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

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

  

For the quarterly period endedJune 30, 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 June 30, 2006,the Registrant had 4,367,610 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.
        5   
 

**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's financialstatements for the three and six-month periods ended June 30, 2006 and 2005 are attachedto this quarterly 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" and the "Company"* means AmericanInternational Industries, Inc., a Nevada corporation, and its subsidiaries. To the extentthat we make any forward-looking statements in the *"Management's Discussion andAnalysis of Financial Condition and Results of Operations"* in this QuarterlyReport, we emphasize that forward-looking statements involve risks and uncertainties andour actual results may differ materially from those expressed or implied by ourforward-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"* andsimilar expressions to identify forward-looking statements.

Overview 

We are a holding company and have two reportable segments and corporateoverhead: (1) industrial/commercial and (2) oil and gas. The industrial/commercial segmentincludes: (a) Northeastern Plastics, Inc. ("NPI") a wholly-owned subsidiary,which is a supplier of automotive after-market and consumer electrical products; and (b)through our 81.0% subsidiary, International American Technologies, Inc. (OTCBB:"IMTG), a public reporting company, which acquired 51% of Hammonds TechnicalServices, Inc. ("Hammonds"), a manufacturer of water treatment equipment, fuelinjectors, fuel additives and Hammonds new omni directional vehicle effective April 28,2005; and (2) the oil and gas related services segment includes: (a) Delta Seaboard WellServices, Inc. ("Delta"), a 51% owned subsidiary, which is engaged in the oiland gas drilling equipment and service business; (b) an oil, gas and mineral royaltyinterest in Washington County, Texas, carried on the Company's books at $0.

Reference is made to our Annual Report on Form 10-KSB/A for our yearended December 31, 2005 for a full discussion of our business and subsidiaries under *"Descriptionof Business".*

The Company takes an active role in the subsidiary companies itacquires, in order to foster growth and profitability by providing its financial resourcesand management expertise. The Company’s industrial/commercial and oil and gas assetsand operations are located in the greater Houston, Texas area. Each of our 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 subsidiariesproduct and service areas. Such competition is expected to continue. Depending on theparticular market involved, our subsidiaries compete on a variety of factors, such asprice, quality, delivery, customer service, performance, product innovation and productrecognition. Other competitive factors for certain products include breadth of productline, research and development efforts and technical and managerial capability. 

Corporate overhead includes our investment activities includingfinancing current operations and expansion of our current holdings, as well as evaluatingthe feasibility of entering into additional businesses. Our discussion under *"Resultsof Operations"* and *"Liquidity and Capital Resources"* below is ona consolidated 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.
**Results of Operations
**Three and Six Months Ended June 30, 2006 Compared to Three andSix Months Ended June 30, 2005.

Net revenues for the three and six-month periods ended June 30, 2006were $7,551,558 and $14,411,440 respectively, compared to $4,869,929 and $8,985,621,respectively, for the three and six-month periods ended June 30, 2005, representing anincrease of over 55% and 60%, respectively. The increase in revenues is due primarily tothe increase in drilling pipe sales at Delta, which reported revenues of $7,463,005 forthe six months ended June 230, 2006 compared to $5,486,186 for the same period of 2005,the increase in six months revenues during 2006 at NPI to $3,787,607 from $2,923,400during the six month 2005 period, principally due to NPI’s license to sell theMOTORTRENDTM and Good Housekeeping Seal of ApprovalTM products, and increasedrevenues generated from the acquisition by the Company’s IMTG subsidiary of HammondsTechnical Services, Inc., effective April 28, 2005, which reported revenues of $1,835,659and $3,160,828 during the three and six-month periods ended June 30, 2006 compared to$576,035 during the same periods of 2005. Hammonds was acquired by IMTG effective April28, 2005.

Our consolidated net losses for the three and six-month periods endedJune 30, 2006 were $35,116 and $365,707, respectively, which represents a significantdecreases in net losses compared to consolidated net losses of $479,349 and $1,781,212,respectively during the same three and six-month periods in the prior year. The reasonsfor the improvement was primarily due to our significant increase in net revenues andimproved margins, which were partially offset by selling, general and administrativeexpenses at Hammonds due to the introduction of its new line on omni directional vehiclesin 2006. During the three and six-month periods ended June 30, 2006, Delta had net incomeof $271,833 and $760,465, respectively, compared to $210,191 and $515,412 for the sameperiods of 2005. Delta expects the strong business environment to prevail during thesecond half of the 2006 fiscal year as a result of the strong energy section. NPI had netlosses of $6,085 and $93,424, respectively, during the three and six-month periods endedJune 30, 2006 compared to net losses of $62,962 and $140,589 for the same periods of theprior year. NPI's business is seasonal and historically most of NPI’s revenues andincome have been generated in the third and fourth quarters. We expect a strongperformance of NPI in the second half of this fiscal year due to the fact that NPIcurrently has a backorder of over $4,000,000. IMTG, our 81% owned subsidiary, which owns51% of Hammonds Technical Services, IMTG’s operating subsidiary, reported net lossesof $184,892 and $632,866, respectively, for the three and six-month periods ended June 30,2006, compared to $298,231 and $250,258 during the same periods of 2005. We areimplementing manufacturing and cost saving procedures for Hammonds in order to generateincreased revenues with greater cost efficiencies. The holding company incurred net lossesof $510,576 for the six-month period ended June 30, 2006, compared to net losses of$2,256,838 for the six month period of 2005. The losses in 2006 were mainly due toexceptionally high auditing fees in the first quarter while losses for the same periods of2005 were mainly due to an unrealized loss in the value of its trading securities, andspecifically its holdings in Orion Healthcorp shares. The Company has not sold any of theONH shares that it holds. If the market price of the ONH shares increases or decreases,the Company will adjust the unrealized loss or gain accordingly. The Company is presentlynegotiating a settlement of its lawsuit against ONH and certain related parties but theoutcome of such negotiations cannot be predicted.
**Liquidity and Capital Resources

Total assets at June 30, 2006 were $29,634,429 compared to $30,163,349at December 31, 2005. Total liabilities at June 30, 2006 were $17,229,853, compared to$17,264,410 at December 31, 2005. At June 30, 2006, consolidated working capital was$9,162,888 compared to working capital of $7,929,567 at December 31, 2005. Ourconsolidated cash position at June 30, 2006 was $2,706,219 compared to $2,709,105 atDecember 31, 2005.

For the six months ended June 30, 2006, we had negative cash flow fromoperations of $565,698, which represents a significant decrease from our negative cashflow from operations of $2,670,632 during the same period of the prior year. Thisimprovement was a result of a significant decrease in our net loss from $2,031,383 for sixmonths ended June 30, 2005 to $851,977 for the six months ended June 30, 2006. Ourinventories decreased from $2,725,380 at June 30, 2005 to $815,819 at June 30, 2006. Wereduced accounts receivable during the six months ended June 30, 2006 by $1,593,624compared to an increase in accounts receivable of $375,730 during the same six-monthperiod of the prior year. Our net loss of $851,977 was offset by non-cash compensation of$357,614, depreciation and amortization expenses of $203,518 and a minority interest inthe amount of $372,628. 

Our investing activities provided $150,742 during the six-month periodended June 30, 2006, as a result of a redemption of a certificate of deposit in the amountof $406,734 and notes receivable of $191,772 offset by loans from related parties of$255,553 and purchase of property and equipment of $167,018. This is compared to cashprovided by investing activities during the same period in the prior year in the amount of$1,189,914, primarily as a result of proceeds from the sale of equity investments in theamount of $1,046,303. We used cash in the amount of $167,018 during the three months endedJune 30, 2006 to purchase property and equipment. 

During the six months ended June 30, 2006, our financing activitiesprovided $412,070 compared to $769,816 during the same period of 2005. During the 2006period we received proceeds from short-term borrowings in the amount of $212,974 andproceeds from long-term debt of $666,858. We made payments of $447,449 on short-term notesand principal payments on long-term debt of $50,637 during the six-month period ended June30, 2006. The Company had $2,706,219 in cash at June 30, 2006.

We record on our consolidated balance sheets real estate acquired forsale at its historical cost basis of $225,000 pursuant to GAAP accounting rules applicableto assets acquired from a related party. The Company believes that the current value ofits real estate acquired for sale to be significantly higher than the historic cost basisof this property. The Company is under contract to sell its real estate to a third partyfor approximately $16,000,000 subject to the completion of due diligence by the purchaser.The Company believes that if the due diligence is satisfactorily completed, the sale isexpected to close before the end of the fourth quarter.

ITEM 3. CONTROLS AND PROCEDURES

*Evaluation of disclosure controls and procedures*. As of June30, 2006, the Company's chief executive officer and chief financial officer conducted anevaluation regarding the effectiveness of the Company's disclosure controls and procedures(as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon theevaluation of these controls and procedures, our chief executive officer and chieffinancial officer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this report.

*Changes in internal controls.* During the quarterly periodcovered by this report, the Company made changes in its internal control over financialreporting in order to improve such internal controls over financial reporting.Specifically, the Company has hired a qualified financial consultant with accounting andauditing experience to perform an internal audit function and the Company has hired afull-time CFO to oversee financial and accounting transactions and the Company’sfinancial reporting and disclosure.

**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 Form8-K During the Period Covered by this Report: The Registrant has filed a Form 8-K on May26, 2006 with Item 8.01 disclosure and a Form 8-K on June 29, 2006 with Items 4.01 and9.01 disclosure during the three-month period ended June 30, 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: August 8, 2006*

/s/ GARY D. WOERZ   CHIEF FINANCIAL OFFICER   *Dated: August 8, 2006*

 

**FinancialStatements**Back to Table of Contents
Condensed    Consolidated Financial Statements   Consolidated Balance Sheets - June 30, 2006    (Unaudited) and December 31, 2005 (Audited)8   Unaudited Consolidated Statements of    Operations - Three and six months ended June 30, 2006 and 20059   Unaudited Consolidated Statement of Cash    Flows - Six months ended June 30, 2006 and 200510Notes to Unaudited Condensed    Consolidated Financial Statements11
 
**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsBack to Table of Contents
June 30, 2006 and    December 31, 2005   
**2006**
**2005**
(Unaudited)
(Audited)
AssetsCurrent    assets:      Cash and cash equivalents
$
2,706,219
$
2,709,105      Certificates of deposit
1,593,266
2,000,000      Trading securities
939,229
1,061,259   Accounts    receivable, net
3,664,627
5,143,899      Current portion notes receivable
253,408
249,096      Receivables from related parties
350,554
95,001      Inventories
5,505,218
4,689,399      Real estate acquired for resale
225,000
225,000      Drilling rigs held for sale
837,611
325,753      Prepaid expenses and other current assets
959,221
195,290     Total current assets
17,034,353
16,693,802      Notes    receivable, less current portions
3,672,602
3,868,686Property    and equipment, net
5,751,976
6,293,674Goodwill,    net
674,539
674,539Patents    and trademarks, net
2,438,198
2,536,263Other    assets
62,761
96,385     Total assets
$
29,634,429
$
30,163,349   
Liabilities    and Stockholders’ Equity   Current liabilities:   Accounts payable    and accrued expenses
$
2,974,207
$
3,793,462   Short-term notes    payable
4,022,994
4,257,469   Margin loans
437,273
406,949   Current    installments of long-term debt
436,991
306,355        Total current liabilities 
7,871,465
8,764,235  Long-term debt, less current    installments
6,878,791
6,393,206Deferred tax liability
503,200
503,200Minority interest
1,976,397
1,603,769        Total liabilities
17,229,853
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:        4,367,610 shares issued and 4,362,210 shares outstanding     at June    30, 2006; 4,318,660 shares issued and        4,313,260 shares outstanding at December 31, 2005
4,368
4,319   Additional paid-in    capital 
28,747,156
28,389,591   Accumulated deficit
(16,299,417)
(15,447,440)  
12,452,107
12,946,470   Less treasury    stock, at cost (5,400 shares)
(47,531)
(47,531)     Total    stockholders' equity
12,404,576
12,898,939        Total liabilities and stockholders' equity 
$
29,634,429
$
30,163,349  See accompanying    notes to unaudited consolidated financial statements.**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND    SUBSIDIARIES**Condensed    Consolidated Statements of Operations****Back to    Table of ContentsThree and six months ended June, 30 2006 and 2005     
**Three months ended June 30,**
**Six months ended June 30,****  ****2006****2005**
**2006**
**2005**** **(Restated)**  (Restated)  Revenues $7,551,558$4,869,929
$
14,411,440
$
8,985,621Costs    and expenses:       Cost of sales 4,748,5382,369,052
9,064,751
4,796,887      Selling, general and administrative 2,768,6362,924,942
5,630,508
4,042,758        Total operating expenses 7,517,1745,293,994
14,695,259
8,839,645      Operating income (loss)34,384(424,065)
(283,819)
145,976      Other    income (expenses):       Interest income 39,31355,230
99,551
127,237      Realized gains (losses) on investments--
-
(412,000)      Unrealized gain and (losses) on trading securities(1,165)(108,185)
(10,714)
(1,690,917)      Interest expense(134,792)(3,276)
(305,066)
(66,097)      Other income27,144114,589
20,699
114,589        Total other income (expenses)(69,500)58,358
(195,530)
(1,927,188)          Net    loss before income tax(35,116)(365,707)
(479,349)
(1,781,212)Provision    for income taxes--
-
-        Net loss from operations before minority interest(35,116)(365,707)
(479,349)
(1,781,212)          Minority interest(133,198)(55,483)
(372,628)
(250,171)         Net loss$(168,314)$(421,190)
$
(851,977)
$
(2,031,383)                Preferred dividends paid---(48,750)             Net loss applicable to common shareholder$(168,314)$(421,190)$(851,977)$(2,080,133)  Net income (loss) applicable to    common shareholder:    Basic$(0.04)$(0.14)
$
(0.20)
$
(0.70)    Diluted$(0.04)$(0.14)$(0.20)$(0.70)  Weighted average common shares:   Basic4,364,8283,050,321
4,354,448
2,986,183   Diluted4,364,8283,050,3214,354,4482,986,183  See accompanying    notes to consolidated financial statements.
 
**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash    FlowsBack to Table of Contents
Six months ended    June 30, 2006 and 2005
(Unaudited)   
**2006**
**2005**  
(Restated)Cash flows from operating    activities:    Net loss 
$
(851,977)
$
(2,031,383)   Adjustments to    reconcile net loss to net cash used in operating activities:         Depreciation and amortization of property and equipment
203,518
20,328        Amortization of patents and trademarks123,25831,728     Common    stock issued for services 
357,614
179,575        Realized losses on the sale of trading securities 
-
412,000        Unrealized losses on trading securities 
122,030
1,627,500        Minority interest 
372,628
250,171   (Increase) decrease    in operating assets, net of acquisition of subsidiary:         Accounts receivable 
1,479,271
(375,730)        Inventories 
(815,819)
(2,725,380)     Prepaid    expenses and other current assets 
(763,931)
(405,885)     Other    assets 
33,625
1,017   Increase (decrease)    in operating liabilities, net of acquisition of subsidiary:         Accounts payable and accrued expenses 
(825,915)
345,427          Net cash used in operating activities 
(565,698)
(2,670,632)  Cash flows from investing    activities:    Purchase of    property and equipment
(167,018)
(11,469)   Proceeds from sale    of equity investments
-
1,046,303   Patents and    trademarks(25,193)-   Cash received from    acquisition of subsidiary
-
56,506   Redemption of    certificate of deposit 
406,734
300,000   Notes receivable
191,772
23,133   Loans from related    parties
(255,553)
(224,559)          Net cash provided by investing activities 
150,742
1,189,914  Cash flows from financing    activities:    Proceeds from    short-term borrowing
212,974
886,380   Proceeds from    long-term debt
666,858
2,114,662   Proceeds from    borrowing from margin loans30,324-   Repayment of    borrowing from related parties-(684,654)   Repayment of    short-term notes payable(447,449)(1,497,822)   Principal payments    on long-term debt 
(50,637)
-   Payment of    dividends on preferred stock 
-
(48,750)          Net cash provided by financing activities 
412,070
769,816            Net increase (decrease) in cash and cash equivalents
(2,886)
(710,902)  Cash and cash equivalents at    beginning of year 
2,709,105
5,136,379Cash and cash equivalents at end    of period 
$
2,706,219
$
4,425,477  Supplemental schedule of cash    flow information:    Interest paid 
$
305,066
$
66,097  See accompanying notes to    unaudited consolidated financial statements. 
**American International Industries, Inc.**Back toTable of Contents****Notes to UnauditedCondensed Consolidated 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 subsidiaries.

Principles of Consolidation

The consolidated financial statements include the accounts of theCompany and its wholly-owned subsidiaries: Northeastern Plastics, Inc., and Brenham Oil& Gas, Inc. and its majority owned subsidiaries, Delta Seaboard Well Services, Inc.and International American Technologies, Inc. All significant inter-company transactionsand balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with U. S. generally accepted accounting principles("GAAP") for interim financial information and with the instructions to Form10-QSB. Accordingly, they do not include all of the information and footnotes required byGAAP for complete financial statements. In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fair presentationhave been included. Operating results for the six months period ended June 30, 2006 arenot indicative of the results that may be expected for the year ending December 31, 2006.

As contemplated by the Securities and Exchange Commission (SEC) underRules of Regulation S-B, the accompanying financial statements and related footnotes havebeen condensed and do not contain certain information that will be included in theCompany's annual financial statements and footnotes thereto. For further information,refer to the Company's audited consolidated financial statements and related footnotesthereto included in the Company's annual report on Form 10-KSB for the year ended December31, 2005.
**(2) Use of Estimates

The preparation of financial statements in conformity with U. S. GAAPrequires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses during thereporting period. Actual results could vary from those estimates.
**(4) Income Taxes

Income taxes for the interim periods were computed using the effectivetax rate estimated to be applicable for the full fiscal year, which is subject to ongoingreview and evaluation by management. The estimated federal income tax expense for thethree and six month periods ended June 30, 2006 and 2005 is eliminated by net operatingloss carry forwards.
**(5) Employee Stock Based Compensation

The Company grants options to non-employees for goods and services andin conjunction with certain agreements. These grants are accounted for under FASBStatement No. 123R, "Accounting for Stock-Based Compensation" based on the grantdate fair values.
**(6) Industry Segments

The Company has three reportable segments and corporate overhead:industrial/commercial, oil and gas, and a manufacturer of engineered products. Theindustrial/commercial segment includes (1) a supplier of automotive after-market productsand (2) a holding company for future commercial ventures. The real estate segment includessales of commercial real estate (undeveloped land). The oil and gas segment owns an oil,gas and mineral royalty interest in Washington County, Texas and an onshore rig-based wellservicing contracting company providing service to the oil and gas industry. The thirdsegment is 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. Hammond's products are marketed by a worldwide network ofdistributors, manufacturer's representatives and original equipment manufacturers. Thecorporate overhead includes the Company's investment holdings including financing currentoperations and expansion of its current holdings as well as evaluating the feasibility ofentering into additional businesses.

The Company's reportable segments are strategic business units thatoffer different technology and marketing strategies. Most of the businesses were acquiredas subsidiaries and the management at the time of the acquisition was retained.

Consolidated revenues, net operating losses for the six months endedJune 30, 2006 and 2005, and identifiable assets as of June 30, 2006 and 2005, were asfollows:

**June 30, 2006**
**June 30, 2005**
Revenues:
      Industrial/Commercial
$
3,787,607
$
2,923,400   Oil and gas related    services7,463,0055,486,186   Hammonds3,160,828576,035
      Corporate
-
-  
$
14,411,440
$
8,985,621
Income (loss)    from operations:
      Industrial/Commercial
54,587
(32,138)
   Oil    and gas related services
881,341
990,829   Hammonds(313,592)(312,364)
      Corporate
(906,155)
(792,303)  
$
(283,819)
$
(145,976)
Identifiable    assets:
      Industrial/Commercial
$
5,666,887
$
5,731,881
   Oil    and gas related services
6,811,065
6,138,536   Hammonds4,110,0913,609,756
      Corporate
13,046,386
11,008,392
$
29,634,429
$
26,488,565
The Company's areas of operations are in the UnitedStates.
**(7) Restatement of Previously Issued Quarterly Data(Unaudited)**
**As    previously reported**
**Restatement    adjustments**
**As    restated**
Period    ended June 30, 2005   Selling,    general and administrative expenses
$
2,913,405
$
11,537
2,924,942
      Interest income
49,066
6,164
55,230
      Other income
521,458
(406,869)
114,589
      Net earnings (loss) before income tax
46,536
(412,243)
(365,707)
      Minority interest
(300,483)
245,000
(55,483)
      Preferred dividends
48,750
(48,750)
-
      Net loss applicable to common shareholders
(253,948)
(167,242)
(421,190)
      Basic
(0.09)
(0.14)
      Diluted
(0.09)
(0.14)  
June    30, 2005
      Accounts receivable
6,340,635
6,164
6,346,799
      Prepaid expenses and other current assets
1,538,180
(1,003,576)
534,604
      Property and equipment
4,394,992
(1,225,048)
3,169,944
      Patents and trademarks, net of amortization
135,582
2,439,652
2,575,234
      Goodwill
4,063,929
(4,063,929)
-
      Deferred tax liability
-
503,200
503,200
      Minority interest
4,760,295
(3,034,346)
1,725,949
      Additional paid-in capital
28,254,306
135,285
28,389,591
      Accumulated deficit
(12,386,032)
(776,337)
(13,162,369)
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