this law firm for services provided.

In August 2009, the Company entered into an employment agreement (amended in 2012 and 2013) with the Executive Chairman of the Board of Directors (“Executive Chairman”), whereby the Company compensated the Executive Chairman $130,000 and $120,000 during 2013 and 2012, respectively. Under the terms of the agreement, the Executive Chairman will assist in international joint venture relations and operations, technical developments, manufacturing and transformative business development projects and other special projects assigned by the Company. In November 2013, the Company amended the agreement to extend the term through 2015 with annual compensation of $130,000 and $130,000 for 2014 and 2015. In addition, the amendment included a bonus equal to 1% of the amount reported by the Company as equity income from foreign joint ventures’ operations in the consolidated statements of operations. During 2013 and 2012, the Company paid compensation of $157,570 and $150,878, respectively, under the terms of the agreement, which is included in general and administrative expenses in the accompanying consolidated statements of operations.

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Stock and Stock- based Compensation (Tables)

12 Months Ended

Dec. 31, 2013

Summary of Unvested Restricted Stock Units

The following table summarizes the activity for unvested restricted stock units for the years ended December 31, 2013 and 2012:

	Units			Weighted Average Fair Value Per RSU
Unvested restricted stock units at December 31, 2011		321,064		$	2.71
Awarded		283,998		$	4.35
Vested		(90,056	)	$	2.52
Forfeited		(123,593	)	$	2.17
Unvested restricted stock units at December 31, 2012		391,413		$	4.11
Awarded		234,525		$	5.00
Vested		(99,844	)	$	3.15
Forfeited		(54,464	)	$	3.40
Unvested restricted stock units at December 31, 2013		471,630		$	4.77

Summary of Stock Option Activity

Details of stock option activity during the years ended December 31, 2013 and 2012 follows:

	2013			2013 Weighted Average Exercise Price		2012			2012 Weighted Average Exercise Price
Outstanding at beginning of year		25,778		$	4.23		55,855		$	4.31
Options granted		—			—		—			—
Options exercised		(3,827	)		4.09		(4,850	)		4.09
Options forfeited		(5,007	)		5.11		(11,848	)		4.82
Options expired		—			—		(13,379	)		4.09
Outstanding at end of year		16,944			4.09		25,778			4.23
Exercisable at end of year		16,944		$	4.09		25,778		$	4.23

Summary of Outstanding Stock Options

A summary of outstanding stock options as of December 31, 2013 follows:

Number of Options	Expires	Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
16,944	2014		0.1 years	$	4.09	$	—
16,944				$	4.09

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies

(15) Commitments and Contingencies

On September 1, 1999, the Company created a group medical and hospitalization minimum premium insurance program. For the policy year ended August 2013, the Company is liable for all claims each year up to $60,000 per insured, or $1.3 million in the aggregate. An outside insurance company insures any claims in excess of these amounts. The Company’s expense for this minimum premium insurance totaled $879,000 and $845,000 during the years ended December 31, 2013 and 2012. Insurance reserves included in accrued payroll and benefits in the accompanying consolidated balance sheets were approximately $254,000 and $225,000 at December 31, 2013 and 2012.

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Related Party Transactions - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Related Party Transactions (Textual) [Abstract]
Outstanding amount owned to law firm	$ 0	$ 0
Chief Executive Officer
Related Party Transactions (Textual) [Abstract]
Compensation amount	130,000	120,000
Percentage of amendment bonus	1.00%
Chief Executive Officer | November 2013 Amendment
Related Party Transactions (Textual) [Abstract]
Employment agreement expiration year	2015
Chief Executive Officer | November 2013 Amendment | Restricted Stock Units (RSUs)
Related Party Transactions (Textual) [Abstract]
Compensation amount	130,000
Chief Executive Officer | November 2013 Amendment | 2015
Related Party Transactions (Textual) [Abstract]
Compensation amount	130,000
Selling, General and Administrative Expenses | Chief Executive Officer
Related Party Transactions (Textual) [Abstract]
Expenses related to legal advice	89,000	70,000
Compensation amount included in general and administrative expenses	$ 157,570	$ 150,878

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Consolidated Statements of Stockholders' Equity (USD $)		Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings
Balance at Dec. 31, 2011		$ 17,521,000	$ 7,829	$ 8,171,000	$ 849,000	$ 8,493,000
Balance, shares at Dec. 31, 2011			7,828,509
Common stock issued to ESPP		25,000	5	25,000
Common stock issued to ESPP, shares			4,839
Options Exercised, value		20,000	5	20,000
Options Exercised, shares		4,850	4,850,000
Issued for Acquisition, Value		218,000	11	218,000
Issued for Acquisition, Shares			11,000,000
Treasury stock purchase, Value		(92,000)		(92,000)
Treasury stock purchase, Shares			(20,222,000)
Warrants issued with preferred stock		840,000		840,000
Transaction costs of new preferred		(44,000)		(45,000)
Restricted stock units	[1]	368,000	90	368,000
Restricted stock units, shares	[1]		90,056
Net income (loss) to common stockholders		2,084,000				2,084,000
Foreign currency translation		51,000			51,000
Balance at Dec. 31, 2012		20,991,000	7,940	9,505,000	900,000	10,578,000
Balance, shares at Dec. 31, 2012			7,919,032
Common stock issued to ESPP		25,000	5	25,000
Common stock issued to ESPP, shares			4,697
Options Exercised, value		22,000	4	22,000
Options Exercised, shares		3,827	3,827
Issued for Acquisition, Value			11
Issued for Acquisition, Shares			11,000
Treasury stock purchase, Value		(146,000)		(146,000)
Treasury stock purchase, Shares			(29,641)
Warrants issued with preferred stock
Transaction costs of new preferred
Restricted stock units	[1]	850,000	100	850,000
Restricted stock units, shares	[1]		99,844
Net income (loss) to common stockholders	[2]	4,209,000				4,209,000
Foreign currency translation		83,000			83,000
Balance at Dec. 31, 2013		$ 26,035,000	$ 7,960	$ 10,256,000	$ 983,000	$ 14,788,000
Balance, shares at Dec. 31, 2013			8,008,759

[1] Converted to common stock.

[2] Net of preferred dividends of $225 and $342 in 2012 and 2013 respectively.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Accounts receivable-trade, net of allowance	$ 288	$ 225
Redeemable convertible preferred stock, Series A, net of discount	764	806
Redeemable convertible preferred stock, par value	$ 0.001	$ 0.001
Redeemable convertible preferred stock, shares authorized	1,000,000	1,000,000
Redeemable convertible preferred stock, shares issued	1,000,000	1,000,000
Redeemable convertible preferred stock, shares outstanding	1,000,000	1,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	8,008,759	8,008,759
Common stock, shares outstanding	7,919,032	7,919,032
Treasury stock, shares	49,863	20,222
Retained earnings; accumulated statutory reserves in equity method investments	$ 1,857	$ 1,620

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Notes Payable

12 Months Ended

Dec. 31, 2013

Notes Payable

(8) Notes Payable

The components of notes payable at December 31, 2013 and 2012 are as follows:

	2013		2012
	(In thousands)
Revolving credit agreement	$	500	$	500
Capital lease obligation (Note 9)		—		54
Total notes payable		500		554
Less current portion of capital lease obligation		—		(54	)
Non-current notes payable	$	500	$	500

Revolving Credit Agreement

On November 30, 2013, the Company entered into a $10.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A.  The agreement replaced in its entirety the company’s prior credit agreement, as amended, originally entered into with JPMorgan Chase Bank, N.A. in October of 2007.

The 2013 agreement has a maturity date of October 1, 2015.   Under the agreement, the credit facility’s interest rate is LIBOR plus 3.25% per annum and a commitment fee of 0.3% per annum on the unused portion of the credit limit each quarter.

The 2013 agreement provides for usual and customary covenants and restrictions  including that the borrower must maintain a fixed charge coverage ratio of no less than 1.25 to 1.00, and will not permit the ratio of consolidated total liabilities to consolidated net worth to exceed 1.00.   Additionally, the borrower will not permit, at the end of each calendar quarter, for its net income for the most recently ended six month period to be less than $1.00.

The agreement is collateralized by the Company’s real estate in Beaumont, Texas, trade accounts receivable, equipment, inventories, and work-in-process, and the Company’s U.S. subsidiaries are guarantors of the borrowing.

The Company had $0.5 million of borrowings outstanding under the JPMorgan Chase N.A. credit agreement at both December 31, 2013 and December 31, 2012.  The company had additional borrowing capacity of $7.9 million and $6.9 million at December 31, 2013 and December 31, 2012 respectively. Prior to July 27, 2012, the interest rate on the Company’s borrowings was 30 day LIBOR rate plus 2.75% per year.

On May 1, 2012 the Company and Chase executed consent and amendment to the credit agreement to allow for the $5 million convertible preferred stock transaction as discussed in Note 11.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Mar. 17, 2014	Jun. 28, 2013
Document And Entity Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Trading Symbol	AETI
Entity Registrant Name	American Electric Technologies Inc
Entity Central Index Key	0001043186
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 33,648,000
Entity Common Stock, Shares Outstanding		8,271,714

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Leases

12 Months Ended

Dec. 31, 2013

Leases

(9) Leases

New Corporate Office Lease

In late December 2013 the Company executed a new lease for office space at 1250 Wood Branch Park Drive, Houston, Texas. The lease covers approximately 13,000 square feet.

The term of the lease is 64 months and commences upon completion of tenant improvements, which were completed in March 2014.

The Company leases equipment (principally trucks and forklifts) under operating lease agreements that expire at various dates to 2016. Rental expense relating to operating leases and other short-term leases for the years ended December 31, 2013 and 2012, amounted to approximately $0.3 million and $0.5 million, respectively.

The following is a schedule of future lease payments:

Year Ending December 31,	Amount
	(In thousands)
2014	$	443
2015		438
2016		423
2017		347
2018		348
2019		175
	$	2,174

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Net sales	$ 65,330	$ 54,065
Cost of sales	53,515	45,942
Gross profit	11,815	8,123
Operating expenses:
Research and development	499	103
Selling and marketing	2,693	2,455
General and administrative	6,173	5,146
Total operating expenses	9,365	7,704
Income (loss) from domestic operations	2,450	419
Net equity income from foreign joint ventures' operations:
Equity income from foreign joint ventures' operations	3,024	3,088
Foreign joint ventures' operations related expenses	(267)	(343)
Net equity income from foreign joint ventures’ operations	2,757	2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures' operations	5,207	3,164
Other income (expense):
Interest expense	(28)	(111)
Other, net	85	(37)
Total other income (expense), net	57	(148)
Income (loss) before income taxes	5,264	3,016
Provision for income taxes	(713)	(707)
Net income (loss) before dividends on redeemable preferred stock	4,551	2,309
Dividends on redeemable preferred stock	(342)	(225)
Net income (loss) attributable to common stockholders	$ 4,209	$ 2,084
Earnings (loss) per common share:
Basic	$ 0.53	$ 0.26
Diluted	$ 0.48	$ 0.25
Weighted - average number of common shares outstanding:
Basic	7,990,690	7,901,225
Diluted	9,472,506	8,258,742

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Inventories

12 Months Ended

Dec. 31, 2013

Inventories

(3) Inventories

Inventories consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Raw materials	$	1,493		$	1,596
Work-in-process		2,834			3,173
Finished goods		1,126			1,052
		5,453			5821
Less: Allowance		(237	)		(205	)
Total inventories	$	5,216		$	5,616

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Principles of Consolidation  

The accompanying consolidated financial statements include the accounts of AETI and its wholly-owned subsidiaries, M&I and AAT, and M&I’s wholly-owned subsidiary SC. Significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by management include:

· Percentage-of-completion estimates on long-term contracts

· Estimates of the provision for doubtful accounts

· Estimated useful lives of property and equipment

· Valuation allowances related to deferred tax assets

Financial Instruments

The Company includes fair value information in the notes to the consolidated financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made, which is the case for financial instruments outstanding as of December 31, 2013 and 2012. The Company assumes the book value of those financial instruments that are classified as current approximates fair value because of the short maturity of these instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments.

Cash and Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash balances routinely exceed FDIC limits however all cash is maintained in JP Morgan Chase and believed to be secure.

Accounts Receivable and Provision for Bad Debts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The estimate is based on management’s assessment of the collectability of specific customer accounts and includes consideration for credit worthiness and financial condition of those specific customers. The Company also reviews historical experience with the customer, the general economic environment and the aging of its receivables. The Company records an allowance to reduce receivables to the amount it reasonably believes to be collectible. Based on this assessment, management believes the allowance for doubtful accounts is adequate.

Inventories

Inventories are stated at the lower of cost or market, with material value determined using an average cost method. Inventory costs for finished goods and work-in-process include direct material, direct labor, production overhead and outside services. TP&S and E&I indirect overhead is apportioned to work in process based on direct labor incurred. AAT production overhead, including indirect labor, is allocated to finished goods and work-in-process based on material consumption, which is an estimate that could be subject to change in the near term as additional information is obtained and as the operating environment changes.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred while renewals and betterments are capitalized. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets after giving effect to salvage values.

If events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests property and equipment for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. Events that would trigger an impairment test include the following:

· A significant decrease in the market price of a long-lived asset.

· A significant change in the use of long-lived assets or in its physical condition.

· A significant change in the business climate that could affect an assets value.

· An accumulation of cost significantly greater than the amount originally expected to acquire or construct a long-lived asset.

· A current period operating or cash flow loss combined with a history of such losses or a forecast demonstrating continued losses associated with the use of a long-lived asset.

· An expectation to sell or otherwise dispose of a long-lived asset significantly before the end of its estimated useful life.

Based on management’s reviews during each of the years ended December 31, 2013 and 2012, there were no events or circumstances that caused management to believe that impairments were necessary.

Other Assets

Intangible Assets at December 31, 2013	Useful Lives (Years)		Cost		Accumulated Amortization		Net Value
	(in thousands)
Patents		18	$	95	$	77	$	18
Customer agreements		10		173		148		25
Intellectual property		3		322		197		125
			$	590	$	422	$	168

Amortization expense related to intangible assets held by the Company for the year ended December 31, 2013 was approximately $130,000 and was approximately $113,000 in 2012. Estimated amortization expense for the next five years is as follows:

For the Year Ending December 31,	Amount
	(in thousands)
2014	$	132
2015		31
2016		5
2017		-
2018		-
	$	168

On March 8, 2012, the Company acquired certain technology from Amnor Technologies, Inc. for cash of $100,000 plus 44,000 shares of the Company’s common stock valued at $4.95 per share (the closing price on that date). One fourth of the shares were issued initially with the balance to be issued one third annually on the anniversaries over the subsequent 3 years. The purchase price was valued at $322,000 (including $4,000 of transaction costs) at March 8, 2012 and is recorded as an intangible asset and included in other assets in the consolidated balance sheet at December 31, 2012. This cost is being amortized over its estimated useful life of 3 years. Amortization expense of $108,000 and $90,000 was recognized during the years ended December 31, 2013 and 2012 respectively and is included in general and administrative expenses in the consolidated statements of operations.

The technology provides automation and control system technologies for land and offshore drilling monitoring and control (auto-driller); marine automation including ballast control and tank monitoring and machinery plant control and monitoring systems; IP-based CCTV systems; and military vessel security and safety systems, all proven in multiple installations.

Income Taxes

The Company uses the asset and liability method to account for income taxes. Under this method of accounting for income taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reported to the taxing authority. The Company also records any financial statement recognition and disclosure requirements for uncertain tax positions taken or expected to be taken in its tax return. Financial statement recognition of the tax position is dependent on an assessment of a 50% or greater likelihood that the tax position will be sustained upon examination, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions are recorded as interest expense in the accompanying consolidated statements of operations.

Foreign Currency Gains and Losses

Foreign currency translations are included as a separate component of comprehensive income. We have determined the local currency of our foreign joint ventures’ operations to be the functional currency. In accordance with ASC 830, the assets and liabilities of our foreign equity investees, denominated in foreign currency, are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date; net sales and expenses are translated at the average exchange rate for the period. Related translation adjustments are reported as other comprehensive income, net of taxes, which is a separate component of stockholders’ equity, whereas gains and losses resulting from foreign currency transactions are included in results of operations.

Net Sales Recognition

The Company reports earnings from fixed-price and modified fixed-price long-term contracts on the percentage-of-completion method. Earnings are accrued based on the ratio of costs incurred to total estimated costs. However, for TP&S, we have determined that labor incurred provides an improved measure of percentage-of-completion. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined. A contract is considered complete when all costs except insignificant items have been incurred and the facility has been accepted by the customer. Net sales from non-time and material jobs of a short-term nature (typically less than one month) are recognized on the completed-contract method after considering the attributes of such contracts. This method is used because these contracts are typically completed in a short period of time and the financial position and results of operations do not vary materially from those which would result from use of the percentage-of-completion method.

The Company records net sales from its field and technical service and repair operations on a completed service basis after customer acknowledgement that the service has been completed and accepted. Approximately 8% of the Company’s consolidated net sales are recorded on this basis. In addition, the Company sells certain purchased parts and products. These net sales are recorded when the product is shipped and title passes to the customer. Approximately 3% of the Company’s consolidated net sales are recorded on this basis. AAT generally recognizes net sales when manufactured products are shipped and right of ownership passes.

The asset, “Work-in-process,” which is included in inventories, represents the cost of labor, material, and overhead in excess of amounts billed on jobs accounted for under the completed-contract method. For contracts accounted for under the percentage-of-completion method, the asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents net sales recognized in excess of amounts billed and the liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of net sales recognized. Any billed net sale that has not been collected is reported as accounts receivable. The timing of when we bill our customers is generally dependent upon advance billing terms or completion of certain phases of the work. At December 31, 2013 and 2012, accounts receivable included contract retentions expected to be collected within one year totaling $10,000 and $424,000, respectively. This decline reflects the exit from water/wastewater contracts. At December 31, 2013 and 2012, the Company had no contract retentions expected to be collected beyond one year.  

On occasion, the Company enters into long-term contracts that include services performed by more than one operating segment particularly TP&S contracts which include electrical and instrumentation construction services performed by our E&I segment. The Company segments net sales, costs and gross profit related to these contracts if they meet the contract segmenting criteria in ASC 605-35, including that the terms and scope of the project clearly call for separate elements, the separate elements are often bid or negotiated by the Company separately and the total economic returns and risks of the separate elements are similar to the economic returns and risks of the overall contract. For segmented contracts, the Company recognizes net sales as if they were separate contracts over the performance periods of the individual elements.

Contract net sales recognition inherently involves estimation, including the contemplated level of effort to accomplish the tasks under the contract, the cost of the effort, and an ongoing assessment of progress toward completing the contract. From time to time, as part of the normal management processes, facts develop that requires revisions to estimated total cost or net sales expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on contracts are recognized in the period in which they become known.

Shipping and Handling Fees and Costs

Shipping and handling fees, if billed to customers, are included in net sales. Shipping and handling costs associated with inbound freight are expensed as incurred. Shipping and handling costs associated with outbound freight are classified as cost of sales.

Concentration of Market Risk and Geographic Operations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company’s market risk is dependent primarily on the strength of the oil and gas and energy related industries. The Company grants credit to customers and generally does not require security except in the case of certain international contracts. Procedures are in effect to monitor the credit worthiness of its customers. During 2012, one customer accounted for approximately 13% of net sales and 1% of net accounts receivable trade. During 2013, one customer accounted for approximately 17% of net sales and 9% of net accounts receivable trade.

The Company sells its products and services in domestic and international markets; however, significant portions of the Company’s sales are concentrated with customers located in the Gulf Coast region of the United States. The Gulf Coast region accounts for approximately 9% of the Company’s net sales during the year ended December 31, 2013 and 17% during 2012.

Reclassification

Certain items are reclassified in the 2012 consolidated financial statements to conform to the 2013 presentation.

Recently Issued Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 was issued to provide enhanced disclosures that will enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments under ASU No. 2011-11 require enhanced disclosures by requiring entities to disclose both gross information and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU No. 2011-11 is effective retrospectively for annual periods beginning on or after January 1, 2013, and interim periods within those periods. The adoption of ASU No. 2011-11 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In July 2012, the FASB issued ASU No. 2012-02, Intangible - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely than not threshold is defined as having a likelihood of more than 50 percent. Under ASU No. 2012-02, an entity is not required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines it is more likely than not that its fair value is less than its carrying value. ASU No. 2012-02 is effective for annual periods beginning after September 15, 2012. The adoption of ASU No. 2012-02 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU No. 2013-01 was issued to clarify that ordinary trade receivables and receivables are not within the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netter arrangement or similar agreement. ASU No. 2013-01 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those periods. The adoption of ASU No. 2013-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU No. 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, ASU No. 2013-05 provides guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisition. ASU No. 2013-05 is effective on a prospective basis for annual periods beginning after December 15, 2013 and interim periods within those periods. Management is currently evaluating the effects of ASU No. 2013-05 on the Company’s consolidated financial position and results of operations.

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Segment Reporting

12 Months Ended

Dec. 31, 2013

Segment Reporting

(14) Segment Reporting

The Company follows the guidance prescribed by ASC Topic 280, Segment Reporting, which governs the way the Company reports information about its operating segments.

Management has organized the Company around its products and services and has three reportable segments: Technical Products and Services (“TP&S”), Electrical and Instrumentation Construction (“E&I”) and American Access Technologies (“AAT”). TP&S develops, manufactures, provides and markets switchgear and variable speed drives. The service component of this segment includes retrofitting equipment upgrades, startups, testing and troubleshooting electrical substations, switchgear, drives and control systems. Equity income from foreign joint ventures and joint venture management related expenses are reported in the section net equity income (loss) from foreign operations. The E&I segment installs electrical equipment for the energy, water, industrial, marine and commercial markets. The AAT segment manufacturers and markets zone cabling products and manufactures formed metal products of varying designs.

The table below represents segment results for the years ended December 31, 2013, and 2012.

	2013			2012
Net sales:
Technical Products and Services	$	49,150		$	38,973
Electrical and Instrumentation Construction		10,089			9,196
American Access Technologies		6,091			5,896
	$	65,330		$	54,065
Gross profit (loss):
Technical Products and Services	$	9,072		$	6,649
Electrical and Instrumentation Construction		2,095			513
American Access Technologies		648			961
	$	11,815		$	8,123
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations
Technical Products and Services	$	8,061		$	6,012
Electrical and Instrumentation Construction		2,096			513
American Access Technologies		(712	)		(484	)
Corporate and other unallocated expenses		(6,995	)		(5,622	)
Income (loss) from domestic operations		2,450			419
Equity income from BOMAY		2,066			2,569
Equity income from MIEFE		115			16
Equity income (loss) from AAG		843			503
Foreign operations expenses		(267	)		(343	)
Net equity income from foreign joint ventures’ operations		2,757			2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations	$	5,207		$	3,164

The Company’s management does not separately review and analyze its assets on a segment basis for TP&S, E&I, and AAT and all assets for the segments are recorded within the corporate segment’s records. Corporate and other unallocated general and administrative expenses include compensation costs and other expenses that cannot be meaningfully associated with the individual segments. With the exception of equity income from foreign joint ventures and joint venture management related expenses, all other costs, expenses and other income have been allocated to their respective segments.

The following table reflects the quarterly information for the applicable time periods.

	2013
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,430	$	15,169	$	17,585	$	18,146	$	65,330
Gross Profit		2,980		2,396		2,867		3,572		11,815
Net income (loss)		1,653		1,063		901		592		4,209
Earnings (loss) per share:
Basic	$	0.21	$	0.13	$	0.11	$	0.07	$	0.53

	2012
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,432	$	12,872	$	11,725	$	15,035	$	54,065
Gross Profit		1,772		2,172		1,689		2,490		8,123
Net income (loss)		334		761		500		487		2,084
Earnings (loss) per share:
Basic	$	0.04	$	0.10	$	0.06	$	0.06	$	0.26

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Stock and Stock-based Compensation

12 Months Ended

Dec. 31, 2013

Stock and Stock-based Compensation

(10) Stock and Stock-based Compensation

Employee Stock Purchase Plan

The Company issued 4,697 and 4,839 shares of Company stock during 2013 and 2012, respectively, in connection with an Employee Stock Purchase Plan that commenced in April 2008.

Restricted Stock Units

During 2013 and 2012, the Board of Directors approved the grants of approximately 235,000 and 285,000 restricted stock units (“RSU”s) to members of management and key employees as part of the 2007 Employee Stock Incentive Plan. In May 2010, the stockholders of the Company approved amendments to the 2007 Employee Stock Incentive Plan to increase the number of shares available for issuance under the plan from 300,000 shares to 800,000 shares of stock. In June 2012, the stockholders of the Company approved amendments to the 2007 Employee Stock Incentive Plan to increase the number of shares available for issuance under the plan from 800,000 shares to 1,100,000 shares of stock. The number of RSUs awarded is generally subject to the substantial achievement of budgeted performance and other individual metrics in the year granted. The RSUs do not have voting rights of the common stock, and the shares of common stock underlying the RSUs are not considered issued and outstanding until actually vested and issued. In general, the awards convert to common stock on a one to one basis in 25% increments over four years from the grant date subject to a continuing employment obligation.

The following table summarizes the activity for unvested restricted stock units for the years ended December 31, 2013 and 2012:

	Units			Weighted Average Fair Value Per RSU
Unvested restricted stock units at December 31, 2011		321,064		$	2.71
Awarded		283,998		$	4.35
Vested		(90,056	)	$	2.52
Forfeited		(123,593	)	$	2.17
Unvested restricted stock units at December 31, 2012		391,413		$	4.11
Awarded		234,525		$	5.00
Vested		(99,844	)	$	3.15
Forfeited		(54,464	)	$	3.40
Unvested restricted stock units at December 31, 2013		471,630		$	4.77

Compensation expense of approximately $818,000 and $342,000 was recorded in general administrative expense for the years ended December 31, 2013 and 2012, respectively, to reflect the fair value of the original RSU’s granted or anticipated to be granted less forfeitures, amortized over the portion of the vesting period occurring during the period. The fair value of the RSUs was based on the closing price of our common stock as reported on the NASDAQ Stock Market (“NASDAQ”) on the grant date. Based upon the fair value on the grant date of the number of shares awarded or expected to be awarded, it is anticipated that approximately $2.0 million of additional compensation cost will be recognized in future periods through 2017. The weighted average period over which this additional compensation cost will be expensed is 2 years.

During February 2014, the Board of Directors approved the grants of approximately 168,000 RSUs in conjunction with the Plan, of which, approximately 150,000 units are subject to 2014 fiscal performance measures.

Stock Options

The Company recognizes compensation expense related to stock options in accordance with ASC 718 and has measured the share-based compensation expense for stock options granted during the year ended December 31, 2008 based upon the estimated fair value of the award on the date of grant and recognizes the compensation expense over the award’s requisite service period. The weighted average fair values were calculated using the Black Scholes-Merton option pricing model. There were no options issued in 2013 or 2012.

Details of stock option activity during the years ended December 31, 2013 and 2012 follows:

	2013			2013 Weighted Average Exercise Price		2012			2012 Weighted Average Exercise Price
Outstanding at beginning of year		25,778		$	4.23		55,855		$	4.31
Options granted		—			—		—			—
Options exercised		(3,827	)		4.09		(4,850	)		4.09
Options forfeited		(5,007	)		5.11		(11,848	)		4.82
Options expired		—			—		(13,379	)		4.09
Outstanding at end of year		16,944			4.09		25,778			4.23
Exercisable at end of year		16,944		$	4.09		25,778		$	4.23

A summary of outstanding stock options as of December 31, 2013 follows:

Number of Options	Expires	Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
16,944	2014		0.1 years	$	4.09	$	—
16,944				$	4.09

Compensation expense of approximately $20,000 and $16,000 was recorded in the years ended December 31, 2013 and 2012, respectively, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2013, there was no unrecognized compensation cost related to stock option awards.

Board of Directors Compensation

Directors who are not employees of the Company and who do not have a compensatory agreement providing for service as a director of the Company receive a retainer fee payable quarterly. Eligible directors may elect to defer 50% to 100% of their retainer fee, which may be used to acquire common stock of the Company at the fair market value on the date the retainer fee would otherwise be paid, acquire stock units equivalent to the fair market value of the Company’s common stock on the date the retainer fee would otherwise be paid, or be paid in cash. During the years ended December 31, 2013 and 2012, directors of the Company elected to defer retainer fees to acquire approximately 6,000 and 6,000, respectively, stock units. Compensation expense of approximately $32,000 and $27,000 was recorded in the years ended December 31, 2013 and 2012 respectively, which is included in general and administrative expenses in the consolidated statements of operations.

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Advances to and Investments in Foreign Joint Ventures' Operations

12 Months Ended

Dec. 31, 2013

Advances to and Investments in Foreign Joint Ventures' Operations

(6) Advances to and Investments in Foreign Joint Ventures’ Operations

The Company has a foreign joint venture agreement and holds a 40% interest in a Chinese company, BOMAY, which builds electrical systems for sale in China. The majority partner in this foreign joint venture is a subsidiary of a major Chinese oil company. M&I made an initial investment of $1.0 million in 2006 and made an additional $1.0 million investment in 2007. The Company’s equity in the income of the foreign joint venture was $2.1 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $325,000 and $415,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from BOMAY were $119,000 and $73,000 at December 31, 2013 and 2012.

The Company owns a 41% interest in MIEFE which provides additional sales and technical support in Asia. The Company’s equity in the income of the foreign joint venture was $115,000 and $16,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $225,000 and $65,000 for the years ended December 31, 2013 and 2012, respectively. Accounts receivable from MIEFE was none and $25,000 at December 31, 2013 and 2012, respectively.

The company owns a 49% interest in AAG, a Brazilian Limited Liability Company, formed in 2010. The Company’s equity in the income of the foreign joint venture was $843,000 and $503,000 for the years ended December 31, 2013 and 2012, respectively. Sales made to the foreign joint venture were $4,000 and $49,000 for the years ended December 31, 2013 and 2012. Accounts receivable from AAG was $8,000 at December 31, 2013 and 2012.

The Company’s equity in income of the foreign joint ventures before our foreign operations expenses, totaled $3.0 million and $3.1 million for the years ended December 31, 2013 and 2012, respectively.

During 2013 and 2012, the Company also recognized approximately $267,000 and $343,000, respectively, for employee related expenses directly attributable to the foreign joint ventures.

Sales to foreign joint ventures’ operations are made on an arm’s length basis and intercompany profits, if any, are eliminated in consolidation. Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2013 and 2012:

	BOMAY				MIEFE				AAG
	2013		2012		2013		2012		2013		2012
	(in thousands)
Assets:
Total current assets	$	94,220	$	91,926	$	3,855	$	3,894	$	2,572	$	2,241
Total non-current assets		5,122		5,116		114		116		1,550		776
Total assets	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,017
Liabilities and equity:
Total liabilities	$	72,644	$	73,293	$	1,197	$	1,422	$	1,291	$	1,511
Total joint ventures equity		26,698		23,749		2,772		2,588		2,831		1,505
Total liabilities and equity	$	99,342	$	97,042	$	3,969	$	4,010	$	4,122	$	3,016
Gross sales	$	86,332	$	84,639	$	7,997	$	6,996	$	10,658	$	7,625
Gross profit		12,130		14,348		2,066		1,547		4,282		2,965
Net income		5,165		6,422		279		39		1,721		1,104

The Company’s investments in and advances to its foreign joint ventures’ operations were as follows as of December 31, 2013 and 2012:

	2013												2012
	BOMAY*			MEIFE			AAG			**TOTAL			BOMAY*			MIEFE		AAG			TOTAL
	(in thousands)												(in thousands)
Investment in joint ventures:
Balance, beginning of year	$	2,033		$	14		$	234		$	2,281		$	2,033		$	14	$	284		$	2,331
Additional amounts invested and advanced		—			—			(180	)		(180	)		—			—		(50	)		(50	)
Balance, end of year		2,033			14			54			2,101			2,033			14		234			2,281
Undistributed earnings:
Balance, beginning of year	$	6,400		$	755		$	661		$	7,816		$	4,839		$	739	$	158		$	5,736
Equity in earnings (loss)		2,066			115			843			3,024			2,569			16		503			3,088
Dividend distributions		(1,321	)		—			(23	)		(1,344	)		(1,008	)		—		—			(1,008	)
Balance, end of year		7,145			870			1,481			9,496			6,400			755		661			7,816
Foreign currency translation:
Balance, beginning of year	$	1,098		$	294		$	(81	)	$	1,311		$	1,040		$	233	$	(32	)	$	1,240
Change during the year		333			(40	)		(168	)		125			58			61		(49	)		70
Balance, end of year		1,431			254			(249	)		1,436			1,098			294		(81	)		1,311
Investments, end of year	$	10,609		$	1,138		$	1,286		$	13,033		$	9,531		$	1,063	$	814		$	11,408

* Accumulated statutory reserves in equity method investments of $1,857,000 and $1,620,000 at December 31, 2013 and 2012, are included in AETI’s consolidated retained earnings. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

The Company accounts for its investments in foreign joint ventures’ operations using the equity method of accounting. Under the equity method, the Company’s share of the joint ventures’ operations’ earnings or loss is recognized in the consolidated statements of operations as equity income (loss) from foreign joint ventures’ operations. Joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value. Dividends received from the joint ventures reduce the carrying value. Each reporting period, the Company evaluates the carrying value of these equity method investments as to whether an impairment adjustment may be necessary. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary.

** See Note 17 for dividends from AAG in 2014.

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Leases - Additional Information (Detail) (New Corporate Office Lease, USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 sqft	Dec. 31, 2012
New Corporate Office Lease
Lease (Textual) [Abstract]
Lease covered area	13,000
Term of lease	64 months
Rental expense	$ 0.3	$ 0.5

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Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts

12 Months Ended

Dec. 31, 2013

Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts

(4) Costs, Estimated Earnings, and Related Billings on Uncompleted Contracts

Contracts in progress at December 31, 2013 and 2012 consisted of the following:

	2013			2012
	(in thousands)
Costs incurred on uncompleted contracts	$	7,271		$	7,743
Estimated earnings		2,172			2,247
		9,443			9,990
Billings on uncompleted contracts		(7,152	)		(11,361	)
	$	2,291		$	(1,371	)

Costs, estimated earnings, and related billing on uncompleted contracts consisted of the following at December 31, 2013 and 2012:

	2013			2012
	(in thousands)
Cost and estimated earnings in excess of billings on uncompleted contracts	$	5,312		$	2,205
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,021	)		(3,576	)
	$	2,291		$	(1,371	)

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Property, Plant and Equipment

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment

(5) Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31, 2013, and 2012:

Category	Estimated Useful Lives (years)		2013		2012
		(in thousands)
Buildings and improvements	15 – 25	$	3,756	$	4,426
Office equipment and furniture	2 – 7		2,476		1,766
Automobiles and trucks	2 – 5		226		219
Machinery and shop equipment	2 – 10		4,895		4,523
Construction in progress			2,475		1,299
			13,828		12,233
Less: accumulated depreciation and amortization			8,026		7,660
			5,802		4,573
Land			238		349
		$	6,040	$	4,922

During the years ended December 31, 2013 and 2012, depreciation charged to operations amounted to $742,000 and $765,000 respectively. Of these amounts, $580,000 and $605,000 was charged to cost of sales while $162,000 and $160,000 was charged to selling, general and administrative expenses for the years ended December 31, 2013 and 2012, respectively.

In late 2012, management made a decision to sell the Houston, Texas headquarters and consolidate all TP&S and E&I service centers in Beaumont, Texas. The Company and M&I headquarters plan to stay in Houston at leased premises as described in Note 9.

On October 9, 2013, the Company sold the property and improvements at 6410 Long Drive, Houston, Texas. The proceeds were received in cash and resulted in a gain of $128,000 included in other income in the accompanying consolidated statements of operations. The facility was leased by the Company until March 14, 2014 when it relocated to its new leased facilities discussed in Note 9.

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

(7) Income Taxes

The components of income (loss) before income taxes for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
United States	$	2,240	$	(72	)
Foreign		3,024		3,088
	$	5,264	$	3,016

The components of the provision (benefit) for income taxes by taxing authority for the years ended December 31, 2013 and 2012 were as follows:

	2013		2012
	(in thousands)
Current provision:
Federal	$	—	$	—
Foreign		—		101
States		141		—
Total current provision		141		101
Deferred provision (benefit):
Federal		536		671
Foreign		—		(101	)
States		36		36
Total deferred provision (benefit):		572		606
	$	713	$	707

Significant components of the Company’s deferred federal income taxes were as follows:

	At December 31,
	2013					2012
	Current		Non-Current			Current			Non-Current
	(in thousands)					(in thousands)
Deferred tax assets:
Accrued liabilities	$	413	$	—		$	159		$	—
Deferred compensation		—		686			—			363
Allowance for doubtful accounts		120		—			101			—
Inventory		270		—			388			—
Long-term contracts		149		—			80			—
Net operating loss		—		2,909			—			4,205
Intangible assets		—		86			—			111
Foreign tax credit carry forward		—		1,153			—			1,017
Valuation allowance		—		(5,385	)		(728	)		(5,750	)
Deferred tax assets		952		(551	)		—			(54	)
Deferred tax liabilities:
Equity in foreign investments		—		(3,233	)		—			(2,756	)
Property and equipment		—		(147	)		—			61
Intangible assets		—		(9	)		—			(9	)
Translation gain		—		(553	)		—			(411	)
Deferred tax liabilities		—		(3,942	)		—			(3,115	)
Net deferred tax assets (liabilities)	$	952	$	(4,493	)	$	—		$	(3,169	)

The provision for income taxes for the year ended December 31, 2013 was primarily a non-cash expense of $0.7 million which reflects deferred taxes associated with the Company’s foreign joint ventures. The Company’s deferred tax assets are primarily related to net operating loss carry forwards.  These net operating losses include losses generated by American Access Technologies. Inc. (“AAT”), prior to the Company’s merger in 2007, additional net operating losses, and foreign tax credit carry forwards. A valuation allowance was established at December 31, 2013 and 2012 due to uncertainty regarding future realization of deferred tax assets.   Our total valuation allowance as of December 31, 2013 and 2012 is $5.6 million and $6.4 million, respectively.  

The Company has federal net operating loss carry forwards of approximately $7.4 million which include $7.4 million acquired from AAT that are subject to the utilization limitation under Section 382 of the Internal Revenue Code. The Company has state net operating losses of $11 million.  These tax loss carry forwards are available to offset future taxable income and expire if unused during the federal tax year ending December 31, 2019 through 2031.

The Company’s 2008 U.S. federal income tax return was examined by the Internal Revenue Service (“IRS”). In the fourth quarter 2011, the IRS concluded its audit which adjusted the annual net operating loss carry forward limitation under Sec. 382 related to AAT’s pre-acquisition net operating loss carry forwards to $299,000 per year through 2027.  The Company has adopted the provisions of ASC Topic 740-10 “Income Taxes” to assess tax benefits claimed on a tax return should be recorded in the financial statements.  The Company has assessed all open tax years and has recorded no uncertain tax positions related to the open tax years.  

The difference between the effective income tax rate reflected in the provision for income taxes and the amounts, which would be determined by applying the statutory income tax rate of 34%, is summarized as follows:

	2013			2012
	(in thousands)
(Provision for) benefit from U.S federal statutory rate	$	(1,798	)	$	(1,032	)
Effect of state income taxes		(141	)		(49	)
Non-deductible business meals and entertainment expenses		(18	)		(95	)
Foreign income taxes included in equity in earnings		551			—
Adjustment of net operating loss carry forwards based on IRS audit, accrual to return adjustments and other		(153	)		—
Change in valuation allowance		846			469
Total (Expense)	$	(713	)	$	(707	)

The Company files income tax returns in the United States. Federal jurisdiction and various state jurisdictions.

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Stock and Stock-based Compensation - Summary of Outstanding Stock Options (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Summary of stock option activity
Number of Options	16,944	25,778	55,855
Remaining Contractual Life (Years)	1 month 6 days
Weighted Average Exercise Price	$ 4.09	$ 4.23	$ 4.31
Intrinsic Value
Stock option 1
Summary of stock option activity
Number of Options	16,944
Expires	2014
Remaining Contractual Life (Years)	1 month 6 days
Weighted Average Exercise Price	$ 4.09
Intrinsic Value

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Redeemable Convertible Preferred Stock - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Class Of Stock [Line Items]
Securities purchase agreement date	Apr. 13, 2012
Common stock, shares issued	8,008,759	8,008,759
Completion date of issuance of series A convertible preferred stock	May 02, 2012
Redemption Date of Series A Preferred Stock	Apr. 30, 2017
Warrants Value	$ 840,000
Accretion amount	42	34
Consideration for the issuance of preferred stock and warrants	5,000,000
Exercise Price of $6.00
Class Of Stock [Line Items]
Conversion price per share	$ 6.00
Exercise Price of $7.00
Class Of Stock [Line Items]
Conversion price per share	$ 7.00
Series A Convertible Preferred Stock
Class Of Stock [Line Items]
Sale of series A convertible preferred stock, Number	1,000,000
Conversion price per share	$ 5.00
Preferred stock authorized	1,000,000
Cumulative dividends at a rate	6.00%
Liquidation preference per share	$ 5.00
Number of Installments	36
Annual interest rate on redemption value payable	6.00%
Preferred stock Value	$ 4,160,000
Common Stock Purchase Warrants Exercisable
Class Of Stock [Line Items]
Common stock purchase warrants exercisable	325,000
Common Stock Purchase Warrants Exercisable | Exercise Price of $6.00
Class Of Stock [Line Items]
Common stock purchase warrants exercisable	125,000
Common Stock Purchase Warrants Exercisable | Exercise Price of $7.00
Class Of Stock [Line Items]
Common stock purchase warrants exercisable	200,000
Convertible Common Stock
Class Of Stock [Line Items]
Common stock, shares issued	1,000,000

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Stock and Stock-based Compensation - Summary of Stock Option Activity (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Summary of stock option activity
Outstanding, Beginning Balance	25,778	55,855
Options granted
Options exercised	(3,827)	(4,850)
Options forfeited	(5,007)	(11,848)
Options expired		(13,379)
Outstanding, Ending Balance	16,944	25,778
Exercisable, Ending Balance	16,944	25,778
Summary of stock option activity
Weighted Average Exercise Price, Beginning balance	$ 4.23	$ 4.31
Weighted Average Exercise Price, options granted
Weighted Average Exercise Price, Options exercised	$ 4.09	$ 4.09
Weighted Average Exercise Price, Options forfeited	$ 5.11	$ 4.82
Weighted Average Exercise Price, Options expired		$ 4.09
Weighted Average Exercise Price, Ending balance	$ 4.09	$ 4.23
Weighted Average Exercise Price, Exercisable	$ 4.09	$ 4.23

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Notes payable (Tables)

12 Months Ended

Dec. 31, 2013

Components of Notes Payable

The components of notes payable at December 31, 2013 and 2012 are as follows:

	2013		2012
	(In thousands)
Revolving credit agreement	$	500	$	500
Capital lease obligation (Note 9)		—		54
Total notes payable		500		554
Less current portion of capital lease obligation		—		(54	)
Non-current notes payable	$	500	$	500

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Advances to and Investments in Foreign Joint Ventures' Operations - Schedule of Activity in Investment in Foreign Joint Ventures (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Investment in joint ventures:
Balance, beginning of year	$ 2,281,000	$ 2,331,000
Additional amounts invested and advanced	(180,000)	(50,000)
Balance, end of year	2,101,000	2,281,000
Undistributed earnings:
Balance, beginning of year	7,816,000	5,736,000
Equity in earnings (loss)	3,024,000	3,088,000
Dividend distributions	(1,344,000)	(1,008,000)
Balance, end of year	9,496,000	7,816,000
Foreign currency translation:
Balance, beginning of year	1,311,000	1,240,000
Change during the year	125,000	70,000
Balance, end of year	1,436,000	1,311,000
Investments, end of year	13,033,000	11,408,000
BOMAY
Investment in joint ventures:
Balance, beginning of year	2,033,000	2,033,000
Additional amounts invested and advanced
Balance, end of year	2,033,000	2,033,000
Undistributed earnings:
Balance, beginning of year	6,400,000	4,839,000
Equity in earnings (loss)	2,066,000	2,569,000
Dividend distributions	(1,321,000)	(1,008,000)
Balance, end of year	7,145,000	6,400,000
Foreign currency translation:
Balance, beginning of year	1,098,000	1,040,000
Change during the year	333,000	58,000
Balance, end of year	1,431,000	1,098,000
Investments, end of year	10,609,000	9,531,000
MIEFE
Investment in joint ventures:
Balance, beginning of year	14,000	14,000
Additional amounts invested and advanced
Balance, end of year	14,000	14,000
Undistributed earnings:
Balance, beginning of year	755,000	739,000
Equity in earnings (loss)	115,000	16,000
Balance, end of year	870,000	755,000
Foreign currency translation:
Balance, beginning of year	294,000	233,000
Change during the year	(40,000)	61,000
Balance, end of year	254,000	294,000
Investments, end of year	1,138,000	1,063,000
AAG
Investment in joint ventures:
Balance, beginning of year	234,000	284,000
Additional amounts invested and advanced	(180,000)	(50,000)
Balance, end of year	54,000	234,000
Undistributed earnings:
Balance, beginning of year	661,000	158,000
Equity in earnings (loss)	843,000	503,000
Dividend distributions	(23,000)
Balance, end of year	1,481,000	661,000
Foreign currency translation:
Balance, beginning of year	(81,000)	(32,000)
Change during the year	(168,000)	(49,000)
Balance, end of year	(249,000)	(81,000)
Investments, end of year	$ 1,286,000	$ 814,000

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Employee Benefit and Bonus Plans

12 Months Ended

Dec. 31, 2013

Employee Benefit and Bonus Plans

(12) Employee Benefit and Bonus Plans

The employees of the Company are eligible to participate in a 401(k) plan sponsored by the Company. The plan is a defined contribution 401(k) Savings and Profit Sharing Plan (the “Plan”) that covers all full-time employees who meet certain age and service requirements. Employees may contribute up to 20% of their annual gross pay through salary deferrals. The Company may provide discretionary contributions to the Plan as determined by the Board of Directors. For the years ended December 31, 2013 the Company contributed $201,000 to the plan and $81,000 in 2012.

The Company maintains an “Executive Performance” bonus plan, which covers approximately 45 key employees. Under the plan, the participants receive a percentage of a bonus pool based primarily on pre-tax income in relation to budget. The Board of Directors approves the Executive Performance plan at the beginning of each year. During the years ended December 31, 2013 and 2012, the Company recorded approximately $813,000 and $650,000 under the plan, respectively, all of which was included in accrued payroll and benefits expenses as of the respective year end.

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Subsequent Event Brazil Dividend

12 Months Ended

Dec. 31, 2013

Subsequent Event Brazil Dividend

(17) Subsequent Event Brazil Dividend

The Company received a dividend distribution from its AAG JV of approximately $830,000 on March 20, 2014 on its 49% share.  It is not expected that the distribution will reoccur in 2015.

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Advances to and Investments in Foreign Joint Ventures' Operations - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2007	Dec. 31, 2006
Schedule Of Equity Method Investments [Line Items]
Equity income from foreign joint ventures' operations	$ 3,024,000	$ 3,088,000
Advances to and Investments in Joint Venture Foreign Operations (Textual) [Abstract]
Foreign joint ventures' operations related expenses	267,000	343,000
Accumulated statutory reserves in equity method investments	1,857,000	1,620,000
Foreign Operations
Advances to and Investments in Joint Venture Foreign Operations (Textual) [Abstract]
Foreign joint ventures' operations related expenses	267,000	343,000
BOMAY
Schedule Of Equity Method Investments [Line Items]
Interest in Joint Venture	40.00%
Investment in joint ventures			1,000,000	1,000,000
Equity income from foreign joint ventures' operations	2,066,000	2,569,000
Sales made to the foreign joint venture	325,000	415,000
Accounts receivable from foreign joint venture	119,000	73,000
MIEFE
Schedule Of Equity Method Investments [Line Items]
Interest in Joint Venture	41.00%
Equity income from foreign joint ventures' operations	115,000	16,000
Sales made to the foreign joint venture	225,000	65,000
Accounts receivable from foreign joint venture	0	25,000
AAG
Schedule Of Equity Method Investments [Line Items]
Interest in Joint Venture	49.00%
Equity income from foreign joint ventures' operations	843,000	503,000
Sales made to the foreign joint venture	4,000	49,000
Accounts receivable from foreign joint venture	$ 8,000	$ 8,000

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Summary of Significant Accounting Policies - Summary of Other Assets (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Summary of Other Assets
Cost	$ 590
Accumulated Amortization	422
Net Value	168
Patents
Summary of Other Assets
Useful Lives	18 years
Cost	95
Accumulated Amortization	77
Net Value	18
Customer agreements
Summary of Other Assets
Useful Lives	10 years
Cost	173
Accumulated Amortization	148
Net Value	25
Intellectual property
Summary of Other Assets
Useful Lives	3 years
Cost	322
Accumulated Amortization	197
Net Value	$ 125

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Net income (loss)	$ 4,551	$ 2,309
Other comprehensive income:
Foreign currency translation gain, net of deferred income taxes of $42 and $19 for the years ended December 31, 2013 and 2012	83	51
Total comprehensive income (loss)	$ 4,634	$ 2,360

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Organization and Nature of Business

12 Months Ended

Dec. 31, 2013

Organization and Nature of Business

(1) Organization and Nature of Business

American Electric Technologies, Inc. (“AETI” or the “Company”) is the surviving financial reporting entity from a reverse acquisition of an 80% interest in American Access Technologies, Inc. by the shareholders of M&I Electric Industries, Inc.(“M&I”) on May 17, 2007. Immediately upon the completion of the reverse acquisition, American Access Technologies, Inc. changed its name to American Electric Technologies, Inc. AETI is a Florida corporation and M&I, AETI’s wholly-owned subsidiary, a Texas corporation. M&I has a wholly-owned subsidiary, South Coast Electric Systems, LLC (“SC”), a Mississippi based company, and joint venture interests in China, Singapore and Brazil. On January 1, 2008, AETI established a wholly- owned subsidiary through which it conducts its American Access Technology segment’s business.

The Company has facilities and sales offices in Texas, Mississippi and Florida and in foreign joint ventures’ operations that have facilities in Singapore, Xian, China and Macae, Brazil. The Company owns the Beaumont, Texas facilities, comprised of 9 acres and 85,000 square feet, the Mississippi facility, comprised of 3 acres and 11,000 square feet and the Florida facility, comprised of a 67,500 square foot manufacturing facility situated on 9.7 acres of land. At December 31, 2013, the current Houston office was sold and is being leased with 3 acres and 26,000 square feet of office and shop.

American Electric Technologies, Inc. is comprised of three segments: Technical Products and Services (“TP&S”), Electrical and Instrumentation Construction (“E&I”) and American Access Technologies (“AAT”). The TP&S segment designs, manufactures, markets and provides products designed to distribute the flow of electricity and protect electrical equipment such as motors, transformers and cables, and also provides variable speed drives to both AC (“alternating current”) and DC (“direct current”) motors. Products offered by this segment include low and medium voltage switchgear, generator control and distribution switchgear, motor control centers, powerhouses, bus duct, variable frequency AC drives, variable speed DC drives, program logic control (“PLC”) based automation systems, human machine interface (“HMI”) and specialty panels. The products are built for application voltages from 480 volts to 40,000 volts and are used in a wide variety of industries, including renewable energy. Services provided by TP&S include electrical equipment retrofits, upgrades, startups, testing and troubleshooting of substations, switchgear, drives and control systems.

The E&I segment provides a full range of electrical and instrumentation construction and installation services to both land and marine based markets of the oil and gas industry and other commercial and industrial markets. The E&I segment provides services on both a fixed-price and a time-and-materials basis. The segment’s services include electrical and instrumentation turnarounds, maintenance, renovation and new construction. Applications include installation of switchgear, AC and DC motors, drives, motor controls, lighting systems, high voltage cable, and data centers. Marine based oil and gas services include complete electrical system rig-ups, modifications, start-ups and testing for vessels, drilling rigs, and production modules. These services can be manufactured and installed utilizing NEMA and ANSI or IEC equipment to meet ABS, USCG, Lloyd’s Register, a provider of marine certification services, and DNV standards.

The AAT segment manufactures and markets zone cabling enclosures and manufactures formed metals products. The zone cabling product line develops and manufactures patented “zone cabling” and wireless telecommunication enclosures. These enclosures mount in ceilings, walls, raised floors, and certain modular furniture to facilitate the routing of telecommunications network cabling, fiber optics and wireless solutions to the workspace environment. AAT also operates a precision sheet metal fabrication and assembly operation and provides services such as precision “CNC” (“Computer Numerical Controlled”) stamping, bending, assembling, painting, powder coating and silk screening to a diverse client base including, but not limited to, engineering, technology and electronics companies, primarily in the Southeast region of the United States.

M&I’s wholly-owned subsidiary, SC, is a Delaware Limited Liability Company organized on February 20, 2003. With the exception of electrical contracting, it is engaged in the same lines of business as M&I, but it participates in different market segments.

M&I has foreign joint ventures’ interests in M&I Electric Far East PTE Ltd. (“MIEFE”), BOMAY Electrical Industries Company, Ltd. (“BOMAY”) and AETI Alliance Group do Brazil Sistemas E Servicos Em Energia LTDA (“AAG”). MIEFE is a Singapore company that provides sales, manufacturing and technical support internationally. BOMAY provides electrical systems primarily for land and marine based drilling rigs in China. AAG provides electrical products and services to the Brazilian energy industries. These ventures are accounted for using the equity method of accounting.

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Notes Payable - Additional Information (Detail) (Revolving Credit Facility One, USD $) In Millions, unless otherwise specified	12 Months Ended		12 Months Ended			12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Prior to July 27, 2012	Dec. 31, 2013 London Interbank Offered Rate (LIBOR)	May 01, 2012 London Interbank Offered Rate (LIBOR)	Dec. 31, 2013 London Interbank Offered Rate (LIBOR) Prior to July 27, 2012
Line Of Credit Facility [Line Items]
Borrowed under the agreement	$ 0.5	$ 0.5
Additional borrowings available based on the Company's borrowing	7.9	6.9
Revolving credit line	10.0
Revolving credit agreement maturity date	Oct. 01, 2015
Leverage test of total liabilities to total net worth	1.00
Fixed Charge Coverage Ratio	1.25
Credit facility's interest rate, Description	credit facility’s interest rate is LIBOR plus 3.25% per annum		interest rate on the Company’s borrowings was 30 day LIBOR rate plus 2.75% per year
Credit facility's interest rate				3.25%		2.75%
Commitment fee of the unused portion of the credit				0.30%
Preferred stock, at redemption value					$ 5

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Segment Reporting - Selected Financial Details Regarding the Company's Reportable Segments (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Net sales	$ 18,146	$ 17,585	$ 15,169	$ 14,430	$ 15,035	$ 11,725	$ 12,872	$ 14,432	$ 65,330	$ 54,065
Gross profit (loss)	3,572	2,867	2,396	2,980	2,490	1,689	2,172	1,772	11,815	8,123
Income (loss) from domestic operations									2,450	419
Net equity income from foreign joint ventures' operations									2,757	2,745
Foreign joint ventures' operations related expenses									267	343
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations									5,207	3,164
Technical Products and Services
Segment Reporting Information [Line Items]
Net sales									49,150	38,973
Gross profit (loss)									9,072	6,649
Income (loss) from domestic operations									8,061	6,012
Electrical and Instrumentation Construction
Segment Reporting Information [Line Items]
Net sales									10,089	9,196
Gross profit (loss)									2,095	513
Income (loss) from domestic operations									2,096	513
American Access Technologies
Segment Reporting Information [Line Items]
Net sales									6,091	5,896
Gross profit (loss)									648	961
Income (loss) from domestic operations									(712)	(484)
Corporate and other unallocated expenses
Segment Reporting Information [Line Items]
Income (loss) from domestic operations									(6,995)	(5,622)
BOMAY
Segment Reporting Information [Line Items]
Net equity income from foreign joint ventures' operations									2,066	2,569
MIEFE
Segment Reporting Information [Line Items]
Net equity income from foreign joint ventures' operations									115	16
AAG
Segment Reporting Information [Line Items]
Net equity income from foreign joint ventures' operations									843	503
Foreign Operations
Segment Reporting Information [Line Items]
Foreign joint ventures' operations related expenses									$ 267	$ 343

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Principles of Consolidation

Principles of Consolidation  

The accompanying consolidated financial statements include the accounts of AETI and its wholly-owned subsidiaries, M&I and AAT, and M&I’s wholly-owned subsidiary SC. Significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by management include:

· Percentage-of-completion estimates on long-term contracts

· Estimates of the provision for doubtful accounts

· Estimated useful lives of property and equipment

· Valuation allowances related to deferred tax assets

Financial Instruments

Financial Instruments

The Company includes fair value information in the notes to the consolidated financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made, which is the case for financial instruments outstanding as of December 31, 2013 and 2012. The Company assumes the book value of those financial instruments that are classified as current approximates fair value because of the short maturity of these instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash balances routinely exceed FDIC limits however all cash is maintained in JP Morgan Chase and believed to be secure.

Accounts Receivable and Provision for Bad Debts

Accounts Receivable and Provision for Bad Debts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The estimate is based on management’s assessment of the collectability of specific customer accounts and includes consideration for credit worthiness and financial condition of those specific customers. The Company also reviews historical experience with the customer, the general economic environment and the aging of its receivables. The Company records an allowance to reduce receivables to the amount it reasonably believes to be collectible. Based on this assessment, management believes the allowance for doubtful accounts is adequate.

Inventories

Inventories

Inventories are stated at the lower of cost or market, with material value determined using an average cost method. Inventory costs for finished goods and work-in-process include direct material, direct labor, production overhead and outside services. TP&S and E&I indirect overhead is apportioned to work in process based on direct labor incurred. AAT production overhead, including indirect labor, is allocated to finished goods and work-in-process based on material consumption, which is an estimate that could be subject to change in the near term as additional information is obtained and as the operating environment changes.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred while renewals and betterments are capitalized. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets after giving effect to salvage values.

If events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests property and equipment for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. Events that would trigger an impairment test include the following:

- A significant decrease in the market price of a long-lived asset.

- A significant change in the use of long-lived assets or in its physical condition.

- A significant change in the business climate that could affect an assets value.

- An accumulation of cost significantly greater than the amount originally expected to acquire or construct a long-lived asset.

· A current period operating or cash flow loss combined with a history of such losses or a forecast demonstrating continued losses associated with the use of a long-lived asset.

· An expectation to sell or otherwise dispose of a long-lived asset significantly before the end of its estimated useful life.

Based on management’s reviews during each of the years ended December 31, 2013 and 2012, there were no events or circumstances that caused management to believe that impairments were necessary.

Other Assets

Other Assets

Intangible Assets at December 31, 2013	Useful Lives (Years)		Cost		Accumulated Amortization		Net Value
	(in thousands)
Patents		18	$	95	$	77	$	18
Customer agreements		10		173		148		25
Intellectual property		3		322		197		125
			$	590	$	422	$	168

Amortization expense related to intangible assets held by the Company for the year ended December 31, 2013 was approximately $130,000 and was approximately $113,000 in 2012. Estimated amortization expense for the next five years is as follows:

For the Year Ending December 31,	Amount
	(in thousands)
2014	$	132
2015		31
2016		5
2017		-
2018		-
	$	168

Income Taxes

On March 8, 2012, the Company acquired certain technology from Amnor Technologies, Inc. for cash of $100,000 plus 44,000 shares of the Company’s common stock valued at $4.95 per share (the closing price on that date). One fourth of the shares were issued initially with the balance to be issued one third annually on the anniversaries over the subsequent 3 years. The purchase price was valued at $322,000 (including $4,000 of transaction costs) at March 8, 2012 and is recorded as an intangible asset and included in other assets in the consolidated balance sheet at December 31, 2012. This cost is being amortized over its estimated useful life of 3 years. Amortization expense of $108,000 and $90,000 was recognized during the years ended December 31, 2013 and 2012 respectively and is included in general and administrative expenses in the consolidated statements of operations.

The technology provides automation and control system technologies for land and offshore drilling monitoring and control (auto-driller); marine automation including ballast control and tank monitoring and machinery plant control and monitoring systems; IP-based CCTV systems; and military vessel security and safety systems, all proven in multiple installations.

Income Taxes

The Company uses the asset and liability method to account for income taxes. Under this method of accounting for income taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reported to the taxing authority. The Company also records any financial statement recognition and disclosure requirements for uncertain tax positions taken or expected to be taken in its tax return. Financial statement recognition of the tax position is dependent on an assessment of a 50% or greater likelihood that the tax position will be sustained upon examination, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions are recorded as interest expense in the accompanying consolidated statements of operations.

Foreign Currency Gains and Losses

Foreign Currency Gains and Losses

Foreign currency translations are included as a separate component of comprehensive income. We have determined the local currency of our foreign joint ventures’ operations to be the functional currency. In accordance with ASC 830, the assets and liabilities of our foreign equity investees, denominated in foreign currency, are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date; net sales and expenses are translated at the average exchange rate for the period. Related translation adjustments are reported as other comprehensive income, net of taxes, which is a separate component of stockholders’ equity, whereas gains and losses resulting from foreign currency transactions are included in results of operations.

Net Sales Recognition

Net Sales Recognition

The Company reports earnings from fixed-price and modified fixed-price long-term contracts on the percentage-of-completion method. Earnings are accrued based on the ratio of costs incurred to total estimated costs. However, for TP&S, we have determined that labor incurred provides an improved measure of percentage-of-completion. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined. A contract is considered complete when all costs except insignificant items have been incurred and the facility has been accepted by the customer. Net sales from non-time and material jobs of a short-term nature (typically less than one month) are recognized on the completed-contract method after considering the attributes of such contracts. This method is used because these contracts are typically completed in a short period of time and the financial position and results of operations do not vary materially from those which would result from use of the percentage-of-completion method.

The Company records net sales from its field and technical service and repair operations on a completed service basis after customer acknowledgement that the service has been completed and accepted. Approximately 8% of the Company’s consolidated net sales are recorded on this basis. In addition, the Company sells certain purchased parts and products. These net sales are recorded when the product is shipped and title passes to the customer. Approximately 3% of the Company’s consolidated net sales are recorded on this basis. AAT generally recognizes net sales when manufactured products are shipped and right of ownership passes.

The asset, “Work-in-process,” which is included in inventories, represents the cost of labor, material, and overhead in excess of amounts billed on jobs accounted for under the completed-contract method. For contracts accounted for under the percentage-of-completion method, the asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents net sales recognized in excess of amounts billed and the liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of net sales recognized. Any billed net sale that has not been collected is reported as accounts receivable. The timing of when we bill our customers is generally dependent upon advance billing terms or completion of certain phases of the work. At December 31, 2013 and 2012, accounts receivable included contract retentions expected to be collected within one year totaling $10,000 and $424,000, respectively. This decline reflects the exit from water/wastewater contracts. At December 31, 2013 and 2012, the Company had no contract retentions expected to be collected beyond one year.  

On occasion, the Company enters into long-term contracts that include services performed by more than one operating segment particularly TP&S contracts which include electrical and instrumentation construction services performed by our E&I segment. The Company segments net sales, costs and gross profit related to these contracts if they meet the contract segmenting criteria in ASC 605-35, including that the terms and scope of the project clearly call for separate elements, the separate elements are often bid or negotiated by the Company separately and the total economic returns and risks of the separate elements are similar to the economic returns and risks of the overall contract. For segmented contracts, the Company recognizes net sales as if they were separate contracts over the performance periods of the individual elements.

Contract net sales recognition inherently involves estimation, including the contemplated level of effort to accomplish the tasks under the contract, the cost of the effort, and an ongoing assessment of progress toward completing the contract. From time to time, as part of the normal management processes, facts develop that requires revisions to estimated total cost or net sales expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on contracts are recognized in the period in which they become known.

Shipping and Handling Fees and Costs

Shipping and Handling Fees and Costs

Shipping and handling fees, if billed to customers, are included in net sales. Shipping and handling costs associated with inbound freight are expensed as incurred. Shipping and handling costs associated with outbound freight are classified as cost of sales.

Concentration of Market Risk and Geographic Operations

Concentration of Market Risk and Geographic Operations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company’s market risk is dependent primarily on the strength of the oil and gas and energy related industries. The Company grants credit to customers and generally does not require security except in the case of certain international contracts. Procedures are in effect to monitor the credit worthiness of its customers. During 2012, one customer accounted for approximately 13% of net sales and 1% of net accounts receivable trade. During 2013, one customer accounted for approximately 17% of net sales and 9% of net accounts receivable trade.

The Company sells its products and services in domestic and international markets; however, significant portions of the Company’s sales are concentrated with customers located in the Gulf Coast region of the United States. The Gulf Coast region accounts for approximately 9% of the Company’s net sales during the year ended December 31, 2013 and 17% during 2012.

Reclassification

Reclassification

Certain items are reclassified in the 2012 consolidated financial statements to conform to the 2013 presentation.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 was issued to provide enhanced disclosures that will enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments under ASU No. 2011-11 require enhanced disclosures by requiring entities to disclose both gross information and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU No. 2011-11 is effective retrospectively for annual periods beginning on or after January 1, 2013, and interim periods within those periods. The adoption of ASU No. 2011-11 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In July 2012, the FASB issued ASU No. 2012-02, Intangible - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely than not threshold is defined as having a likelihood of more than 50 percent. Under ASU No. 2012-02, an entity is not required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines it is more likely than not that its fair value is less than its carrying value. ASU No. 2012-02 is effective for annual periods beginning after September 15, 2012. The adoption of ASU No. 2012-02 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU No. 2013-01 was issued to clarify that ordinary trade receivables and receivables are not within the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netter arrangement or similar agreement. ASU No. 2013-01 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those periods. The adoption of ASU No. 2013-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) – Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU No. 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, ASU No. 2013-05 provides guidance on the release of cumulative translation adjustments in partial sales of equity method investments and in step acquisition. ASU No. 2013-05 is effective on a prospective basis for annual periods beginning after December 15, 2013 and interim periods within those periods. Management is currently evaluating the effects of ASU No. 2013-05 on the Company’s consolidated financial position and results of operations.

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Subsequent Event Brazil Dividend - Additional Information (USD $)	12 Months Ended				1 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 AAG	Dec. 31, 2012 AAG	Mar. 20, 2014 Subsequent Event AAG
Subsequent Event [Line Items]
Dividend distribution	$ 1,344,000	$ 1,008,000	$ 23,000		$ 830,000
Interest in Joint Venture			49.00%		49.00%

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Segment Reporting (Tables)

12 Months Ended

Dec. 31, 2013

Selected Financial Details Regarding the Company's Reportable Segments

The table below represents segment results for the years ended December 31, 2013, and 2012.

	2013			2012
Net sales:
Technical Products and Services	$	49,150		$	38,973
Electrical and Instrumentation Construction		10,089			9,196
American Access Technologies		6,091			5,896
	$	65,330		$	54,065
Gross profit (loss):
Technical Products and Services	$	9,072		$	6,649
Electrical and Instrumentation Construction		2,095			513
American Access Technologies		648			961
	$	11,815		$	8,123
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations
Technical Products and Services	$	8,061		$	6,012
Electrical and Instrumentation Construction		2,096			513
American Access Technologies		(712	)		(484	)
Corporate and other unallocated expenses		(6,995	)		(5,622	)
Income (loss) from domestic operations		2,450			419
Equity income from BOMAY		2,066			2,569
Equity income from MIEFE		115			16
Equity income (loss) from AAG		843			503
Foreign operations expenses		(267	)		(343	)
Net equity income from foreign joint ventures’ operations		2,757			2,745
Income (loss) from domestic operations and net equity income from foreign joint ventures’ operations	$	5,207		$	3,164

Quarterly Information for the Applicable Time Periods

The following table reflects the quarterly information for the applicable time periods.

	2013
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,430	$	15,169	$	17,585	$	18,146	$	65,330
Gross Profit		2,980		2,396		2,867		3,572		11,815
Net income (loss)		1,653		1,063		901		592		4,209
Earnings (loss) per share:
Basic	$	0.21	$	0.13	$	0.11	$	0.07	$	0.53

	2012
		Q1		Q2		Q3		Q4		Total
Net Sales	$	14,432	$	12,872	$	11,725	$	15,035	$	54,065
Gross Profit		1,772		2,172		1,689		2,490		8,123
Net income (loss)		334		761		500		487		2,084
Earnings (loss) per share:
Basic	$	0.04	$	0.10	$	0.06	$	0.06	$	0.26

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Redeemable Convertible Preferred Stock

12 Months Ended

Dec. 31, 2013

Redeemable Convertible Preferred Stock

(11) Redeemable Convertible Preferred Stock

On April 13, 2012, the Company signed a securities purchase agreement (the “Securities Purchase Agreement”) with a private investor for the sale (the “Preferred Stock Financing”) of 1,000,000 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”) at $5.00 per share and 325,000 warrants to purchase shares of the Company’s common stock expiring in May 2020. The Series A Convertible Preferred Stock shares are initially convertible into 1,000,000 shares of the Company’s common stock at a conversion price of $5.00 per share. The warrants were issued in two tranches with 125,000 of such warrants at an initial exercise price of $6.00 per share and 200,000 of such warrants at an initial exercise price of $7.00 per share. On May 2, 2012, the Company completed the issuance of the Series A Convertible Preferred Stock and warrants.

On April 30, 2012, the Company filed an Articles of Amendment to its Articles of Incorporation designating 1,000,000 shares of the Company’s authorized preferred stock as Series A Convertible Preferred Stock. The Company also entered into a Registration Rights Agreement and Investor Rights Agreement with the private investor.

The Series A Convertible Preferred Stock ranks senior to all other equity instruments of the Company, including the Company’s common stock. The Series A Convertible Preferred Stock accrues cumulative dividends at a rate of 6% per annum, whether or not dividends have been declared by the Board of Directors and whether or not there are profits, surplus or other funds available for the payment of such dividends. The Company may pay such dividends in shares of the Company’s common stock based on the then current market price of the common stock. At any time following a material default by the Company, as defined in the Securities Purchase Agreement, or April 30, 2017, the holders of a majority of the outstanding shares of the Series A Convertible Preferred Stock may require the Company to redeem the Series A Convertible Preferred Stock at a redemption price equal to the lessor of (i) the liquidation preference per share (initially $5.00 per share, subject to adjustments for certain future equity transactions defined in the Securities Purchase Agreement) and (ii) the fair market value of the Series A Convertible Preferred Stock per share, as determined in good faith by the Company’s Board of Directors. The redemption price, plus any accrued and unpaid dividends, shall be payable in 36 equal monthly installments plus interest at an annual rate of 6%.

On May 1, 2012, the Company and Chase executed a consent and amendment to our revolving credit agreement, whereby Chase as lender agreed to consent to the Securities Purchase Agreement; the issuance and sale of the Series A Convertible Preferred Stock and warrants; the payment of the preferred dividends required; and the redemption of the Series A Convertible Preferred Stock, all subject to the terms and conditions set forth in the agreements and the associated Amended Articles of Incorporation.

The preferred stock and warrants were issued for a total of $5.0 million. This amount was allocated to the preferred stock and warrants based on their relative fair values. The fair value of the warrants was calculated using the Black Scholes-Merton pricing model using the following weighted average assumptions:

Number of warrants		325,000
Exercise price	$	6.62
Expected volatility of underlying stock		74	%
Risk-free interest rate		1.62	%
Dividend yield		0	%
Expected life of warrants		8 years
Weighted-average fair value of warrants	$	3.11
Expiration date		May 2, 2020

Based on these calculations and the actual consideration, the warrants were valued at $840,000 and the Series A Convertible Preferred Stock was valued at $4,160,000.

The initial values allocated to the warrants were recognized as a discount on the Series A Convertible Preferred Stock, with a corresponding charge to additional paid-in capital. The discount related to the warrants is accreted to retained earnings through the scheduled redemption date of the mandatorily redeemable Series A Convertible Preferred Stock. Discount accretion for the year 2013 totaled $42 and $34 in 2012.