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

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

  

For the quarterly period endedMarch 31, 2007

  

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, 2007,the Registrant had 5,467,602 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.3ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL    CONDITION AND RESULTS OF OPERATION.20ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS22ITEM 4.CONTROLS AND    PROCEDURES.23  
**PART II - OTHER INFORMATION**  ITEM 1.LEGAL PROCEEDINGS.23ITEM 1A.RISK FACTORS23ITEM 2.UNREGISTERED    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS23ITEM 3.DEFAULT UPON SENIOR SECURITIES.23ITEM 4.SUBMISSION    OF MATERS TO A VOTE OF SECURITY HOLDERS.23ITEM 5.OTHER INFORMATION.23ITEM 6.EXHIBITS24
 
****
**PART I - FINANCIAL INFORMATION**

ITEM 1. FINANCIAL STATEMENTS****Back toTable of Contents
Condensed    Consolidated Financial Statements   Consolidated Balance Sheets - March 31, 2007    (Unaudited) and December 31, 2006 (Audited)4   Unaudited Consolidated Statements of    Operations - Three ended March 31, 2007 and 20065   Unaudited Consolidated Statement of Cash    Flows - Three months ended March 31, 2007 and 20066Notes to Unaudited Condensed Consolidated Financial    Statements7**AMERICAN    INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Balance SheetsBack to Table of ContentsMarch 31, 2007 and    December 31, 2006   **March 31, 2007****December 31, 2006**   
(Unaudited)
(Audited)
AssetsCurrent    assets:
   Cash and cash equivalents
$
3,651,902
$
3,275,803      Certificate of deposit6,025,0006,139,000      Trading securities858,772724,255      Accounts receivable, less allowance for doubtful accounts         of $232,307 at March 31, 2007 and December 31, 20064,060,0065,221,072      Current portion of notes receivable714,1661,021,593      Accounts and notes receivable from related parties235,000235,000      Inventories6,071,4045,303,418      Real estate acquired for resale225,000225,000      Drilling rigs held for sale187,611187,611      Prepaid expenses and other current assets532,589320,498     Total current assets22,561,45022,653,250      Long-term    notes receivable, less current portion4,068,3224,043,322Investment    in Whittingdon Oil & Gas6,0006,000Property    and equipment, net of accumulated depreciation and amortization3,298,3933,141,867Goodwill, less accumulated    amortization of  $205,295 at March 31,    2007 and December 31, 2006674,539674,539Patents    and trademarks, net of amortization5,877,1056,038,870Other    assets221,63339,083       Total assets$36,707,442$36,596,931
Liabilities and Stockholders' Equity  Current    liabilities:      Accounts payable and accrued expenses$3,568,058$3,667,108      Margin loans from financial institutions356,558341,058      Short-term notes payable1,141,767917,301      Current installments of long-term debt102,994102,580     Total current liabilities5,169,3775,028,047  Long-term    debt, less current installments7,324,1356,945,282Deferred    tax liability503,200503,200Minority    interest1,606,4311,558,395     Total liabilities14,603,14314,034,924  Stockholders'    equity:      Preferred stock, $0.001par value, 1,000,000 authorized: none issued      Common stock, $0.001 par value. Authorized 10,000,000 shares:         5,467,602 shares issued and 5,449,402 shares outstanding at March 31, 2007;        5,340,852 shares issued and 5,335,452 shares outstanding at December 31, 20065,4685,341      Additional paid-in capital37,480,36836,033,743      Accumulated deficit(15,276,066)(13,938,166)      Common stock issuance obligation-508,620  22,209,77022,609,538      Less treasury stock, at cost (18,200 shares at March 31, 2007          and 5,400 shares at December 31, 2006)(105,471)(47,531)        Total stockholders' equity22,104,29922,562,007     Total liabilities and stockholders' equity36,707,442
$36,596,931  The accompanying notes are an integral part of these consolidated financial    statements**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Statements of OperationsBack to Table of ContentsThree    months ended March 31, 2007 and 2006 (Unaudited)  **Three Months Ended**Three Months Ended   
**March 31, 2007**
**March 31, 2006**  Revenues****
$
6,612,570
$
6,859,882Costs and expenses:    Cost of sales 
4,603,524
4,316,213   Selling, general    and administrative 
3,453,868
2,861,872    ****Total operating expenses****
8,057,392
7,178,085  Operating loss
(1,444,822)
(318,203)   Other income (expenses):    Interest and    dividend income 
160,689
60,238   Realized losses on    investments
(598,705)
-   Unrealized gain    (losses) on trading securities
642,919
(9,549)   Interest expense 
(219,812)
(170,274)   Other income    (expense)
214,867
(6,445)     Total    other income (expenses)
199,958
(126,030)        Net    loss from operations before income taxes and minority interest
(1,244,864)
(444,233)Minority interest
(48,036)
(239,430)        Net loss
$(1,292,900)$(683,663)          Preferred dividends(45,000)-        Net loss applicable to common shareholders
(1,337,900)
(683,663)   Net loss applicable to common    shareholders:      Basic$
(0.24)
$
(0.16)   Weighted average common shares:      Basic
5,460,951
4,346,933   The accompanying    notes are an integral part of these consolidated financial statements**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Statements of Cash FlowsBack to Table of ContentsThree    months ended March 31, 2007 and 2006 (Unaudited)     **Three Months Ended**Three Months Ended   
**March 31, 2007**
**March 31, 2006****  ****Cash    flows from operating activities:**   Net loss
$
(1,292,900)
$
(683,663)   Adjustments to    reconcile net loss to net cash used in operating activities:           Depreciation and amortization
277,549
229,664          Common shares issued for services 
172,775
210,739          Compensation - stock warrants
70,685
-          Realized (gains) losses on the sale of trading securities 
598,705
-          Unrealized (gain) losses on the sale of trading securities
(642,919)
9,549          Stock returned in lawsuit settlement
(39,600)
-          Minority interest48,036239,430     (Increase)    decrease of operating assets, net of acquisitions and dispositions:           Accounts receivable 
1,161,066
632,007          Trading securities
(90,303)
120,902       Inventories    
(767,986)
(551,180)       Prepaid    expenses and other current assets
(212,092)
(234,547)       Other    assets(182,549)33,249          Increase (decrease) in operating liabilities             Accounts payable and accrued expenses(144,050)(26,601)                **Net cash used in operating activities**
(1,043,583)
(20,451)  **Cash    flows from investing activities:**   Purchase of    property and equipment 
(267,470)
(330,339)   Patents and    trademarks(4,840)-   Issuance of note    receivable(25,000)-   Investment in    certificate of deposit(3,100,000)-   Redemption of    certificate of deposit3,214,0001,000,000   Note receivable
307,427
184,974               **Net cash provided by investing activities**
124,117
854,635   **Cash    flows from financing activities:**   Addition to    (repayment of) short-term borrowings from related parties
-
(46,663)   Net borrowings    under line-of-credit agreements
324,218
-   Net repayment under    line-of-credit agreements
-
(199,999)   Proceeds from    short-term debt300,000-   Proceeds from    long-term debt
264,946
23,319   Margin loans15,501-   Proceeds from    issuance of common stock of subsidiary694,672-   Principal payments    on short-term debt
(257,664)
-   Principal payments    on long-term debt
(27,768)
(193,802)   Acquisition on    treasury stock
(18,340)
-               **Net cash provided by (used in)  financing activities**
1,295,565
(417,145)                 Net increase (decrease) in cash and cash equivalents
376,099
417,039Cash and cash equivalents at    beginning of year 
3,275,803
2,709,105**Cash    and cash equivalents at end of year**
$
3,651,902
$
3,126,144   Supplemental schedule of cash    flow information:    Interest paid 
$
219,812
$
91,249  The accompanying    notes are an integral part of these consolidated financial statements
**American International Industries, Inc.**Back to Table of Contents****Notes to UnauditedCondensed Consolidated Financial Statements

**(1) Summary of Significant Accounting Policies**

**Organization, Ownership and Business**

American International Industries, Inc. (the"Company"), a Nevada corporation, operates as a diversified holding company witha number of wholly-owned subsidiaries and two majority-owned subsidiaries. The Company isa diversified corporation with interests in industrial/commercial companies and an oil andgas service business. The Company's business strategy is to acquire controlling equityinterests in businesses that it considers undervalued. The Company's management takes anactive role in providing its subsidiaries with access to capital, leveraging synergies andproviding management expertise in order to improve its subsidiaries' growth.

**Principles of Consolidation**

The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiaries: Northeastern Plastics, Inc.,and Brenham Oil & Gas, Inc., and its majority owned subsidiaries, Delta Seaboard WellServices, Inc. and International American Technologies, Inc. In accordance with FIN46(r),the Company consolidates IMTG although its ownership is less than 51%, because the Companycontrols the IMTG Board of Directors by having designated two of the three members ofIMTG's Board of Directors. Since Hammonds is incurring losses and there is no minorityinterest, the Company recognizes 100% of Hammond’s losses. All significantintercompany transactions and balances have been eliminated in consolidation.

**Cash and Cash-Equivalents**

The Company considers cash and cash-equivalents toinclude cash on hand and certificates of deposits with banks with an original maturity ofthree months or less, that the Company intends to convert.

**Accounts Receivable**

Accounts receivable consist primarily of tradereceivables, net of a valuation allowance for doubtful accounts.

**Allowance for Doubtful Accounts**

The Company extends credit to customers and otherparties in the normal course of business. The Company regularly reviews outstandingreceivables and provides for estimated losses through an allowance for doubtful accounts.In evaluating the level of established reserves, the Company makes judgments regarding itscustomers' ability to make required payments, economic events and other factors. As thefinancial condition of these parties change, circumstances develop or additionalinformation becomes available, adjustments to the allowance for doubtful accounts may berequired. When the Company determines that a customer may not be able to make requiredpayments, the Company increases the allowance through a charge to income in the period inwhich that determination is made.

**Inventories**

Inventories are valued at the lower-of-cost or market ona first-in, first-out basis. The Company assesses the realizability of its inventoriesbased upon specific usage and future utility. A charge to results of operations is takenwhen factors that would result in a need for a reduction in the valuation, such as excessor obsolete inventory, are noted.

Freight and Shipment Policy

The Company's policy is to expense all freight andshipment expenses on a monthly basis. The Company prepays any shipments greater than$1,250 and to reduce our freight and shipping costs the Company receives at least threequotations.

**Investment Securities**

The Company accounts for its investments in accordancewith Statement of Financial Accounting Standards No. 115, "Accounting for CertainInvestments in Debt and Equity Securities." Management determines the appropriateclassification of its investments in marketable securities at the time of purchase andreevaluates such determination at each balance sheet date. Securities that are bought andheld principally for the purpose of selling them in the near term are classified astrading securities. Debt securities for which the Company does not have the intent orability to hold to maturity and equity securities not classified as trading securities areclassified as available-for-sale. The cost of investments sold is determined on thespecific identification or the first-in, first-out method. Trading securities are reportedat fair value with unrealized gains and losses recognized in earnings, andavailable-for-sale securities are also reported at fair value but unrealized gains andlosses are shown in the caption "unrealized gains (losses) on sharesavailable-for-sale" included in stockholders' equity. Management determines fairvalue of its investments based on quoted market prices at each balance sheet date. 

**Property, Plant, Equipment, Depreciation,Amortization and Long-Lived Assets**

Long-lived assets include:

Property, Plant and equipment – Assets acquired inthe normal course of business are recorded at original cost and may be adjusted for anyadditional significant improvements after purchase. We depreciate the cost evenly over theassets’ estimated useful lives. Upon retirement or sale, the cost of the assetsdisposed of and the related accumulated depreciation are removed from the accounts, withany resultant gain or loss being recognized as a component of other income or expense. Asrequired by SFAS No. 141, IMTG has recorded the acquisition of Hammonds using the purchasemethod of accounting with the purchase price allocated to the acquired assets andliabilities based on their respective estimated fair values at the acquisition date. Formore information on the acquisition of Hammonds, see note 2.

Identifiable intangible assets – These assets arerecorded at acquisition cost. Intangible assets with finite lives are amortized evenlyover their estimated useful lives.

At least annually, we review all long-lived assets forimpairment. When necessary, we record changes for impairments of long-lived assets for theamount by which the present value of future cash flows, or some other fair value measure,is less than the carrying value of these assets.

During April, 2005 the Company's subsidiary acquiredHammonds Technical Services, Inc. for a purchase price of approximately $2,455,700.Long-lived assets totaling $2,958,900 were recognized as a result of the acquisition. Theoperations of Hammonds Technical Services are included in the consolidated statements ofoperations from date of acquisition.

The following table contains a summary of the tangibleand of the intangible assets acquired:**Acquired Assets****Amount****Life**Machinery & Equipment$408,1622-10 yearsPatents1,621,5005-17 livesTrade Marks465,19910 yearsSole Source Contract464,0397 years$2,958,900
SFAS No. 142 eliminated the amortization of goodwill,and requires annual impairment testing of goodwill and introduces the concept ofindefinite life intangible assets. The Company adopted SFAS No. 142 effective January 1,2002.

On August 1, 2006, IMTG acquired the 49% minorityinterest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and HammondsWater Treatment Systems, Inc. by issuing 16,000,000 restricted shares or 44.4% of IMTGcommon stock at a conversion rate of $0.25 a share. The additional cost of $4,000,000 hasbeen allocated to patents, trademarks, and sole source contract and is being amortized ina manner equivalent to the amortization used on the intangible assets acquired in theinitial purchase of 51% of the company.

March 31, 2007 and December 31, 2006 balances forlong-lived assets are detailed in later footnotes: Property and Equipment (note 7) andIntangible Assets (note 8).
**Revenue Recognition

Revenue is recognized when the earning process iscompleted, the risks and rewards of ownership have transferred to the customer, which isgenerally the same day as delivery or shipment of the product, the price to the buyer isfixed or determinable, and collection is reasonably assured. The Company has nosignificant sales returns or allowances.
**Income Taxes

The Company is a taxable entity and recognizes deferredtax assets and liabilities for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and liabilities andtheir respective tax basis. Deferred tax assets and liabilities are measured using enactedtax rates expected to be in effect when the temporary differences reverse. The effect onthe deferred tax assets and liabilities of a change in tax rates is recognized in incomein the year that includes the enactment date of the rate change. A valuation allowance isused to reduce deferred tax assets to the amount that is more likely than not to berealized.
**Earnings Per Share

The basic net earnings per common share is computed bydividing the net earnings by the weighted average number of shares outstanding during aperiod. Diluted net earnings per common share is computed by dividing the net earnings,adjusted on an as if converted basis, by the weighted average number of common sharesoutstanding plus potential dilutive securities. For the years ended December 31, 2006 and2005, potential dilutive securities that had an anti-dilutive effect were not included inthe calculation of diluted net earnings (loss) per common share. These securities includeoptions to purchase shares of common stock.
**Advertising Costs

The cost of advertising is expensed as incurred.
**Management's Estimates and Assumptions

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses. Actual results could differ from theseestimates.
**Stock-Based Compensation

The Company grants shares of stock to non-employees forgoods and services and in conjunction with certain agreements. These grants are accountedfor under FASB Statement No. 123R, "Accounting for Stock-Based Compensation"based on the grant date fair values.
**Fair Value of Financial Instruments

The Company estimates the fair value of its financialinstruments using available market information and appropriate valuation methodologies.However, considerable judgment is required in interpreting market data to develop theestimates of fair value. Accordingly, the Company estimates of fair value are notnecessarily indicative of the amounts that the Company could realize in a current marketexchange. The use of different market assumption and/or estimation methodologies may havea material effect on the estimated fair value amounts. The interest rates payable by theCompany on its notes payable approximate market rates. The Company believes that the fairvalue of its financial instruments comprising accounts receivable, notes receivable,accounts payable, and notes payable approximate their carrying amounts.
**New Standards Implemented

In May 2005, the Financial Accounting Standards Board (*"FASB"*)issued Statement of Financial Accounting Standard (*"SFAS"*) No. 154, *AccountingChanges and Error Corrections*. SFAS No. 154 replaces Accounting Principles BoardOpinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changesin Internal Financial Statements*, and changes the requirements for the accounting forand reporting of a change in accounting principle. SFAS No. 154 requires retrospectiveapplication of changes in accounting principle to prior periods’ financialstatements, unless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005. We adoptedSFAS No. 154 on January 1, 2006. Any impact on the Company’s consolidated results ofoperations and earnings per share will be dependent on the amount of any accountingchanges or corrections of errors whenever recognized.

In 2006, the Financial Accounting Standards Board issuedthe following:

- SFAS No. 155: *Accounting for Certain Hybrid Financial Instruments- SFAS No. 156: Accounting for Servicing of Financial Assets- SFAS No. 157: Fair Value Measurements- SFAS No. 158: Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans- SFAS No. 159: The Fair Value Option for Financial Assets and FinancialLiabilities—Including an amendment of FASB Statement No. 115- FIN No. 48: Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*
Management has reviewed these new standards and believesthat they have no impact on the financial statements of the Company at this time; however,they may apply in the future.
**(2) Acquisition of Hammonds Technical Services, Inc.

Effective April 28, 2005, the Company's subsidiary,International American Technologies, Inc. ("IMTG"), entered into a StockPurchase Agreement ("the Agreement") to acquire a 51% interest in the capitalstock of Hammonds Technical Services, Inc., a privately owned Texas corporation("Hammonds") in consideration for IMTG or its parent, American InternationalIndustries, Inc., providing: (i) $998,300 in cash to Hammonds for working capital; (ii) asecured revolving long-term line of credit in the amount of $2,000,000; and (iii) theparent issuing 145,000 restricted shares of common stock to IMTG in consideration for a$1,450,000 promissory note. These shares were exchanged for two minority equity interestsin Hammonds owned by third parties. The total purchase price to acquire the 51% inHammonds was $2,455,700 representing cash payments of $825,000, 145,000 shares ofAIII’s restricted common stock valued at $1,450,000 and the assumption of a notepayable to one of the former shareholders in the amount of $173,300 and liabilities inexcess of assets in the amount of $7,400.

Prior to the acquisition, Hammonds was two separatelegal entities, Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc.(collectively *"Hammonds"*) manufacturers engineered products and chemicalsthat serve multiple segments of the fuels distribution, water treatment and utilityvehicle industries. Hammonds products are marketed by a worldwide network of distributors,manufacturers representatives and original equipment manufacturers. On February 28, 2005,Hammond Fuels Additives, Inc. was merged into Hammonds Technical Services, Inc.

As required by SFAS No. 141, IMTG has recorded theacquisition using the purchase method of accounting with the purchase price allocated tothe acquired assets and liabilities based on their respective estimated fair values at theacquisition date. The purchase price of $2,455,700 had been allocated at follows:
Current assets$1,435,939Property and equipment, net826,765Patents and trademarks, net of amortization2,724,487Other non-current assets70,085Current liabilities(2,098,376)Deferred tax credits(503,200)$2,455,700
Revenues and expenses are included in IMTG’sstatement of operations from May 1, 2005 through March 31, 2007.
**(3) Trading Securities

Investments in marketable securities primarily includeshares of common stock in various companies. The investments are considered tradingsecurities, and accordingly any changes in market value are reflected in the consolidatedstatement of operations. At March 31, 2007 and 2006, the Company has unrealized tradinggains of $642,919 and losses of $9,549, respectively, related to securities held on thosedates. These unrealized losses are included in the consolidated statements of operationsfor the respective years. The Company recorded realized losses of $598,705 and realizedgains / losses of $-0- on the sales of trading securities for the quarters ended March 31,2007 and 2006. The Company sold 180,500 ONH shares for proceeds of $103,954 in February2007. Through December 31, 2006, the Company had an unrealized loss on these shares of$633,227. The realized loss from the sale of the shares in 2007 was $585,228. The netincome effect of the sale of these shares is a gain of $47,999 in 2007.
**(4) Inventories

Inventories consisted of the following:
**March    31, 2007**
**December    31, 2006**
Part and    materials
$
1,545,737
$
1,332,446
Work in process
284,630
232,451
Finished goods
4,501,521
4,034,699Less reserve(260,484)(296,178)
$
6,071,404
$
5,303,418**(5) Real Estate Transactions

The Company continues to own 287 undeveloped acres ofwaterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. Thebook value for this property is $225,000. The property's appraised value is substantiallymore than the book value. In November 2005, the Company signed a contract for sale of theproperty for a cash consideration of $16,000,000 with Lakeland Partners III. In January2007, Lakeland assigned all of its interest in the contract to Westfield Forest, L.P.Westfield is a recognized developer of waterfront properties in the Houston, Texas area.No revenue has been recognized for this transaction because the development of theproperty requires permits from certain governmental agencies, which the developer believesthey can obtain timely. The projected closing of the transaction is scheduled for sometimein 2007.
**(6) Long-term Notes Receivable

Long-term notes receivable at March 31, 2007 consistedof the following:
**March    31, 2007**December    31, 2006Net note receivable from sale of real estate,    principal payment due on or before July 30, 2008
$
3,020,044
$
3,020,044Sale of machinery and equipment, principal    payment due on or before December 1, 2008
164,200
439,200Sale of former subsidiary, Marald, Inc.,    principal and interest due monthly through June 5, 2012
183,147
190,310Sale of former subsidiary, Marald, Inc.,    principal due October 5, 2007
200,000
200,000Sale of refinery to settle lawsuit, principal    and interest due on June 1 and December 1, through June 1, 2010
875,000
875,000Sale of drilling rig, principal and interest    due monthly through December 31, 2009
299,736
325,000Other
40,361
15,361Notes receivable
4,782,488
5,064,915Less current portion
714,166
1,021,593Notes receivable, less current portion
$
4,068,322
$
4,043,322**(7) Property and Equipment

Major classes of property and equipment together withtheir estimated useful lives, consisted of the following:

**Years**
**March 31, 2007**
**December 31, 2006**
Land
$
892,945
$
817,595
Building and improvements
20
1,049,862
1,009,001
Machinery and equipment
7-15
2,965,086
2,910,871
Office equipment and    furniture
7
712,149
701,682
Automobiles
5
811,404
724,827
6,431,446
6,163,976
Less accumulated    depreciation and amortization
(3,133,053)
(3,022,109)
Net property and equipment
$
(3,298,393)
$
3,141,867**(8) Intangible Assets

Intangible assets at March 31, 2007 consisted of thefollowing:
**As of March 31, 2007
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Goodwill
$
879,834
$
205,295
N/A
Patents
$
4,473,620
$
563,170
12 years
Trademarks
1,149,199
134,763
10 years
Sole Source    Contract
1,144,039
191,820
7 years
Patents,    Trademarks, and Sole Source Contract
$
6,766,858
$
889,753
11 years
Intangible assets at December 31, 2006 consisted of thefollowing:**As of December 31, 2006
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Goodwill
$
879,834
$
205,295
N/A
Patents
$
4,468,780
$
466,154
12 years
Trademarks
1,149,199
106,033
10 years
Sole Source    Contract
1,144,039
150,961
7 years
Patents,    Trademarks, and Sole Source Contract
$
6,762,018
$
723,148
11 years
 

Aggregate    Amortization Expense
For year ending December    31, 2007
$
654,906
For year ending December    31, 2008
$
638,979
For year ending December    31, 2009
$
638,979
For year ending December    31, 2010
$
638,979
For year ending December    31, 2011
$
638,979
The Company’s patents, trademarks, and sole sourcecontract resulted from the April 28, 2005 acquisition of 51% of Hammonds TechnicalServices and from the August 1, 2006 acquisition of the 49% minority interest of theHammonds Companies.

The following table contains a summary of the intangibleassets acquired from the acquisition of Hammonds Technical Services on April 28, 2005:**As of March  31, 2007
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
1,806,387
$
414,187
12 years
Trademarks
465,199
89,163
10 years
Sole Source    Contract
464,039
127,058
7 yearsPatents, Trademarks and Sole    Source Contracts
$
2,735,625
$
630,408
11 years
On August 1, 2006 The Company acquired the 49% minorityinterest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and HammondsWater Treatment Systems, Inc. by issuing 16,000,000 restricted shares or 44.4% of IMTGcommon stock at a price of $0.25 a share. The additional cost of $4,000,000 has beenallocated to patents, trademarks, and sole source contract for the additive injectionsystem and is being amortized in a manner equivalent to the amortization used on theintangible assets acquired in the initial purchase of 51% of the company. Additionally,the Company acquired patents totaling $26,393 in 2006 and $4,840 during the quarter endedMarch 31, 2007. The following table contains a summary of the intangible assets acquiredin 2006 and during the quarter ended March 31, 2007:**As of March 31, 2007
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
2,667,233
$
148,983
12 years
Trademarks
684,000
45,600
10 years
Sole Source    Contract
680,000
64,762
7 yearsPatents, Trademarks and Sole    Source Contracts
$
4,031,233
$
259,345
11 years**(9) Short-term Notes Payable To Banks**March    31, 2007**December    31, 2006
Note payable to a bank,    which allows the Company to borrow up to $5,000,000, interest due monthly at the prime    rate, principal payment April 30, 2008, secured by assets of the Company's subsidiaries
$
714,000
$
531,871Note payable to a bank with interest at 7.25%,    interest payments due monthly, with a principal balance due on September 15, 2007
300,000
-
Note payable with interest    at 10.75%, interest payments due quarterly, with a principal balance due on December 10,    2007
90,459
90,459
Insurance note payable with    interest at 7.36%, principal and interest due in monthly payments of $27,255.05 through    April 1, 2007
27,255
109,020
Note payable to former    owner of equity interest in Hammonds payable on July 20, 2005 with accrued interest at    prime plus 4%
-
173,300
Other notes with various    terms
10,053
12,651
$
1,141,767
$
917,301
Each of the Company’s subsidiaries that haveoutstanding notes payable has secured such notes by that subsidiary’s inventory,accounts receivable, property and equipment and guarantees from the Company.
**(10) Long-term Debt

Long-term debt consisted of the following:
**March    31, 2007**December    31, 2006
Note payable to a bank,    interest due monthly at prime plus 1%, principal payment due August 26, 2008, secured by a    Deed of Trust on the Company’s property
$
1,000,000
$
1,000,000
Note payable to bank, which    allows the Company to borrow up to $2,000,000, interest due monthly at prime plus 1%,    principal payment due August 26, 2008, secured by assets of the Company's subsidiary
1,992,189
1,992,189
Note payable to a bank,    which allows the Company to borrow up to $2,000,000, due in monthly payments of interest    only, with interest at prime floating rate, with the principal balance due in June 2009,    secured by subsidiary's property
1,611,631
1,469,542
Note payable to bank due in    monthly installments of principal and interest through July 2025 with interest at prime    floating rate secured by property
426,018
426,508
Note payable to a bank, due    in monthly installments of $6,170, including interest at 6.6% through May 2018, secured by    property
579,248
588,106
Note payable to a bank, due    in monthly installments of interest only at prime plus 1%, with a principal balance due on    August 26, 2008
400,000
400,000
Note payable to a bank, due    in quarterly installments of interest only at 7.5%, with a principal balance due on    January 19, 2008
1,000,000
1,000,000
Note payable to a bank, due    in monthly installments of principal and interest of $2,119.65 through April 3, 2011
85,272
89,354Note payable to a bank, with interest at    9.25%, due in monthly installments of principal and interest of $4,050 through February    26, 2012, secured by assets of the Company’s subsidiary
241,193
-
Other notes with various    terms
91,578
82,163
  
7,427,129
7,047,862
Less current portion
(102,994)
(102,580)
$
7,324,135
$
6,945,282
Each of the Company’s subsidiaries that haveoutstanding notes payable has secured such notes by that subsidiary’s inventory,accounts receivable, property and equipment and guarantees from the Company.

Principal repayment provisions of long-term debt are asfollows at March 31, 2007:

2007
$
102,994
2008
4,514,902************************************************************** |