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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**___________________**FORM 10-QSB/A**_________________________

**ý                                QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the quarterly period endedMarch 31, 2006

  

OR

  

** ̈                                TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the transition period from               to              

  

Commission File No.:0-25223

**AMERICANINTERNATIONAL INDUSTRIES, INC.**(Exact Name Of RegistrantAs Specified In Its Charter)
| Nevada                                      | 88-0326480                              |
|---------------------------------------------|-----------------------------------------|
| (State of Incorporation)                    | (I.R.S. Employer    Identification No.) |
|                                        |                                    |
| 601    Cien Street, Suite 235, Kemah, TX    | 77565-3077                              |
| (Address of Principal    Executive Offices) | (ZIP Code)                              |

 Registrant'sTelephone Number, Including Area Code: (281) 334-9479

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  **x**  No ** ̈**

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes  ̈ No x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.
| Large accelerated    filer  ̈ | Accelerated filer  ̈  | Non-accelerated    filer x |
|----------------------------------|-------------------------------|--------------------------------|

At March 31, 2006,the Registrant had 4,346,933 shares of common stock issued.

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**TABLE OF CONTENTS**
| Item                               | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 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| **PART I - FINANCIAL INFORMATION** |
|                                    |
| ITEM 1.                            |    FINANCIAL    STATEMENTS.
        3  
ITEM 2.

   MANAGEMENT'S    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION.
        3   
ITEM 3.

      CONTROLS AND PROCEDURES.
        4   
**PART II - OTHER INFORMATION**

ITEM 1.

      LEGAL PROCEEDINGS.
        5  
ITEM 2.

      CHANGES IN SECURITIES.
        5   
ITEM 3.

      DEFAULT UPON SENIOR SECURITIES.
        5   
ITEM 4.

      SUBMISSION OF    MATERS TO A VOTE OF SECURITY HOLDERS.
        5   
ITEM 5.

      OTHER INFORMATION.
        5   ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.5
 
****
**PART I - FINANCIAL INFORMATION**

ITEM 1. FINANCIAL STATEMENTS****Back toTable of Contents

The Registrant reports that its Form 10-QSB for the periodended March 31, 2006, filed on May 22, 2006, was filed before the independent accountantcompleted their review. As a result, the Registrant is filing this amended quarterlyreport on Form 10-QSB/A for the period ended March 31, 2006, which reflects materialadjustments to the previously filed quarterly financial statements contained in the March31, 2006 Form 10-QSB, including but not limited to a decrease in net loss and net loss pershare.

The Registrant's financialstatements for the three-month periods ended March 31, 2006 and 2005 are attached to thisquarterly report.

Financial Statements

ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION****Backto Table of Contents

Forward-Looking Statements; Market Data

As used in this Quarterly Report, the terms "we","us", "our" "AIII" and the "Company" meansAmerican International Industries, Inc., a Nevada corporation, and its subsidiaries. Tothe extent that we make any forward-looking statements in the "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" in thisQuarterly Report, we emphasize that forward-looking statements involve risks anduncertainties and our actual results may differ materially from those expressed or impliedby our forward-looking statements. Our forward-looking statements in this Quarterly Reportreflect our current views about future events and are based on assumptions and are subjectto risks and uncertainties. Generally, forward-looking statements include phrases withwords such as "expect", "anticipate", "intend","plan", "believe", "seek", "estimate" and similarexpressions to identify forward-looking statements.
**Overview

We are a holding company and have two reportable segments and corporate overhead: (1)industrial/commercial and (2) oil and gas. The industrial/commercial segment includes:(1)  industrial/ commercial (a) Northeastern Plastics, Inc. ("NPI") awholly-owned subsidiary, which is a supplier of automotive after-market and consumerelectrical products; and  b) through our 81.09% subsidiary, International AmericanTechnologies, Inc. ("IMTG), a publicly traded entity (f/k/a Unlimited CoatingsCorporation), which entered into an agreement to acquire 51% of Hammonds TechnicalServices, Inc. ("Hammonds"), a manufacturer of water treatment equipment, fuelinjectors, fuel additives and Hammonds new omni directional vehicle (ODV); and (2) the oiland gas related services segment owns an oil, gas and mineral royalty interest inWashington County, Texas, carried on the Company's books at $0, and Delta Seaboard WellServices, Inc. ("Delta"), which is engaged in the oil and gas drilling equipmentand service business.

On February 28, 2005, IMTG, our 81.0% owned subsidiary, entered into an agreement toacquire 51% of Hammonds, which agreement closed in April, 2005. Hammonds is in thebusiness of water treatment, fuel handling equipment for the military and industrialcustomers, a provider of fuel injection services for the aviation industry and thedesigner of a new omni directional vehicle for a wide variety of uses. The historicalfinancial statements of AIII include the acquisitions of acquired companies as of theeffective dates of the purchases and the results of those companies subsequent toacquisition, as these transactions were accounted for under the purchase method ofaccounting. The acquisitions of certain subsidiaries were accounted for using the purchasemethod of accounting, whereby the purchase price of the acquisition was allocated based onthe fair market value of the assets acquired and liabilities assumed. If the purchaseprice exceeded the net fair market value of the assets acquired, any remaining purchaseprice was allocated to goodwill. In addition, certain subsidiaries were accounted forusing the historical cost basis of the predecessor.

The Company takes an active role in the subsidiary companies it acquires, in order tofoster growth and profitability by providing its financial resources and managementexpertise. American International Industries has industrial/commercial and oil and gasassets and operations in and around the Houston, Texas area. Each of these portfoliocompanies is expected to grow in its particular market or industry. By operating as aholding company, we provide both financial assistance and professional business expertiseand management services to our subsidiaries. Our role is to improve each portfoliocompany's access to capital, help them benefit from the economies of scale through theconsolidation of administrative functions, and provide management expertise from eachcompany's corporate personnel.

We encounter substantial competition in each of our subsidiaries product and serviceareas. Such competition is expected to continue. Depending on the particular marketinvolved, our subsidiaries compete on a variety of factors, such as price, quality,delivery, customer service, performance, product innovation and product recognition. Othercompetitive factors for certain products include breadth of product line, research anddevelopment efforts and technical and managerial capability.

Corporate overhead includes our investment activities including financing currentoperations and expansion of our current holdings, as well as evaluating the feasibility ofentering into additional businesses. Our discussion under "Results ofOperations" and "Liquidity and Capital Resources" below is on aconsolidated basis. For reference to "Industry Segments". See Note 6 to theNotes to Consolidated Financial Statements under Item 1, Financial Statements above.Results of Operations - American International Industries, Inc. - Consolidated.

**Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005.**

Our revenues for the three months ended March 31, 2006 were $6,859,882, compared torevenues of $4,115,699 for the same three months of 2005, or an increase of 66.7%. Theincrease is due to increased revenues of Delta, from $2,768,943 to $3,842,433 or anincrease of 38.8% and an increase in revenues of NPI, from $1,346,769 to $1,692,280 or anincrease of 25.7% and the addition of IMTG ("Hammonds") whose revenues for theperiod ended March 31, 2006 were $1,325,169. Cost of sales increased from $2,427,835 to$4,316,213, which increase was primarily due to the costs associated with the sales byHammonds, which was acquired in April 2005, and increased costs of sales associated withincreased revenues at both NPI and Delta. The selling, general and administrative expensesduring the three-month period ended March 31, 2006 were $2,861,872 compared to $1,117,823for the three months ended March 31, 2005.The increase is due to the increase in overheadassociated with the increase in revenues, the additional costs associated with Hammondsand very high accounting fees.

Our consolidated net loss for the three-month period ended March 31, 2006 was $683,663,compared to consolidated net loss of $1,658,943 for the comparable period of the prioryear, representing a decline in net loss of approximately $975,000.

NPI acquired the rights to market certain of its products under the name MOTORTRENDTM and we believe that with the recent MOTOR TRENDTM marketing agreement,NPI's revenues should increase substantially during the remainder of fiscal 2006. NPIrecently was granted the license to use the Good Housekeeping Seal of ApprovalTM oncertain of its electrical products and believes that this license shall also improve itsrevenues during the 2006 fiscal year.

**Liquidity and Capital Resources**

Total assets at March 31, 2006 were $29,532,771 compared to $30,163,349 at December 31,2005. Total liabilities at March 31, 2006 were $17,106,756, compared to $17,264,410 atDecember 31, 2005. At March 31, 2006, consolidated working capital was $4,803,581 comparedto working capital of $7,929,567 at December 31, 2005. Our consolidated cash position atMarch 31, 2006 was $3,126,144 compared to $2,709,105 at December 31, 2005.

For the three months ended March 31, 2006, we had negative cash flow from operations of$20,451 compared to cash flow from operations of $400,014 during the same period of theprior year. Our net loss of $683,663 was offset by non-cash compensation of $210,739,depreciation and amortization expenses of $229,664 and a minority interest in the amountof $239,430. Our negative cash flow from operations was also attributable to a decrease inaccounts receivable by $632,007, an increase in inventories of $551,180, an increase inprepaid expenses of $234,547 and a decrease in accounts payable of $26,601.

Our investing activities provided $854,635 during the three-month period ended March31, 2006, compared to cash provided by investing activities during the same period in theprior year in the amount of $223,318. Investment cash was provided by the redemption of acertificate of deposit in the amount of $1,000,000 during the period ended March 31, 2006compared to $300,000 during the same period of the prior year. We used cash in the amountof $330,339 for the purchase of land and a building for a subsidiary during the threemonths ended March 31, 2006 compared to $1,684 during the same period of the prior year.We used $417,145 during the period ended March 31, 2006 to pay down lines of credit andlong-term debt compared to $502,823 during the same period of 2005.

Our balance sheet reflects a real estate asset at its historical cost of $225,000 dueto GAAP accounting rules applicable to the fact that it was acquired from a related party.The Company believes that the current value of this real estate is significantly higherthan the historic cost basis of this property.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of March 31, 2006,the Company's chief executive officer and chief financial officer conducted an evaluationregarding the effectiveness of the Company's disclosure controls and procedures (asdefined in Rules 13a-15(e) or 15d-15(e) under the  Exchange Act. Based upon theevaluation of these controls and procedures, our president/chief executive officer andchief financial officer concluded that our disclosure controls and procedures wereineffective as of March 31, 2006. The president/chief executive officer and chieffinancial officer determined that the Company did not maintain effective controls over thefinancial reporting process due to an insufficient complement of personnel with anappropriate level of accounting knowledge, experience and training in the application ofgenerally accepted accounting principles commensurate with its financial reportingrequirements and the complexity of the Company’s operations and transactions. TheCompany did not maintain effective controls to ensure that there were adequate analysis,documentation, reconciliation and review of the accounting records and supporting data andmonitoring and oversight of the work performed by the completeness of the consolidatedfinancial statements in accordance with generally accepted accounting principles.Specifically, the Company did not have effective controls designed and in place over theconsolidation of the financial statements of its subsidiaries.

**PART II - OTHER INFORMATION**

ITEM 1. LEGAL PROCEEDINGS****Back toTable of Contents

None.

ITEM 2. CHANGES IN SECURITIES****Back to Tableof Contents

None.

ITEM 3. DEFAULTS UPON SENIORSECURITIES****Back to Table of Contents

None.

ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS****Back toTable of Contents

None.

ITEM 5. OTHER INFORMATION****Back toTable of Contents

None.

ITEM6. EXHIBITS AND REPORTS ON FORM 8-K****Back to Table of Contents

(a) The following documents are filed as exhibits tothis report on Form 10-QSB or incorporated by reference herein. Any document incorporatedby reference is identified by a parenthetical reference to the SEC filing that includedsuch document.
**Exhibit    No.**
**Description**31.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200231.2
Certification    of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200232.2Certification of Chief    Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K During the Period Covered by this Report:

The Registrant has not filed a Form 8-K during the period ended March31, 2006.

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and on the dateindicated.

/s/ DANIEL DROR   CEO, PRESIDENT AND CHAIRMAN   *Dated: May 31, 2006*

/s/ GARY D. WOERZ   CHIEF FINANCIAL OFFICER   *Dated: May 31, 2006*

 

**FinancialStatements**Back to Table of Contents
Consolidated    Financial Statements   Consolidated Balance Sheets - March  31, 2006    (Unaudited) and December 31, 2005 (Audited)8   Unaudited Consolidated Statements of    Operations - Three months ended March 31, 2006 and 20059   Unaudited Consolidated Statement of Cash    Flows - Three months ended March 31, 2006 and 200510Notes to Unaudited Consolidated    Financial Statements11 
 
**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance SheetsBack to Table of Contents
March 31, 2006    and December 31, 2005   
**2006**
**2005**
(Unaudited)
AssetsCurrent    assets:      Cash and cash equivalents
$
3,126,144
$
2,709,105      Certificate of deposit
1,000,000 
2,000,000      Trading securities
930,808
1,061,259      Accounts receivable, less allowance for doubtful accounts of         $299,732 in 2006 and $322,365 in 2005
4,511,891
5,143,899      Current portion notes receivable
255,323
249,096      Accounts and notes receivable from related parties
141,664
95,001      Inventories net of a reserve of $558,975
5,240,579
4,689,399      Real estate acquired for resale
225,000
225,000      Drilling rigs held for sale
325,753
325,753      Prepaid expenses and other current assets
429,837
195,290        Total current assets
16,186,999
16,693,802      Notes    receivable, less current portion
3,677,485
3,868,686Property and    equipment, net of accumulated       depreciation and amortization
6,484,193
6,293,674Goodwill
674,539
674,539Patents and    trademarks, net of amortization
2,446,419
2,536,263Other assets
63,136
96,385        Total assets
$
29,532,771
$
30,163,349   
Liabilities and    Stockholders’ Equity   Current liabilities:   Accounts payable and    accrued expenses
$
3,766,861
$
3,793,462   Short-term notes    payable
7,039,168
4,257,469   Margin loans
406,949
406,949   Current installments    of long-term debt 
170,440
306,355     Total    current liabilities 
11,383,418
8,764,235  Long-term debt, less current    installments
3,376,940
6,393,206Deferred tax liability
503,200
503,200Minority interest
1,843,198
1,603,769     Total    liabilities
17,106,756
17,264,410   Stockholders' equity:   Preferred stock, $.001    par value. Authorized 1,000,000 shares:     none    issued.
-
-   Common stock, $.001    par value. Authorized 10,000,000 shares:     4,346,933    shares issued and 4,341,533 shares outstanding     at March    31, 2006; 4,318,660 shares issued and     4,313,260    shares outstanding at December 31, 2005
4,347
4,319   Additional paid-in    capital 
28,600,302
28,389,591   Accumulated deficit
(16,131,103)
(15,447,440)  
12,473,546
12,946,470   Less treasury stock,    at cost (5,400 shares)
(47,531)
(47,531)     Total    stockholders' equity
12,426,015
12,898,939           Total    liabilities and stockholders' equity 
$
29,532,771
$
30,163,349  See accompanying notes to unaudited    consolidated financial statements.**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of OperationsBack to Table of Contents
Three months    ended March 31, 2006 and 2005
(Unaudited)  
**2006**
**2005**
(Unaudited    Restated)Revenues
$
6,859,882
$
4,115,699   Costs and expenses:      Cost of    sales 
4,316,213
2,427,835     Selling,    general and administrative 
2,861,872
1,117,823          Total operating expenses 
7,178,085
3,545,651             Operating income (loss)
(318,203)
570,041   Other income (expenses):    Interest income
60,238
72,007   Realized gains    (losses) on marketable trading securities 
-
11,700   Unrealized losses on    marketable trading securities 
(9,549)
(2,006,432)   Interest expense 
(170,274)
(62,821)   Other income (loss)
(6,445)
-          Total other income (expenses) 
(126,030)
(1,985,546)             Net income (loss) from operations before            income taxes and minority interest 
(444,233)
(1,415,505)  Provision for income taxes 
-
-   Minority interest 
(239,430)
(194,688)     Net loss 
(683,663)
(1,610,193)   Preferred dividends    paid 
-
(48,750)        Net loss applicable to    common shareholders 
$
(683,663)
$
(1,658,943)   Net loss per share applicable to    common shareholders:    Basic and diluted
$
(0.16)
$
(0.57)    Weighted average common shares:    Basic and diluted
4,346,933
2,920,325   See accompanying notes to unaudited    consolidated financial statements. **AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash FlowsBack to Table of Contents
Three months    ended March 31, 2006 and 2005
(Unaudited)   
**2006**
**2,005**  
(Unaudited    Restated) Cash flows from operating    activities: 
   Net loss 
$
(683,663)
$
(1,610,193)   Adjustments to    reconcile net loss to net cash provided by      (used in)    operating activities:         Depreciation and amortization 
229,664
20,328     Common    stock issued for services 
210,739
113,450     Realized    gain on trading securities 
-
(11,700)     Unrealized    losses on trading securities 
(9,549)
2,018,132     Minority    interest 
239,430
194,688   (Increase) decrease in    operating assets:      Trading    securities 
140,000
778,461     Accounts    receivable 
632,007
697,640        Inventories 
(551,180)
(2,044,641)     Prepaid    expenses and other current assets 
(234,547)
(221,896)     Other    assets 
33,249
(20,213)   Increase (decrease) in    operating liabilities:      Accounts    payable and accrued expenses 
(26,601)
485,958          Net cash provided by (used in) operating activities 
(20,451)
400,014  Cash flows from investing    activities:    Purchase of property,    equipment and intangibles
(330,339)
(1,684)   Proceeds of the sale    of investments
-
118,862   Redemption of    certificate of deposit 
1,000,000
300,000   Accounts receivable    from related parties 
-
11,575   Long-term notes    receivable 
184,974
(205,435)          Net cash provided by (used in) investing activities 
854,635
223,318  Cash flows from financing    activities:    Net borrowing    (repayments) under line of credit agreements 
(199,999)
100,000   Proceeds from    long-term debt 
23,319
40,422   Principal payments on    long-term debt 
(193,802)
(10,219)   Addition to (repayment    of) short-term borrowings to related party 
(46,663)
(584,276)   Payment of dividends    on preferred stock 
- 
(48,750)          Net cash provided by (used in) financing activities 
(417,145)
(502,823)            Net increase (decrease) in cash 
417,039
120,509  Cash at beginning of year 
2,709,105
5,079,873Cash at end of period 
$
3,126,144
$
5,200,382  Supplemental schedule of cash flow    information:    Interest paid 
$
91,249
$
62,821  See accompanying notes to unaudited    consolidated financial statements. 
**American International Industries, Inc.**Back toTable of Contents****Notes to UnauditedConsolidated Financial Statements

**(1) General**

American International Industries, Inc. (the "Company"),operates as a diversified holding company with a number of wholly-owned subsidiaries andtwo majority-owned subsidiary.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries: Northeastern Plastics, Inc., and Brenham Oil & Gas, Inc.,and its majority owned subsidiaries, Delta Seaboard Well Services, Inc. and InternationalAmerican Technologies, Inc. All significant intercompany transactionsand balances have been eliminated in consolidation.

The accompanying unaudited financial statements have been prepared in accordance withU. S. generally accepted accounting principles ("GAAP") for interim financialinformation and with the instructions to Form 10-QSB. Accordingly, they do not include allof the information and footnotes required by GAAP for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included. Operating results for thethree months period ended March 31, 2006 are not indicative of the results that may beexpected for the year ending December 31, 2006.

As contemplated by the Securities and Exchange Commission (SEC) under Rules ofRegulation S-B, the accompanying financial statements and related footnotes have beencondensed and do not contain certain information that will be included in the Company'sannual financial statements and footnotes thereto. For further information, refer to theCompany's audited consolidated financial statements and related footnotes thereto includedin the Company's annual report on Form 10-KSB for the year ended December 31, 2005.

**(2) Use of Estimates**

The preparation of financial statements in conformity with U. S. GAAP requiresmanagement to make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during thereporting period. Actual results could vary from those estimates.

**(3) Earnings Per Share**

Basic earnings per share are calculated on the weighted average number of common sharesoutstanding. The Company’s diluted earnings per share are the same as basic for thethree months ended March 31,2005 because the conversion of the preferred stock isanti-dilutive. There was not any preferred stock outstanding at March 31, 2006.

**(4) Income Taxes**

Income taxes for the interim periods were computed using the effective tax rateestimated to be applicable for the full fiscal year, which is subject to ongoing reviewand evaluation by management. The estimated federal income tax expense for the three-monthperiods ended March 31, 2006 and 2005 is eliminated by net operating loss carry forwards.

**(5) Employee Stock-Based Compensation**

The Company grants options to non-employees for goods and services and in conjunctionwith certain agreements. These grants are accounted for under FASB Statement No. 123,"*Accounting for Stock-Based Compensation*" based on the grant date fairvalues.

**(6) Industry Segments**

The Company has three reportable segments and corporate overhead:industrial/commercial, oil and gas, and real estate. The industrial/commercial segmentincludes (1) a supplier of automotive after-market products and (2) a holding company forfuture commercial ventures. The real estate segment includes sales of commercial realestate (undeveloped land). The oil and gas segment owns an oil, gas and mineral royaltyinterest in Washington County, Texas and an onshore rig-based well servicing contractingcompany providing service to the oil and gas industry. The corporate overhead includes theCompany's investment holdings including financing current operations and expansion of itscurrent holdings as well as evaluating the feasibility of entering into additionalbusinesses.

The Company's reportable segments are strategic business units that offer differenttechnology and marketing strategies. Most of the businesses were acquired as subsidiariesand the management at the time of the acquisition was retained.

Consolidated revenues, net operating losses for the three months ended March 31, 2006and 2005, and identifiable assets as of March 31, 2006 and 2005, were as follows:

**2006**
**2005**
Revenues:
      Industrial/Commercial
$
3,017,453
$
1,346,749
   Oil    and gas
3,842,429
2,768,943  
$
6,859,882
$
4,115,692
Operating income    (loss):
      Industrial/Commercial
(461,559)
(63,200)
   Oil    and gas
492,677
915,363
      Corporate
(349,321)
(282,122)  
$
(318,203)
$
570,041
Identifiable    assets:
      Industrial/Commercial
$
5,667,586
$
5,267,371
   Oil    and gas
7,114,140
5,492,383
      Corporate
16,751,045
10,288,694
$
29,532,771
$
21,048,448
The Company's areas of operations are in the United States.******** |